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ACW > SEC Filings for ACW > Form 10-Q on 8-Nov-2013All Recent SEC Filings

Show all filings for ACCURIDE CORP

Form 10-Q for ACCURIDE CORP


8-Nov-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 nine months ended September 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 manufacturers and suppliers of commercial vehicle components in North America. Our products include commercial vehicle wheels, wheel-end components and assemblies, and ductile and gray iron castings. We market our products under some of the most recognized brand names in the industry, including Accuride, Gunite, and Brillion. 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.

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 eight strategically located, technologically-advanced facilities across the United States, Mexico and Canada.

The heavy- and medium-duty truck and commercial trailer markets, the related aftermarket, and the global industrial, construction, and mining, markets are the primary drivers of our sales. The commercial vehicle manufacturing and replacement part 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. The global industrial, construction, and mining markets are driven by more macro- and global economic conditions, such as coal, oil and gas exploration, demand for mined products that are converted into industrial raw materials such as steel, iron and copper, and global construction trends. The North American commercial vehicle and global industrial and construction markets continue to show softness, which we expect to continue through the fourth quarter of 2013 and into 2014. We cannot, however, accurately predict the North American commercial vehicle and global industrial and commercial markets. Additional deterioration of the economic recovery may lead to further reduced spending and deterioration in our end markets.

Our markets and those of our customers are becoming increasingly competitive as global and North American economic recoveries remain sluggish. In the North American commercial vehicle market, OEMs are competing to maintain or increase market share in the face of evolving emissions regulations, increasing customer emphasis on light weight and fuel efficient platforms and a tepid economic recovery that is holding new equipment purchases at replacement (rather than expansionary) levels. Shifts in the market share held by each of our OEM customers impact our business to varying degrees depending on whether our products are designated as standard or optional equipment on the various platforms at each OEM. Recently, a number of platforms on which our products are standard equipment have lost market share, which has impacted our business. We are also continuing to see the impacts of low cost country sourced products in our markets, which has particularly impacted the aftermarket for steel wheels and brake drums and has further impacted our Gunite business through the loss of primary position with two of our OEMs in 2012 as previously disclosed. Further, broader economic weaknesses in industrial manufacturing impacted our Brillion business through reduced customer orders during the first nine months of 2013. We expect this weakness and lower demand in Brillion's markets to continue through the remainder of 2013 and into 2014.

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In response to these conditions, we are working to increase our market share and to control costs while positioning our businesses to compete at current demand levels and still maintain capacity to meet the recoveries in our markets as they occur, which history has shown can be swift and steep. For example, we have implemented lean manufacturing practices across our facilities, which have resulted in reduced working capital levels that free up cash for other priorities. We have also completed most of our previously disclosed capital investment projects that have selectively increased our manufacturing capacity on core products, reduced labor and manufacturing costs and improved product quality. Additionally, we have introduced and will continue to develop and roll-out new products and technologies that we believe offer better value to customers. Further, we have been pursuing new business opportunities at OEM customers and working to increase our market share at OEMs by developing our relationships with large fleets in order to "pull through" our products when they order new equipment. We continue to monitor competition from products manufactured in low cost countries and will take steps to combat unfair trade practices, such as filing anti-dumping petitions with the United States government, as warranted.

In addition to improving our operations, we have taken steps to improve our liquidity to ensure access to the funds required to finance our business throughout the cycle and to focus our efforts on our core markets. , 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. Further, on August 1, 2013, the Company announced that it completed the sale of substantially all of the assets of its non-core 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. Pursuant to the provisions of the purchase agreement, subject to certain limited exceptions, the purchaser purchased from Imperial all equipment, inventories, accounts receivable, deposits, prepaid expenses, intellectual property, contracts, real property interests, transferable permits and other intangibles related to the business and assumed Imperial's trade and vendor accounts payable and performance obligations under those contracts included in the purchased assets. The real property interests acquired by the purchaser include ownership of three plants located in Decatur, Texas, Dublin, Virginia and Chehalis, Washington and a leasehold interest in a plant located in Denton, Texas. Imperial retained ownership of a plant property located in Portland, Tennessee and included a $2.5 million impairment charge in the loss. The Company leased such property to the purchaser under a two-year lease with the option of the Purchaser to renew the lease for one additional year. A portion of the proceeds from the sale were used to repay outstanding indebtedness under our New ABL Facility.

