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ACW > SEC Filings for ACW > Form 10-Q on 9-Aug-2013All Recent SEC Filings

Show all filings for ACCURIDE CORP

Form 10-Q for ACCURIDE CORP


9-Aug-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The accompanying unaudited condensed consolidated financial statements are prepared in conformity with U.S. GAAP and such principles are applied on a basis consistent with the information reflected in our Annual Report on Form 10-K for the year ended December 31, 2012 filed with the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP 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, 2013 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2013 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 (through July 31, 2013), 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 (through July 31, 2013) 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 and trailer 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 through July 31, 2013, was manufactured in 13 strategically located, technologically-advanced facilities across the United States, Mexico and Canada. Subsequent to the sale of our Imperial business, we manufacture our products in eight facilities.

The heavy- and medium-duty truck and commercial trailer markets, the related aftermarket, and the global industrial and agricultural markets 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. Current industry forecasts predict an increase in commercial vehicle production in the second half of 2013. Based upon the overall commercial vehicle industry production forecasts, we expect results from operations to improve in the second half of 2013 compared to 2012. We cannot, however, accurately predict the commercial vehicle cycle and other markets we serve, 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. Additionally, as previously disclosed, our Gunite business lost primary position with two of our OEMs in the fourth quarter of 2012, which impacted our operating results in the second quarter and is expected to continue to impact operating results for the remainder of 2013. Further, broader economic weaknesses in industrial manufacturing impacted our Brillion business through reduced customer orders during the first six months of 2013 and are expected to continue through the second half of 2013. In response to these conditions, we are working to control costs while positioning the business for the expected North American class 8 market recovery in the second half of the year. In addition, on July 11, 2013, we entered into a new senior secured asset-based lending facility (the "New ABL Facility") and used borrowing under that facility and cash on hand to repay all amounts outstanding under the Prior ABL Facility, and to pay related fees and expenses. For additional information on our New ABL Facility, see "Capital Resources and Liquidity-Bank Borrowing.

On August 1, 2013, the Company announced that it completed the sale of substantially all of the assets of its Imperial Group business to Imperial Group Manufacturing, Inc., a new company formed and capitalized by Wynnchurch Capital for total cash consideration of $30.0 million at closing, plus a contingent earn-out totaling up to $2.25 million.


Table of Contents

Results of Operations

The following tables set forth certain income statement information for Accuride
for the three months ended June 30, 2013 and June 30, 2012


                                     Three Months Ended June 30,
(In thousands)                        2013                 2012
Net sales                        $      211,318       $      268,783
Cost of goods sold                      192,871              243,958
Gross profit                             18,447               24,825
Operating expenses                       12,747               15,233
Income from operations                    5,700                9,592
Interest expense, net                    (9,157 )             (8,658 )
Other income (loss), net                   (441 )               (436 )
Income tax provision (benefit)            1,464                1,339
Net loss                         $       (5,362 )     $         (841 )

Net Sales

                     Three Months Ended June 30,
(In thousands)        2013                 2012
Wheels           $       99,468       $      112,881
Gunite                   51,207               67,280
Brillion                 29,266               49,326
Imperial                 31,377               39,296
Total            $      211,318       $      268,783

Our net sales for the three months ended June 30, 2013, were $211.3 million, which was a decrease of 21.4 percent, compared to net sales of $268.8 million for the three months ended June 30, 2012. Of the total decrease, approximately $53.7 million was a result of a decline in volume demand due to decreased production levels of the commercial vehicle market and its aftermarket segments in North America, as well as reduced sales from our Gunite segment due to the loss of OEM business, and decreased demand from the industrial market served by our Brillion segment. The decreased vehicle production is a result of continued soft market conditions for commercial vehicles. The remaining $3.8 million decrease of net sales recognized was related to pricing, which primarily represented a pass-through of changing raw material and commodity costs.

Net sales for our Wheels segment decreased 11.9 percent during the three months ended June 30, 2013 compared to the same period in 2012 primarily due to decreased volume from its OEM customers. Net sales for our Gunite segment dropped 23.9 percent due to loss of standard position at two of its major OEM customers along with a lower demand in the aftermarket. 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 decreased by 40.7 percent due to lower demand in the industrial and agricultural markets and decreased pricing. Net sales for our Imperial segment decreased by 20.2 percent due to decreased volume in Class 8 OEM production.


