XFRA:A6Q Accuride Corp Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC  20549

FORM 10-Q

(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2012.

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 001-32483


ACCURIDE CORPORATION
(Exact Name of Registrant as Specified in Its Charter)

Delaware
61-1109077
(State or Other Jurisdiction of
(I.R.S. Employer Identification No.)
Incorporation or Organization)
 
   
7140 Office Circle, Evansville, IN
47715
(Address of Principal Executive Offices)
(Zip Code)

Registrant’s Telephone Number, Including Area Code: (812) 962-5000

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 ý  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 ý  No o

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.

Large Accelerated Filer o
 
         Accelerated Filer ý
 
Non-Accelerated Filero
 
Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.  Yes ý No o

As of May 2, 2012, 47,326,312 shares of Accuride Corporation common stock, par value $.01 per share, were outstanding
 
 



 
 
 
 

ACCURIDE CORPORATION









ACCURIDE CORPORATION AND SUBSIDIARIES
             
   
March 31,
   
December 31,
 
(In thousands, except for share and per share data)
 
2012
   
2011
 
ASSETS
           
CURRENT ASSETS:
           
Cash and cash equivalents
  $ 36,638     $ 56,915  
Customer receivables, net of allowance for doubtful accounts of $707 and $676 in 2012 and 2011, respectively
    110,082       90,001  
Other receivables
    9,676       8,074  
Inventories
    82,677       72,827  
Deferred income taxes
    7,675       7,675  
Prepaid expenses and other current assets
    5,053       4,657  
Total current assets
    251,801       240,149  
PROPERTY, PLANT AND EQUIPMENT, net
    283,294       271,562  
OTHER ASSETS:
               
Goodwill
    163,536       163,536  
Other intangible assets, net
    178,653       181,349  
Deferred financing costs, net of accumulated amortization of $2,846 and $2,419 in 2012 and 2011, respectively
    8,022       8,449  
Other
    2,638       3,817  
TOTAL
  $ 887,944     $ 868,862  
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
CURRENT LIABILITIES:
               
Accounts payable
  $ 88,644     $ 80,261  
Accrued payroll and compensation
    20,078       16,466  
Accrued interest payable
    5,080       12,503  
Accrued workers compensation
    4,902       4,936  
Accrued and other liabilities
    16,573       14,323  
Total current liabilities
    135,277       128,489  
LONG-TERM DEBT
    323,344       323,082  
DEFERRED INCOME TAXES
    22,229       21,001  
NON-CURRENT INCOME TAXES PAYABLE
    7,898       7,898  
OTHER POSTRETIREMENT BENEFIT PLAN LIABILITY
    76,964       76,563  
PENSION BENEFIT PLAN LIABILITY
    48,909       50,863  
OTHER LIABILITIES
    18,440       3,583  
COMMITMENTS AND CONTINGENCIES (Note 6)
           
STOCKHOLDERS’ EQUITY:
               
Preferred Stock, $0.01 par value; 10,000,000 shares authorized
           
Common Stock, $0.01 par value; 80,000,000 shares authorized, 47,326,312 and 47,286,768 shares issued and outstanding at March 31, 2012 and December 31, 2011, respectively, and additional paid-in-capital
    436,035       435,368  
Accumulated other comprehensive loss
    (34,640 )     (34,422 )
Accumulated deficiency
    (146,512 )     (143,563 )
Total stockholders’ equity
    254,883       257,383  
TOTAL
  $ 887,944     $ 868,862  
 
See notes to unaudited condensed consolidated financial statements.


ACCURIDE CORPORATION AND SUBSIDIARIES

   
Three Months Ended March 31,
 
(In thousands except per share data)
 
2012
   
2011
 
             
NET SALES
  $ 269,518     $ 210,895  
COST OF GOODS SOLD
    247,418       193,605  
GROSS PROFIT
    22,100       17,290  
OPERATING EXPENSES:
               
Selling, general and administrative
    14,864       15,849  
INCOME FROM OPERATIONS
    7,236       1,441  
OTHER INCOME (EXPENSE):
               
Interest income
    16       39  
Interest expense
    (8,761 )     (8,379 )
Other income, net
    157       2,163  
LOSS BEFORE INCOME TAXES FROM CONTINUING OPERATIONS
    (1,352 )     (4,736 )
INCOME TAX PROVISION
    1,597       499  
LOSS FROM CONTINUING OPERATIONS
    (2,949 )     (5,235 )
DISCONTINUED OPERATIONS, NET OF TAX
          74  
NET LOSS
  $ (2,949 )   $ (5,161 )
Weighted average common shares outstanding—basic
    47,319       47,237  
Basic loss per share – continuing operations
  $ (0.06 )   $ (0.11 )
Basic loss per share – discontinued operations
          0.00  
Basic loss per share
  $ (0.06 )   $ (0.11 )
Weighted average common shares outstanding—diluted
    47,319       47,237  
Diluted loss per share – continuing operations
  $ (0.06 )   $ (0.11 )
Diluted loss per share – discontinued operations
          0.00  
Diluted loss per share
  $ (0.06 )   $ (0.11 )
OTHER COMPREHENSIVE LOSS, NET OF TAX:
               
Foreign currency translation adjustments
    (218 )     (119 )
COMPREHENSIVE LOSS
  $ (3,167 )   $ (5,280 )

See notes to unaudited condensed consolidated financial statements.





