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EX-21 - WABASH NATIONAL CORP /DEv177486_ex21.htm
EX-31.1 - WABASH NATIONAL CORP /DEv177486_ex31-1.htm
EX-31.2 - WABASH NATIONAL CORP /DEv177486_ex31-2.htm
EX-23.1 - WABASH NATIONAL CORP /DEv177486_ex23-1.htm
EX-32.1 - WABASH NATIONAL CORP /DEv177486_ex32-1.htm
 
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, 2009
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
(State or other jurisdiction of
incorporation or organization)
 
1000 Sagamore Parkway South
Lafayette, Indiana
(Address of Principal Executive Offices)
52-1375208
(IRS Employer
Identification Number)
 
47905
(Zip Code)
 
 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 ¨ No x

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   ¨     No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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   ¨
Non-accelerated filer   x
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, 2009 was $21,229,708 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 March 18, 2010 was 31,109,898.

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, 2009.
 
 
 

 

TABLE OF CONTENTS
WABASH NATIONAL CORPORATION
FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 2009
 
   
Pages
 
PART I
     
       
Item 1
Business
  3
 
       
Item 1A
Risk Factors
12
 
       
Item 1B
Unresolved Staff Comments
18
 
       
Item 2
Properties
19
 
       
Item 3
Legal Proceedings
19
 
       
Item 4
Submission of Matters to a Vote of Security Holders
20
 
       
PART II
     
       
Item 5
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
   
 
Purchases of Equity Securities
20
 
       
Item 6
Selected Financial Data
21
 
       
Item 7
Management’s Discussion and Analysis of Financial Condition and Results of
   
 
Operations
21
 
       
Item 7A
Quantitative and Qualitative Disclosures about Market Risk
38
 
       
Item 8
Financial Statements and Supplementary Data
39
 
       
Item 9
Changes in and Disagreements with Accountants on Accounting and Financial
   
 
Disclosure
66
 
       
Item 9A
Controls and Procedures
67
 
       
Item 9B
Other Information
69
 
       
PART III
     
       
Item 10
Executive Officers of the Registrant
69
 
       
Item 11
Executive Compensation
72
 
   
 
 
Item 12
Security Ownership of Certain Beneficial Owners and Management and Related 
   
 
Stockholder Matters
87
 
       
Item 13
Certain Relationships and Related Transactions, and Director Independence
90
 
       
Item 14
Principal Accounting Fees and Services
92
 
       
PART IV
     
       
Item 15
Exhibits and Financial Statement Schedules
93
 
       
SIGNATURES
95
 
 
 
2

 

FORWARD LOOKING STATEMENTS

This Annual Report 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;
 
·
our expected revenues, income or loss and capital expenditures;
 
·
plans for future operations;
 
·
financing needs, plans and liquidity;
 
·
our ability to achieve sustained profitability;
 
·
reliance on certain customers and corporate relationships;
 
·
availability and pricing of raw materials;
 
·
availability of capital;
 
·
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.

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.

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

Founded in 1985 as a start-up company, Wabash National Corporation (“Wabash,” “Company,” “us,” “we” or “our”) is one of North America’s leaders in designing, manufacturing and marketing standard and customized truck trailers and related transportation equipment.  We believe our position as a leader has been the result of our longstanding relationships with our core customers, our demonstrated ability to attract new customers, our broad and innovative product lines, our technological leadership and our large distribution and service network.  Our management team is focused on continuing to size our manufacturing and retail operations to match the current demand environment, implementing our cost savings initiatives, strengthening our capital structure, developing innovative products, improving earnings and selective production introductions that meet the needs of our customers.

 
3

 

We seek to identify and produce proprietary products that offer exceptional value to customers with the potential to generate higher profit margins than those of 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.  According to the most recent A.C.T. Research Company, LLC (ACT) estimates on total trailer industry shipments, composite trailers have achieved widespread industry acceptance accounting for approximately one out of every three dry van trailer shipments in 2009.  Since 2002, sales of our DuraPlateâ trailers represented approximately 90% 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 flatbed and dropdeck trailers.  As part of our commitment to expand our customer base, diversify our revenues and extend our market leadership, Transcraft acquired in July 2008 certain operating assets of Benson International LLC, and its affiliates (Benson), a manufacturer of aluminum flatbeds, dump trailers and other truck bodies.  In addition, in December 2008, the Company announced a multi-year agreement to build and service all of PODS®1 portable storage container requirements as part of our strategy to leverage our DuraPlate® panel technology into other industry segments.  We expect to continue a program of product development and selective acquisitions of quality proprietary products that further differentiate us from our competitors and increase shareholder value.

We market our transportation equipment under the Wabashâ, DuraPlateâ, DuraPlateHDâ, FreightProâ, ArcticLite®, RoadRailer®, Transcraft®, Eagle®, Eagle II®, D-Eagle® and BensonTM 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.  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 by focusing on what we refer to as the mid-market.  These carriers, which represent approximately 1,250 carriers, operate fleets of between 250 to 7,500 trailers, which we estimate in total account for approximately one million trailers.

Longstanding core customers include – Averitt Express, Inc.; Crete Carrier Corporation; FedEx Corporation; Heartland Express, Inc.; Knight Transportation, Inc.; Old Dominion Freight Lines, Inc.; SAIA Motor Freightlines, Inc.; Schneider National, Inc.; Swift Transportation Corporation; U.S. Xpress Enterprises, Inc.; Werner Enterprises, Inc.; and YRC Worldwide, Inc.

Mid-market customers include – C&S Wholesale Grocers, Inc.; CR England, Inc.; Celadon Group, Inc.; Con-way Truckload (formerly CFI); Cowan Systems, LLC; Dollar General Corporation; Frozen Food Express Industries, Inc.; Gordon Trucking, Inc.; Landair Transport, Inc.; New Penn Motor Express, Inc.; Prime, Inc.; Roehl Transport, Inc.; Star Transport, Inc.; USA Logistics; USF Corporation; and Xtra Lease, Inc.

Our 11 Company-owned full service retail branches provide additional opportunities to distribute our products and also offer nationwide services and support capabilities for our customers.  In addition, we maintain four used fleet sales centers to focus on selling both large and small fleet trade packages to the wholesale market.  Our retail branch network’s sale of new and used trailers, aftermarket parts and service generally provides enhanced margin opportunities.  We also utilize a network of 25 independent dealers with approximately 60 locations throughout North America to distribute our van trailers.  In addition, we distribute our flatbed and dropdeck trailers through a network of 94 independent dealers with approximately 150 locations throughout North America.

The year ending December 2009 was challenging for the trailer industry as the factors negatively impacting demand for new trailers became more intense and pervasive across the United States.  As a result, the already difficult conditions within the industry became progressively more challenging, and our revenue and gross profits were significantly reduced from previous years.  As a result of these economic conditions, our financial position and liquidity were negatively impacted, including events of default which occurred under our previous revolving credit facility.  In light of these economic conditions, the decline in our operating results and instability in the capital markets, on July 17, 2009, we entered into a Securities Purchase Agreement with Trailer Investments, LLC (“Trailer Investments”) pursuant to which Trailer Investments purchased 20,000 shares of Series E redeemable preferred stock (“Series E Preferred”), 5,000 shares of Series F redeemable preferred stock (“Series F Preferred”), and 10,000 shares of Series G redeemable preferred stock (“Series G Preferred”, and together with the Series E Preferred and the Series F Preferred, the “Preferred Stock”) for an aggregate purchase price of $35.0 million.  Trailer Investments also received a warrant that is exercisable at $0.01 per share for 24,762,636 newly issued shares of our common stock representing, on August 3, 2009, the date the warrant was delivered, 44.21% of our issued and outstanding common stock after giving effect to the issuance of the shares underlying the warrant, subject to upward adjustment to maintain that percentage if currently outstanding options are exercised. The number of shares of common stock subject to the warrant is also subject to upward adjustment to an amount equivalent to 49.99% of the issued and outstanding common stock outstanding immediately after the closing after giving effect to the issuance of the shares underlying the warrant in specified circumstances where we lose the ability to utilize our net operating loss carryforwards, including as a result of a stockholder acquiring greater than 5% of our outstanding common stock.
1 PODS® is a registered trademark of PODS, Inc. and Pods Enterprises, Inc.

 
4

 

In connection with the issuance of the preferred stock and the common stock warrant, we entered into an investor rights agreement that gives certain rights to the holders of the preferred stock and the warrant, including, in certain circumstances, the shares of common stock underlying the warrant.  Together with the terms of the preferred stock, the investor rights agreement gives these holders significant rights, including: rights to information delivery and access to information and management of the Company; veto rights over certain significant aspects of our operations and business, including payments of dividends, issuance of our securities, incurrence of indebtedness, liquidation and sale of assets, changes in the size of our board of directors, amendments of our organizational documents and its subsidiaries and other material actions by us, subject to certain thresholds and limitations; right of first refusal to participate in any future private financings; and certain other customary rights granted to investors in similar transactions.  The terms of the Investor Rights Agreement also give the holders of the warrant rights to nominate five of twelve members of our Board of Directors. As a result of the rights granted to the preferred stockholders and the warrant holders, including the right to nominate members of the board, the holders of these securities may be able to exert significant control over our capital structure, future financings and operations, among other things.

Wabash was incorporated in Delaware in 1991 and is the successor by merger to a Maryland corporation organized in 1985.  We operate in two reportable business segments: (1) manufacturing and (2) retail and distribution. Financial results by segment, including information about revenues from customers, measures of profit and loss, total assets, and financial information regarding geographic areas and export sales are discussed in Note 14, Segments and Related Information, of the accompanying consolidated financial statements.  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.

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 reducing our cost structure by adhering to continuous improvement and lean manufacturing initiatives.

 
·
People.  We recognize that in order 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 we intend to maintain these relationships while expanding new customer relationships through the offering of tailored transportation solutions to create new revenue opportunities.

 
·
Innovation.  We intend to continue to be the technology leader by providing new differentiated products and services that generate enhanced profit margins.

 
·
Corporate Growth.  We intend to expand our product offering and competitive advantage by entering new markets and acquiring strong brands to grow and diversify the Company.
 
 
5

 

Industry and Competition

Trucking in the U.S., according to the American Trucking Association (ATA), was estimated to be a $660 billion industry in 2008.  The 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.  As the economy improves, it is forecasted that 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.  Transportation has experienced three cycles over the last 20 years.  According to ATA statistics, truck freight tonnage started declining year-over-year in 2006 to significantly low levels in 2007 and 2008.  In 2009, the tonnage index dropped 8.3% from 2008, the largest annual decrease since 1982.  However, the most recent ATA data shows improvements of freight tonnage in the fourth quarter of 2009.  Three U.S. economic downturns have occurred during the last 20 years and in each instance 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, experiencing cycles in the early and late 90’s lasting approximately 58 and 67 months, respectively.  The current cycle began in early 2001 and, based on current ACT estimates, reached the bottom in 2009.  In our view, an upturn in the trailer industry will require improvements in general freight demand, improved credit markets, and a recovery of the housing and construction markets.

Wabash, Great Dane and Utility are generally viewed as the top three trailer manufacturers and have accounted for greater than 50% of new trailer market share in recent years, including approximately 56% in 2009.  Our market share of total trailer shipments in 2009 was approximately 15%.  Trailer manufacturers compete primarily through the quality of their products, customer relationships, service availability and cost.

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 primarily participated in the van segment of the market.  In addition, through our recent acquisitions of Transcraft Corporation in March 2006 and select assets of Benson in July 2008, we also participate in the platform and dump trailer segments.  Van production has declined from a high of approximately 198,000 units in 2006 to a low of approximately 50,000 units in 2009.  Our market share for van trailers in 2009 was approximately 21%, a decrease of approximately 9% from 2008 due to larger declines in the dry van market, our largest segment, as compared to the refrigerated trailer market.

   
2009
   
2008
   
2007
   
2006
   
2005
   
2004
 
Wabash(1)
    12,000       32,000       46,000       60,000
(2)
    52,000       48,000  
Great Dane
    15,000       29,000       48,000       60,000       55,000       55,000  
Utility
    17,000       23,000       31,000       37,000       34,000       31,000  
Hyundai Translead
    5,000       7,000       13,000       14,000       12,000       9,000  
Stoughton
    3,000       5,000       11,000       19,000       17,000       15,000  
Other principal producers
    12,000       20,000       25,000       40,000       34,000       33,000  
Total Industry
    78,000       143,000
(3)
    218,000
(3)
    283,000
(3)
    245,000       228,000  
(1)
Does not include approximately 700, 2,300 and 1,500 intermodal containers in 2006, 2005 and 2004, respectively.
(2)
The 2006 production includes Transcraft volumes on a full-year pro forma basis.
(3)
Data revised by publisher in a subsequent year.

