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| ACW > SEC Filings for ACW > Form 10-Q on 9-Aug-2012 | All Recent SEC Filings |
9-Aug-2012
Quarterly Report
The accompanying unaudited condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America and such principles are applied on a basis consistent with the information reflected in our Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations promulgated by the SEC. In the opinion of management, the interim financial information includes all adjustments and accruals, consisting primarily of normal recurring adjustments, which are necessary for a fair presentation of results for the respective interim periods. The results of operations for the three and six months ended June 30, 2012 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2012 or any interim period. Except for the historical information contained herein, this quarterly report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those indicated by such forward-looking statements.
Overview
We are one of the largest and most diversified manufacturers and suppliers of commercial vehicle components in North America. Our products include commercial vehicle wheels, wheel-end components and assemblies, truck body and chassis parts, and ductile and gray iron castings. We market our products under some of the most recognized brand names in the industry, including Accuride, Gunite, Imperial, and Brillion. We believe that we have number one or number two market positions in steel wheels, forged aluminum wheels, brake drums, disc wheel hubs, and metal bumpers for commercial vehicles. We serve the leading OEMs and their related aftermarket channels in most major segments of the commercial vehicle market, including heavy- and medium-duty trucks, commercial trailers, light trucks, buses, as well as specialty and military vehicles.
Our primary product lines are standard equipment used by a majority of North American heavy- and medium-duty truck OEMs, which creates a significant barrier to entry. We believe that substantially all heavy-duty truck models manufactured in North America contain one or more Accuride components.
Our diversified customer base includes substantially all of the leading commercial vehicle OEMs, such as Daimler Truck North America, LLC, with its Freightliner and Western Star brand trucks, PACCAR, with its Peterbilt and Kenworth brand trucks, Navistar, with its International brand trucks, and Volvo Group North America, with its Volvo and Mack brand trucks. Our primary commercial trailer customers include leading commercial trailer OEMs, such as Great Dane Limited Partnership, Utility Trailer Manufacturing Company, and Wabash National, Inc. Our major light truck customer is General Motors Corporation. Our product portfolio is supported by strong sales, marketing and design engineering capabilities and is manufactured in 15 strategically located, technologically-advanced facilities across the United States, Mexico and Canada.
The heavy- and medium-duty truck and commercial trailer markets and the related aftermarket are the primary drivers of our sales. These markets are, in turn, directly influenced by conditions in the North American truck industry and generally by conditions in other industries which indirectly impact the truck industry, such as the home-building industry, and by overall economic growth and consumer spending. Although current industry forecasts predict continued improvement in commercial vehicle production in 2012 as compared to 2011, commercial vehicle industry production forecasts have recently abated somewhat for Class 8 commercial vehicles. Based upon the overall commercial vehicle industry production forecasts, we expect results from operations to improve in 2012 compared to 2011 due to increased demand for our product and improved operational efficiencies. We cannot, however, accurately predict the commercial vehicle cycle, and any deterioration of the economic recovery may lead to further reduced spending and deterioration in the North American truck and vehicle supply industries for the foreseeable future.
On March 30, 2011, we, along with one other United States domestic commercial vehicle steel wheel supplier, filed antidumping and countervailing duty petitions with the United States International Trade Commission and the United States Department of Commerce alleging that manufacturers of certain steel wheels in China are dumping their products in the United States and that these manufacturers have been subsidized by their government in violation of United States trade laws. In May 2011, the International Trade Commission issued a preliminary determination that there was a reasonable indication that the U.S. steel wheel industry is materially injured or threatened with material injury by reason of imports from China of certain steel wheels, and began the final phase of its investigation. In August 2011, the U.S. Department of Commerce issued a preliminary determination of countervailing duties on steel wheels imported from China ranging from 26.2 percent to 46.6 percent ad valorem, and in October 2011, the U.S. Department of Commerce issued a preliminary determination of antidumping duty margins ranging from 110.6 percent to 243.9 percent ad valorem. On March 19, 2012, the Department of
Commerce made final determinations of dumping and subsidy margins which cumulatively were approximately 70 percent to 228 percent ad valorem. On April 17, 2012, the International Trade Commission determined that the domestic industry has not been injured and is not presently threatened with injury from subject imports, and consequently withdrew all import duties on the subject imports.
Results of Operations
Certain operating results from prior periods have been reclassified to
discontinued operations to conform to the current year presentation.