ACCURIDE CORPORATION AND SUBSIDIARIES

(In thousands)
 
Comprehensive
Loss
   
Common
Stock and
Additional
Paid-in-
Capital
   
Accumulated
Other
Comprehensive
Loss
   
Accumulated
Deficiency
   
Total
Stockholders’
Equity
 
BALANCE at January 1, 2011
        $ 433,192     $ (8,561 )   $ (126,532 )   $ 298,099  
Net loss
  $ (17,031 )                 (17,031 )     (17,031 )
Share-based compensation expense
          2,397                   2,397  
Tax impact of forfeited vested shares
          (221 )                 (221 )
Other comprehensive loss:
                                       
          Pension liability adjustment (net of tax)
    (25,861 )           (25,861 )           (25,861 )
Comprehensive loss
  $ (42,892 )                                
BALANCE—January 1, 2012
            435,368       (34,422 )     (143,563 )     257,383  
Net loss
  $ (2,949 )                 (2,949 )     (2,949 )
Share-based compensation expense
          748                   748  
Tax impact of forfeited vested shares
          (81 )                 (81 )
Other comprehensive loss:
                                       
          Pension liability adjustment (net of tax)
    (218 )           (218 )           (218 )
Comprehensive loss
  $ (3,167 )                                
BALANCE—March 31, 2012
          $ 436,035     $ (34,640 )   $ (146,512 )   $ 254,883  

 
 


ACCURIDE CORPORATION AND SUBSIDIARIES
       
   
Three Months Ended March 31,
 
(In thousands)
 
2012
   
2011
 
             
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net loss
  $ (2,949 )   $ (5,161 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation of property, plant and equipment
    9,834       10,262  
Amortization – deferred financing costs
    689       690  
Amortization – other intangible assets
    2,696       3,921  
Loss on disposal of assets
    76       28  
Provision for deferred income taxes
    1,322        
Non-cash stock-based compensation
    748       582  
Non-cash change in warrant liability
          (1,985 )
Changes in certain assets and liabilities:
               
Receivables
    (21,683 )     (40,862 )
Inventories
    (9,850 )     (11,174 )
Prepaid expenses and other assets
    (651 )     (3,703 )
Accounts payable
    12,355       17,244  
Accrued and other liabilities
    (3,430 )     (10,533 )
Net cash used in operating activities
    (10,843 )     (40,691 )
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchases of property, plant and equipment
    (10,434 )     (13,820 )
Proceeds from sale of discontinued operations
    1,000       7,785  
Net cash used in investing activities
    (9,434 )     (6,035 )
DECREASE IN CASH AND CASH EQUIVALENTS
    (20,277 )     (46,726 )
CASH AND CASH EQUIVALENTS—Beginning of period
    56,915       78,466  
CASH AND CASH EQUIVALENTS—End of period
  $ 36,638     $ 31,740  
                 
Supplemental cash flow information:
               
Cash paid for interest
  $ 15,380     $ 15,243  
Cash paid for income taxes
    216       434  
Non-cash transactions:
               
Purchases of property, plant and equipment in accounts payable
  $ 4,471     $ 1,246  

See notes to unaudited condensed consolidated financial statements.


ACCURIDE CORPORATION
(AMOUNTS IN THOUSANDS, UNLESS OTHERWISE NOTED, EXCEPT SHARE AND PER SHARE DATA)

Note 1 - Summary of Significant Accounting Policies

Basis of Presentation – The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, except that the unaudited condensed consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.  However, in the opinion of Accuride Corporation (“Accuride” or the “Company”), all adjustments (consisting primarily of normal recurring accruals) considered necessary to present fairly the condensed consolidated financial statements have been included.  Certain operating results from prior periods have been reclassified to discontinued operations to conform to the current year presentation.

The results of operations for the three months ended March 31, 2012 are not necessarily indicative of the results to be expected for the year ending December 31, 2012.  The unaudited consolidated financial statements and notes thereto should be read in conjunction with the audited condensed consolidated financial statements and notes thereto disclosed in Accuride’s Annual Report on Form 10-K for the year ended December 31, 2011.

On January 31, 2011, substantially all of the assets, liabilities and business of our Bostrom Seating subsidiary were sold to a subsidiary of Commercial Vehicle Group, Inc. for approximately $8.8 million and resulted in recognition of a $0.2 million loss on our consolidated statement of operations in the three months ended March 31, 2011, which have been reclassified to discontinued operations.  Of the purchase price, $1.0 million was placed into a one year escrow securing the indemnification obligations of Bostrom to Commercial Vehicle Group, Inc.  During the three months ended March 31, 2012, the escrow was terminated and the Company received the full balance of $1.0 million from the escrow.  See Note 2 “Discontinued Operations” for further discussion.

