10-K 1 acw11-410k.htm FORM 10-K acw11-410k.htm




UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
(Mark One)
 
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Fiscal Year Ended December 31, 2011
 
o
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 333-50239
 
 

 


ACCURIDE CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
61-1109077
(I.R.S. Employer Identification No.)
 
7140 Office Circle, Evansville, Indiana
(Address of Principal Executive Offices)
47715
(Zip Code)
 
Registrant’s telephone number, including area code: (812) 962-5000
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of class
 
Name of exchange on which registered
Common Stock, $0.01 par value
 
New York Stock Exchange
 
 
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o  No x
 
Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 of Section 15(d) of the Act. Yes o  No x
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No 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 x  No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
 
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 x
Non-Accelerated Filer o
Smaller Reporting Company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes o  No x
 
The aggregate market value of the registrant’s common stock held by non-affiliates based on the New York Stock Exchange closing price as of June 30, 2011 (the last business day of registrant’s most recently completed second fiscal quarter) was approximately $561,620,067. This calculation does not reflect a determination that such persons are affiliates of registrant for any other purposes.
 
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 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 x  No o
 
The number of shares of Common Stock, $0.01 par value, of Accuride Corporation outstanding as of March 9, 2012 was 47,326,312.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Registrant’s 2012 Annual Meeting of stockholders are incorporated by reference in Part III of this Form 10-K.
 





 
 
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2011

   
   
    Item 5.
   
   
 
   
 
   
Explanatory Note:
 
Effective November 18, 2010, Accuride Corporation implemented a one-for-ten reverse stock split of its Common Stock.  Unless otherwise indicated, all share amounts and per share data in this Annual Report on Form 10-K for the Successor Company have been adjusted to reflect this reverse stock split.  See Note 1 of the consolidated financial statements.



PART I

Item 1. Business

The Company

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 North American market positions in steel wheels, forged aluminum wheels, brake drums, disc wheel hubs, and metal bumpers in commercial vehicles. We serve the leading original equipment manufacturers, or 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, creating a significant barrier to entry. We believe that substantially all heavy-duty truck models manufactured in North America contain one or more of our components.

Our diversified customer base includes substantially all of the leading commercial vehicle OEMs, such as Daimler Truck North America, LLC (“DTNA”), with its Freightliner and Western Star brand trucks, PACCAR, Inc. (“PACCAR”), with its Peterbilt and Kenworth brand trucks, Navistar, Inc. (“International Truck”), with its International brand trucks, and Volvo Truck Corporation (“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 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.

Our business consists of four operating segments that design, manufacture, and distribute components of the commercial vehicle market, including heavy- and medium-duty trucks, commercial trailers, light trucks, buses, as well as specialty and military vehicles and their related aftermarkets.  We have identified each of our operating segments as reportable segments. The Wheels segment’s products primarily consist of steel and aluminum wheels.  The Gunite segment’s products consist primarily of wheel-end components and assemblies.  The Imperial Group segment’s products consist primarily of truck body and chassis parts.  The Brillion Iron Works segment’s products primarily consist of ductile and gray iron castings, including engine and transmission components and industrial components. We believe this segmentation is appropriate based upon operating decisions and performance assessments by our President and Chief Executive Officer, who joined us in February 2011, and has increased the level of details reviewed. Our financial results for the previous three fiscal years are discussed in “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operation” and “Item 8: Financial Statements and Supplementary Data” of this Annual Report.

Corporate History

Accuride Corporation, a Delaware corporation, and Accuride Canada Inc., a corporation formed under the laws of the province of Ontario, Canada, and a wholly owned subsidiary of Accuride, were incorporated in November 1986 for the purpose of acquiring substantially all of the assets and assuming certain of the liabilities of Firestone Steel Products, a division of The Firestone Tire & Rubber Company. The respective acquisitions by the companies were consummated in December 1986.

On January 31, 2005, pursuant to the terms of an agreement and plan of merger, a wholly owned subsidiary of Accuride merged with and into Transportation Technologies Industries, Inc., or TTI, resulting in TTI becoming a wholly owned subsidiary of Accuride, which we refer to as the TTI merger. TTI was founded as Johnstown America Industries, Inc. in 1991 in connection with the purchase of Bethlehem Steel Corporation’s freight car manufacturing operations.

Discontinued Operations

On January 31, 2011, substantially all of the assets 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 $0.3 million


loss on our consolidated statement of operations in the twelve months ended December 31, 2011, which have been reclassified to discontinued operations.  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.  The Company recognized a loss of $6.3 million, including $2.1 million in transactional fees, related to the sale transaction during the twelve months ended December 31, 2011, which is included as a component of discontinued operations.  See Note 2 “Discontinued Operations” for further discussion.

Certain operating results from prior periods, including the predecessor periods, have been reclassified to discontinued operations to conform to the current year presentation.

Chapter 11 Proceedings

See Note 1 to the “Notes to Consolidated Financial Statements” included herein.
 
Product Overview

We believe we design, produce, and market one of the broadest portfolios of commercial vehicle components in the industry. We classify our products under several categories, which include wheels, wheel-end components and assemblies, truck body and chassis parts, and ductile and gray iron castings. The following describes our major product lines and brands.

Wheels (Approximately 43% of our 2011 net sales, 43% of our 2010 net sales, and 46% of our 2009 net sales)

We are the largest North American manufacturer and supplier of wheels for heavy- and medium-duty trucks, commercial trailers and related aftermarkets. We offer the broadest product line in the North American heavy- and medium-duty wheel industry and are the only North American manufacturer and supplier of both steel and forged aluminum heavy- and medium-duty wheels. We also produce wheels for buses, commercial light trucks, heavy-duty pick-up trucks, and military vehicles. We market our wheels under the Accuride brand. A description of each of our major products is summarized below:

 
Heavy- and medium-duty steel wheels. We offer the broadest product line of steel wheels for the heavy- and medium-duty truck, commercial trailer markets and related aftermarkets. The wheels range in diameter from 17.5” to 24.5” and are designed for load ratings ranging from 3,640 to 13,000 lbs. We also offer a number of coatings and finishes which we believe provide the customer with increased durability and exceptional appearance. We are the standard steel wheel supplier to most North American heavy- and medium-duty truck OEMs and to a number of North American trailer OEMs.
 