Table of Contents

North American commercial vehicle industry production builds as reported by ACT Publications were as follows:

For the three months ended June 30,

                     2013                       2012
Class 8                   65,303                     75,737
Classes 5-7               50,321                     46,857
Trailer                   63,565                     62,200

While we serve the commercial vehicle aftermarket segment, there is no industry data that would enable a comparison of 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)                                                      2013                 2012
Raw materials                                                  $       99,414       $      132,490
Depreciation                                                            8,690               10,075
Labor and other overhead                                               84,767              101,393
Total                                                          $      192,871       $      243,958

Raw materials costs decreased by $33.1 million, or 25.0 percent, during the three months ended June 30, 2013 due to decreases in sales volume of approximately 21.6 percent and price of approximately 3.4 percent. The price decreases were primarily related to steel and aluminum, which represent the majority of our material costs.

Depreciation decreased by $1.4 million, or 13.8 percent during the three months ended June 30, 2013 primarily due to the reduction in depreciable assets that was a result of an impairment of fixed assets in the fourth quarter of 2012 related to our Gunite business segment.

Labor and overhead costs decreased by $16.6 million, or 16.4 percent, which is lower than the overall net sales volume decrease of approximately 5.0 percent due to fixed costs.

Operating Expenses

                                                                   Three Months Ended June 30,
(In thousands)                                                      2013                 2012
Selling, general, and
administration                                                 $        9,222       $       10,619
Research and development                                                1,263                1,907
Depreciation and amortization                                           2,262                2,707
Total                                                          $       12,747       $       15,233

Selling, general, and administrative costs decreased by $1.4 million in 2013 compared to the same period in 2012 primarily due to reductions in spending and staffing. Depreciation and amortization expenses were reduced due to the decreased intangible assets at Gunite resulting from the impairment recognized during the fourth quarter of 2012.

Operating Income (Loss)

                                                     Three Months Ended June 30,
(In thousands)                                        2013                 2012
Wheels                                           $       11,751       $       16,106
Gunite                                                    3,323               (1,875 )
Brillion                                                  1,855                7,598
Imperial                                                   (284 )               (302 )
Corporate/Other                                         (10,945 )            (11,935 )
Total                                            $        5,700       $        9,592

Operating income for the Wheels segment was 11.8 percent of its net sales for the three months ended June 30, 2013 compared to 14.3 percent for the three months ended June 30, 2012. Despite lower overall year-over-year sales demand, we continue to see stronger demand for aluminum wheels being driven by the commercial vehicle fleets' desire to reduce fuel and maintenance costs, along with total vehicle weight.

The operating income (loss) for the Gunite segment was 6.5 percent of its net sales for the three months ended June 30, 2013 and (2.8) percent for the three months ended June 30, 2012. During the three months ended June 30, 2013, Gunite experienced increased efficiencies from the operational restructuring that began during 2012.

Operating income for the Brillion segment was 6.3 percent of its net sales for the three months ended June 30, 2013 compared to 15.4 percent for same period in 2012. Sales volume for our Brillion segment decreased significantly during 2013 as the global industrial and agricultural market softened. Although costs were controlled, the fixed cost impact on the much lower sales brought the profitability down for the quarter.

The operating loss for the Imperial segment was 0.9 percent of its net sales for the three months ended June 30, 2013 and 0.8 percent for the three months ended June 30, 2012. Significant reduction in sales demand continued to reduce earnings at the Imperial segment level.

The operating losses for the Corporate segment were 5.2 percent of consolidated net sales for the three months ended June 30, 2013 as compared to 4.4 percent for the comparative period in 2012. Overall, our Corporate costs have been reduced through less spending and reduced staffing costs.