On September 26, 2011, the Company announced the sale of its wholly-owned subsidiary, Fabco Automotive Corporation (“Fabco”) to Fabco Holdings, Inc., a new company formed and capitalized by Wynnchurch Capital, Ltd. in partnership with Stone River Capital Partners, LLC.  The sale concluded for a purchase price of $35.0 million, subject to a working capital adjustment, plus a contingent payment of up to $2.0 million depending on Fabco’s financial performance during calendar year 2012.  See Note 2 “Discontinued Operations” for further discussion.

Management’s Estimates and Assumptions – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Earnings Per Common Share – Basic and diluted earnings per common share were computed as follows:

             
   
Three Months Ended March 31,
 
(In thousands except per share data)
 
2012
   
2011
 
             
Numerator:
           
     Net loss
  $ (2,949 )   $ (5,161 )
Denominator:
               
     Weighted average shares outstanding – Basic
    47,319       47,237  
     Effect of dilutive share-based awards
           
     Weighted average shares outstanding - Diluted
    47,319       47,237  
                 
Basic loss per common share
  $ (0.06 )   $ (0.11 )
Diluted loss per common share
  $ (0.06 )   $ (0.11 )



As of March 31, 2012, there were options exercisable for 225,922 shares that were not included in the computation of diluted earnings per share because the effect would be anti-dilutive.  As of March 31, 2011, there were warrants exercisable for 2,205,882 shares that were not included in the computation of diluted earnings per share because the effect would be anti-dilutive.  The warrants were exercisable at an exercise price of $21.00 per share and expired on February 26, 2012 unexercised.

Stock-Based Compensation –Compensation expense for share-based compensation programs was recognized as follows as a component of operating expenses:
 
   
Three Months Ended March 31,
 
(In thousands)
 
2012
   
2011
 
             
Share-based compensation expense recognized
  $ 748     $ 582  

As of March 31, 2012, there was approximately $5.7 million of unrecognized pre-tax compensation expense related to share-based awards not yet vested that will be recognized over a weighted-average period of 1.3 years.
 
Income Tax –Under Interim Financial Reporting, we compute on a quarterly basis an estimated annual effective tax rate considering ordinary income and related income tax expense. Ordinary income refers to income (loss) before income tax expense excluding significant, unusual, or infrequently occurring items. The tax effect of an unusual or infrequently occurring item is recorded in the interim period in which it occurs. Other items included in income tax expense in the periods in which they occur include the cumulative effect of changes in tax laws or rates, foreign exchange gains and losses, adjustments to uncertain tax positions, and adjustments to our valuation allowance due to changes in judgment in the realizability of deferred tax assets in future years.
 
We have assessed the need to maintain a valuation allowance for deferred tax assets based on an assessment of whether it is more likely than not that deferred tax benefits will be realized through the generation of future taxable income. Appropriate consideration is given to all available evidence, both positive and negative, in assessing the need for a valuation allowance. Due to our recent history of U.S. operating and taxable losses, the inconsistency of these profits, and the uncertainty of our financial outlook, we continue to maintain a full valuation allowance against our domestic deferred tax assets.
 
Recent Accounting Adoptions

In June 2011, the Financial Accounting Standards Board (“FASB”) issued ASU 2011-05, Presentation of Comprehensive Income.  The objective of this update is to facilitate convergence of U.S. GAAP and IFRS.  This update revises the manner in which entities present comprehensive income in their financial statements.  Entities have the option to present total comprehensive income, the components of net income, and the components of other comprehensive income as either a single, continuous statement of comprehensive income or as two separate but consecutive statements.  The amendments of this update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income.  The amendments in this update are to be applied retrospectively for all periods presented in the financial statements and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.  The adoption of this guidance did not have a material impact on our consolidated financial statements.
 
In May 2011, the FASB issued ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.”  This guidance amends U.S. GAAP to conform with measurement and disclosure requirements in International Financial Reporting Standards (“IFRS”).  The amendments change the wording used to describe the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements, and they include those that clarify the FASB’s intent about the application of existing fair value measurement and disclosure requirements and those that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements.  In addition, to improve consistency in application across jurisdictions, some changes in wording are necessary to ensure that U.S. GAAP and IFRS fair value measurement and disclosure requirements are described in the same way.  This amended guidance is to be applied prospectively and is effective for fiscal years beginning after December 15, 2011.  The Company adopted ASU No. 2011-04 effective January 1, 2012 and it did not have a material impact on our consolidated financial statements.
 
 


Note 2 – Discontinued Operations

The Company has reclassified certain operating results and the loss on sale transactions for Fabco Automotive and Bostrom Seating to discontinued operations.  The following table presents sales and income from operations attributable to Fabco and Bostrom Seating.