Comparison of Financial Results for the Three Months Ended June 30, 2012 and
2011
Three Months Ended June 30,
(In thousands) 2012 2011
Net sales $ 268,783 $ 241,872
Cost of goods sold 243,958 219,428
Gross profit 24,825 22,444
Operating expenses 15,233 13,984
Income from operations 9,592 8,460
Interest expense, net (8,658 ) (8,400 )
Other income (loss), net (436 ) 233
Income tax provision (benefit) 1,339 (107 )
Income (loss) from continuing operations (841 ) 400
Discontinued operations, net of tax - 877
Net income (loss) $ (841 ) $ 1,277
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Net Sales
Three Months Ended June 30,
(In thousands) 2012 2011
Wheels $ 112,881 $ 102,927
Gunite 67,280 67,093
Brillion 49,326 38,194
Imperial 39,296 33,658
Total $ 268,783 $ 241,872
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Our net sales for the three months ended June 30, 2012, were $268.8 million, which was an increase of 11.1 percent, compared to net sales of $241.9 million for the three months ended June 30, 2011. Of the total increase, approximately $15.1 million was a result of higher volume demand due to increased production levels of the commercial vehicle market and its aftermarket segments in North America. The increased vehicle production is a result of continued increased maintenance and replacement demand of commercial vehicles. The remaining $11.8 million increase of net sales recognized was related to higher pricing, which mostly represented a pass-through of increased raw material and commodity costs.
Net sales for our Wheels segment increased nearly 9.7 percent during the three months ended June 30, 2012 compared to the same period in 2011 primarily due to increased volume for all three major OEM segments. Net sales for our Gunite segment rose 0.3 percent due to $5.9 million in increased pricing related to a pass-through of raw material costs, partially offset by a reduction in sales units sold of $5.7 million. Our Gunite products have a higher concentration of aftermarket demand, primarily due to the brake drum products that Gunite produces, which are replaced more often than our other products. Our Brillion segment's net sales increased by 29.1 percent due to higher demand in the industrial and agricultural markets and increased pricing of approximately $3.8 million related to a pass-through of raw material costs. Net sales for our Imperial segment increased by 16.8 percent due to increased volume in Class 8 OEM production.
North American commercial vehicle industry production builds were, as follows:
For the three months ended June 30,
2012 2011
Class 8 78,070 60,542
Classes 5-7 50,284 44,620
Trailer 62,113 53,965
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While we serve the commercial vehicle aftermarket segment, there is no industry data to compare our aftermarket sales to industry demand from period to period.
Cost of Goods Sold
The table below represents the significant components of our cost of goods sold.
Three Months Ended June 30,
(In thousands) 2012 2011
Raw materials $ 132,490 $ 119,701
Depreciation 10,075 8,779
Labor and other overhead 101,393 90,948
Total $ 243,958 $ 219,428
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Raw materials costs increased by $12.8 million, or 10.7 percent, during the three months ended June 30, 2012 due to increases in sales volume of approximately 8.3 percent and price of approximately 2.4 percent. The price increases were primarily related to steel and aluminum, which represent nearly all of our material costs.
Depreciation increased by $1.3 million, or 14.8 percent during the three months ended June 30, 2012 due to the recent capital investments made.
Labor and overhead costs increased by 11.5 percent, which is slightly higher than the overall net sales volume increase of approximately 11.1 percent.
Operating Expenses
Three Months Ended June 30,
(In thousands) 2012 2011
Selling, general, and
administration $ 10,619 $ 10,312
Research and development 1,907 1,125
Depreciation and amortization 2,707 2,547
Total $ 15,233 $ 13,984
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Selling, general, and administrative costs increased by $0.3 million in 2012 compared to the same period in 2011. Research and development costs increased by $0.8 million due to increases in staff and travel expenses.
Depreciation and amortization expenses were impacted by divestiture and acquisition activities.
Operating Income (Loss)
Three Months Ended June 30,
(In thousands) 2012 2011
Wheels $ 16,106 $ 12,136
Gunite (1,875 ) 3,793
Brillion 7,598 689
Imperial (302 ) 1,762
Corporate/Other (11,935 ) (9,920 )
Total $ 9,592 $ 8,460
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Operating income for the Wheels segment was 14.3 percent of its net sales for the three months ended June 30, 2012 compared to 11.8 percent for the three months ended June 30, 2011. We continue to experience strong aluminum wheel demand, driven by fleet requirements to reduce operating costs and vehicle weight. We are supporting this mix shift with the additional capacity installed at our plants in 2011 and 2012. Additional planned investments in 2012-2013 will allow us to continue to meet future increases in aluminum wheel demand while we upgrade our steel wheel capabilities.