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.

 
·
Innovative Product Offerings – Our DuraPlateâ proprietary technology offers what we believe to be a superior trailer, which commands premium pricing.  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:

 
6

 

-
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 values.
 
We have been manufacturing DuraPlateâ trailers for over 14 years and through December 2009 have sold over 370,000 units.  This proven experience, combined with ownership and knowledge of the DuraPlateâ panel technology, helps ensure continued industry leadership in the future. We have also successfully introduced innovations in our ArcticLite® refrigerated trailers and other product lines, including the DuraPlateHD® trailer and the FreightPro® sheet and post trailer in 2003.

 
·
Significant Market Share and Brand Recognition – We have been one of the two largest manufacturers of trailers in North America since 1994, with one of the most widely recognized brands in the industry.  We are one of the largest producers of van trailers in North America.  Our Transcraft subsidiary, acquired in March 2006, has been the second leading producer of platform trailers over this time period.

 
·
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.

 
·
Technology – We are recognized by the trucking industry as a leader in developing technology to reduce trailer maintenance.  In 2009, manufacturing line standardization and consolidation was completed.  This effort was made possible by the 2008 design optimization efforts and will enable full production flexibility and associated efficiencies well into the future.  In 2008, we completed the standardization of all dry and refrigerated van products.  This effort is expected to result in manufacturing and efficiency improvements and part and repair commonality for all of these products.  Also in 2008, we introduced our first products made with structural adhesives instead of mechanical fasteners.  The use of adhesives results in improved appearance, leak reduction, and trailers that are easier and faster to repair.  During 2007, we introduced to our customers fuel saving technologies on DuraPlateâ trailers with the Smartway® certification, as approved by the U.S. Environmental Protection Agency.

 
·
Corporate Culture – We benefit from a value driven management team and dedicated workforce.

 
·
Extensive Distribution Network – Our 11 Company-owned retail branches and four used trailer locations 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 25 independent dealers with approximately 60 locations throughout North America to distribute our van trailers, and our Transcraft distribution network consists of 94 independent dealers with approximately 150 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 of truck trailers, including regulations that require anti-lock braking systems (ABS) and that define rear-impact guard standards.  Manufacturing operations are subject to environmental laws enforced by federal, state and local agencies (see "Environmental Matters").

 
7

 

Products

Since our inception, we have expanded our product offerings from a single truck trailer product to a broad range of trailer-related transportation equipment.  Our manufacturing segment specializes in the development of innovative proprietary products for our key markets.  Manufacturing segment sales represented approximately 79%, 83% and 86% of consolidated Wabash net sales in 2009, 2008 and 2007, respectively.  Our current transportation equipment and DuraPlateâ products primarily include the following:

 
·
DuraPlateâ Trailers.  DuraPlateâ trailers utilize a proprietary technology that consists of a composite plate wall for increased durability and greater strength.  Our DuraPlateâ trailers include our DuraPlateHDâ, a heavy duty version of our regular DuraPlateâ trailers.

 
·
Smooth Aluminum Trailers.  Smooth aluminum trailers, commonly known as “sheet and post” trailers, are the commodity trailer product purchased by the trucking industry.  Starting in 2003, we began to market our FreightPro® trailer to provide a competitive offering for this market segment.

 
·
Platform Trailers.  Platform trailers are sold under Transcraft®, Eagle® and BensonTM trademarks.  The acquisition of certain assets from Benson in July 2008 provides us the ability to offer a premium all-aluminum platform trailer.  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.

 
·
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 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.

 
·
RoadRailer® Equipment.  The RoadRailer® intermodal system is a patented bimodal technology consisting of a truck trailer and a detachable rail “bogie” that permits a trailer to run both over the highway and directly on railroad lines.

 
·
Dump Equipment.  The acquisition of certain assets from Benson in July 2008 provides the ability to offer premium aluminum and steel dump equipment sold under the name of BensonTM.  This dump equipment is primarily used in the coal industry.

 
·
DuraPlate® Products.  The DuraPlate® Products Group was initiated in 2008 to expand the use of DuraPlate® composite panels, already a proven product in the semi-trailer market for over 14 years, into new product and market applications, including the building and servicing all of PODS® portable storage container requirements with our new DuraPlate® container.  We are actively exploring new opportunities to leverage proprietary technology into new industries and applications and in 2009 introduced our EPA SmartwayTM approved DuraPlate® AeroskirtTM.

Our retail and distribution segment offers products in three general categories: new trailers, used trailers and parts and service.  The following is a description of each product category:

 
·
We sell new trailers produced by the manufacturing segment.  Additionally, we sell specialty trailers produced by third parties that are purchased in smaller quantities for local or regional transportation needs.  New trailer sales through the retail branch network represented approximately 6.1%, 8.2% and 6.5% of consolidated net sales during 2009, 2008 and 2007, respectively.

 
·
We provide replacement parts and accessories and maintenance service for trailers and other related equipment.  Parts and service sales represented 9.6% in 2009 and less than 5% of consolidated net sales during 2008 and 2007.
 
 
8

 

 
·
We sell used trailers including units taken in trade from our customers upon the sale of new trailers. The ability to remarket used trailers promotes new trailer sales by permitting trade-in allowances and offering customers an outlet for the disposal of used equipment.  Used trailer sales represented 5.7% of consolidated net sales in 2009 and less than 5% in 2008 and 2007.

Customers

Our customer base has historically included many of the nation’s largest truckload common carriers, leasing companies, private fleet carriers, less-than-truckload (LTL) common carriers and package carriers.  We successfully diversified our customer base from approximately 60% of total units sold to large core customers in 2002 to approximately 7% in 2009 by continuing to expand our customer base and by diversifying into the broader trailer market through the recent acquisitions of Transcraft and Benson assets.  This has been accomplished while maintaining our relationships with our core customers.  Our five largest customers together accounted for approximately 41%, 35% and 20% of our aggregate net sales in 2009, 2008 and 2007, respectively, with one customer in 2009 representing 14% of net sales.  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.; Crete Carrier Corporation; Heartland Express, Inc.; Knight Transportation, Inc.; Schneider National, Inc.; Swift Transportation Corporation; U.S. Xpress Enterprises, Inc.; and Werner Enterprises, Inc.

 
·
Leasing Companies:  GE Trailer Fleet Services; and Xtra Lease, Inc.

 
·
Private Fleets:  C&S Wholesale Grocers, Inc.; Dillard’s, Inc.; and Safeway, Inc.

 
·
Less-Than-Truckload Carriers:  FedEx Corporation; Old Dominion Freight Lines, Inc.; SAIA Motor Freightlines, Inc.; Vitran Express, Inc.; and YRC Worldwide, Inc.

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 the diversification of our customer base focusing on what we refer to as the mid-market.  These approximately 1,250 carriers operate fleets of between 250 to 7,500 trailers, which we estimate in total account for approximately one million trailers.  Since implementing our mid-market sales strategy in late 2003, we have added approximately 290 new mid-market customers accounting for approximately 20,000 new trailer orders.

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 for 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 25 independent dealers with approximately 60 locations throughout North America.  Our platform trailers are sold through 94 independent dealers with approximately 150 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.

 
9

 

Raw Materials

We utilize a variety of raw materials and components including steel, plastic, aluminum, lumber, tires and suspensions, which we purchase from a limited number of suppliers.  Costs of raw materials and component parts represented approximately 75% and 74% of our 2009 and 2008 consolidated net sales, respectively.  Significant price fluctuations or shortages in raw materials or finished components has had, and could have further, adverse affects on our results of operations.  In 2010 and for the foreseeable future, we expect that the raw materials used in the greatest quantity will be steel, aluminum, plastic and wood.  Our suppliers have advised us that they have adequate capacity to meet our current and expected demands during 2010, but that their lead-times may increase during the first half of 2010 due to increases in demand.  In 2010, we expect there to be continued price volatility for our primary commodity raw materials of aluminum, steel and plastic along with significant component pricing, including on tires.  Our Harrison, Arkansas laminated hardwood floor facility provides the majority of our requirements for trailer floors.

Backlog

Orders that have been confirmed by the customer in writing and can be produced during the next 18 months are included in our backlog.  Orders that comprise backlog may be subject to changes in quantities, delivery, specifications and terms.  Our backlog of orders at December 31, 2009 and 2008 were approximately $137 million and $110 million, respectively.  We expect to complete the majority of our backlog orders within the next 12 months.

Patents and Intellectual Property

We hold or have applied for 67 patents in the U.S. on various components and techniques utilized in our manufacture of transportation equipment.  In addition, we hold or have applied for 54 patents in foreign countries.  Our patents include intellectual property related to the manufacture of trailers using our proprietary DuraPlateâ product, which we believe offers us a significant competitive advantage.  The patents in our DuraPlate® portfolio have expiration dates ranging from 2009 to 2024.  In our view there are no meaningful patents having an expiration date prior to 2016.

We also hold or have applied for 38 trademarks in the U.S., as well as 32 trademarks in foreign countries.  These trademarks include the Wabash®, Wabash National®, Transcraft® and BensonTM brand names as well as trademarks associated with our proprietary products such as DuraPlateâ, RoadRailerâ, Eagle® and BensonTM trailers.  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 $1.2 million, $3.2 million and $3.4 million in 2009, 2008 and 2007, 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.

 
10

 

Employees

As of December 31, 2009 and 2008, we had approximately 1,600 and 2,800 full-time associates, respectively.  At December 31, 2009, all of our active associates were non-union.  During 2009, less than 5% of our total production workforce included temporary associates.  We place a strong emphasis on employee relations through educational programs and quality improvement teams.  We believe our employee relations are good.

Executive Officers of Wabash National Corporation

The following are the executive officers of the Company:

Name
    
Age
    
Position
Richard J. Giromini
 
56
 
President and Chief Executive Officer, Director
Rodney P. Ehrlich
 
63
 
Senior Vice President – Chief Technology Officer
Bruce N. Ewald
 
58
 
Senior Vice President – Sales and Marketing
Timothy J. Monahan
 
57
 
Senior Vice President – Human Resources
Erin J. Roth
 
34
 
Vice President – General Counsel and Secretary
Mark J. Weber
 
38
 
Senior Vice President – Chief Financial Officer

Richard J. Giromini.  Mr. Giromini was promoted to President and Chief Executive Officer on January 1, 2007. He had been Executive Vice President and Chief Operating Officer from February 28, 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 on July 15, 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 also serves on the board of directors of Robbins & Myers, Inc., a global supplier of highly engineered equipment and systems for critical applications in energy, industrial, chemical and pharmaceutical markets, which he joined in October 2008.  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 50 patents in trailer related design during his 45 year trailer career.  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 nearly 30 years 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.

Timothy J. Monahan.  Mr. Monahan has been Senior Vice President – Human Resources since joining the Company in October 2003.  Prior to Wabash, Mr. Monahan was with Textron Fastening Systems from 1999 to October 2003 where he served as Vice President – Human Resources for the Commercial Solutions Group and later Global Vice President – Human Resources.  Previously, Mr. Monahan served in a variety of key executive roles at Beloit Corporation, Ingersoll Cutting Tools and Regal Beloit Corporation, including Vice President – Human Resources at both Beloit’s Mill Pro and Paper Machinery Groups.  Mr. Monahan serves on the board of directors of Global Specialty Solutions, a global producer of special cutting tools and tooling solutions.  He holds a Bachelor of Science degree from Milton College and has attended several executive management programs, including the Duke University Fuqua School of Management where he completed the Advanced Executive Management Program.

 
11

 

Erin J. Roth.  Effective March 1, 2010, Ms. Roth was appointed 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.  Prior to joining the Company, Ms. Roth was engaged in the private practice of law, representing a number of private and public companies throughout the United States.  Ms. Roth earned her Bachelor of Science degree in Accounting from Butler University and her Juris Doctorate from the Georgetown University Law Center.