Table of Contents

Comparison of Financial Results for the Six Months Ended June 30, 2013 and 2012


                             Six Months Ended June 30,
(In thousands)                 2013               2012
Net sales                  $     403,778       $  538,301
Cost of goods sold               380,245          491,376
Gross profit                      23,533           46,925
Operating expenses                23,822           30,097
Income from operations              (289 )         16,828
Interest expense, net            (17,851 )        (17,403 )
Other income (loss), net            (296 )           (279 )
Income tax provision               2,873            2,936
Net loss                   $     (21,309 )     $   (3,790 )

Net Sales

                   Six Months Ended June 30,
(In thousands)       2013               2012
Wheels           $     192,630       $  229,825
Gunite                  90,603          135,843
Brillion                59,695           93,136
Imperial                60,850           79,497
Total            $     403,778       $  538,301

Our net sales for the six months ended June 30, 2013, were $403.8 million, which was a decrease of 25.0 percent, compared to net sales of $538.3 million for the six months ended June 30, 2012. Of the total decrease, approximately $128.2 million was a result of lower volume demand due to decreased production levels of the commercial vehicle market and its aftermarket segments in North America, as well as reduced sales by our Gunite business unit due to the loss of OEM business. The remaining $6.2 million decrease of net sales recognized was related to lower pricing, which primarily represented a pass-through of changing raw material and commodity costs.

Net sales for our Wheels segment decreased nearly 16.2 percent during the six months ended June 30, 2013 compared to the same period in 2012 primarily due to decreased volume from its OEM customers. Net sales for our Gunite segment dropped 33.3 percent due to the loss of standard position at two of its major OEM customers along with lower demand in the aftermarket. Our Gunite products have a higher concentration of aftermarket demand, primarily due to the brake drum products, which are replaced more often than our other products. Our Brillion segment's net sales decreased by 35.9 percent due to lower demand in the global industrial and agricultural markets. Net sales for our Imperial segment decreased by 23.5 percent due to decreased volume in Class 8 OEM production.


Table of Contents

North American commercial vehicle industry production builds as reported by ACT Publications were as follows:

For the six months ended June 30,

                    2013                   2012
Class 8                121,559                151,694
Classes 5-7             94,058                 93,366
Trailer                122,331                120,136

While we serve the commercial vehicle aftermarket segment, there is no industry data that would enable a comparison of 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)                                                     2013               2012
Raw materials                                                  $     195,117       $  263,472
Depreciation                                                          17,845           19,897
Labor and other overhead                                             167,283          208,007
Total                                                          $     380,245       $  491,376

Raw materials costs decreased by $68.4 million, or 25.9 percent, during the six months ended June 30, 2013 due to decreases in sales volume of approximately 26.2 percent and offset by price reductions of approximately 0.3 percent. The price reductions were primarily related to steel and aluminum, which represent the majority of our material costs.

Depreciation decreased by $2.1 million, or 10.3 percent during the six months ended June 30, 2013 primarily due to the reduction in depreciable assets that was a result of an impairment of fixed assets in the fourth quarter of 2012 related to our Gunite segment.

Labor and overhead costs decreased by $40.7 million, or 19.6 percent due to decreased volume, which is lower than the overall net sales volume decrease of approximately 25.0 percent due to operational efficiencies.

Operating Expenses

                                                                   Six Months Ended June 30,
(In thousands)                                                     2013                2012
Selling, general, and
administration                                                 $      16,762       $      21,240
Research and development                                               2,522               3,442
Depreciation and amortization                                          4,538               5,415
Total                                                          $      23,822       $      30,097

Selling, general, and administrative costs decreased by $4.5 million and research and development costs decreased by $0.9 million due to reductions in staffing and general spending.

Depreciation and amortization expenses were impacted comparatively due to the impairment at our Gunite segment during the fourth quarter of 2012.

Operating Income (Loss)

                                                   Six Months Ended June 30,
(In thousands)                                       2013               2012
Wheels                                           $      17,494       $   34,548
Gunite                                                   1,546           (4,043 )
Brillion                                                 2,430           10,771
Imperial                                                (1,501 )           (821 )
Corporate/Other                                        (20,258 )        (23,627 )
Total                                            $        (289 )     $   16,828

Operating income for the Wheels segment was 9.1 percent of its net sales for the six months ended June 30, 2013 compared to 15.0 percent for the six months ended June 30, 2012 due to lower earnings contributions from lower sales demand. Despite lower year-over-year build rates, we continue to experience strong aluminum wheel demand, driven by fleet requirements to reduce operating costs and vehicle weight.