       
   
Three Months Ended March 31,
 
   
2011
 
       
Net sales
 
$
7,944
 
       
Income from operations
 
234
 
Income tax provision
 
1
 
Loss on sale
 
(159
)
Discontinued operations
 
$
74
 

Note 3 - Inventories

Inventories at March 31, 2012 and December 31, 2011, on a FIFO basis, were as follows:

   
March 31, 2012
   
December 31, 2011
 
Raw materials
  $ 20,684     $ 18,727  
Work in process
    19,078       18,425  
Finished manufactured goods
    42,915       35,675  
Total inventories
  $ 82,677     $ 72,827  

Note 4 - Goodwill and Other Intangible Assets

The following represents the carrying amount of goodwill, on a reportable segment basis, as of January 1, 2012 and March 31, 2012:

   
Wheels
   
Gunite
   
Brillion Iron Works
   
Total
 
Balance as of January 1, 2012
  $ 96,283     $ 62,839     $ 4,414     $ 163,536  
Balance as of March 31, 2012
  $ 96,283     $ 62,839     $ 4,414     $ 163,536  

The changes in the carrying amount of other intangible assets for the period January 1, 2012 to March 31, 2012, by reportable segment, are as follows:

   
Wheels
   
Gunite
   
Brillion Iron Works
   
Corporate
   
Total
 
Balance as of January 1, 2012
  $ 138,575     $ 38,968     $ 2,997     $ 809     $ 181,349  
Amortization
    (1,977 )     (551 )     (40 )     (128 )     (2,696 )
Balance as of March 31, 2012
  $ 136,598     $ 38,417     $ 2,957     $ 681     $ 178,653  
 
 


The summary of goodwill and other intangible assets is as follows:

                   
         
As of March 31, 2012
   
As of December 31, 2011
 
   
Weighted Average Useful Lives
   
Gross Amount
   
Accumulated Amortization
   
Carrying Amount
   
Gross Amount
   
Accumulated Amortization
   
Carrying Amount
 
Goodwill
        $ 163,536     $     $ 163,536     $ 163,536     $     $ 163,536  
Other intangible assets:
                                                       
Non-compete agreements
    2.0     $ 1,023     $ 342     $ 681     $ 1,023     $ 214     $ 809  
Trade names
          33,200             33,200       33,200             33,200  
Technology
    10.0       38,849       8,211       30,638       38,849       7,248       31,601  
Customer relationships
    19.9       129,093       14,959       114,134       129,093       13,354       115,739  
Other intangible assets:
          $ 202,165     $ 23,512     $ 178,653     $ 202,165     $ 20,816     $ 181,349  

We estimate that our amortization expense for our other intangible assets for 2012 through 2016 will be approximately $10.8 million for 2012, $10.6 million for 2013 and $10.3 million for each year from 2014 through 2016.

Note 5 - Pension and Other Postretirement Benefit Plans

Components of net periodic benefit cost for the three months ended March 31:

   
Pension Benefits
   
Other Benefits
 
   
2012
   
2011
   
2012
   
2011
 
Service cost-benefits earned during the period
  $ 517     $ 384     $ 115     $ 129  
Interest cost on projected benefit obligation
    2,831       3,005       974       1,078  
Expected return on plan assets
    (2,988 )     (3,235 )            
Amortization of net transition (asset) obligation
                       
Amortization of prior service (credit) cost
    11       11              
Amortization of (gain)/loss
    270             (8 )      
Total benefits cost charged to income
  $ 641     $ 165     $ 1,081     $ 1,207  

As of March 31, 2012, $2.7 million has been contributed to our sponsored pension plans.  We presently anticipate contributing an additional $11.9 million to fund our pension plans during 2012 for a total of $14.6 million.

Note 6 – Commitments and Contingencies

We are from time to time involved in various legal proceedings of a character normally incidental to our business. We do not believe that the outcome of these proceedings will have a material effect on our consolidated financial condition or results of our operations and cash flows.

In addition to environmental laws that regulate our ongoing operations, we are also subject to environmental remediation liability. Under the federal Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and analogous state laws, we may be liable as a result of the release or threatened release of hazardous materials into the environment regardless of when the release occurred. We are currently involved in several matters relating to the investigation and/or remediation of locations where we have arranged for the disposal of foundry wastes. Such matters include situations in which we have been named or are believed to be potentially responsible parties in connection with the contamination of these sites. Additionally, environmental remediation may be required to address soil and groundwater contamination identified at certain of our facilities.



As of March 31, 2012, we had an environmental reserve of approximately $1.5 million, related primarily to our foundry operations. This reserve is based on management’s review of potential liabilities as well as cost estimates related thereto. The reserve takes into account the benefit of a contractual indemnity given to us by a prior owner of our wheel-end subsidiary. The failure of the indemnitor to fulfill its obligations could result in future costs that may be material. Any expenditures required for us to comply with applicable environmental laws and/or pay for any remediation efforts will not be reduced or otherwise affected by the existence of the environmental reserve. Our environmental reserve may not be adequate to cover our future costs related to the sites associated with the environmental reserve, and any additional costs may have a material adverse effect on our business, results of operations or financial condition. The discovery of additional environmental issues, the modification of existing laws or regulations or the promulgation of new ones, more vigorous enforcement by regulators, the imposition of joint and several liability under CERCLA or analogous state laws, or other unanticipated events could also result in a material adverse effect.