 
Heavy- and medium-duty aluminum wheels. We offer a full product line of aluminum wheels for the heavy- and medium-duty truck, commercial trailer markets and related aftermarkets. The wheels range in diameter from 19.5” to 24.5” and are designed for load ratings ranging from 5,000 to 13,000 lbs. Aluminum wheels are generally lighter in weight, more readily stylized, and approximately 3.0 times as expensive as steel wheels.
 
 
Light truck steel wheels. We manufacture light truck single and dual steel wheels that range in diameter from 16” to 19.5” for customers such as General Motors. We are focused on larger diameter wheels designed for select truck platforms used for carrying heavier loads.
 
 
Military Wheels. We produce steel and aluminum wheels for military applications under the Accuride brand name.

Wheel-End Components and Assemblies (Approximately 27% of our 2011 net sales, 30% of our 2010 net sales, and 30% of our 2009 net sales)

We are the leading North American supplier of wheel-end components and assemblies to the heavy- and medium-duty truck markets and related aftermarket. We market our wheel-end components and assemblies under the Gunite brand. We produce four basic wheel-end assemblies: (1) disc wheel hub/brake drum, (2) spoke wheel/brake drum, (3) spoke wheel/brake rotor and (4) disc wheel hub/brake rotor. We also manufacture a full line of wheel-end components for the heavy- and medium-duty truck markets, such as brake drums, disc wheel hubs, spoke wheels, rotors and automatic slack adjusters. The majority of these components are critical to the safe operation of vehicles. A description of each of our major wheel-end components is summarized below:



 
Brake Drums. We offer a variety of heavy- and medium-duty brake drums for truck, commercial trailer, bus, and off-highway applications. A brake drum is a braking device utilized in a “drum brake” which is typically made of iron and has a machined surface on the inside. When the brake is applied, air or brake fluid is forced, under pressure, into a wheel cylinder which, in turn, pushes a brake shoe into contact with the machined surface on the inside of the drum and stops the vehicle. Our brake drums are custom-engineered to exact requirements for a broad range of applications, including logging, mining, and more traditional over-the-road vehicles. To ensure product quality, we continually work with brake and lining manufacturers to optimize brake drum and brake system performance. Brake drums are our primary aftermarket product. The aftermarket opportunities in this product line are substantial as brake drums continually wear with use and eventually need to be replaced, although the timing of such replacement depends on the severity of use.
 
 
Disc Wheel Hubs. We manufacture a complete line of traditional ferrous disc wheel hubs for heavy- and medium-duty trucks and commercial trailers. A disc wheel hub is the connecting piece between the brake system and the axle upon which the wheel and tire are mounted. In addition, we offer a line of lightweight cast iron hubs that provide users with improved operating efficiency. Our lightweight hubs utilize advanced metallurgy and unique structural designs to offer both significant weight savings and lower costs due to fewer maintenance requirements. Our product line also includes finely machined hubs for anti-lock braking systems, or ABS, which enhance vehicle safety.
 
 
Spoke Wheels. We manufacture a full line of spoke wheels for heavy-and medium-duty trucks and commercial trailers. While disc wheel hubs have begun to displace spoke wheels, they are still popular for severe-duty applications such as off-highway vehicles, refuse vehicles, and school buses, due to their greater strength and reduced downtime. Our product line also includes finely machined wheels for ABS systems, similar to our disc wheel hubs.
 
 
Disc Brake Rotors. We develop and manufacture durable, lightweight disc brake rotors for a variety of heavy-duty truck applications. A disc rotor is a braking device that is typically made of iron with highly machined surfaces. Once a disc brake is applied, brake fluid from the master cylinder is forced into a caliper where it presses against a piston, which then squeezes two brake pads against the disc rotor and stops the vehicle. Disc brakes are generally viewed as more efficient, although more expensive, than drum brakes and are often found in the front of a vehicle with drum brakes often located in the rear. We manufacture ventilated disc brake rotors that significantly improve heat dissipation as required for applications on Class 7 and 8 vehicles. We offer one of the most complete lines of heavy-duty and medium-duty disc brake rotors in the industry.
 
 
Automatic Slack Adjusters. Automatic slack adjusters react to, and adjust for, variations in brake shoe-to-drum clearance and maintain the proper amount of space between the shoe and drum. Our automatic slack adjusters automatically adjust the brake shoe-to-brake drum clearance, ensuring that this clearance is always constant at the time of braking. The use of automatic slack adjusters reduces maintenance costs, improves braking performance and minimizes side-to-pull and stopping distance.

Truck Body and Chassis Parts (Approximately 14% of our 2011 net sales, 12% of our 2010 net sales, and 14% of our 2009 net sales)

We are a leading supplier of truck body and chassis parts to heavy- and medium-duty truck and bus manufacturers. We fabricate a broad line of truck body and chassis parts under the Imperial brand name, including bumpers, battery and toolboxes, crown assemblies, fuel tanks, roofs, fenders, crossmembers, tubular assemblies and stamping/fabricating assemblies including complete bus chassis. We also provide a variety of value-added services, such as chrome plating and polishing, powder coating, assembly, kitting and line sequencing.

We specialize in the fabrication of complex components and assemblies requiring a significant amount of tooling or customization. Our truck body and chassis parts manufacturing operations are characterized by low-volume production runs. Additionally, because each truck is uniquely customized to end user specifications, we have developed flexible production systems that are capable of accommodating multiple variations for each product design. A description of each of our major truck body and chassis parts is summarized below:

 
Bumpers. We manufacture a wide variety of steel bumpers.  These bumpers are polished/chrome plated to meet specific OEM and private label aftermarket requirements.
 
 
Fuel Tanks. We manufacture and assemble polished/unpolished aluminum fuel tanks and fuel tank straps for OEM and aftermarket customers.
 
 
Battery Boxes and Toolboxes. We design and manufacture polished/unpolished steel and aluminum battery and toolboxes for heavy-duty truck OEM and aftermarket customers.
 