Mark J. Weber. Effective August 31, 2009, Mr. Weber was promoted to Senior Vice President – Chief Financial Officer.  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 he was promoted to Vice President and Corporate Controller.  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 Master’s of Business Administration and Bachelor of Science in Accounting from Purdue University’s Krannert School of 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 results of operations have declined significantly in recent periods, and the impact of the current global economic downturn and its effects on our industry could continue to harm our operations and financial performance.

For the years ended December 31, 2009 and 2008, we recorded net sales of $337.8 million and $836.2 million, respectively, and we recorded net losses for these periods of $101.8 million and $125.8 million, respectively.  This compares to net sales of $1.1 billion for the year ended December 31, 2007, and net income of $16.3 million. These declines in our results of operations reflect the conditions in the markets we serve and the general condition of the global economy.  The global economic downturn has caused demand for new trailers to decline and has led to, in some cases, the cyclical timeframe for trailer replacement to be pushed out due to economic pressures.  We believe that the overall industry in which we operate has been affected similarly.  For example, according to a February 2010 report by ACT, total trailer industry shipments in 2009 were approximately 80,000, which reflected a decline of approximately 44% from the 143,000 trailers it reported for the year ended December 31, 2008.  Further, the total trailer shipments in 2008 represented a decline of approximately 33% from the 213,000 trailers reported for the year ended December 31, 2007.  By comparison, we shipped 12,800, 33,300 and 46,400 new trailers in 2009, 2008 and 2007, respectively, which reflect year-over-year declines of approximately 62% and 28% for 2009 and 2008, respectively.

We continue to be affected by the global economy, especially the credit markets, as well as the decline in the 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 many 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.  If the current conditions impacting the credit markets and general economy are prolonged, we may be faced with unexpected delays in product purchases or the loss of customers, which could further materially impact our financial position, results of operations and cash flow.  Further, 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 and our results of operations may continue to decline.

 
12

 

Our ability to fund operations is limited by our cash on hand and available borrowing capacity under our revolving credit facility.

As of December 31, 2009, our liquidity position, defined as cash on hand and available borrowing capacity, amounted to approximately $21.0 million.  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.  Additional declines in net cash provided by operations, 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.  However, we believe our liquidity on December 31, 2009 of $21.0 million will be adequate to fund expected operating losses, working capital requirements and capital expenditures throughout 2010, which is expected to be a period of economic uncertainty.  Our inability to increase our liquidity would adversely impact our future performance, operations and results of operations.

Recent turmoil in the credit markets and the financial services industry has had a negative impact on our business, results of operations, financial condition and liquidity.

The credit markets and the financial services industry have been experiencing a period of unprecedented turmoil and instability characterized by the bankruptcy, failure, collapse or sale of various financial institutions, an unprecedented level of intervention from the United States federal government and foreign governments and tighter availability of credit.  While the ultimate outcome of these events cannot be predicted, our liquidity and financial condition would worsen if our ability to borrow money to finance operations or obtain credit from trade creditors were to deteriorate from its current state.  In addition, the recent economic crisis may adversely impact our customers’ ability to purchase or pay for products from us or our suppliers’ ability to provide us with product.  If these adverse conditions continue or worsen, our business and results of operations will be negatively impacted.

Our business is highly cyclical, which has had, and could have further, adverse affects 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 this typical replacement cycle.  Customers' buying patterns can also reflect regulatory changes, such as federal hours-of-service rules and federal emissions standards.

While we have taken steps to diversify the Company through the implementation of our strategic plan, we are not immune to the cyclicality.  As a result, 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 idling our Mt. Sterling, Kentucky, and Anna, Illinois, production facilities, extending normal shut down periods, and reducing salaried headcount levels.  We could be forced to further slow down or halt additional production.  An economic downturn may reduce, and in the current situation has reduced, demand for trailers, resulting in lower sales volumes, lower prices and decreased profits and losses.

A change in our customer relationships or in the financial condition of our customers has had, and could have further, adverse affects 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 and in the current environment has led to reduced demand.  As some of our customers are highly leveraged and have limited access to capital, their continued existence may be uncertain.  The loss of a significant customer or unexpected delays in product purchases could further adversely affect our business and results of operations.

 
13

 

Demand for new trailers has been and will continue to be sensitive to economic conditions over which we have no control and that may further 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.  These risks and uncertainties periodically have an adverse effect on truck freight and the demand for and the pricing of our trailers, which has, and could further, result in the inability of customers to meet their contractual terms or payment obligations, which could further cause our operating revenues and profits to decline.

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.  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.

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®, FreightPro®, ArcticLite®, Transcraft Eagle® and BensonTM.  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 compete directly with our DuraPlateâ 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 new products.  However, the steps we have taken to protect them may not be sufficient or may not be enforced by a court of law.  If we are unable to protect our proprietary rights, 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.

We have a limited number of suppliers of raw materials; 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 in the manufacturing of our products, such as tires, landing gear, axles 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 our suppliers may place us on allocation, which would have an adverse impact on our ability to meet demand for our products.  Raw material shortages and allocations may result in inefficient operations and a build-up of inventory, which can negatively affect our working capital position.  In addition, any price volatility in commodity pricing has had and could continue to have negative impacts to 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.

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 manufacturing facilities in Lafayette, Indiana, a flatbed and dump-body trailer facility in Cadiz, Kentucky, and a hardwood floor facility in Harrison, Arkansas.  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.

 
14

 

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.

The inability to reduce our cost structure to support the reduced market demand and realize additional cost savings could weaken our competitive position.

If we are unable to continue to successfully implement our program of cost reductions and continuous improvements, we may not realize additional anticipated cost savings, which could weaken our competitive position.  Similarly, our cost structure is not entirely associated with the level of our sales, and we have not been able to fully reduce our cost structure commensurate with the level of reduced demand for our products.  If we are unable to continue to reduce costs to reflect lower levels of demand, our competitive position could be further weakened and it could make it more difficult for us to return to profitability or could result in increased losses.

We rely significantly on our integrated Enterprise Resource Planning (ERP) solution to support our operations.

We rely on an ERP system and telecommunications infrastructure to integrate departments and functions, to enhance the ability to service customers, to improve our control environment and to manage our cost reduction initiatives.  Any issues involving our critical business applications and infrastructure may adversely impact our ability to manage operations and the customers we serve.

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 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 compete successfully 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 trailers are regulated by individual states.  The federal government also regulates certain truck trailer safety features, such as lamps, reflective devices, tires, air-brake systems and rear-impact guards.  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.

 
15

 

Product liability and other 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 prove inadequate to insulate us from material liabilities for these claims.

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 remains low or declines further, 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.

Declines in the price of our common stock could have an adverse effect on our liquidity.  

Our common stock is currently listed on the New York Stock Exchange (the “NYSE”). The NYSE maintains continued listing requirements relating to, among other things, market capitalization, total stockholders’ equity and minimum stock price (including that the average closing price of common stock be not less than $1.00 for 30 consecutive trading days).  Although we are currently in compliance with all NYSE listing requirements, our stock price declined severely during 2009.  If in the future we are unable to satisfy the NYSE criteria for continued listing, we would be notified by the NYSE and given an opportunity to take corrective action.  If we are not brought into compliance after the cure period, generally six months, our stock could be subject to delisting.  A delisting of common stock could negatively impact us by reducing the liquidity and market price of our common stock and reducing the number of investors willing to hold or acquire our common stock. This could negatively impact our ability to raise additional funds through equity financing, which in turn could materially and adversely affect our business, financial condition and results of operations.

 
16

 

We have filed a registration statement for the sale of a substantial number of shares of our common stock into the public market by the selling stockholder, which may result in significant downward pressure on the price of our common stock and could affect the ability of our stockholders to realize the current trading price of our common stock.

Sales of a substantial number of shares of our common stock in the public market could cause a reduction in the market price of our common stock.  As of March 18, 2010, there were 31,109,898 shares of our common stock outstanding.  The selling stockholder named in our registration statement on Form S-1, as amended, which was declared effective by the SEC on December 8, 2009, has the right to acquire 24,762,636 shares of our common stock, subject to upward adjustment, issuable upon exercise of the Warrant, which represented approximately 44.21% of our issued and outstanding common stock as of August 3, 2009, the date on which the Warrant was delivered.  The selling stockholder may sell these shares pursuant to the prospectus that is part of that registration statement, if and when that registration statement is declared effective, or otherwise.  Investors should be aware that the current or future market price of their shares of our common stock could be negatively impacted by the sale or perceived sale of all or a significant number of the shares that are available for sale.

In connection with our issuance of preferred stock and the common stock warrant, we granted certain rights to the holders of our preferred stock and the common stock warrant that may allow these holders to exert significant control over our operations, and they may have different interests than our other stockholders.

In connection with the issuance of the preferred stock and the common stock warrant in our transaction with Trailer Investments, we entered into an investor rights agreement that gives certain rights to the holders of the preferred stock and the warrant, including, in certain circumstances, the shares of common stock underlying the warrant.  Together with the terms of the preferred stock, the investor rights agreement gives these holders significant rights, including rights to information delivery and access to information and management of the Company; veto rights over certain significant aspects of our operations and business, including payments of dividends, issuance of our securities, incurrence of indebtedness, liquidation and sale of assets, changes in the size of our board of directors, amendments of our organizational documents and its subsidiaries and other material actions by us, subject to certain thresholds and limitations; right of first refusal to participate in any future private financings; and certain other customary rights granted to investors in similar transactions.  The terms of the investor rights agreement also give the holders of the warrant rights to nominate five of twelve members of our Board of Directors.

As a result of the rights granted to the preferred stockholders and the warrant holders, including the right to nominate members of the board, the holders of these securities may be able to exert significant control over our capital structure, future financings and operations, among other things.  Furthermore, to the extent that the warrant is exercised in full, the warrant holder would own greater than 44% of our outstanding common stock, which would give the warrant holder the ability to significantly influence the outcome of any matter that is put to a vote of our common stockholders.  Trailer Investments currently holds all of our outstanding preferred stock and the entire warrant, meaning it controls all of the rights discussed above, and its interests may be different than those of our common stockholders.  Trailer Investments also has the ability, subject to specified limitations, to transfer the preferred stock, warrant and warrant shares to a person or persons who could exercise some of these rights.

Certain provisions of the terms of our preferred stock, taken together with the potential voting power of the common stock warrant, may discourage third parties from seeking to acquire us.

Certain provisions of the documents governing our preferred stock may discourage third parties from seeking to acquire the Company.  In particular, in the event of a change of control, our preferred stock has a mandatory redemption feature requiring us to offer to redeem the preferred stock at a significant premium to the original price at which it was sold.  As a result, this could discourage third parties from seeking to acquire us because any premium to our current common stock equity value would need to take into account the premium on our preferred stock.  This means that to offer the holders of our common stock a premium, a third party would have to pay an amount significantly in excess of the current value of our common stock.  Furthermore, because the common stock warrant is exercisable for a significant percentage of our common stock, the warrant holder would have the ability to exercise significant control over whether a change of control requiring the vote of our stockholders was approved by exercising the warrant.  As a result of the redemption premium on our preferred stock and the potential voting influence of the warrant holders, third parties may be deterred from any proposed business combination or change of control transaction and stockholders who desire to participate in such a transaction in the future may not have the opportunity to do so.

 
17

 
 
An ownership change could result in a limitation on the use of our net operating losses.
 
As of December 31, 2009, we had approximately $167 million of remaining U.S. federal income tax net operating loss carryforwards (“NOLs”), which will begin to expire in 2022, if unused, and which may be subject to other limitations under Internal Revenue Service (the “IRS”) rules.  We have various, multistate income tax net operating loss carryforwards, which have been recorded as a deferred income tax asset, of approximately $16.5 million, before valuation allowances.  We also have various U.S. federal income tax credit carryforwards, which will expire beginning in 2013, if unused.  Our NOLs, including any future NOLs that may arise, are subject to limitations on use under the IRS rules, including Section 382 of the Internal Revenue Code of 1986, as revised.  Section 382 limits the ability of a company to utilize NOLs in the event of an ownership change.  We would undergo an ownership change if, among other things, the stockholders, or group of stockholders, who own or have owned, directly or indirectly, 5% or more of the value of our stock or are otherwise treated as 5% stockholders under Section 382 and the regulations promulgated thereunder increase their aggregate percentage ownership of our stock by more than 50 percentage points over the lowest percentage of our stock owned by these stockholders at any time during the testing period, which is generally the three-year period preceding the potential ownership change.  Because of the issuance of the warrant in our transaction with Trailer Investments, there is an increased risk that we will undergo an ownership change.  There also can be no assurance that an ownership change has not already been triggered due to the lack of authoritative guidance or that a subsequent change in ownership, as defined by the Section 382 guidelines, may trigger this limitation.
 