The Iron and Steel Foundry National Emission Standard for Hazardous Air Pollutants (“NESHAP”) was developed pursuant to Section 112(d) of the Clean Air Act and requires major sources of hazardous air pollutants to install controls representative of maximum achievable control technology. Based on currently available information, we do not anticipate material costs regarding ongoing compliance with the NESHAP; however if we are found to be out of compliance with the NESHAP, we could incur liability that could have a material adverse effect on our business, results of operations or financial condition.

At the Erie, Pennsylvania, facility, we have obtained an environmental insurance policy to provide coverage with respect to certain environmental liabilities.  Management does not believe that the outcome of any environmental proceedings will have a material adverse effect on our consolidated financial condition or results of operations.

As of March 31, 2012, we had approximately 3,461 employees, of which 665 were salaried employees with the remainder paid hourly. Unions represent approximately 1,993 of our employees, which is approximately 58% of our total employees. Each of our unionized facilities has a separate contract with the union that represents the workers employed at such facility. The union contracts expire at various times over the next few years with the exception of our union contract that covers the hourly employees at our Monterrey, Mexico, facility, which expires on an annual basis in January unless otherwise renewed. The 2012 negotiations in Monterrey were successfully completed prior to the expiration of our union contract. In 2012, we extended the labor contract at our London, Ontario facility through March 15, 2013.

Note 7 – Financial Instruments

We have determined the estimated fair value amounts of financial instruments using available market information and other appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value.  A fair value hierarchy accounting standard exists for those instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and our own assumptions (unobservable inputs).  Determining which category an asset or liability falls within the hierarchy requires significant judgment.  We evaluate our hierarchy disclosures each quarter.

The hierarchy consists of three levels:

Level 1
Quoted market prices in active markets for identical assets or liabilities;
Level 2
Inputs other than Level 1 inputs that are either directly or indirectly observable; and
Level 3
Unobservable inputs developed using estimates and assumptions developed by us, which reflect those that a market participant would use.

The carrying amounts of cash and cash equivalents, trade receivables, and accounts payable approximate fair value because of the relatively short maturity of these instruments.  The fair value of our 9.5% senior secured notes based on market quotes, which we determined to be Level 1 inputs, at March 31, 2012 was approximately $322.4 million compared to the carrying amount of $303.3 million.  The fair value of our 9.5% senior secured notes based on market quotes, which we determined to be Level 1 inputs, at December 31, 2011 was approximately $300.5 million compared to the carrying amount of $303.1 million.  The Company believes the fair value of our ABL facility at March 31, 2012 and December 31, 2012 equals the carrying value of $20.0 million.  As of March 31, 2012 and December 31, 2011 we had no other remaining financial instruments.



Note 8 – Segment Reporting

Based on our continual monitoring of the long-term economic characteristics, products and production processes, class of customer, and distribution methods of our operating segments, we have identified each of our operating segments below as reportable segments.  We believe this segmentation is appropriate based upon operating decisions and performance assessments by our President and Chief Executive Officer.  The accounting policies of the reportable segments are the same as described in Note 1, Summary of Significant Accounting Policies.

       
   
Three Months Ended March 31,
 
   
2012
   
2011
 
Net sales:
           
Wheels
  $ 116,944     $ 91,509  
Gunite
    68,563       59,231  
Brillion Iron Works
    43,810       35,260  
Imperial Group
    40,201       24,895  
Consolidated total
  $ 269,518     $ 210,895  
                 
Operating Income (loss):
               
Wheels
  $ 18,442     $ 11,488  
Gunite
    (2,168 )     (1,717 )
Brillion Iron Works
    3,173       733  
Imperial Group
    (519 )     1,129  
Corporate / Other
    (11,692 )     (10,192 )
Consolidated total
  $ 7,236     $ 1,441  

Current and prior period operating results from Bostrom Seating and Fabco Automotive were reclassified to discontinued operations during the three months ended March 31, 2012.  Excluded from net sales above, are inter-segment sales from Brillion Iron Works to Gunite, as shown in the table below: 

   
Three Months Ended March 31,
 
(In thousands)
 
2012
   
2011
 
Inter-segment sales
  $ 8,856     $ 8,476  

   
As of
 
   
March 31, 2012
   
December 31, 2011
 
Total assets:
           
Wheels
  $ 515,419     $ 509,829  
Gunite 
    209,400       188,053  
Brillion Iron Works
    64,998       63,216  
Imperial Group
    49,523       43,581  
Corporate / Other
    48,604       64,183  
Consolidated total
  $ 887,944     $ 868,862  

Note 9 - Debt

As of March 31, 2012, total debt was $323.3 million consisting of $303.3 million of our outstanding 9.5% senior secured notes, net of discount and a $20.0 million draw on our ABL facility. As of December 31, 2011, total debt was $323.1 million consisting of $303.1 million of our outstanding 9.5% senior secured notes, net of discount and a $20.0 million draw on our ABL facility.
 