 
Front-End Crossmembers. We fabricate and assemble crossmembers for heavy-duty trucks. A crossmember is a structural component of a chassis. These products are manufactured from heavy gauge, high-strength steel and assembled to customer line-set schedules.
 
 
Muffler Assemblies. We assemble and line-set complete muffler assemblies consisting of fabricated/polished parts, heat shields, mufflers, and exhaust tubing.
 
 
Crown Assemblies and Components. We manufacture multiple styles of crown assemblies and components. A crown assembly is the highly visible front section (grill) of the truck. These products are fabricated from both steel and aluminum, which are chrome-plated.
 
 
Other Products. We fabricate a wide variety of structural components/assemblies for truck and bus OEMs and aftermarket customers. These products include fenders, exhaust components, sun visors, windshield masks, step assemblies, brackets, fuel tank supports, inner-hood panels, door assemblies, dash panel assemblies, and various other components.
 

Ductile and Gray Iron Castings (Approximately 16% of our 2011 net sales, 15% of our 2010 net sales, and 10% of our 2009 net sales)

We produce ductile and gray iron castings under the Brillion brand name.  Our Brillion Foundry facility is one of North America’s largest iron foundries focused on the supply of complex, highly cored cast products to the commercial vehicle, diesel engine, construction, agricultural, hydraulic and industrial markets.  Our cast products include:

 
Transmission and Engine-Related Components. We believe that our Brillion foundry is a leading source for the casting of transmission and engine-related components to the heavy- and medium-duty truck markets, including flywheels, transmission and engine-related housings and brackets.
 
 
Industrial Components. Our Brillion foundry produces components for a wide variety of applications to the industrial machinery and construction equipment markets, including flywheels, pump housings, small engine components, and other industrial components. Our industrial components are made to specific customer requirements and, as a result, our product designs are typically proprietary to our customers.

Cyclical and Seasonal Industry

The commercial vehicle components industry is highly cyclical and, in large part, depends on the overall strength of the demand for heavy- and medium-duty trucks. The industry has historically experienced significant fluctuations in demand based on factors such as general economic conditions, including industrial production and consumer spending, as well as, gas prices, credit availability, and government regulations.  Cyclical peaks of commercial vehicle production in 1999 and 2006 were followed by sharp production declines of 48% and 69% to trough production levels in 2001 and 2009, respectively.  Since 2009, commercial vehicle production levels have increased, and demand for our products as predicted by analysts, including America’s Commercial Transportation (“ACT”) and FTR Associates (“FTR”) Publications, is expected to improve in 2012 as economic conditions continue to improve.  OEM production of major markets that we serve in North America, from 2005 to 2011, are shown below:

   
For the Year Ended December 31,
 
   
2011
   
2010
   
2009
   
2008
   
2007
   
2006
   
2005
 
North American Class 8
    255,261       154,173       118,396       205,639       212,391       376,448       339,126  
North American Classes 5-7
    166,798       117,901       97,733       158,294       206,954       275,332       252,871  
U.S. Trailers
    209,005       124,162       79,027       143,901       214,615       280,203       251,950  

Our operations are typically seasonal as a result of regular OEM customer maintenance and model changeover shutdowns, which typically occur in the third and fourth quarter of each calendar year.  In addition, our Gunite product line typically experiences higher aftermarket purchases of wheel-end components in the first and second quarters of each calendar year.  This seasonality may result in decreased net sales and profitability during the third and fourth fiscal quarters of each calendar year.

Customers

We market our components to more than 1,000 customers, including most of the major North American heavy- and medium-duty truck and commercial trailer OEMs, as well as to the major aftermarket suppliers, including OEM dealer networks, wholesale distributors, and aftermarket buying groups. Our largest customers are PACCAR, Navistar, Daimler


Truck North America, and Volvo/Mack, which combined accounted for approximately 53.4% of our net sales in 2011, and individually constituted approximately 17.7%, 16.6%, 11.4%, and 7.7%, respectively, of our 2011 net sales. We have long-term relationships with our larger customers, many of whom have purchased components from us or our predecessors for more than 45 years. We garner repeat business through our reputation for quality and position as a standard supplier for a variety of truck lines. We believe that we will continue to be able to effectively compete for our customers’ business due to the high quality of our products, the breadth of our product portfolio, and our continued product innovation.

Sales and Marketing

We have an integrated, corporate-wide sales and marketing group. We have dedicated salespeople and sales engineers who reside near the headquarters of each of the four major truck OEMs and who spend substantially all of their professional time coordinating new sales opportunities and developing our relationship with the OEMs.  These sales professionals function as a single point of contact with the OEMs, providing “one-stop shopping” for all of our products. Each brand has marketing personnel who, together with applications engineers, have in-depth product knowledge and provide support to the designated OEM salespeople.

We also have fleet sales coverage focused on our wheels and wheel-end markets who seek to develop relationships directly with fleets to create “pull-through” demand for our products. This effort is intended to help convince the truck and trailer OEMs to designate our products as standard equipment and to create sales by encouraging fleets to specify our products on the equipment that they purchase, even if our product is not standard equipment. This same group provides aftermarket sales coverage for our various products, particularly wheels and wheel-end components. These salespeople promote and sell our products to the aftermarket, including OEM dealers, warehouse distributors and aftermarket buying groups.

We have a consolidated aftermarket distribution strategy for our wheels and wheel-end components. In support of this strategy, we have a strategically located distribution center in the Indianapolis, Indiana, metropolitan area.  As a result, customers can order steel and aluminum wheels, brake drums/rotors and automatic slack adjusters on one purchase order, improving freight efficiencies and inventory turns for our customers.  We believe this capability is a strategic advantage over our single product line competitors.  The aftermarket infrastructure enables us to expand our manufacturing plant direct shipments to larger aftermarket customers utilizing a virtual distribution strategy that allows us to maintain and enhance our competitiveness by eliminating unnecessary freight and handling through the distribution center.