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

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 September 30, 2013
and 2012


                                         Three Months Ended September 30,
(In thousands)                              2013                   2012
Net sales                             $        155,264       $        187,255
Cost of goods sold                             144,994                181,259
Gross profit                                    10,270                  5,996
Operating expenses                              10,995                 13,809
Income (loss) from operations                     (725 )               (7,813 )
Interest expense, net                           (8,711 )               (8,921 )
Other income (loss), net                           546                    815
Income tax provision (benefit)                    (495 )                 (106 )
Loss from continuing operations                 (8,395 )              (15,813 )
Discontinued operations, net of tax            (10,220 )               (1,866 )
Net loss                              $        (18,615 )     $        (17,679 )

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Net Sales

                    Three Months Ended September 30,
(In thousands)         2013                   2012
Wheels           $         87,978       $         98,290
Gunite                     40,751                 49,592
Brillion                   26,535                 39,373
Total            $        155,264       $        187,255

Our consolidated net sales for the three months ended September 30, 2013, were $155.3 million, which was a decrease of $32.0 million or 17.1 percent, compared to net sales of $187.3 million for the three months ended September 30, 2012. Of the total decrease, approximately $32.7 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, reduced sales by our Gunite business unit due to the loss of OEM business and softness in the global industrial, construction, and mining markets that Brillion serves.. The reduction in volume was partially offset by $0.7 million in increased pricing, which primarily represented a pass-through of increased raw material and commodity costs.

Net sales for our Wheels segment decreased $10.3 million, or 10.5 percent during the three months ended September 30, 2013 compared to the same period in 2012 due to decreased volume of $ 9.4 million and a reduction in pricing of $0.9 million due to lower raw material costs and its impact on our pass-through mechanisms. Net sales for our Gunite segment dropped 17.8 percent as compared to the third quarter of 2012, primarily due to previously disclosed loss of standard position at two of its major OEM customers. 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 32.6 percent due to lower demand in the industrial and commercial markets and decreased pricing.

North American commercial vehicle industry production builds were, as follows:

For the three months ended September 30,

                     2013                        2012
Class 8                    63,707                      64,901
Classes 5-7                51,250                      42,617
Trailer                    61,764                      59,760

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
                                                                      September 30,
(In thousands)                                                    2013             2012
Raw materials                                                  $   68,211       $   88,253
Depreciation                                                        8,841           10,124
Labor and other overhead                                           67,942           82,882
Total                                                          $  144,994       $  181,259

Raw materials costs decreased by $20.0 million, or 22.7 percent, during the three months ended September 30, 2013 due to decreases in sales volume of approximately 17.1 percent, in addition to a decrease in raw material pricing of approximately 5.6 percent. The price increases were primarily related to steel and aluminum, which represent nearly all of our raw material costs.

Depreciation decreased by $1.3 million, or 12.7 percent during the three months ended September 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 18.0 percent, which is primarily related to staff reduction initiatives and decreased customer demand resulting in reduced sales.

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Operating Expenses

                                                                 Three Months Ended September 30,
(In thousands)                                                      2013                  2012
Selling, general, and
administration                                                 $         7,221       $         9,236
Research and development                                                 1,592                 1,800
Depreciation and amortization                                            2,182                 2,773
Total                                                          $        10,995       $        13,809

Selling, general, and administrative costs decreased by $2.0 million in 2013 compared to the same period in 2012 due to costs incurred that were associated with Gunite's quality management issues in 2012. Research and development costs decreased by $0.2 million primarily due to reductions in staff and travel expenses.

Depreciation and amortization expenses decreased primarily due to the impairment of intangible assets of our Gunite unit in the fourth quarter of 2012, offset by an increase to depreciation for our capital investments.

Operating Income (Loss)

                                                               Three Months Ended September 30,
(In thousands)                                                      2013                2012
Wheels                                                         $         7,973       $    9,302
Gunite                                                                    (150 )         (8,076 )
Brillion                                                                   296            2,510
Corporate/Other                                                         (8,844 )        (11,549 )
Total                                                          $          (725 )     $   (7,813 )

Operating income for the Wheels segment was 9.1 percent of its net sales for the three months ended September 30, 2013 compared to 9.5 percent for the three months ended September 30, 2012. During the three months ended September 30, 2013, the Wheels segment experienced a decrease in demand as Class 8 truck production dropped and aftermarket orders declined.

The operating loss for the Gunite segment was 0.4 percent of its net sales for the three months ended September 30, 2013 and 16.3 percent for the three months ended September 30, 2012. During the three months ended September 30, 2013 Gunite experienced increased efficiencies from the operational improvements that began during 2012.

Operating income for the Brillion segment was 1.1 percent of its net sales for the three months ended September 30, 2013 compared to 6.4 percent for same period in 2012. Sales volume for our Brillion segment decreased significantly during 2013 as the global industrial, construction, mining, and commercial markets softened. Although Brillion reduced its costs in response to falling demand, the fixed cost impact on much lower sales reduced profitability for the current period.

The operating expenses for the Corporate segment were 5.7 percent of consolidated net sales for the three months ended September 30, 2013 as compared to 6.2 percent for the comparative period in 2012. Overall, our Corporate costs have been curtailed through reduced staffing and other general expenses.

Interest Expense

Net interest expense decreased $0.2 million to $8.7 million for the three months ended September 30, 2013 from $8.9 million for the three months ended September 30, 2012 due to the refinancing of our ABL in the third quarter of 2013.

Discontinued Operations

Discontinued operations represent reclassification of operating results, including gain/loss on sale, for Imperial Group, net of tax. We have reclassified prior period operating results, including the gain/loss on the sale transactions, to discontinued operations.