In the event of an ownership change, Section 382 imposes an annual limitation on the amount of post-ownership change taxable income a corporation may offset with pre-ownership change NOLs and certain recognized built-in losses. The limitation imposed by Section 382 for any post-change year would be determined by multiplying the value of our stock immediately before the ownership change (subject to certain adjustments) by the applicable long-term tax-exempt rate in effect at the time of the ownership change. Any unused annual limitation may be carried over to later years, and the limitation may under certain circumstances be increased by built-in gains that may be present in assets held by us at the time of the ownership change that are recognized in the five-year period after the ownership change.  It is expected that any loss of our NOLs would cause our effective tax rate to go up significantly when we return to profitability.

In addition, if we lose our ability to utilize our NOLs as a result of an ownership change, the warrant that we issued to Trailer Investments will increase to a greater percentage of our outstanding common stock, causing further dilution to our other stockholders.
 
Requirements to pay future cash dividends on our preferred stock and our debt service and debt covenant requirements could impair our financial condition and adversely affect our ability to operate and grow our business.
 
We are required to pay quarterly dividends at a set rate per annum on our preferred stock provided that during the first two years the preferred stock is outstanding dividends may accrue unpaid.  We also remain subject to certain payments and debt covenants under our amended and restated revolving credit facility.  Our payment requirements and indebtedness could adversely affect our ability to operate our business and could have an adverse impact on our stockholders, including:
 
 
·
our ability to obtain additional financing in the future may be impaired;
 
 
·
after a two-year accrual period, a portion of our cash flow from operations must be dedicated to the payment of dividends on the preferred stock, which reduces the funds available to us;
 
 
·
the amended and restated credit facility contains restrictive covenants that may impact our ability to operate and any failure to comply with them may result in an event of default, which could have a material adverse effect on us;
 
 
·
our dividend payments and debt service obligations could limit our flexibility in planning for, or reacting to, changes in our business and the industry;
 
 
·
our payment obligations could place us at a competitive disadvantage to competitors who have fewer requirements relative to their overall capital structures; and
 
 
·
our ability to pay cash dividends to the holders of our common stock is significantly restricted by the terms of our preferred stock and the terms of our amended and restated revolving credit facility, and no such dividends are contemplated for the foreseeable future.

ITEM 1B—UNRESOLVED STAFF COMMENTS

None.

 
18

 

ITEM  2PROPERTIES

Manufacturing Facilities

We own or lease, and operate trailer manufacturing facilities in Lafayette, Indiana; Anna, Illinois; and Cadiz, Kentucky, as well as a trailer floor manufacturing facility in Harrison, Arkansas.  We also have a trailer manufacturing facility in Mt. Sterling, Kentucky that was idled in 2007 and is currently held for sale.  As announced in the fall of 2009, we are presently in the process of consolidating our Anna steel flatbed operation into the Cadiz facility to further our lean manufacturing efforts.  As a result, we are in the process of selling our Anna facility.  The Cadiz site will be a flexible manufacturing facility with capabilities of producing both steel and aluminum flatbed trailers, dump trailers, and dump bodies.  Our main Lafayette 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.  The second Lafayette facility is 0.6 million square feet, primarily used for the production of refrigerated trailers.  In total, our facilities have the capacity to produce in excess of 80,000 trailers annually on a three-shift, five-day workweek schedule.

Retail and Distribution Facilities

Retail and distribution facilities include 11 full service branches and four used trailer centers (four of which are leased).  Each sales and service branch consists of an office, parts warehouse and service space, and ranges in size from 20,000 to 50,000 square feet per facility.  The 15 facilities are located in 11 states.

Wabash-owned properties are subject to security interests held by our lenders.

ITEM  3—LEGAL PROCEEDINGS

Various lawsuits, claims and proceedings have been or may be instituted or asserted against the Company arising in the ordinary course of business, including those pertaining to product liability, labor and health related matters, successor liability, environmental matters and possible tax assessments.  While the amounts claimed could be substantial, the ultimate liability cannot now be determined because of the considerable uncertainties that exist.  Therefore, it is possible that results of operations or liquidity in a particular period could be materially affected by certain contingencies.  However, based on facts currently available, management believes that the disposition of matters that are currently pending or asserted will not have a material adverse effect on the Company's financial position, liquidity or results of operations.  Costs associated with the litigation and settlement 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 RoadRailerâ 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 asserts damages of approximately $8.4 million.

The Company answered the complaint in May 2001, denying any wrongdoing.  The Company believes that the claims asserted by BK are without merit and it intends to defend its position.  A trial date has been scheduled for March 30, 2010.  The Company believes that the resolution of this lawsuit will not have a material adverse effect on its financial position, liquidity or future results of operations; however, at this stage of the proceeding no assurances can be given as to the ultimate outcome of the case.

 
19

 

Intellectual Property

In October 2006, the Company filed a patent infringement suit against Vanguard National Corporation (“Vanguard”) regarding Wabash National’s 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).  The Company 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.  The Company 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 undertakes a reexamination of U.S. Patent Nos. 6,986,546.  It is unknown when the stay will be lifted.

The Company believes that the claims asserted by Vanguard are without merit and the Company intends to defend its position.  The Company believes that the resolution of this lawsuit and the reexamination proceedings will not have a material adverse effect on its 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.

Environmental Disputes

In September 2003, the Company was noticed as a potentially responsible party (“PRP”) by the U.S. Environmental Protection Agency pertaining to the Motorola 52nd Street, Phoenix, Arizona Superfund Site pursuant to the Comprehensive Environmental Response, Compensation and Liability Act.  PRPs include current and former owners and operators of facilities at which hazardous substances were allegedly disposed.  EPA’s allegation that the Company was a PRP arises out of the operation of a former branch facility located approximately five miles from the original site.  The Company does not expect that these proceedings will have a material adverse effect on the Company’s financial condition or results of operations.

In January 2006, the Company received a letter from the North Carolina Department of Environment and Natural Resources indicating that a site that the Company 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 the Company was 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 the Company at this time.  The Company does not expect that this designation will have a material adverse effect on its financial condition or results of operations.

ITEM 4SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5—
MARKET 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 March 18, 2010 was 911.

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 2009.  In accordance with our Third Amended and Restated Loan and Security Agreement (the “Amended Facility”), effective August 3, 2009,  we are restricted from the payment of cash dividends to holders of our common stock for a period of two years.  At any time after our second anniversary of the Amended Facility, we are limited to the amount of cash dividends of $20 million per year unless otherwise approved by a majority of our lenders, so long as no default or event of default is continuing or would be caused by the distribution and only if our available borrowing capacity is in excess of $40 million after distribution of dividend.  Additionally, the Certificates of Designation for our Preferred Stock issued to Trailer Investments, LLC (“Trailer Investments”), and our Investor Rights Agreement with Trailer Investments, provides a condition that, as long as any shares of our Preferred Stock remain outstanding, we are restricted from paying or declaring any dividend to our common stockholders unless otherwise approved by the majority of the holders of the outstanding Preferred Stock.  The reinstatement of quarterly cash dividends on our common stock will depend on our future earnings, capital availability and financial condition.

High and low stock prices as reported on the New York Stock Exchange for the last two years were:

   
High
   
Low
 
2008
           
First Quarter
  $ 9.50     $ 6.96  
Second Quarter
  $ 10.59     $ 7.55  
Third Quarter
  $ 11.69     $ 6.85  
Fourth Quarter
  $ 9.37     $ 3.26  
2009
               
First Quarter
  $ 5.07     $ 0.51  
Second Quarter
  $ 2.71     $ 0.68  
Third Quarter
  $ 3.25     $ 0.50  
Fourth Quarter
  $ 3.05     $ 1.36  

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, 2004 and ending December 31, 2009.  The graph assumes that the value for the investment in our common stock and in each index was $100 on December 31, 2004 and that all dividends were reinvested.

Comparative of Cumulative Total Return
December 31, 2004 through December 31, 2009
among Wabash National Corporation, the S&P 500 Index
and the Dow Jones Transportation Index

 
20

 

ITEM 6—SELECTED FINANCIAL DATA

The following selected consolidated financial data with respect to Wabash for each of the five years in the period ended December 31, 2009, 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.


   
Years Ended December 31,
 
   
2009
   
2008
   
2007
   
2006
   
2005
 
   
(Dollars in thousands, except per share data)
 
Statement of Operations Data:
                             
Net sales
  $ 337,840     $ 836,213     $ 1,102,544     $ 1,312,180     $ 1,213,711  
Cost of sales
    360,750       815,289       1,010,823       1,207,687       1,079,196  
                                         
Gross profit
    (22,910 )     20,924       91,721       104,493       134,515  
                                         
Selling, general and administrative expenses
    43,164       58,384       65,255       66,227       54,521  
Impairment of goodwill
    -       66,317       -       15,373       -  
                                         
(Loss) Income from operations
    (66,074 )     (103,777 )     26,466       22,893       79,994  
                                         
Increase in fair value of warrant
    (33,447 )     -       -       -       -  
Interest expense
    (4,379 )     (4,657 )     (5,755 )     (6,921 )     (6,431 )
Foreign exchange, net
    31       (156 )     3,818       (77 )     231  
Gain (loss) on debt extinguishment
    (303 )     151       546       -       -  
Other, net
    (594 )     (323 )     (387 )     407       262  
                                         
(Loss) Income before income taxes
    (104,766 )     (108,762 )     24,688       16,302       74,056  
                                         
Income tax (benefit) expense
    (3,001 )     17,064       8,403       6,882       (37,031 )
                                         
Net (loss) income
  $ (101,765 )   $ (125,826 )   $ 16,285     $ 9,420     $ 111,087  
                                         
Preferred stock dividends
    3,320       -       -       -       -  
                                         
Net (loss) income applicable to common stockholders
  $ (105,085 )   $ (125,826 )   $ 16,285     $ 9,420     $ 111,087  
                                         
Basic net (loss) income per common share
  $ (3.48 )   $ (4.21 )   $ 0.53     $ 0.30     $ 3.54  
                                         
Diluted net (loss) income per common share
  $ (3.48 )   $ (4.21 )   $ 0.52     $ 0.30     $ 3.04  
                                         
Common stock dividends declared
  $ -     $ 0.135     $ 0.180     $ 0.180     $ 0.180  
                                         
Balance Sheet Data:
                                       
Working capital
  $ (34,927 )   $ (2,698 )   $ 146,616     $ 154,880     $ 213,201  
Total assets
  $ 223,777     $ 331,974     $ 483,582     $ 556,483     $ 548,653  
Total debt and capital leases
  $ 33,243     $ 85,148     $ 104,500     $ 125,000     $ 125,500  
Stockholders' equity
  $ 53,485     $ 153,437     $ 279,929     $ 277,955     $ 278,702  

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, 2009, and our capital resources and liquidity as of December 31, 2009.  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 Wabash.  We then analyze the results of our operations for the last three years, including the trends in the overall business and our operations 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, as well as those not yet adopted that are expected to have an impact on our financial accounting practices.

 
21

 

We have two reportable segments: manufacturing and retail and distribution.  The manufacturing segment produces trailers that are sold to customers who purchase trailers directly or through independent dealers and to the retail and distribution segment.  The retail and distribution segment includes the sale of new and used trailers, as well as the sale of aftermarket parts and service through our retail branch network.

Executive Summary

Our 2009 results reflect the challenges that the trailer industry faced throughout the year as the factors negatively impacting demand for new trailers became more intense and pervasive across the United States.  As a result, the already difficult conditions within the industry became progressively more challenging.  A weak housing market and overall weak consumer confidence were further magnified by credit tightening and severe shortages of liquidity in the financial markets.  The liquidity shortage has caused concern about the viability of many financial institutions and has negatively impacted the economy.  These factors combined together caused our revenue and gross profits to be significantly reduced from previous years.  Gross profit declined during 2009 due to lower sales volumes and overhead costs which did not decline as rapidly as sales volumes, even though certain expenses such as materials and direct labor generally fluctuated with sales volumes.