Our credit documents (the ABL facility and the indenture governing the senior secured notes) contain operating covenants that limit the discretion of management with respect to certain business matters.  These covenants place significant restrictions on, among other things, the ability to incur additional debt, to pay dividends, to create liens, to make certain payments and investments and to sell or otherwise dispose of assets and merge or consolidate with other entities.  In addition, the ABL facility contains a financial covenant which requires us to maintain a fixed charge coverage ratio during any compliance period, which is anytime when the excess availability is less than or equal to the greater of $10.0 million or 15 percent of the total commitment under the ABL facility.  Due to the amount of our excess availability (as calculated under the ABL facility), the Company is not currently in a compliance period and, we do not have to maintain a fixed charge coverage ratio, although this is subject to change.



Note 10 – Guarantor and Non-guarantor Financial Statements

Our senior secured notes are, jointly and severally, fully and unconditionally guaranteed, on a senior basis, by all of our existing and future 100% owned domestic subsidiaries (“Guarantor Subsidiaries”). The non-guarantor subsidiaries are our foreign subsidiaries and discontinued operations.  The following condensed financial information illustrates the composition of the combined Guarantor Subsidiaries:

CONDENSED CONSOLIDATED BALANCE SHEET

   
March 31, 2012
 
(in thousands)
 
Parent
   
Guarantor Subsidiaries
   
Non-guarantor Subsidiaries
   
Eliminations
   
Total
 
ASSETS
                             
Cash and cash equivalents
  $ 32,344     $ (4,973 )   $ 9,267           $ 36,638  
Accounts and other receivables, net
    46,680       111,567       16,023     $ (54,512 )     119,758  
Inventories
    29,410       46,668       6,599             82,677  
Other current assets
    4,885       5,818       2,025             12,728  
Total current assets
    113,319       159,080       33,914       (54,512 )     251,801  
Property, plant, and equipment, net
    80,188       156,970       46,136             283,294  
Goodwill
    96,283       67,253                   163,536  
Intangible assets, net
    137,279       41,374                   178,653  
Investments in and advances to subsidiaries and affiliates
    281,237                   (281,237 )      
Deferred income taxes
          7,781       459       (8,240 )      
Other non-current assets
    9,399       995       266             10,660  
TOTAL
  $ 717,705     $ 433,453     $ 80,775     $ (343,989 )   $ 887,944  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                       
Accounts payable
  $ 16,821     $ 58,554     $ 13,269           $ 88,644  
Accrued payroll and compensation
    4,791       10,740       4,547             20,078  
Accrued interest payable
    5,080                         5,080  
Accrued and other liabilities
    57,093       15,031       3,863     $ (54,512 )     21,475  
Total current liabilities
    83,785       84,325       21,679       (54,512 )     135,277  
Long term debt
    323,344                         323,344  
Deferred and non-current income taxes
    38,367                   (8,240 )     30,127  
Other non-current liabilities
    17,326       105,012       21,975             144,313  
Stockholders’ equity
    254,883       244,116       37,121       (281,237 )     254,883  
TOTAL
  $ 717,705     $ 433,453     $ 80,775     $ (343,989 )   $ 887,944  

   
December 31, 2011
 
(in thousands)
 
Parent
   
Guarantor Subsidiaries
   
Non-guarantor Subsidiaries
   
Eliminations
   
Total
 
ASSETS
                             
Cash and cash equivalents
  $ 51,578     $ (2,770 )   $ 8,107           $ 56,915  
Accounts and other receivables, net
    36,736       100,097       12,099     $ (50,857 )     98,075  
Inventories
    26,655       39,555       6,617             72,827  
Other current assets
    4,441       5,771       2,120             12,332  
Total current assets
    119,410       142,653       28,943       (50,857 )     240,149  
Property, plant, and equipment, net
    73,765       150,900       46,897             271,562  
Goodwill
    96,283       67,253                   163,536  
Intangible assets, net
    139,384       41,965                   181,349  
Investments in and advances to subsidiaries and affiliates
    281,552                   (281,552 )      
Other non-current assets
    9,880       8,883       1,649       (8,146 )     12,266  
TOTAL
  $ 720,274     $ 411,654     $ 77,489     $ (340,555 )   $ 868,862  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                       
Accounts payable
  $ 17,615     $ 52,938     $ 9,708           $ 80,261  
Accrued payroll and compensation
    3,079       9,167       4,220             16,466  
Accrued interest payable
    12,503                         12,503  
Accrued and other liabilities
    52,932       13,542       3,642     $ (50,857 )     19,259  
Total current liabilities
    86,129       75,647       17,570       (50,857 )     128,489  
Long term debt
    323,082                         323,082  
Deferred and non-current income taxes
    37,045                   (8,146 )     28,899  
Other non-current liabilities
    16,635       91,447       22,927             131,009  
Stockholders’ equity
    257,383       244,560       36,992       (281,552 )     257,383  
TOTAL
  $ 720,274     $ 411,654     $ 77,489     $ (340,555 )   $ 868,862  




CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

   
Three Months Ended March 31, 2012
 
(in thousands)
 