The operating income (loss) for the Gunite segment was (2.8) percent of its net sales for the three months ended June 30, 2012 and 5.7 percent for the three months ended June 30, 2011. During the three months ended June 30, 2012, Gunite experienced softening aftermarket demand for Gunite products and continued to be negatively impacted by low-cost imports from competitors. We expect Gunite's operating income to improve in the second half of 2012 as new equipment is launched that will improve operating efficiencies. Additionally, on July 25, 2012 we announced that the operations being conducted at Gunite's Elkhart, Indiana facility would be consolidated into Gunite's Rockford, Illinois facility and that we expected to close the Elkhart facility by the end of the first quarter of 2013. We expect to recognize approximately $3.0 million of costs related to the closure.
Operating income for the Brillion segment was 15.4 percent of its net sales for the three months ended June 30, 2012 compared to 1.8 percent for same period in 2011. Sales volume for our Brillion segment increased during 2012 as the industrial and agricultural markets continued to gain strength while increased pricing offset rising material costs. Brillion continues to benefit from strong market demand, enabling it to selectively target higher-margin business with industrial and off-road customers.
The operating income (loss) for the Imperial segment was (0.8) percent of its net sales for the three months ended June 30, 2012 and 5.2 percent for the three months ended June 30, 2011. Imperial made significant progress in eliminating its past-due position with customers. Now operationally stable, we expect the business to return to profitability in the second half of 2012.
The operating losses for the Corporate segment were 4.4 percent of consolidated net sales for the three months ended June 30, 2012 as compared to 4.1 percent for the comparative period in 2011. Increased costs related to engineering and supply chain were the primary drivers.
Interest Expense
Net interest expense increased $0.3 million to $8.7 million for the three months ended June 30, 2012 from $8.4 million for the three months ended June 30, 2011 due to increased debt in 2012 compared to 2011.
Discontinued Operations
Discontinued operations represent reclassification of operating results, including gain/loss on sale, for Fabco Automotive and Bostrom Seating, net of tax. The sales of Fabco and Bostrom occurred in 2011. We have reclassified prior period operating results, including the gain/loss on the sale transactions, to discontinued operations.
Comparison of Financial Results for the Six Months Ended June 30, 2012 and 2011
Six Months Ended June 30,
(In thousands) 2012 2011
Net sales $ 538,301 $ 452,767
Cost of goods sold 491,376 413,033
Gross profit 46,925 39,734
Operating expenses 30,097 29,833
Income from operations 16,828 9,901
Interest expense, net (17,403 ) (16,740 )
Other income (loss), net (279 ) 2,396
Income tax provision 2,936 392
Loss from continuing operations (3,790 ) (4,835 )
Discontinued operations, net of tax - 951
Net loss $ (3,790 ) $ (3,884 )
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Net Sales
Six Months Ended June 30,
(In thousands) 2012 2011
Wheels $ 229,825 $ 194,436
Gunite 135,843 126,324
Brillion 93,136 73,454
Imperial 79,497 58,553
Total $ 538,301 $ 452,767
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Our net sales for the six months ended June 30, 2012, were $538.3 million, which was an increase of 18.9 percent, compared to net sales of $452.8 million for the six months ended June 30, 2011. Of the total increase, approximately $58.0 million was a result of higher volume demand due to increased production levels of the commercial vehicle market and its aftermarket segments in North America. The increased vehicle production is a result of continued increased maintenance and replacement demand of commercial vehicles. The remaining $27.5 million increase of net sales recognized was related to higher pricing, which mostly represented a pass-through of increased raw material and commodity costs.
Net sales for our Wheels segment increased nearly 18.2 percent during the six months ended June 30, 2012 compared to the same period in 2011 primarily due to increased volume for all three major OEM segments. Net sales for our Gunite segment rose 7.5 percent due to approximately $13.8 million in increased pricing related to a pass-through of raw material costs. Our Gunite products have a higher concentration of aftermarket demand, primarily due to the brake drum products that Gunite produces, which are replaced more often than our other products. Our Brillion segment's net sales increased by 26.8 percent due to higher demand in the industrial and agricultural markets and increased pricing of approximately $7.1 million related to a pass-through of raw material costs. Net sales for our Imperial segment increased by 35.8 percent due to increased volume in Class 8 OEM production.
North American commercial vehicle industry production builds were, as follows:
For the six months ended June 30,
2012 2011
Class 8 155,771 111,959
Classes 5-7 98,521 84,301
Trailer 119,782 111,959
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While we serve the commercial vehicle aftermarket segment, there is no industry data to compare our aftermarket sales to industry demand from period to period.
Cost of Goods Sold
The table below represents the significant components of our cost of goods sold.