As a result of these economic conditions, our financial position and liquidity were negatively impacted, including events of default which occurred under our Revolving Facility.  In addition, reflected in our 2008 annual report, our independent registered public accounting firm included an explanatory paragraph with respect to substantial doubt about our ability to continue as a going concern.  In response to these various challenges, we pursued a wide range of strategic alternatives which resulted in the issuance of $35 million of preferred stock and warrants by the Company, which is discussed under the Liquidity and Capital Resources section below.  In addition, we entered into an Amended Revolving Facility which waived the previously incurred events of default.

Despite these adverse conditions, we were able to achieve strong safety performance, improved process yield and productivity, as well as deliver significant improvements in operating results in the second half of the year reflecting the impact of our cost reduction initiatives.  As of December 31, 2009, our liquidity position, defined as cash on hand and available borrowing capacity amounted to approximately $21.0 million.  We believe our liquidity is adequate to meet our expected operating results, working capital needs and capital expenditures for 2010.

We expect the overall trailer market for 2010 to be an improvement from 2009.  In fact, recent estimates from industry forecasters, ACT and FTR Associates (FTR), indicate rising levels of shipments in each of the next three years.  ACT is currently estimating 2010 levels to be approximately 103,000 units, or an increase of 28% while FTR anticipates a 21% increase in new trailers for 2010 as compared to 2009.  While we are encouraged to see signs of improvement in the overall trailer market for 2010, we will proceed with caution as the overall demand levels are expected to be stronger in the second half of the year as compared to the first half.  In addition, based on the current low demand environment, pricing competition will continue to adversely impact our margins as manufacturers compete for limited opportunities in order to fill under-utilized capacity.  We expect 2010 will remain a very price competitive environment, but we anticipate seeing pricing power improve as trailer order demand and confidence increases in the latter part of the year and into 2011.  We are also not relying solely on volume recovery to improve operations and profitability.  We continue to try to optimize our cost structure to improve results, including the consolidation of our flatbed manufacturing facilities expected to be completed during the first half of 2010.

Operating Performance

We measure our operating performance in four key areas – Safety/Environmental, Quality, Productivity and Cost Reduction.  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/Environmental.  We made a 10% improvement in our total recordable incident rate resulting in significant reductions in our workers compensation costs.  We maintain ISO 14001 registration of our Environmental Management System.  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.

 
22

 

 
·
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 trailers at the end of the production process.  In 2009, quality expectations were increased while maintaining Process Yield performance and reducing rework.

 
-
External performance. We actively measure and track our warranty claims and costs. Early life cycle warranty claims are trended for performance monitoring and have shown a steady improvement from an average of approximately 6 claims per 100 trailers in 2005 to 3 claims per 100 trailers in 2008.  However, performance in 2009 deteriorated to 6 claims per 100 trailers produced as a result of supplied component issues and customer optioned materials used in place of our standard product offerings.  This information is utilized, along with other data, to drive continuous improvement initiatives relative to product quality and reliability. Through these efforts, we continue to realize improved quality, which has resulted in a sustained decrease for warranty payments over the past four years.

 
·
Productivity.  We measure productivity on many fronts. Some key indicators include production line speed, 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.  In 2009, 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 final components of the warehousing consolidation project were completed in the end of the first quarter 2009, thus realizing significant savings in the supply chain operation.

 
·
Cost Reduction.  We believe Continuous Improvement (CI) is a fundamental component of our operational excellence focus.  We deployed value engineering and analysis teams to improve product and process costs thus keeping us competitive in the marketplace.  In 2009, we also took actions to reduce costs by temporarily slowing down production at some of our facilities, extending normal shutdown periods and reducing salaried headcount levels.  We deployed an operational excellence strategy to enhance a culture of daily continuous improvement.  We believe the improvements generated to date provide the flexibility needed to support our customers as well as provide the foundation for enhanced performance going forward.

Industry Trends

Truck transportation in the U.S., according to the ATA, was estimated to be a $660 billion industry in 2008.  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, including trucking, is a cyclical industry that has experienced three cycles over the last 20 years.  Truck freight tonnage, according to ATA statistics, started declining year-over-year in 2006 and has remained at depressed levels through 2009.  In 2009, the tonnage index dropped 8.3% from 2008, the largest annual decrease since 1982; however, recent data shows improvement of freight tonnage in the fourth quarter of 2009.  The trailer industry generally precedes transportation industry cycles.  The current cycle began in early 2001 when industry shipments totaled approximately 140,000, reached a peak in 2006 with shipments of approximately 280,000 and, based on current ACT estimates, reached the bottom in 2009.  According to ACT, shipments in 2009 amounted to approximately 80,000 units and will grow to approximately 103,000 and 169,000 in 2010 and 2011, respectively.  Our view is generally consistent with that of ACT.

 
23

 

 
·
Age of Trailer Fleets.  Average age of fleets has increased during the recent industry downturn.  According to ACT, average age of dry and refrigerated vans has continued to increase and  is expected to reach historical highs by 2011 of approximately 8.5 years and 6 years, respectively.  These increases would suggest an increase in replacement demand over the next five years.
 
 
·
New Trailer Orders.  According to ACT, quarterly industry order placement rates have experienced year-over-year declines since the fourth quarter of 2006, with the exception of the second and fourth quarters of 2009.  Total trailer orders in 2009 were approximately 84,000 units, a 21% decrease from approximately 106,000 units ordered in 2008 driven by dry van orders, the largest segment of the trailer industry, declining year-over-year by approximately 34%.
 
 
·
Other Developments.  Other developments and our view of their potential impact on the industry include:

 
-
Increased adoption of trailer-tracking technology has improved fleet productivity, resulting in improved trailer utilization and declining trailer/tractor ratios.

 
-
Miniaturization of electronic products resulting in increased density of loads could further decrease demand for dry van trailers.

 
-
Packaging optimization of bulk goods and the efficiency of the packaging around goods may contribute to further decreases in demand for dry van trailers.

 
-
Continuing improvements in trailer quality and durability resulting from technological advances like DuraPlate® composite, as well as increased trailer utilization due to growing adoption of trailer tracking could result in reduced trailer demand.

 
-
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.  Decreases in trucker profitability reduce the demand for, and financial ability to purchase, new trailers.

 
-
Although truck driver shortages have not been a large problem in the past year, the constraint is expected to return as freight demand increases.  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 grow.  We therefore expect that the majority of freight will still be moved by truck.
 
 
24

 

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,
 
   
2009
   
2008
   
2007
 
Net sales
    100.0 %     100.0 %     100.0 %
Cost of sales
    106.8       97.5       91.7  
Gross profit
    (6.8 )     2.5       8.3  
                         
General and administrative expenses
    9.5       5.3       4.5  
Selling expenses
    3.3       1.7       1.4  
Impairment of goodwill
    -       7.9       -  
(Loss) Income from operations
    (19.6 )     (12.4 )     2.4  
                         
Increase in fair value of warrant
    (9.9 )     -       -  
Interest expense
    (1.3 )     (0.6 )     (0.5 )
Other, net
    (0.2 )     -       0.3  
(Loss) Income before income taxes
    (31.0 )     (13.0 )     2.2  
                         
Income tax (benefit) expense
    (0.9 )     2.0       0.7  
Net (loss) income
    (30.1 ) %     (15.0 ) %     1.5 %

2009 Compared to 2008

Net Sales

Net sales in 2009 were $337.8 million, a decrease of $498.4 million, or 59.6%, compared to 2008.  By business segment, net external sales and related units sold were as follows (dollars in millions):

   
Year Ended December 31,
 
   
2009
   
2008
   
% Change
 
Sales by Segment
                 
Manufacturing
  $ 265.5     $ 694.2       (61.8 )
Retail and Distribution
    72.3       142.0       (49.1 )
Total
  $ 337.8     $ 836.2       (59.6 )
                         
New Trailers
   
(units)
         
Manufacturing
    12,000       30,800       (61.0 )
Retail and Distribution
    800       2,500       (68.0 )
Total
    12,800       33,300       (61.6 )
                         
Used Trailers
    3,200       6,600       (51.5 )
 
Manufacturing segment sales for 2009 were $265.5 million, a decrease of $428.7 million, or 61.8%, compared to 2008.  The reduction in sales is primarily due to the continued weak market demand as new trailer sales volumes decreased approximately 18,800 units, or 61.0%.  Average selling prices declined slightly in 2009 as compared to the prior year due to customer demand and product mix.

Retail and distribution segment sales were $72.3 million in 2009, a decrease of $69.7 million, or 49.1%, compared to 2008.  Weak market demand across all product lines yielded reduced volumes as compared to 2008.  New trailer sales decreased $47.6 million, or 69.7%, due to a 68.0% reduction in volumes.  Used trailer sales were down $17.4 million, or 47.7%, primarily due to a 51.5% reduction in volumes.  Parts and service sales were down $4.6 million, or 12.5%.
 
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Cost of Sales

Cost of sales for 2009 was $360.8 million, a decrease of $454.5 million, or 55.8% compared to 2008.  As a percentage of net sales, cost of sales was 106.8% in 2009 compared to 97.5% in 2008.

Manufacturing segment cost of sales, as detailed in the following table, was $288.3 million for 2009, a decrease of $392.1 million, or 57.6%, compared to 2008.  As a percentage of net sales, cost of sales was 108.6% in 2009 compared to 98.0% in 2008.

   
Year Ended December 31,
 
Manufacturing Segment
 
2009
   
2008
 
   
(dollars in millions)
 
         
% of Net
Sales
         
% of Net
Sales
 
Material Costs
  $ 202.5       76.3 %   $ 517.9       74.6 %
Other Manufacturing Costs
    85.8       32.3 %     162.5       23.4 %
    $ 288.3       108.6 %   $ 680.4       98.0 %

As shown in the table above, cost of sales is composed 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 76.3% of net sales in 2009 compared to 74.6% in 2008.  The 1.7% increase is primarily the result of increased raw material commodity and component costs driven by unfavorable fixed price aluminum contracts as compared to market pricing which could not be offset by increases in selling prices.  In addition, our other manufacturing costs increased from 23.4% of net sales to 32.3% in 2009.  The 8.9% increase is primarily the result of the inability to reduce fixed costs in proportion to the 61.0% decrease in new trailer volumes.

Retail and distribution segment cost of sales was $72.7 million in 2009, a decrease of $63.2 million, or 46.5%, compared to the 2008 period.  As a percentage of net sales, cost of sales was 100.6% in 2009 compared to 95.7% in 2008.  The 4.9% increase was primarily the result of a 9.9% increase as a percent of net sales in direct and indirect labor and overhead expenses due to the inability to reduce these costs in proportion to the 68.0% and 51.5% reductions in new and used trailer volumes, respectively.  This increase in cost of sales as a percentage of net sales compared to the prior year was further magnified by valuation reserves required due to the depressed market conditions for both new and used trailers.

Gross Profit

Gross profit in 2009 was negative $22.9 million, down $43.8 million compared to 2008.  Gross profit as a percent of sales was negative 6.8% in 2009 compared to 2.5% in 2008.  Gross profit by segment was as follows (in millions):

   
Year Ended December 31,
 
   
2009
   
2008
 
Gross Profit by Segment:
           
Manufacturing
  $ (22.7 )   $ 13.8  
Retail and Distribution
    (0.4 )     6.1  
Intercompany Profit Eliminations
    0.2       1.0  
Total
  $ (22.9 )   $ 20.9  

Manufacturing segment gross profit was negative $22.7 million in 2009, a decrease of $36.5 million compared to 2008.  Gross profit as a percentage of sales was negative 8.5% in 2009 compared to 2.0% in 2008.  The decrease in gross profit and gross profit margin percentage was primarily driven by the 61.0% decline in new trailer volumes coupled with higher raw material and component part costs that outpaced increases in selling prices.

 
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Retail and distribution segment gross profit was negative $0.4 million in 2009, a decrease of $6.5 million compared to 2008.  Gross profit as a percentage of sales was negative 0.6% compared to 4.3% in 2008 due to reduced trailer and parts and service volumes as well as continued pricing pressures on new and used trailers.

General and Administrative Expenses

General and administrative expenses were $32.0 million in 2009, a decrease of $12.1 million, or 27.5%, compared to the prior year.  The decrease was the result of our cost cutting initiatives to adjust our cost structure to match the current market demand.  These initiatives resulted in an $8.2 million reduction in salaries and employee related costs, net of severances, due to headcount and base pay reductions made in the current year as well as a reduction of approximately $3.9 million in other various discretionary costs.