Parent
   
Guarantor Subsidiaries
   
Non-guarantor Subsidiaries
   
Eliminations
   
Total
 
Net sales
  $ 122,576     $ 155,792     $ 37,454     $ (46,304 )   $ 269,518  
Cost of goods sold
    102,934       155,041       35,747       (46,304 )     247,418  
Gross profit
    19,642       751       1,707             22,100  
Operating expenses
    13,672       1,120       72             14,864  
Income (loss) from operations
    5,970       (369 )     1,635             7,236  
Other income (expense):
                                       
Interest expense, net
    (8,579 )     (75 )     (91 )           (8,745 )
Equity in earnings of subsidiaries
    241                   (241 )      
Other income (expense), net
    780             (623 )           157  
Income (loss) before income taxes from continuing operations
    (1,588 )     (444 )     921       (241 )     (1,352 )
Income tax  provision
    1,361             236             1,597  
Income (loss) from continuing operations
    (2,949 )     (444 )     685       (241 )     (2,949 )
Discontinued operations, net of tax
                             
Net income (loss)
  $ (2,949 )   $ (444 )   $ 685     $ (241 )   $ (2,949 )
                                         
Comprehensive income (loss)
  $ (2,949 )   $ (444 )   $ 467     $ (241 )   $ (3,167 )


   
Three Months Ended March 31, 2011
 
(in thousands)
 
Parent
   
Guarantor Subsidiaries
   
Non-guarantor Subsidiaries
   
Eliminations
   
Total
 
Net sales
  $ 101,323     $ 112,720     $ 37,740     $ (40,888 )   $ 210,895  
Cost of goods sold
    92,231       106,667       35,595       (40,888 )     193,605  
Gross profit
    9,092       6,053       2,145             17,290  
Operating expenses
    12,904       2,867       78             15,849  
Income (loss) from operations
    (3,812 )     3,186       2,067             1,441  
Other income (expense):
                                       
Interest expense, net
    (8,122 )     (299 )     81             (8,340 )
Equity in earnings of subsidiaries
    4,228                   (4,228 )      
Other income (expense), net
    2,463       (9 )     (291 )           2,163  
Income (loss) before income taxes from continuing operations
    (5,243 )     2,878       1,857       (4,228 )     (4,736 )
Income tax  provision (benefit)
    (82 )           581             499  
Income (loss) from continuing operations
    (5,161 )     2,878       1,276       (4,228 )     (5,235 )
Discontinued operations, net of tax
                74             74  
Net income (loss)
  $ (5,161 )   $ 2,878     $ 1,350     $ (4,228 )   $ (5,161 )
                                         
Comprehensive income (loss)
  $ (5,161 )   $ 2,878     $ 1,231     $ (4,228 )   $ (5,280 )








CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

   
Three Months Ended March 31, 2012
 
(in thousands)
 
Parent Company
   
Guarantor Subsidiaries
   
Non-guarantor Subsidiaries
   
Eliminations
   
Total
 
CASH FLOWS FROM OPERATING ACTIVITIES:
                             
Net income (loss)
  $ (2,949 )   $ (444 )   $ 685     $ (241 )   $ (2,949 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
                                       
Depreciation                                                        
    2,304       5,779       1,751             9,834  
Amortization – deferred financing costs
    689                         689  
Amortization – other intangible assets
    2,105       591                   2,696  
(Gain) loss on disposal of assets
    (2,118 )     2,161       33             76  
Deferred income taxes
    1,322                         1,322  
Non-cash stock-based compensation
    748                         748  
Equity in earnings of subsidiaries and affiliates
    (241 )                 241        
Non-cash change in warrant liability
                                     
Change in other operating items
    (15,695 )     (5,903 )     (1,661 )           (23,259 )
Net cash provided by (used in) operating activities
    (13,835 )     2,184       808             (10,843 )
                                         
CASH FLOWS FROM INVESTING ACTIVITIES:
                                       
Purchases of property, plant, and equipment
    (5,399 )     (4,387 )     (648 )           (10,434 )
Other
                1,000             1,000  
Net cash provided by (used in) investing activities
    (5,399 )     (4,387 )     352             (9,434 )
                                         
Increase (decrease) in cash and cash equivalents
    (19,234 )     (2,203 )     1,160             (20,277 )
Cash and cash equivalents, beginning of period
    51,578       (2,770 )     8,107             56,915  
Cash and cash equivalents, end of period
  $ 32,344     $ (4,973 )   $ 9,267     $     $ 36,638  


   
Three Months Ended March 31, 2011
 
(in thousands)
 
Parent Company
   
Guarantor Subsidiaries
   
Non-guarantor Subsidiaries
   
Eliminations
   
Total
 
CASH FLOWS FROM OPERATING ACTIVITIES:
                             
Net income (loss)
  $ (5,161 )   $ 2,878     $ 1,350     $ (4,228 )   $ (5,161 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
                                       