International Sales

We consider sales to customers outside of the United States as international sales. International sales for the years, ended December 31, 2011, 2010, and 2009 are as follows:

(dollars in millions)
 
International Sales
   
Percent of Net Sales
 
2011
  $ 158.3       16.9 %
2010
  $ 104.1       15.4 %
2009
  $ 70.7       13.7 %

For additional information, see Note 12 to the “Notes to Consolidated Financial Statements” included herein.

Manufacturing

We operate 15 facilities, which are characterized by advanced manufacturing capabilities, in North America. Our U.S. manufacturing operations are located in Illinois, Indiana, Kentucky, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, Washington, and Wisconsin. In addition, we have manufacturing facilities in Canada and Mexico. These facilities are strategically located to meet our manufacturing needs and the demands of our customers.

All of our significant operations are QS-9000/TS 16949 certified, which means that they comply with certain quality assurance standards for truck components suppliers. We believe our manufacturing operations are highly regarded by our customers, and we have received numerous quality awards from our customers including PACCAR’s Preferred Supplier award and Daimler Truck North America’s Masters of Quality award.

Competition

We operate in highly competitive markets. However, no single manufacturer competes with all of the products


manufactured and sold by us in the heavy-duty truck market, and the degree of competition varies among the different products that we sell. In each of our markets, we compete on the basis of price, manufacturing and distribution capabilities, product quality, product design, product line breadth, delivery, and service.

The competitive landscape for each of our brands is unique. Our primary competitors in the wheel markets include Alcoa Inc., and Maxion Wheels. Our primary competitors in the wheel-ends and assemblies markets for heavy-duty trucks and commercial trailers are KIC Holdings, Inc., ArvinMeritor, Inc., Consolidated Metco Inc., and Webb Wheel Products Inc. The truck body and chassis parts markets are fragmented and characterized by many small private companies. Our major competitors in the industrial components market include ten to twelve foundries operating in the Midwest and Southern regions of the United States and Mexico.

Raw Materials and Suppliers

We typically purchase steel for our wheel products from a number of different suppliers by negotiating high-volume contracts with terms ranging from one to two years. While we believe that our supply contracts can be renewed on acceptable terms, we may not be able to renew these contracts on such terms or at all. However, we do not believe that we are overly dependent on long-term supply contracts for our steel requirements as we have alternative sources available if need requires. Furthermore, it should be understood that the domestic steel industry, under normal circumstances, does not have the capacity to support the economy at large and the market thus depends on a certain level of imports.  Depending on market dynamics and raw material availability, the market is occasionally in tight supply, which may result in occasional industry allocations and surcharges.

We obtain aluminum for our wheel products through third-party suppliers. We believe that aluminum is readily available from a variety of sources. Aluminum prices have been volatile from time-to-time. We attempt to minimize the impact of such volatility through selected customer supported hedge agreements, supplier agreements and contractual price adjustments with customers.

Major raw materials for our wheel-end and industrial component products are steel scrap and pig iron. We do not have any long-term contractual commitments with any steel scrap or pig iron suppliers, but we do not anticipate having any difficulty in obtaining steel scrap or pig iron due to the large number of potential suppliers and our position as a major purchaser in the industry. A portion of the increases in steel scrap prices for our wheel-ends and industrial components are passed-through to most of our customers by way of a fluctuating surcharge, which is calculated and adjusted on a periodic basis. Other major raw materials include silicon sand, binders, sand additives and coated sand, which are generally available from multiple sources. Coke and natural gas, the primary energy sources for our melting operations, have historically been generally available from multiple sources, and electricity, another of these energy sources, has historically been generally available.

The main raw materials for our truck body and chassis parts are sheet and formed steel and aluminum. Price adjustments for these raw materials are passed-through to our largest customers for those parts on a contractual basis. We purchase major fabricating materials, such as fasteners, steel, and tube steel, from multiple sources, and these materials have historically been generally available.

Employees and Labor Unions

As of December 31, 2011, we had approximately 3,280 employees, of which 629 were salaried employees with the remainder paid hourly. Unions represent approximately 1,896 of our employees, which is approximately 58% of our total employees. We have collective bargaining agreements with several unions, including (1) the United Auto Workers, (2) the International Brotherhood of Teamsters, (3) the United Steelworkers, (4) the International Association of Machinists and Aerospace Workers, (5) the National Automobile, Aerospace, Transportation, and General Workers Union of Canada and (6) El Sindicato Industrial de Trabajadores de Nuevo Leon.

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. In 2011, we successfully completed negotiations at our Monterrey and Brillion Iron Works facilities and extended the labor contract at our Elkhart, Indiana facility through April 2013. 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.


Intellectual Property

We believe the protection of our intellectual property is important to our business. Our principal intellectual property consists of product and process technology, a number of patents, trade secrets, trademarks and copyrights.  Although our patents, trade secrets, and copyrights are important to our business operations and in the aggregate constitute a valuable asset, we do not believe that any single patent, trade secret, or copyright is critical to the success of our business as a whole.  We also own common law rights and U.S. federal and foreign trademark registrations for several of our brands, which we believe are valuable, including Accuride®, Brillion TM, Gunite®, and Imperial TM.  Our policy is to seek statutory protection for all significant intellectual property embodied in patents and trademarks.  From time to time, we grant licenses under our intellectual property and receive licenses under intellectual property of others.

Backlog

Our production is based on firm customer orders and estimated future demand. Since firm orders generally do not extend beyond 15-45 days and we generally meet all requirements, backlog volume is generally not significant.

Environmental Matters

Our operations, facilities, and properties are subject to extensive and evolving laws and regulations pertaining to air emissions, wastewater and stormwater discharges, the handling and disposal of solid and hazardous materials and wastes, the investigation and remediation of contamination, and otherwise relating to health, safety, and the protection of the environment and natural resources. The violation of such laws can result in significant fines, penalties, liabilities or restrictions on operations. From time to time, we are involved in administrative or legal proceedings relating to environmental, health and safety matters, and have in the past incurred and will continue to incur capital costs and other expenditures relating to such matters. For example, we are involved in proceedings regarding alleged violations of air regulations at our Rockford facility and stormwater regulations at our Brillion facility, which could subject us to fines, penalties or other liabilities. In connection with such matters, we are negotiating with state authorities regarding certain capital improvements related to the underlying allegations. Based on current information, we do not expect that these matters will have a material adverse effect on our business, results of operations or financial conditions; however, we cannot assure you that these or any other future environmental compliance matters will not have such an effect.