Selling Expenses

Selling expenses were $11.2 million in 2009, a decrease of $3.1 million, or 21.8%, compared to the prior year.  The decrease was the result of our cost cutting initiatives and efforts to adjust our cost structure to match the current market demand.  These initiatives resulted in a $2.3 million reduction in salaries and other employee related costs, net of severances, due to headcount and base pay reductions as well as reductions in advertising and promotional activities of $0.6 million.

Other Income (Expense)

Increase in fair value of warrant of $33.4 million represents the expense recognized as a result of the fair value adjustment for the warrant issued to Trailer Investments as a part of the Securities Purchase Agreement entered into on July 17, 2009.

Loss on debt extinguishment of $0.3 million represents a proportionate write-off of deferred debt issuance costs recognized on the amendment and reduction in capacity of our Revolving Credit Facility, which was effective on August 3, 2009.

Other, net includes an expense of $0.9 million relating to the termination of our interest rate swaps previously designated as cash flow hedges.  The current period ending December 31, 2009 includes the acceleration of amounts previously reported through Other Comprehensive Income (Loss) as the designated hedged transaction was considered no longer probable.

Income Taxes

In 2009, we recognized income tax benefit of $3.0 million compared to income tax expense of $17.1 million in 2008.  The effective rate for 2009 was (2.9%).  This rate differs from the U.S. federal statutory rate of 35% primarily due to the recognition of a full valuation allowance against our net deferred tax asset, the effect of a non-deductible adjustment to the fair market value of our warrant and the reduction in valuation allowance of $2.9 million whereby, in January 2010, we filed a claim with the IRS for a refund of $2.9 million for U.S. federal alternative minimum taxes previously paid during the years 2004 through 2006 as provided under the provisions of the Worker, Homeownership, and Business Assistance Act of 2009, which was signed into law in November 2009.

As of December 31, 2009, we had a U.S. federal tax net operating loss carryforward of $166.6 million, which will expire beginning in 2022, if unused, and which may be subject to other limitations under IRS rules.  We have various multi-state income tax net operating loss carryforwards, which have been recorded as a deferred income tax asset, of approximately $16.5 million, before valuation allowances.  We also have various U.S. federal income tax credit carryforwards, which will expire beginning in 2013, if unused.

 
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2008 Compared to 2007

Net Sales

Net sales in 2008 were $836.2 million, a decrease of $266.3 million, or 24.2%, compared to 2007.  By business segment, net external sales and related units sold were as follows (in millions, except unit data):

   
Year Ended December 31,
 
   
2008
   
2007
   
% Change
 
Sales by Segment
                 
Manufacturing
  $ 694.2     $ 952.8       (27.1 )
Retail and Distribution
    142.0       149.7       (5.1 )
Total
  $ 836.2     $ 1,102.5       (24.2 )
                         
New Trailers
 
(units)
         
Manufacturing
    30,800       43,400       (29.0 )
Retail and Distribution
    2,500       3,000       (16.7 )
Total
    33,300       46,400       (28.2 )
                         
Used Trailers
    6,600       4,400       50.0  

Manufacturing segment sales for 2008 were $694.2 million, a decrease of $258.6 million, or 27.1%, compared to 2007.  Due to a continued weak market demand and declines in the housing and construction markets, new trailer sales decreased 12,600 units, or approximately $269.7 million.  Higher average selling prices impacted sales by $16.1 million in efforts to offset material price increases.

Retail and distribution segment sales were $142.0 million in 2008, a decrease of $7.7 million, or 5.1%, compared to 2007.  New trailer sales decreased $3.9 million, or 5.4%, compared to 2007 due to lower volumes primarily as a result of the overall decline in the U.S. market.  Used trailer sales were flat compared to the prior year as higher volumes were offset by lower average selling prices as depressed market conditions have driven used trailer values down throughout 2008.  Parts and service sales were $37.1 million in 2008, a decrease of $3.5 million, or 8.6%, compared to 2007 due to continued weak customer demand.

Cost of Sales

Cost of sales in 2008 was $815.3 million, a decrease of $195.5 million, or 19.3%, compared to 2007.  As a percentage of net sales, cost of sales was 97.5% in 2008 compared with 91.7% in 2007.

Manufacturing segment cost of sales was $680.4 million in 2008, a decrease of $189.6 million, or 21.8%, compared to 2007.  As a percentage of net sales, cost of sales was 98.0% in 2008 compared to 91.3% in 2007.  Cost of sales for our manufacturing business segment for the years ending December 31, 2008 and 2007 were as follows (dollars in millions):

   
Year Ended December 31,
 
Manufacturing Segment
 
2008
   
2007
 
   
(dollars in millions)
 
         
% of Net
Sales
         
% of Net
Sales
 
Material Costs
  $ 517.9       74.6 %   $ 669.5       70.3 %
Other Manufacturing Costs
    162.5       23.4 %     200.5       21.0 %
    $ 680.4       98.0 %   $ 870.0       91.3 %

 
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As summarized above, cost of sales is composed 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 74.6% of net sales compared to 70.3% in 2007.  The 4.3% increase results from increases in raw material commodity and component costs, primarily steel and aluminum that could not be offset by increases in selling prices.  In addition, our other manufacturing costs increased from 21.0% of net sales in 2007 to 23.4% in 2008.  The 2.4% increase is primarily the result of the inability to reduce the fixed cost component in proportion to the 29.0% decrease in new trailer volumes.

Retail and distribution segment cost of sales was $135.9 million in 2008, a decrease of $4.4 million, or 3.1% compared to 2007.  As a percentage of net sales, cost of sales was 95.7% in 2008 compared to 93.7% in 2007.  The increase in the percentage was primarily the result of a 2.1% increase in raw material costs as a percentage of net sales due to pricing pressures on used trailers and reduced sales on higher margin parts and services activities.

Gross Profit

Gross profit in 2008 was $20.9 million, down $70.8 million, or 77.2%, compared to 2007.  Gross profit as a percent of sales was 2.5% in 2008 compared to 8.3% in 2007.  Gross profit by segment was as follows (in millions):

   
Year Ended December 31,
 
   
2008
   
2007
   
% Change
 
Gross Profit by Segment:
                 
Manufacturing
  $ 13.8     $ 82.8       (83.3 )
Retail and Distribution
    6.1       9.4       (35.1 )
Intercompany Profit Eliminations
    1.0       (0.5 )        
Total
  $ 20.9     $ 91.7       (77.2 )

Manufacturing segment gross profit was $13.8 million in 2008, a decrease of $69.0 million, or 83.3%, compared to 2007.  Gross profit as a percentage of sales was 2.0% in 2008 compared to 8.7% in 2007.  The decrease in gross profit and gross profit margin percentage was primarily driven by the 29.0% decline in volumes and continued increases in raw material costs that outpaced increases in selling prices.

Retail and distribution segment gross profit was $6.1 million in 2008, a decrease of $3.3 million, or 35.1%, compared to 2007.  Gross profit as a percentage of sales was 4.3% compared to 6.3% in 2007 due to pricing pressures on used trailers and reduced parts and service volumes.

General and Administrative Expenses

General and administrative expenses were $44.1 million in 2008, a decrease of $5.4 million, or 10.9%, compared to the prior year. The decrease was partially the result of our cost cutting initiatives and efforts to adjust our cost structure to match the current market demand, which resulted in professional services expenses being reduced by $4.3 million as a result of litigation settlements and information technology costs and lowered salaries and employee related costs resulting from reductions in headcount of $0.4 million, net of severance costs.

Selling Expenses

Selling expenses were $14.3 million in 2008, a decrease of $1.5 million, or 9.2%, compared to the prior year.  The decrease was partially the result of our cost cutting initiatives and efforts to adjust our cost structure to match the current market demand resulting in lower salaries and other employee related costs resulting from reductions in headcount of $0.5 million, net of severance costs, and reductions in advertising and promotional activities of $0.7 million.

 
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Impairment of Goodwill

We reviewed our goodwill during the fourth quarter of 2008 and, based on a combination of factors, including the significant decline in our market capitalization as well as the current decline in the U.S. economy, we concluded that indicators of potential impairment were present.  The measurement of impairment of goodwill consists of a two step process.  The first step requires us to compare the fair value of the reporting unit to its carrying value.  During the fourth quarter, we completed a valuation of the fair value of our reporting units that incorporated existing market based considerations as well as discounted cash flows based on current and projected results.  Based on this evaluation, it was determined that the carrying value of both our platform trailer and wood product manufacturing operations exceeded fair value.  The second step involves determining an implied fair value of each reporting unit’s goodwill as compared to its carrying value.  After calculating the implied fair value of the goodwill by deducting the fair value of all tangible and intangible net assets of the reporting unit from the fair value of the reporting unit, it was determined that the recorded goodwill of $66.3 million was fully impaired.  Based on these facts and circumstances, we recorded a non-cash goodwill impairment of $66.3 million.

Other Income (Expense)

Gain on debt extinguishment in 2008 of $0.2 million represents the gain recognized on the extinguishment of $104.5 million of our Senior Convertible Notes, which were purchased at a discount to par value, net of related deferred debt issuance costs.

Income Taxes

In 2008, we recognized income tax expense of $17.1 million compared to $8.4 million in 2007.  The effective rate for 2008 was (15.7%).  This rate differs from the U.S. federal statutory rate of 35% primarily due to the recognition of a full valuation allowance against our net deferred tax asset and the write-off of non-deductible goodwill.  As of December 31, 2008, we had $93.1 million of remaining U.S. federal income tax net operating loss carryforwards, which will expire in 2022 if unused, and which may be subject to other limitations on use under IRS rules.

Liquidity and Capital Resources

Capital Structure

The year ending December 2009 was a challenging year for the trailer industry as the factors negatively impacting demand for new trailers became more intense and pervasive across the United States.  As a result, the already difficult conditions within the industry became progressively more challenging, and our revenue and gross profits were significantly reduced from previous years.  As a result of these economic conditions, our financial position and liquidity were negatively impacted, including events of default which occurred under our previous revolving credit facility.  In light of the economic conditions, the decline in our operating results and the instability in the capital markets, on July 17, 2009, we entered into a Securities Purchase Agreement with Trailer Investments pursuant to which Trailer Investments purchased 20,000 shares of Series E Preferred, 5,000 shares of Series F Preferred, and 10,000 shares of Series G Preferred for an aggregate purchase price of $35.0 million.  Trailer Investments also received a warrant that is exercisable at $0.01 per share for 24,762,636 newly issued shares of our common stock representing, on August 3, 2009, the date the warrant was delivered, 44.21% of our issued and outstanding common stock after giving effect to the issuance of the shares underlying the warrant, subject to upward adjustment to maintain that percentage if currently outstanding options are exercised. The number of shares of common stock subject to the warrant is also subject to upward adjustment to an amount equivalent to 49.99% of the issued and outstanding common stock outstanding immediately after the closing after giving effect to the issuance of the shares underlying the warrant in specified circumstances where we lose the ability to utilize our net operating loss carryforwards, including as a result of a stockholder acquiring greater than 5% of our outstanding common stock.  Of the aggregate amount of $35.0 million received, approximately $13.2 million was attributed to the warrant and $21.8 million was attributed to the preferred stock based on the estimated fair values of these instruments as of the date of issuance.  The difference between the initial value and the liquidation value of the Preferred Stock, including issuance costs of approximately $2.8 million, will be accreted as preferred stock dividends over a period of five years using the effective interest method.

The Series E Preferred, Series F Preferred and Series G Preferred pay an annual dividend rate of 15%, 16% and 18%, respectively.  The dividend on each series of Preferred Stock is payable quarterly and subject to increase by 0.5% every quarter if the applicable series of Preferred Stock is still outstanding after August 3, 2014.  During the first two years following the issuance of the Preferred Stock, we may elect to accrue these dividends unpaid in which these unpaid dividends accrue dividends.  Accordingly, the unpaid accrued dividends as of December 31, 2009 have been reflected in Preferred Stock on our consolidated balance sheet.  The unpaid dividends, including the additional dividends accrued as a result of previously unpaid dividends, are not required to be repaid until redemption of the Preferred Stock, but is not precluded from being paid prior to redemption without penalty, at our discretion.  Additionally, the Preferred Stock restricts our ability to declare or pay cash dividends to the holders of common stock so long as any shares of the Preferred Stock remain outstanding unless otherwise approved by the majority of the holders of the outstanding Preferred Stock.

 
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The Preferred Stock also provides the holders with certain rights including an increase in the dividend rate upon the occurrence of any event of noncompliance.