Six Months Ended June 30,
(In thousands) 2012 2011
Raw materials $ 263,472 $ 215,706
Depreciation 19,897 18,732
Labor and other overhead 208,007 178,595
Total $ 491,376 $ 413,033
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Raw materials costs increased by $47.8 million, or 22.1 percent, during the six months ended June 30, 2012 due to increases in sales volume of approximately 16.3 percent and price of approximately 5.8 percent. The price increases were primarily related to steel and aluminum, which represent nearly all of our material costs.
Depreciation increased by $1.2 million, or 6.2 percent during the six months ended June 30, 2012 due to the recent capital investments made.
Labor and overhead costs increased by 16.5 percent due to increased volume, which is lower than the overall net sales volume increase of approximately 18.9 percent due to the impact of certain of our costs (i.e. salaries, rent, etc.) being fixed in nature, as opposed to variable.
Operating Expenses
Six Months Ended June 30,
(In thousands) 2012 2011
Selling, general, and
administration $ 21,240 $ 21,368
Research and development 3,442 2,350
Depreciation and amortization 5,415 6,115
Total $ 30,097 $ 29,833
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Selling, general, and administrative costs decreased by $0.1 million in 2012. Research and development costs increased by $1.1 million due to increases in staff and travel expenses.
Depreciation and amortization expenses were impacted by divestiture and acquisition activities.
Operating Income (Loss)
Six Months Ended June 30,
(In thousands) 2012 2011
Wheels $ 34,548 $ 23,624
Gunite (4,043 ) 2,076
Brillion 10,771 1,422
Imperial (821 ) 2,891
Corporate/Other (23,627 ) (20,112 )
Total $ 16,828 $ 9,901
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Operating income for the Wheels segment was 15.0 percent of its net sales for the six months ended June 30, 2012 compared to 12.2 percent for the six months ended June 30, 2011. We continue to experience strong aluminum wheel demand, driven by fleet requirements to reduce operating costs and vehicle weight. We are supporting this mix shift with the additional capacity installed at our plants in 2011 and 2012. Additional planned investments in 2012-2013 will allow us to continue to meet future increases in aluminum wheel demand while we upgrade our steel wheel capabilities.
The operating income (loss) for the Gunite segment was (3.0) percent of its net sales for the six months ended June 30, 2012 and 1.6 percent for the six months ended June 30, 2011. During the six months ended June 30, 2012, Gunite benefited from steadily improving operational performance and higher pricing, as well as the elimination of customer-required on-site third-party inspections stemming from Gunite's quality management issues in 2011. These were offset by softening aftermarket demand for Gunite products and the impact of low-cost imports from competitors.
Operating income for the Brillion segment was 11.6 percent of its net sales for the six months ended June 30, 2012 compared to 1.9 percent for same period in 2011. Sales volume for our Brillion segment increased during 2012 as the industrial and agricultural markets continued to gain strength while increased pricing offset rising material costs. The increase in sales volume was the primary reason for improved operating income for Brillion.
The operating income (loss) for the Imperial segment was (1.0) percent of its net sales for the six months ended June 30, 2012 and 4.9 percent for the six months ended June 30, 2011.
The operating losses for the Corporate segment were 4.4 percent of consolidated net sales for the six months ended June 30, 2012 as compared to 4.4 percent for the comparative period in 2011.
Interest Expense
Net interest expense increased $0.7 million to $17.4 million for the six months ended June 30, 2012 from $16.7 million for the six months ended June 30, 2011 due to increased debt in 2012 compared to 2011.
Income Tax Provision
Our income tax provision of $2.9 million in the six months ended June 30, 2012 was $2.5 million higher than our provision for the six months ended June 30, 2011 due to higher income in non-U.S. operations and less income in our U.S. operations, which carry a valuation allowance against the deferred assets.
Discontinued Operations
Discontinued operations represent reclassification of operating results, including gain/loss on sale, for Fabco Automotive and Bostrom Seating, net of tax. The sales of Fabco and Bostrom occurred in 2011. We have reclassified prior period operating results, including the gain/loss on the sale transactions, to discontinued operations.
Changes in Financial Condition
At June 30, 2012, we had total assets of $884.3 million, compared to total assets of $868.9 million at December 31, 2011. The $15.4 million, or 1.8%, increase in total assets primarily resulted from changes in working capital and capital investments partially offset by a reduction in cash. We define working capital as current assets (excluding cash) less current liabilities.
We use working capital and cash flow measures to evaluate the performance of our operations and our ability to meet our financial obligations. We require working capital investment to maintain our position as a leading manufacturer and supplier of commercial vehicle components. We continue to strive to align our working capital investment with our customers' purchase requirements and our production schedules.
The following table summarizes the major components of our working capital as of the periods listed below:
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