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Comparison of Financial Results for the Nine Months Ended September 30, 2013 and 2012

                                          Nine Months Ended September 30,
(In thousands)                              2013                   2012
Net sales                             $        498,192       $        646,059
Cost of goods sold                             462,938                592,316
Gross profit                                    35,254                 53,743
Operating expenses                              34,817                 43,957
Income from operations                             437                  9,786
Interest expense, net                          (26,562 )              (26,324 )
Other income (loss), net                           250                    536
Income tax provision                             2,378                  2,830
Loss from continuing operations                (28,253 )              (18,832 )
Discontinued operations, net of tax            (11,671 )               (2,637 )
Net loss                              $        (39,924 )     $        (21,469 )

Net Sales

                     Nine Months Ended September 30,
(In thousands)         2013                   2012
Wheels           $        280,608       $        328,115
Gunite                    131,354                185,435
Brillion                   86,230                132,509
Total            $        498,192       $        646,059

Our net sales for the nine months ended September 30, 2013, were $498.2 million, which was a decrease of 22.9 percent, compared to net sales of $646.1 million for the nine months ended September 30, 2012. Of the total decrease, approximately $142.0 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, reduced sales by our Gunite business unit due to the loss of OEM business and softness in the global industrial, construction, and mining markets that Brillion serves. The remaining $5.8 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 14.5 percent during the nine months ended September 30, 2013 compared to the same period in 2012 primarily due to decreased volume for all three major OEM segments, as depicted in the table below. Net sales for our Gunite segment dropped 29.2 percent due to the previously disclosed loss of standard position at two of its major OEM customers in the third quarter of 2012. 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 34.9 percent due to lower demand in the industrial and commercial markets of $45.1 million and decreased pricing of approximately $0.1 million.

North American commercial vehicle industry production builds were, as follows:

For the nine months ended September 30,

                      2013                         2012
Class 8                    186,154                      220,870
Classes 5-7                149,950                      141,081
Trailer                    184,095                      179,210

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.

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Cost of Goods Sold

The table below represents the significant components of our cost of goods sold.

                                                               Nine Months Ended September
                                                                           30,
(In thousands)                                                    2013             2012
Raw materials                                                  $  224,277       $  298,971
Depreciation                                                       25,939           29,561
Labor and other overhead                                          212,722          263,784
Total                                                          $  462,938       $  592,316

Raw materials costs decreased by $74.7 million, or 25.0 percent, during the nine months ended September 30, 2013 due to decreases in sales volume of approximately 23.7 percent and price decreases of approximately 1.2 percent. The price decreases were primarily related to steel and aluminum, which represent nearly all of our material costs.

Depreciation decreased by $3.6 million, or 12.3 percent during the nine months ended September 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 19.4 percent due to decreased production volume, compared to a 23.7 percent decrease in sales volume.

Operating Expenses

                                                                  Nine Months Ended September 30,
(In thousands)                                                      2013                  2012
Selling, general, and
administration                                                 $        23,983       $        30,476
Research and development                                                 4,114                 5,293
Depreciation and amortization                                            6,720                 8,188
Total                                                          $        34,817       $        43,957

Selling, general, and administrative costs decreased by $6.5 million in 2013 due to costs incurred during 2012 that were associated with Gunite's quality management issues in 2012. Research and development costs decreased by $1.2 million due to decreases in staff and travel expenses.

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

Operating Income (Loss)

                                                               Nine Months Ended September
                                                                           30,
(In thousands)                                                    2013             2012
Wheels                                                         $   25,467       $   43,850
Gunite                                                              1,396          (12,119 )
Brillion                                                            2,726           13,281
Corporate/Other                                                   (29,152 )        (35,226 )
Total                                                          $      437       $    9,786

Operating income for the Wheels segment was 9.1 percent of its net sales for the nine months ended September 30, 2013 compared to 13.4 percent for the nine months ended September 30, 2012. During the nine months ended September 30, 2013, the Wheels segment experienced a decrease in demand as Class 8 truck production dropped and aftermarket orders declined.

The operating income (loss) for the Gunite segment was 1.1 percent of its net sales for the nine months ended September 30, 2013 and (6.5) percent for the nine months ended September 30, 2012. During the nine months ended September 30, 2013, Gunite benefited from steadily improving operational efficiencies.

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Operating income for the Brillion segment was 3.2 percent of its net sales for the nine months ended September 30, 2013 compared to 10.0 percent for same period in 2012, resulting from reduced demand for Brillion's services in the global industrial, mining, and construction markets.

The operating expenses for the Corporate segment were 5.9 percent of consolidated net sales for the nine months ended September 30, 2013 as compared to 5.5 percent for the comparative period in 2012. Despite the percentage increase due to lower sales, these results reflect a cost reduction of $6.1 million related to reduced spending and staffing expense.

Interest Expense

Net interest expense increased $0.3 million to $26.6 million for the nine months . . .

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