We may at any time after one year from the date of issuance redeem all or any portion of the Preferred Stock with a liquidation value of $1,000 per share including a premium adjustment ranging between 15% and 20% if redemption occurs before August 3, 2014.  The premium for early redemption would be applied to the sum of the liquidation value and any accrued and unpaid dividends, except as previously discussed.

Upon occurrence of a change of control of the Company, including if more than 50% of the voting power is transferred or acquired by any person other than Trailer Investments and its affiliates unless Trailer Investments or its affiliates acquire the Company, the Preferred Stock becomes immediately redeemable at the election of the holder at the liquidation value plus a premium of 200% of the sum of the liquidation price plus all accrued and unpaid dividends for Series E Preferred and Series F Preferred and at the liquidation value plus a premium of 225% for Series G Preferred.  The change of control provisions for the Preferred Stock are subject to a look-back provision, whereby if the shares of Preferred Stock are redeemed pursuant to the voluntary redemption provisions within 12 months prior to the occurrence of a change of control, we would still have to pay the additional amount to the holders of the Preferred Stock that was redeemed so that such holders would receive the aggregate payments equal to the change of control redemption amounts.

The warrant contains several conditions, including, among other things, an upward adjustment of shares upon the occurrence of certain contingent events and an option by the holder to settle the warrant for cash in event of a specific default.  These provisions result in the classification of the warrant as a liability that is adjusted to fair value at each balance sheet date.   If the option to settle the warrant for cash is required, it would have a material adverse impact on our liquidity.

The warrant liability was recorded initially at fair value with subsequent changes in fair value reflected in earnings.  Estimating fair values of the warrants requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors.  In addition, option-based techniques are highly volatile and sensitive to changes in the trading market price of our common stock, which has a high historical volatility.  Since derivative financial instruments are initially and subsequently carried at fair value, our Statements of Operations will reflect the volatility in these estimate and assumption changes.  The fair value of the warrant was estimated using a binomial valuation model.

In accordance with the Securities Purchase Agreement, Trailer Investments has the right to nominate five out of twelve members of our board of directors. Furthermore, Trailer Investments also has the following rights: rights to information delivery and access to information and our management team; veto rights over certain significant aspects of our operations and business, including payments of dividends, issuance of our securities, incurrence of indebtedness, liquidation and sale of assets, changes in the size of our board of directors, amendments of organizational documents of the Company and its subsidiaries and other material actions by the Company,  subject to certain thresholds and limitations; right of first refusal to participate in any future private financings; and certain other customary rights granted to investors in similar transactions. We were also required to promptly file a registration statement to permit resale of the warrant shares to the maximum extent possible, and that registration statement became effective on December 8, 2009.

As of December 31, 2009, our debt to equity ratio was approximately 0.6:1.0.  Our long-term objective is to generate operating cash flows sufficient to fund normal working capital requirements, to fund capital expenditures and to be positioned to take advantage of market opportunities.  For 2010 we expect to fund operating results, working capital requirements and capital expenditures through cash flows from operations as well as available borrowings under our Revolving Facility.
 
 
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Debt Agreements

Concurrent with entering into the Securities Purchase Agreement, on July 17, 2009, we entered into a Third Amended and Restated Loan and Security Agreement (the “Amended Facility”) with our lenders, effective August 3, 2009, with a maturity date of August 3, 2012.  The Amended Facility is guaranteed by certain subsidiaries of ours and secured by substantially all of our assets.  The Amended Facility has a capacity of $100 million, subject to a borrowing base, a $12.5 million reserve and other discretionary reserves.  The Amended Facility amends and restates our previous revolving credit facility, and our lenders waived certain events of default that had occurred under the previous revolving credit facility and waived the right to receive default interest during the time the events of default had continued.

The interest rate on borrowings under the Amended Facility from the date of effectiveness, or August 3, 2009, through July 31, 2010 is LIBOR plus 4.25% or the prime rate of Bank of America, N.A. (the “Prime Rate”) plus 2.75%.  After July 31, 2010, the interest rate is based upon average unused availability and will range between LIBOR plus 3.75% to 4.25% or the Prime Rate plus 2.25% to 2.75%.  We are required to pay a monthly unused line fee equal to 0.375% times the average daily unused availability along with other customary fees and expenses of our agent and lenders.  All interest and fees are paid monthly.

The Amended Facility contains customary representations, warranties, affirmative and negative covenants, including, without limitation, restrictions on mergers, dissolutions, acquisitions, indebtedness, affiliate transactions, the occurrence of liens, payments of subordinated indebtedness, disposition of assets, leases and changes to organizational documents.

Under the Amended Facility, we may not repurchase or redeem our common stock and may not pay cash dividends to our common stockholders until the second anniversary of the effectiveness of the Amended Facility, or August 3, 2011, and then only if (i) no default or events of default are then in existence or would be caused by such purchase, redemption or payment, (ii) immediately after such purchase, redemption or payment, we have unused availability of at least $40 million, (iii) the amount of all cash dividends paid does not exceed $20 million in any fiscal year and (iv) at least 5 business days prior to the purchase, redemption or payment, any one of our officers has delivered a certificate to our lenders certifying that the conditions precedent in clauses (i)-(iii) have been satisfied.  We are, however, permitted to repurchase stock from employees upon termination of their employment so long as no default or event of default exists at the time or would be caused by such repurchase and such repurchases do not exceed $2.5 million in any fiscal year.

In addition, we may not repurchase or redeem the Preferred Stock and may not pay cash dividends to the holders of the Preferred Stock until July 1, 2010. At any time after July 1, 2010 until the second anniversary of the effectiveness of the Amended Facility, we may pay cash dividends or redeem or repurchase the Preferred Stock if (i) no default or events of default are then in existence or would be caused by such purchase, redemption or payment, (ii) immediately after such purchase, redemption or payment, we have unused availability of at least $25 million and (iii) at least 5 business days prior to the purchase, redemption or payment, any one of our officers has delivered a certificate to our lenders certifying that the conditions precedent in clauses (i)-(iii) have been satisfied. After the second anniversary of the effectiveness of the Amended Facility, the unused availability condition precedent is reduced to $12.5 million.

The Amended Facility contains customary events of default including, without limitation, failure to pay obligations when due under the Amended Facility, false and misleading representations, breaches of covenants (subject in some instances to cure and grace periods), defaults on certain other indebtedness, the occurrence of certain uninsured losses, business disruptions for a period of time that materially adversely affects the capacity to continue business on a profitable basis, changes of control and the incurrence of certain judgments that are not stayed, released or discharged within 30 days.

Cash Flow

Cash used in operating activities amounted to $7.0 million in 2009 as compared to $30.7 of cash provided by operations in 2008.  The use of cash from operating activities in 2009 was primarily the result of $45.1 million of net losses, adjusted for various non-cash activities, including depreciation, amortization, stock-based compensation and changes in the fair value of our warrant, offset by improvements in our working capital.  Changes in working capital accounted for a source of cash totaling $38.1 million in 2009 and $46.0 million in 2008.  The reduced sales volumes and purchasing activities due to the slow economy and our focus on working capital and liquidity management have yielded positive cash flow results.  Changes to key working capital accounts for 2009 compared to the prior year are summarized below (in millions):

 
32

 
 
   
2009
   
2008
   
Change
 
Accounts receivable
  $ 20.8     $ 30.8     $ (10.0 )
Inventories
    41.1       20.2       20.9  
Accounts payable and accrued liabilities
    (22.7 )     (5.7 )     (17.0 )
 
During 2009, accounts receivable decreased by $20.8 million as compared to a decrease of $30.8 million in 2008. The decrease for 2009 was primarily the result of the reduction in sales volumes as reported within our Consolidated Statements of Operations.  Days sales outstanding, a measure of working capital efficiency that measures the amount of time a receivable is outstanding, grew to approximately 21 days in 2009 compared to 16 days in 2008.  Inventory decreased $41.1 million during 2009 compared to a decrease of $20.2 million in 2008.  The inventory decrease for 2009 was due to lower new and used trailer inventories resulting from continued weak market demand as well as improvements in our inventory management system.  Inventory turns, a commonly used measure of working capital efficiency that measures how quickly inventory turns per year, was approximately five times in 2009 and seven times in 2008.  Accounts payable and accrued liabilities decreased $22.7 million in 2009 compared to a decrease of $5.7 million in 2008.  The decrease in the current year was primarily due to lower raw material and component part purchases as compared to the prior year due to lower production levels and the slow demand.  Days payable outstanding, a measure of working capital efficiency that measures the amount of time a payable is outstanding, was 31 days for 2009 compared to 16 days for 2008.

Investing activities used $0.7 million in 2009 compared to $12.4 million in the prior year.  The decrease of $11.7 million from the prior year was due to limiting capital spending to required replacement projects and cost reduction initiatives.  The 2008 period includes $2.8 million used to acquire certain equipment from Benson International LLC, a manufacturer of aluminum flatbeds, dump trailers and other truck bodies.

Financing activities used $21.0 million in 2009 as the proceeds received from the issuance of preferred stock and a warrant to Trailer Investments were more than offset by debt payments made on outstanding borrowings under the Amended Facility.  Dividend payments were suspended as of December 2008.

As of December 31, 2009, our liquidity position, defined as cash on hand and available borrowing capacity, net of availability reserves as established in our Amended Facility, amounted to approximately $21.0 million and total debt and capital lease obligations amounted to approximately $33.2 million.  As a result of the August 3, 2009 investment and concurrent with our Amended Facility, described in the Capital Structure section above, we believe our liquidity is adequate to meet our expected operating results, working capital needs and capital expenditures for 2010, a period of economic uncertainty.

In light of current uncertain market and economic conditions, we have and will continue to aggressively manage our cost structure, capital expenditures and cash position.  We implemented various cost reduction actions in 2009 that have substantially decreased our overhead and operating costs, including:

 
·
salaried workforce headcount reductions of approximately 150 associates, or 25%, bringing total salaried headcount reductions to over 40%, or approximately 250 associates, since the beginning of the industry downturn in early 2007;
 
·
a temporary 16.75% reduction in base salary for Executive Officers;
 
·
a temporary reduction of 15% of annualized base salary for all remaining exempt-level salaried associates, combined with a reduction in the standard work week for most from 40 hours to 36 hours;
 
·
a temporary reduction in the standard paid work week from 40 hours to 36 hours for all non-exempt associates;
 
·
a temporary 5% reduction in hourly wages;
 
·
a temporary 16.7% reduction of director cash compensation;
 
·
a temporary suspension of the 401(k) company match;
 
·
the introduction of a voluntary unpaid layoff program with continuation of benefits;
 
·
the continued close regulation of the work-day and headcount of hourly associates; and
 
·
the consolidation of our Transcraft production facilities to be completed in early 2010.

 
33

 
 
These actions are incremental to previous actions taken during this downturn, including idling of plants and assembly lines, consolidation and transformation initiatives at our Lafayette facility, salaried workforce reductions, reductions in total compensation awards to executives and other eligible participants, the suspension of any company match for non-qualified plan participants and the suspension of our quarterly dividend.

Capital Expenditures

Capital spending for 2009 amounted to $1.0 million and is anticipated to be approximately $2.0 million for 2010.  The spending for 2010 will be limited to the consolidation of our Transcraft production facilities, required replacement projects and cost reduction initiatives in efforts to manage cash flows and enhance liquidity.

Off-Balance Sheet Transactions

As of December 31, 2009, we had approximately $2.4 million in operating lease commitments.  We did not enter into any material off-balance sheet debt or operating lease transactions during the year.

Outlook

We continue to face uncertainty regarding the demand for trailers during the current economic environment. According to the most recent ACT estimates, total trailer industry shipments for 2010 are expected to be up 28% from 2009 to approximately 103,000 units. By product type, ACT is estimating that van trailer shipments will be up approximately 36% in 2010 compared to 2009. ACT is forecasting that platform trailer shipments will grow approximately 25% and dump trailer shipments will increase approximately 55% in 2010. For 2011, ACT estimates that shipments will grow approximately 64% to a total of 169,000 units. Downside concerns for 2010 relate to continued issues with the global economy, unemployment, tight credit markets, as well as depressed housing and construction-related markets in the U.S. Taking into consideration recent economic and industry forecasts, as well as discussions with customers and suppliers, management expects demand for new trailers to improve as we move through 2010 and the economy continues to improve. Even so, the trailer industry will continue to be challenged and, although our financial condition is expected to improve with increased volume, we expect to incur net losses in 2010, which will further reduce our stockholders’ equity.