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 December 31, 2011, 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.

Many scientists, legislators and others attribute climate change to increased emissions of greenhouse gases (“GHGs”), which has led to significant legislative and regulatory efforts to limit GHGs. In the recent past, Congress has considered legislation that would have reduced GHG emissions through a cap-and-trade system of allowances and credits, under which emitters would be required to buy allowances to offset emissions. In addition, in late 2009, the EPA promulgated a rule requiring certain emitters of GHGs to monitor and report data with respect to their GHG emissions and, in May 2010, finalized its “tailoring” rule for determining which stationary sources are required to obtain permits, or implement best available control technology, on account of their GHG emission levels. The EPA is also expected to adopt additional rules in the near future that will require permitting for ever-broader classes of GHG emission sources. Moreover, several states, including states in which we have facilities, are considering or have begun to implement various GHG registration and reduction programs. Certain of our facilities use significant amounts of energy and may emit amounts of GHGs above certain existing and/or proposed regulatory thresholds. GHG laws and regulations could increase the price of the energy we purchase, require us to purchase allowances to offset our own emissions, require us to monitor and report our GHG emissions or require us to install new emission controls at our facilities, any one of which could significantly increase our costs or otherwise negatively affect our business, results of operations or financial condition. In addition, future efforts to curb transportation-related GHGs could result in a lower demand for our products, which could negatively affect our business, results of operation or financial condition. While future GHG regulation appears increasingly likely, it is difficult to predict how these regulations will affect our business, results of operations or financial condition.

Research and Development Expense

Expenditures relating to the development of new products and processes, including significant improvements and refinements to existing products, are expensed as incurred. The amount expensed in the year ended December 31, 2011 totaled $4.8 million.  For the period January 1, 2010 to February 26, 2010 and for the period February 26, 2010 to December 31, 2010 we expensed $0.7 million and $3.4 million, respectively.  The amount expensed in the year ended December 31, 2009 totaled $4.3 million.

Website Access to Reports

We make our periodic and current reports available, free of charge, on our website as soon as practicable after such material is electronically filed with the Securities and Exchange Commission (the “SEC”). Our website address is www.accuridecorp.com and the reports are filed under “SEC Filings” in the Investor Information section of our website. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The SEC’s website is www.sec.gov.

Item 1A.  Risk Factors

Factors That May Affect Future Results

In this report, we have made various statements regarding current expectations or forecasts of future events. These statements are “forward-looking statements” within the meaning of that term in Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). Forward-looking statements are also made from time-to-time in press releases and in oral statements made by our officers. Forward-looking statements are identified by the words “estimate,” “project,” “anticipate,” “will continue,” “will likely result,” “expect,” “intend,” “believe,” “plan,” “predict” and similar expressions.

Such forward-looking statements are based on assumptions and estimates, which although believed to be reasonable, may turn out to be incorrect. Therefore, undue reliance should not be placed upon these statements and estimates. These statements or estimates may not be realized and actual results may differ from those contemplated in these “forward-looking statements.” Some of the factors that may cause these statements and estimates to differ materially include, general economic conditions, the performance of the commercial vehicle market and each of the risks highlighted below.

We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise. You are advised to consult further disclosures we may make on related subjects in our filings with the SEC. Our expectations, beliefs, or projections may not be achieved or accomplished. In addition to other factors discussed in the report, some of the important factors that could cause actual results to differ from those discussed in


the forward-looking statements include the following risk factors.

Risks Related to Our Business and Industry

We rely on, and make significant operational decisions based, in part, upon industry data and forecasts that may prove to be inaccurate.

We continue to operate in a challenging economic environment and our ability to maintain liquidity may be affected by economic or other conditions that are beyond our control and which are difficult to predict.  The 2012 production forecasts by ACT Publications for the significant commercial vehicle markets that we serve, as of February 10, 2012, are as follows:
 
North American Class 8
    296,493  
North American Classes 5-7
    173,493  
U.S. Trailers
    248,350  

We are dependent on sales to a small number of our major customers and on our status as standard supplier on certain truck platforms of each of our major customers.

Sales, including aftermarket sales, to PACCAR, Navistar, Daimler Truck North America, and Volvo/Mack constituted approximately 17.7%, 16.6%, 11.4%, and 7.7%, respectively, of our 2011 net sales.  No other customer accounted for more than 5% of our net sales for this period. The loss of any significant portion of sales to any of our major customers would likely have a material adverse effect on our business, results of operations or financial condition.

We are a standard supplier of various components at a majority of our major customers, which results in recurring revenue as our standard components are installed on most trucks ordered from that platform, unless the end user specifically requests a different product, generally at an additional charge. The selection of one of our products as a standard component may also create a steady demand for that product in the aftermarket. We may not maintain our current standard supplier positions in the future, and may not become the standard supplier for additional truck platforms. The loss of a significant standard supplier position or a significant number of standard supplier positions with a major customer could have a material adverse effect on our business, results of operations or financial condition.

We are continuing to engage in efforts intended to improve and expand our relations with each of the customers named above. We have supported our position with these customers through direct and active contact with end users, trucking fleets, and dealers, and have located certain of our marketing personnel in offices near these customers and most of our other major customers. We may not be able to successfully maintain or improve our customer relationships so that these customers will continue to do business with us as they have in the past or be able to supply these customers or any of our other customers at current levels. The loss of a significant portion of our sales to any of these named customers could have a material adverse effect on our business, results of operations or financial condition. In addition, the delay or cancellation of material orders from, or problems at, any of our other major customers could have a material adverse effect on our business, results of operations, or financial condition.

Increased cost or reduced supply of raw materials and purchased components may adversely affect our business, results of operations or financial condition.