The operating income (loss) for the Gunite segment was 1.7 percent of its net sales for the six months ended June 30, 2013 and (3.0) percent for the six months ended June 30, 2012. During the six months ended June 30, 2013, Gunite experienced increased efficiencies from operational restructuring in 2012.

Operating income for the Brillion segment was 4.1 percent of its net sales for the six months ended June 30, 2013 compared to 11.6 percent for same period in 2012. Sales volume for our Brillion segment decreased during 2013 as the global industrial and agricultural markets softened.

The operating loss for the Imperial segment was 2.5 percent of its net sales for the six months ended June 30, 2013 and 1.0 percent for the six months ended June 30, 2012. Significant reduction in sales demand continued to reduce earnings at the Imperial segment level.

The operating losses for the Corporate segment were 5.0 percent of consolidated net sales for the six months ended June 30, 2013 as compared to 4.4 percent for the comparative period in 2012. Despite the percentage increase, these results reflect a cost reduction of $3.4 million related to reduced spending and staffing costs.


Table of Contents

Changes in Financial Condition

As of June 30, 2013, we had total assets of $689.8 million, compared to total assets of $677.8 million at December 31, 2012. The $12.0 million, or 2.0%, increase in total assets primarily resulted from changes in working capital, offset by cash inflows from aluminum wheel manufacturing equipment sale/leaseback transactions. 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:

                                    June 30,       December 31,
(In thousands)                        2013             2012
Accounts receivable                $   91,984     $       64,596
Inventories                            58,525             61,192
Deferred income taxes (current)         4,592              4,591
Other current assets                   11,626              5,584
Accounts payable                      (72,174 )          (59,181 )
Accrued payroll and compensation       (9,960 )          (10,726 )
Accrued interest payable              (12,634 )          (12,543 )
Accrued workers compensation           (4,344 )           (5,868 )
Other current liabilities            (17, 516 )          (18,443 )
Working Capital                    $   50,099     $       29,202

Significant changes in working capital included:
an increase in receivables of $27.4 million due to the comparative increase in revenue in the months leading up to the respective period-end dates;

an decrease in inventory of 2.6 million due to operational improvements; and

an increase in accounts payable of $13.0 million primarily due to improved payment terms and timing of purchases leading to the end of the respective periods.


Table of Contents

Capital Resources and Liquidity

Our primary sources of liquidity during the six months ended June 30, 2013 were cash reserves, proceeds from our Prior ABL Facility, and proceeds from sale leaseback transactions. As of June 30, 2013, we had $32.9 million of cash plus $41.2 million in availability under our New ABL Facility for a total liquidity of $74.1 million. Total liquidity as of December 31. 2012 was $64.0 million.

We believe that cash from operations, existing cash reserves, and our New ABL facility will provide adequate funds for our working capital needs, planned capital expenditures and cash interest payments through 2013 and the foreseeable future.

However, our ability to fund working capital needs, planned capital expenditures, scheduled semi-annual interest payments, and to comply with any financial covenants under our New ABL Facility depends on our future operating performance and cash flow, which in turn, are subject to prevailing economic conditions and to financial, business and other factors, some of which are beyond our control.

Operating Activities

Net cash provided (used) by operating activities during the six months ended June 30, 2013 amounted to $(12.4) million compared to a use of cash of $3.4 million for the period ended June 30, 2012. The use of cash in 2013 was a result of increased working capital requirements, primarily receivables, which are expected in an environment of increasing product demand. During a period of increasing sales demand, our working capital needs also generally rise. Also, an increase in prepaid expenses resulting from our operating leases of $4.9 million was reflected in the operating activities.

Investing Activities

Net cash used in investing activities totaled $6.5 million for the six months ended June 30, 2013 compared to a use of $24.7 million for the period ended June 30, 2012. Our most significant cash outlays for investing activities are the purchases of property, plant and equipment. During the six months ended June 30, 2013, we entered into two sale/leaseback agreements for manufacturing equipment, and as a result, had cash inflows of $15.3 million from the gross proceeds of the sale of the equipment. The leases are classified as operating leases. During the six months ended June 30, 2013, we entered into two sale-leaseback . . .

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