We believe we are well-positioned for long-term growth in the industry because: (1) our core customers are among the dominant participants in the trucking industry; (2) our DuraPlate® trailer continues to have increased market acceptance; (3) our focus is on developing solutions that reduce our customers’ trailer maintenance costs; and (4) we expect some expansion of our presence into the mid-market carriers.

While our expectations for industry volumes are generally in line with those of ACT, pricing will continue to be difficult in 2010 due to overcapacity and fierce competitive activity.  In addition raw material and component costs are expected to rise as overall demand will drive an increase in prices as the economy improves.  As has been our policy, we will endeavor to pass along raw material and component price increases to our customers.  We have a focus on continuing to develop innovative new products that both add value to our customers’ operations and allow us to continue to differentiate our products from the competition in order to return to profitability.
 
 
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Contractual Obligations and Commercial Commitments

A summary of payments of our contractual obligations and commercial commitments, both on and off balance sheet, as of December 31, 2009 are as follows (in millions):

   
2010
   
2011
   
2012
   
2013
   
2014
   
Thereafter
   
Total
 
                                           
DEBT:
                                         
Revolving Facility (due 2012)
  $ -     $ -     $ 28.4     $ -     $ -     $ -     $ 28.4  
Capital Lease (including principal and interest)
    0.6       4.6       -       -       -       -       5.2  
TOTAL DEBT
  $ 0.6     $ 4.6     $ 28.4     $ -     $ -     $ -     $ 33.6  
                                                         
PREFERRED STOCK:
                                                       
Preferred Stock
  $ -     $ 3.8     $ 7.6     $ 7.6     $ 7.7     $ 47.2     $ 73.9  
TOTAL PREFERRED STOCK
  $ -     $ 3.8     $ 7.6     $ 7.6     $ 7.7     $ 47.2     $ 73.9  
                                                         
OTHER:
                                                       
Operating Leases
  $ 1.2     $ 0.5     $ 0.3     $ 0.3     $ 0.1     $ -     $ 2.4  
TOTAL OTHER
  $ 1.2     $ 0.5     $ 0.3     $ 0.3     $ 0.1     $ -     $ 2.4  
                                                         
OTHER COMMERCIAL COMMITMENTS:
                                                       
Letters of Credit
  $ 6.8     $ -     $ -     $ -     $ -     $ -     $ 6.8  
Purchase Commitments
    7.0       -       -       -       -       -       7.0  
TOTAL OTHER COMMERCIAL COMMITMENTS
  $ 13.8     $ -     $ -     $ -     $ -     $ -     $ 13.8  
                                                         
TOTAL OBLIGATIONS
  $ 15.6     $ 8.9     $ 36.3     $ 7.9     $ 7.8     $ 47.2     $ 123.7  

Scheduled payments for our Amended Facility exclude interest payments as rates are variable.  Borrowings under the Amended Facility bear interest at a variable rate based on the London Interbank Offer Rate (LIBOR) or a base rate determined by the lender’s prime rate plus an applicable margin, as defined in the agreement.  The interest rate on borrowings under the Amended Facility from the date of effectiveness, or August 3, 2009, through July 31, 2010 is LIBOR plus 4.25% or the prime rate plus 2.75%.  After July 31, 2010, the interest rate is based upon average unused availability and will range between LIBOR plus 3.75% to 4.25% and the prime rate plus 2.25% to 2.75%.

Obligations outstanding under our Preferred Stock that was issued pursuant to the Securities Purchase Agreement with Trailer Investments include annual dividend rates on the Series E Preferred, Series F Preferred and Series G Preferred of 15%, 16% and 18%, respectively.  The dividend on each series of Preferred Stock is payable quarterly and subject to increase by 0.5% every quarter if the applicable series of Preferred Stock is still outstanding after August 3, 2014.  During the first two years following the issuance of the Preferred Stock, we may elect and intend to accrue these dividends unpaid.  The Preferred Stock also provides the holders with certain rights including an increase in the dividend rate upon the occurrence of any event of noncompliance.  The contractual obligations assume redemption at January 1, 2015.  We may at any time after August 3, 2014 redeem all or a portion of the Preferred Stock at a liquidation value of $1,000 per share plus any accrued and unpaid dividends.

Operating leases represent the total future minimum lease payments.

We have $7.0 million in purchase commitments through December 2010 for aluminum, which is within normal production requirements.

Significant Accounting Policies and Critical Accounting Estimates

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

 
·
it requires us to make assumptions about matters that were uncertain at the time we were making the estimate; and
 
·
changes in the estimate or different estimates that we could have selected would have had a material impact on our financial condition or results of operations.
 
The table below presents information about the nature and rationale for our critical accounting estimates:
 
Balance Sheet
Caption
 
Critical Estimate
Item
 
Nature of Estimates
Required
 
Assumptions/
Approaches Used
 
 
Key Factors
                 
Other accrued liabilities and other non-current liabilities
 
Warranty
 
Estimating warranty requires us to forecast the resolution of existing claims and expected future claims on products sold.
 
We base our estimate on historical trends of units sold and payment amounts, combined with our current understanding of the status of existing claims, recall campaigns and discussions with our customers.
 
Failure rates and estimated repair costs
                 
Accounts receivable, net
 
Allowance for doubtful accounts
 
Estimating the allowance for doubtful accounts requires us to estimate the financial capability of customers to pay for products.
 
We base our estimates on historical experience, the time an account is outstanding, customer’s financial condition and information from credit rating services.
 
Customer financial condition
                 
Inventories
 
Lower of cost or market write-downs
 
We evaluate future demand for products, market conditions and incentive programs.
 
Estimates are based on recent sales data, historical experience, external market analysis and third party appraisal services.
 
Market conditions
 
Product type
                 
Property, plant and equipment, goodwill, intangible assets, and other assets
 
Valuation of long- lived assets and investments
 
We are required periodically to review the recoverability of certain of our assets based on projections of anticipated future cash flows, including future profitability assessments of various product lines.
 
We estimate cash flows using internal budgets based on recent sales data, and independent trailer production volume estimates.
 
Future production estimates
 
Discount rate
                 
Deferred income taxes
 
Recoverability of deferred tax assets  - in particular, net operating loss carry-forwards
 
We are required to estimate whether recoverability of our deferred tax assets is more likely than not based on forecasts of taxable earnings.
 
We use projected future operating results, based upon our business plans, including a review of the eligible carry-forward period, tax planning opportunities and other relevant considerations.
 
Variances in future projected profitability, including by taxing entity
 
Tax law changes
                 
Additional paid-in capital
 
Stock-based compensation
 
We are required to estimate the fair value of all stock awards we grant.
 
We use a binomial valuation model to estimate the fair value of stock awards.  We feel the binomial model provides the most accurate estimate of fair value.
 
Risk-free interest rate
 
Historical volatility
 
Dividend yield
 
Expected term

In addition, there are other items within our financial statements that require estimation, but are not as critical as those discussed above.  Changes in estimates used in these and other items could have a significant effect on our consolidated financial statements.  The determination of the fair market value of new and used trailers is subject to variation, particularly in times of rapidly changing market conditions.  A 5% change in the valuation of our new and used inventories would be approximately $3 million.

 
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Other

Inflation

We have historically been able to offset the impact of rising costs through productivity improvements as well as selective price increases.  As a result, inflation has not had, and is not expected to have, a significant impact on our business.

New Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board (the “FASB”) issued a statement on accounting standards codification.  The statement establishes the codification as the single official source of authoritative United States accounting and reporting standards for all non-governmental entities (other than guidance issued by the SEC).  The codification changes the referencing and organization on financial standards and is effective for interim and annual periods ending on or after September 15, 2009.  We began applying the codification to our disclosures in the third quarter of 2009.  As codification is not intended to change the existing accounting guidance, its adoption has not had an impact on our financial position, results of operations or cash flows.

In May 2009, the FASB issued a statement on subsequent events.  The statement establishes a general standard of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.  Specifically, the statement sets forth the period after the balance sheet date during which management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date.  In addition, we shall disclose the date through which subsequent events have been evaluated and whether that date is the date the financial statements were issued or the date the financial statements were available to be issued.  The requirements of the statement were effective for interim and annual financial periods ending after June 15, 2009.  We evaluated our December 31, 2009 consolidated financial statements for subsequent events through the date that our consolidated financial statements were filed with the SEC.  No subsequent events have taken place that meet the definition of a subsequent event that requires further disclosure in this filing.

In March 2008, the FASB issued a statement on derivative instruments and hedging activities.  The statement requires enhanced disclosures for derivative and hedging activities, including information that would enable financial statement users to understand how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for and how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows.  This statement was effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, and we adopted in the first quarter of 2009.  As the statement only requires enhanced disclosures, it has not had a material impact on our financial position, results of operations or cash flows.  See Note 3 of our consolidated financial statements for further discussion of derivative instruments and hedging activities.

In September 2006, the FASB issued a statement on fair value measurements.  The statement provides guidance for using fair value to measure assets and liabilities and only applies when other standards require or permit the fair value measurement of assets and liabilities.  It does not expand the use of fair value measurement.  In February 2008, the FASB announced that it was deferring the effective date to fiscal years beginning after November 15, 2008 for certain non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis.  For these financial and non-financial assets and liabilities that are remeasured at least annually, this statement was effective for fiscal years beginning after November 15, 2007.  Derivative instruments and hedging activities are carried at fair value.  The adoption of this statement has not had a material impact on our financial position, results of operations or cash flows.  See Note 4 of our consolidated financial statements for further discussion of fair value measurements.

In June 2008, the FASB issued a statement on determining whether instruments granted in share-based payment transactions are participating securities.  The statement identifies that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method.  This statement is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years.  All prior period earnings per share data presented shall be adjusted retrospectively to conform to the provisions of this statement.  While our computations of earnings per share have been retrospectively restated, the adoption of this statement did not have a material impact on our results of operations, financial position or earnings per share for any period presented.

 
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ITEM 7A—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

 
a.
Commodity Price Risks

We are exposed to fluctuation in commodity prices through the purchase of raw materials that are processed from commodities such as aluminum, steel, wood and polyethylene.  Given the historical volatility of certain commodity prices, this exposure can significantly impact product costs.  Historically, we have managed aluminum price changes by entering into fixed price contracts with our suppliers.  As of December 31, 2009, we had $7.0 million in raw material purchase commitments through December 2010 for materials that will be used in the production process.  We typically do not set prices for our products more than 45-90 days in advance of our commodity purchases and can, subject to competitive market conditions, take into account the cost of the commodity in setting our prices for each order.  To the extent that we are unable to offset the increased commodity costs in our product prices, our results would be materially and adversely affected.

 
b.
Interest Rates

As of December 31, 2009, we had $28.4 million of floating rate debt outstanding under our revolving facility.  A hypothetical 100 basis-point change in the floating interest rate from the current level would result in a corresponding $0.3 million change in interest expense over a one-year period.  This sensitivity analysis does not account for the change in the competitive environment indirectly related to the change in interest rates and the potential managerial action taken in response to these changes.

 
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ITEM 8—FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 
Pages
   
Report of Independent Registered Public Accounting Firm
40
   
Consolidated Balance Sheets as of December 31, 2009 and 2008
41
   
Consolidated Statements of Operations for the years ended December 31, 2009, 2008 and 2007
42
   
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2009, 2008 and 2007
43
   
Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007
44
   
Notes to Consolidated Financial Statements
45
 
 
39

 

 
Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of Wabash National Corporation:

We have audited the accompanying consolidated balance sheets of Wabash National Corporation as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2009.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Wabash National Corporation at December 31, 2009 and 2008, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Wabash National Corporation’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 25, 2010 expressed an unqualified opinion thereon.

 
ERNST & YOUNG LLP
 

Indianapolis, Indiana
March 25, 2010

 
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CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)

   
December 31,
 
   
2009
   
2008
 
ASSETS
           
CURRENT ASSETS:
           
Cash
  $ 1,108     $ 29,766  
Accounts receivable, net
    17,081       37,925  
Inventories
    51,801       92,896  
Prepaid expenses and other
    6,877       5,307  
Total current assets
    76,867       165,894  
                 
PROPERTY, PLANT AND EQUIPMENT, net
    108,802       122,035  
                 
INTANGIBLE ASSETS
    25,952       29,089