Our business is subject to the risk of price increases and fluctuations and periodic delays in the delivery of raw materials and purchased components that are beyond our control. Our operations require substantial amounts of raw steel, aluminum, steel scrap, pig iron, electricity, coke, natural gas, sheet and formed steel, bearings, purchased components, fasteners, silicon sand, binders, sand additives, coated sand, and tube steel. Fluctuations in the delivery of these materials may be driven by the supply/demand relationship for material, factors particular to that material or governmental regulation for raw materials such as electricity and natural gas. In addition, if any of our suppliers seeks bankruptcy relief or otherwise cannot continue its business as anticipated or we cannot renew our supply contracts on favorable terms, the availability or price of raw materials could be adversely affected. Fluctuations in prices and/or availability of the raw materials or purchased components used by us, which at times may be more pronounced during periods of higher truck builds, may affect our profitability and, as a result, have a material adverse effect on our business, results of operations, or financial condition.  In addition, as described above, a shortening or elimination of our trade credit by our suppliers may affect our liquidity and cash flow and, as a result, have a material adverse effect on our business, results of operations, or financial condition.  See “Item 1A—Risk Factors—Current economic conditions, including those related to the credit markets, may have material adverse effect on our industry, business and results of operations or financial condition.”



We use substantial amounts of raw steel and aluminum in our production processes. Although raw steel is generally available from a number of sources, we have obtained favorable sourcing by negotiating and entering into high-volume contracts with third parties with terms ranging from one to two years. We obtain raw steel and aluminum from various third-party suppliers. We may not be successful in renewing our supply contracts on favorable terms or at all. A substantial interruption in the supply of raw steel or aluminum or inability to obtain a supply of raw steel or aluminum on commercially desirable terms could have a material adverse effect on our business, results of operations or financial condition. We are not always able, and may not be able in the future, to pass on increases in the price of raw steel or aluminum to our customers on a timely basis or at all. In particular, when raw material prices increase rapidly or to significantly higher than normal levels, we may not be able to pass price increases through to our customers on a timely basis, if at all, which could adversely affect our operating margins and cash flow. Any fluctuations in the price or availability of raw steel or aluminum may have a material adverse effect on our business, results of operations or financial condition.

Steel scrap and pig iron are also major raw materials used in our business to produce our wheel-end and industrial components. Steel scrap is derived from, among other sources, junked automobiles, industrial scrap, railroad cars, agricultural and heavy machinery, and demolition steel scrap from obsolete structures, containers and machines. Pig iron is a low-grade cast iron that is a product of smelting iron ore with coke and limestone in a blast furnace. The availability and price of steel scrap and pig iron are subject to market forces largely beyond our control, including North American and international demand for steel scrap and pig iron, freight costs, speculation and foreign exchange rates. Steel scrap and pig iron availability and price may also be subject to governmental regulation. We are not always able, and may not be able in the future, to pass on increases in the price of steel scrap and pig iron to our customers. In particular, when raw material prices increase rapidly or to significantly higher than normal levels, we may not be able to pass price increases through to our customers on a timely basis, if at all, which could have a material adverse effect on our operating margins and cash flow. Any fluctuations in the price or availability of steel scrap or pig iron may have a material adverse effect on our business, results of operations or financial condition. See “Item 1—Business—Raw Materials and Suppliers.”

Our business is affected by the seasonality and regulatory nature of the industries and markets that we serve.

Our operations are typically seasonal as a result of regular customer maintenance and model changeover shutdowns, which typically occur in the third and fourth quarter of each calendar year. This seasonality may result in decreased net sales and profitability during the third and fourth fiscal quarters and have a material adverse effect on our business, results of operations, or financial condition.  In addition, federal and state regulations (including engine emissions regulations, tariffs, import regulations and other taxes) may have a material adverse effect on our business and are beyond our control.

Cost reduction and quality improvement initiatives by OEMs could have a material adverse effect on our business, results of operations or financial condition.

We are primarily a components supplier to the heavy- and medium-duty truck industries, which are characterized by a small number of OEMs that are able to exert considerable pressure on components suppliers to reduce costs, improve quality and provide additional design and engineering capabilities. Given the fragmented nature of the industry, OEMs continue to demand and receive price reductions and measurable increases in quality through their use of competitive selection processes, rating programs, and various other arrangements. We may be unable to generate sufficient production cost savings in the future to offset such price reductions. OEMs may also seek to save costs by relocating production to countries with lower cost structures, which could in turn lead them to purchase components from local suppliers with lower production costs. Additionally, OEMs have generally required component suppliers to provide more design engineering input at earlier stages of the product development process, the costs of which have, in some cases, been absorbed by the suppliers. Future price reductions, increased quality standards and additional engineering capabilities required by OEMs may reduce our profitability and have a material adverse effect on our business, results of operations, or financial condition.

We operate in highly competitive markets.

The markets in which we operate are highly competitive. We compete with a number of other manufacturers and distributors that produce and sell similar products. Our products primarily compete on the basis of price, manufacturing and distribution capability, product design, product quality, product delivery and product service. Some of our competitors are companies, or divisions, units or subsidiaries of companies that are larger and have greater financial and other resources than we do. For these reasons, our products may not be able to compete successfully with the products of our competitors. In addition, our competitors may foresee the course of market development more accurately than we do, develop products that are superior to our products, have the ability to produce similar products at a lower cost than we can, or adapt more quickly than we do to new technologies or evolving regulatory, industry, or customer requirements. As a result, our products may not


be able to compete successfully with their products. In addition, OEMs may expand their internal production of components, shift sourcing to other suppliers, or take other actions that could reduce the market for our products and have a negative impact on our business. We may encounter increased competition in the future from existing competitors or new competitors. We expect these competitive pressures in our markets to remain strong. See “Item 1—Business—Competition.”