Depreciation                                                        
    2,328       5,461       2,473             10,262  
Amortization – deferred financing costs
    690                         690  
Amortization – other intangible assets
    2,720       840       361             3,921  
(Gain) loss on disposal of assets
          (2,029 )     2,057             28  
Deferred income taxes
    (1 )           1              
Non-cash stock-based compensation
    582                         582  
Equity in earnings of subsidiaries and affiliates
    (4,228 )                 4,228        
Non-cash change in warrant liability
    (1,985 )                       (1,985 )
Change in other operating items
    (40,770 )     3,088       (11,346 )           (49,028 )
Net cash provided by (used in) operating activities
    (45,825 )     10,238       (5,104 )           (40,691 )
                                         
CASH FLOWS FROM INVESTING ACTIVITIES:
                                       
Purchases of property, plant, and equipment
    (2,288 )     (10,649 )     (883 )           (13,820 )
Other
                7,785             7,785  
Net cash provided by (used in) investing activities
    (2,288 )     (10,649 )     6,902             (6,035 )
                                         
Increase (decrease) in cash and cash equivalents
    (48,113 )     (411 )     1,798             (46,726 )
Cash and cash equivalents, beginning of period
    75,114       (2,000 )     5,352             78,466  
Cash and cash equivalents, end of period
  $ 27,001     $ (2,411 )   $ 7,150     $     $ 31,740  




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

The accompanying unaudited condensed interim 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 only 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 months ended March 31, 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/Mack, 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.  Accuride Corporation will await the written decision from the International Trade Commission on its negative injury determination and evaluate whether an appeal is appropriate at that time.

Results of Operations

The following table sets forth certain income statement information of Accuride for the three months ended March 31, 2012 and March 31, 2011.  Certain operating results from prior periods have been reclassified to discontinued operations to conform to the current year presentation.
 
   
Three Months Ended March 31,
 
(Dollars in thousands)
 
2012
   
2011
 
Net sales
  $ 269,518     $ 210,895  
Cost of goods sold
    247,418       193,605  
Gross profit
    22,100       17,290  
Operating expenses
    14,864       15,849  
Income from operations
    7,236       1,441  
Interest (expense), net
    (8,745 )     (8,340 )
Other income, net
    157       2,163  
Income tax provision
    1,597       499  
Loss from continuing operations
    (2,949 )     (5,235 )
Discontinued operations, net of tax
          74  
Net loss
  $ (2,949 )   $ (5,161 )

Net Sales

   
Three Months Ended March 31,
 
(Dollars in thousands)
 
2012
   
2011
 
Wheels
  $ 116,944     $ 91,509  
Gunite
    68,563       59,231  
Brillion
    43,810       35,260  
Imperial
    40,201       24,895  
Total
  $ 269,518     $ 210,895  

Our net sales for the three months ended March 31, 2012, were $269.5 million, which was an increase of 27.8 percent, compared to net sales of $210.9 million for the three months ended March 31, 2011.  Of the total increase, approximately $42.9 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 $15.7 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 27.8 percent during the three months ended March 31, 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 15.8 percent due to industry demand and approximately $7.9 million in increased pricing related to raw material costs.  Our Gunite products have a higher concentration of aftermarket demand due to being items that require replacement more often than our other products.  Our Brillion segment’s net sales increased by 24.2 percent due to higher demand in the industrial and agricultural markets and increased pricing of approximately $3.3 million related to raw material costs.  Net sales for our Imperial segment increased by 61.5 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 March 31,
 
   
2012
   
2011
 
Class 8
    77,724       51,417  
Classes 5-7
    46,415       39,681  
Trailer
    56,213       46,824  

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 March 31,
 
(Dollars in thousands)
 
2012
   
2011
 
Raw materials                                                                                
  $ 130,982     $ 96,005  
Depreciation
    9,822       9,953  
Labor and other overhead
    106,614       87,647  
Total
  $ 247,418     $ 193,605  

Raw materials costs increased by $35.0 million, or 36.4 percent, during the three months ended March 31, 2012 due to increases in sales volume of approximately 26.4 percent and price of approximately 10.0 percent.  The price increases were primarily related to steel and aluminum, which represent nearly all of our material costs.

Depreciation decreased slightly during the comparative periods.

Labor and overhead costs increased by 21.6 percent due to increased volume, which is lower than the overall net sales volume increase of approximately 27.8 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

   
Three Months Ended March 31,
 
(Dollars in thousands)
 
2012
   
2011
 
Selling, general, and administration                                                                             
  $ 10,621     $ 11,056  
Research and development
    1,535       1,225  
Depreciation and amortization
    2,708       3,568  
Total
  $ 14,864     $ 15,849  

Selling, general, and administrative costs decreased by $0.4 million in 2012 primarily due to fees incurred in 2011 related to the sale of our discontinued operations.  Research and development costs increased by $0.3 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 March 31,
 
(Dollars in thousands)
 
2012
   
2011
 
Wheels                                                                               
  $ 18,442     $ 11,488  
Gunite
    (2,168 )     (1,717 )
Brillion
    3,173       733  
Imperial
    (519 )     1,129  
Corporate/Other
    (11,692 )     (10,192 )
Total