In addition, potential competition from foreign truck components suppliers, especially in the aftermarket, may lead to an increase in truck components imports into North America, adversely affecting our market share and negatively affecting our ability to compete. At present, competition from non-U.S. manufacturers is constrained in the markets in which we compete due to factors such as high shipping costs.  However, if the cost of fuel goes down, shipping costs would be significantly reduced, increasing the likelihood that foreign manufacturers will seek to increase their sales of truck components in North American markets.  Foreign truck components suppliers, including those in China, may in the future increase their current share of the markets for truck components in which we compete. Some of these foreign suppliers may be owned, controlled or subsidized by their governments, and their decisions with respect to production, sales and exports may be influenced more by political and economic policy considerations than by prevailing market conditions. In addition, foreign truck components suppliers may be subject to less restrictive regulatory and environmental regimes that could provide them with a cost advantage relative to North American suppliers. Therefore, there is a risk that some foreign suppliers, including those in China, may increase their sales of truck components in North American markets despite decreasing profit margins or losses. If future trade cases do not provide relief from such potential trade practices, U.S. protective trade laws are weakened or international demand for trucks and/or truck components decreases, an increase of truck component imports into the United States may occur, which could have a material adverse effect on our business, results of operations or financial condition.

We face exposure to foreign business and operational risks including foreign exchange rate fluctuations and if we were to experience a substantial fluctuation, our profitability may change.

In the normal course of doing business, we are exposed to risks associated with changes in foreign exchange rates, particularly with respect to the Canadian Dollar and Mexican Peso. From time to time, we use forward foreign exchange contracts, and other derivative instruments, to help offset the impact of the variability in exchange rates on our operations, cash flows, assets and liabilities. At December 31, 2011, the notional amount of open foreign exchange forward contracts was $1,160. Factors that could further impact the risks associated with changes in foreign exchange rates include the accuracy of our sales estimates, volatility of currency markets and the cost and availability of derivative instruments. See “Item 7A.  Quantitative and Qualitative Disclosure about Market Risk —Foreign Currency Risk.”  In addition, changes in the laws or governmental policies in the countries in which we operate could have a material adverse effect on our business, results of operations, or financial condition.

We may not be able to continue to meet our customers’ demands for our products and services.

In order to remain competitive, we must continue to meet our customers’ demand for our products and services. However, we may not be successful in doing so. If our customers’ demand for our products and/or services exceeds our ability to meet that demand, we may be unable to continue to provide our customers with the products and/or services they require to meet their business needs. Factors that could result in our inability to meet customer demands include an unforeseen spike in demand for our products and/or services, a failure by one or more of our suppliers to supply us with the raw materials and other resources that we need to operate our business effectively or poor management of our Company or one or more divisions or units of our Company, among other factors. Our ability to provide our customers with products and services in a reliable and timely manner, in the quantity and quality desired and with a high level of customer service, may be severely diminished as a result. If this happens, we may lose some or all of our customers to one or more of our competitors, which would have a material adverse effect on our business, results of operations, or financial condition.

In addition, it is important that we continue to meet our customers’ demands in the truck components industry for product innovation, improvement and enhancement, including the continued development of new-generation products, design improvements and innovations that improve the quality and efficiency of our products. Developing product innovations for the truck components industry has been and will continue to be a significant part of our strategy. However, such development will require us to continue to invest in research and development and sales and marketing. Our recent financial condition has constrained our ability to make such investments. In the future, we may not have sufficient resources to make such necessary investments, or we may be unable to make the technological advances necessary to carry out product innovations sufficient to meet our customers’ demands. We are also subject to the risks generally associated with product development, including lack of market acceptance, delays in product development and failure of products to operate properly. We may, as a result of these factors, be unable to meaningfully focus on product innovation as a strategy and may therefore be unable to meet our customers’ demand for product innovation.



Equipment failures, delays in deliveries or catastrophic loss at any of our facilities could lead to production or service curtailments or shutdowns.

We manufacture our products at 15 facilities and provide logistical services at our just-in-time sequencing facilities in the United States. An interruption in production or service capabilities at any of these facilities as a result of equipment failure or other reasons could result in our inability to produce our products, which would reduce our net sales and earnings for the affected period. In the event of a stoppage in production at any of our facilities, even if only temporary, or if we experience delays as a result of events that are beyond our control, delivery times to our customers could be severely affected. Any significant delay in deliveries to our customers could lead to increased returns or cancellations and cause us to lose future sales. Our facilities are also subject to the risk of catastrophic loss due to unanticipated events such as fires, explosions or violent weather conditions. We may experience plant shutdowns or periods of reduced production as a result of equipment failure, delays in deliveries or catastrophic loss, which could have a material adverse effect on our business, results of operations or financial condition.

We may incur potential product liability, warranty and product recall costs.

We are subject to the risk of exposure to product liability, warranty and product recall claims in the event any of our products results in property damage, personal injury or death, or does not conform to specifications. We may not be able to continue to maintain suitable and adequate insurance in excess of our self-insured amounts on acceptable terms that will provide adequate protection against potential liabilities. In addition, if any of our products proves to be defective, we may be required to participate in a recall involving such products. For example, we have an ongoing product recall campaign related to automatic slack adjusters manufactured by our Gunite business unit, and have recorded reserves in 2010 and 2011, related thereto. A successful claim brought against us in excess of available insurance coverage, if any, or a requirement to participate in any product recall, could have a material adverse effect on our business, results of operations or financial condition.

Work stoppages or other labor issues at our facilities or at our customers’ facilities could have a material adverse effect on our operations.

As of December 31, 2011, unions represented approximately 58% of our workforce. As a result, we are subject to the risk of work stoppages and other labor relations matters. Any prolonged strike or other work stoppage at any one of our principal unionized facilities could have a material adverse effect on our business, results of operations or financial condition. We have collective bargaining agreements with different unions at various facilities. These collective bargaining agreements expire at various times over the next few years, with the exception of our union contract at our Monterrey, Mexico facility, which expires on an annual basis. In 2011, we successfully completed negotiations at our Monterrey and Brillion Iron Works facilities and extended the labor contract at our Elkhart, Indiana facility through April 2013. The 2012 negotiations in Monterrey and London, Ontario were successfully completed prior to the expiration of our union contract.

In addition, if any of our customers experience a material work stoppage, that customer may halt or limit the purchase of our products. This could cause us to shut down production facilities relating to these products, which could have a material adverse effect on our business, results of operations or financial condition.

We are subject to a number of environmental laws and regulations that may require us to make substantial expenditures or cause us to incur substantial liabilities.

Our operations, facilities, and properties are subject to extensive and evolving laws and regulations pertaining to air emissions, wastewater and stormwater discharges, the handling and disposal of solid and hazardous materials and wastes, the investigation and remediation of contamination, and otherwise relating to health, safety, and the protection of the environment and natural resources. The violation of such laws can result in significant fines, penalties, liabilities or restrictions on operations. From time to time, we are involved in administrative or legal proceedings relating to environmental, health and safety matters, and have in the past incurred and will continue to incur capital costs and other expenditures relating to such matters. For example, we are involved in proceedings regarding alleged violations of air regulations at our Rockford facility and stormwater regulations at our Brillion facility, which could subject us to fines, penalties or other liabilities. In connection with such matters, we are negotiating with state authorities regarding certain capital improvements related to the underlying allegations. Based on current information, we do not expect that these matters will have a material adverse effect on our business, results of operations or financial conditions; however, we cannot assure you that these or any other future environmental compliance matters will not have such an effect.


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 December 31, 2011, 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.  See “Item 1—Business—Environmental Matters.”

 
Future climate change regulation may require us to make substantial expenditures or cause us to incur substantial liabilities.
 
Many scientists, legislators and others attribute climate change to increased emissions of greenhouse gases (“GHGs”), which has led to significant legislative and regulatory efforts to limit GHGs. In the recent past, Congress has considered legislation that would have reduced GHG emissions through a cap-and-trade system of allowances and credits, under which emitters would be required to buy allowances to offset emissions. In addition, in late 2009, the EPA promulgated a rule requiring certain emitters of GHGs to monitor and report data with respect to their GHG emissions and, in May 2010, finalized its “tailoring” rule for determining which stationary sources are required to obtain permits, or implement best available control technology, on account of their GHG emission levels. The EPA is also expected to adopt additional rules in the near future that will require permitting for ever-broader classes of GHG emission sources. Moreover, several states, including states in which we have facilities, are considering or have begun to implement various GHG registration and reduction programs. Certain of our facilities use significant amounts of energy and may emit amounts of GHGs above certain existing and/or proposed regulatory thresholds. GHG laws and regulations could increase the price of the energy we purchase, require us to purchase allowances to offset our own emissions, require us to monitor and report our GHG emissions or require us to install new emission controls at our facilities, any one of which could significantly increase our costs or otherwise negatively affect our business, results of operations or financial condition. In addition, future efforts to curb transportation-related GHGs could result in a lower demand for our products, which could negatively affect our business, results of operation or financial condition. While future GHG regulation appears increasingly likely, it is difficult to predict how these regulations will affect our business, results of operations or financial condition.

We might fail to adequately protect our intellectual property, or third parties might assert that our technologies infringe on their intellectual property.

The protection of our intellectual property is important to our business. We rely on a combination of trademarks, copyrights, patents, and trade secrets to provide protection in this regard, but this protection might be inadequate. For


example, our pending or future trademark, copyright, and patent applications might not be approved or, if allowed, they might not be of sufficient strength or scope. Conversely, third parties might assert that our technologies or other intellectual property infringe on their proprietary rights. Any intellectual property-related litigation could result in substantial costs and diversion of our efforts and, whether or not we are ultimately successful, the litigation could have a material adverse effect on our business, results of operations or financial condition. See “Item 1—Business—Intellectual Property.”

Litigation against us could be costly and time consuming to defend.

We are regularly subject to legal proceedings and claims that arise in the ordinary course of business, such as workers’ compensation claims, OSHA investigations, employment disputes, unfair labor practice charges, customer and supplier disputes, intellectual property disputes, and product liability claims arising out of the conduct of our business. Litigation may result in substantial costs and may divert management’s attention and resources from the operation of our business, which could have a material adverse effect on our business, results of operations or financial condition.

Anti-takeover provisions, including our stockholder rights plan, could discourage or prevent potential acquisition proposals and a change of control, and thereby adversely impact the performance of our common stock.

On November 9, 2011, our Board of Directors adopted a Rights Agreement pursuant to which one purchase right was distributed as a dividend on each share of our common stock held of record as of the close of business on November 23, 2011. Upon becoming exercisable, each right will entitle its holder to purchase from the Company one one-hundredth of a share of our Series A Junior Participating Preferred Stock for the purchase price of $30.00. Generally, the rights will become exercisable ten business days after the date on which any person or group becomes the beneficial owner of 15% or more of our common stock or has commenced a tender or exchange offer which, if consummated, would result in any person or group becoming the beneficial owner of 15% or more of our common stock, subject to the terms and conditions set forth in the rights agreement.  The rights are attached to the certificates representing outstanding shares of common stock until the rights become exercisable, at which point separate certificates will be distributed to the record holders of our common stock.  If a person or group becomes the beneficial owner of 15% or more of our common stock, which we refer to as an “acquiring person,” each right will entitle its holder, other than the acquiring person, to receive upon exercise a number of shares of our common stock having a market value of two times the purchase price of the right.

The rights agreement is designed to deter coercive takeover tactics and to prevent an acquirer from gaining control of the Company without offering a fair price to all of our stockholders.  The rights agreement is intended to accomplish these objectives by encouraging a potential acquirer to negotiate with our Board of Directors to have the rights redeemed or the rights agreement amended prior to such party exceeding the ownership thresholds set forth in the rights agreement.  The existence of the rights agreement and the rights of holders of any other shares of preferred stock that may be issued in the future, however, could have the effect of making it more difficult for a third party to acquire a majority of our outstanding common stock, and thereby adversely affect the price of our common stock.  In addition, certain other anti-takeover provisions contained in our governing documents, including our advance notice bylaw and the fact that our stockholders may not call special meetings or take action by written consent, could also deter a change of control and negatively affect the price of our common stock.

If a person were able to acquire a substantial amount of our common stock, however, including after the rights expire on November 9, 2012, a change of control could be triggered under Delaware General Corporation Law, our ABL credit facility or the indenture governing our senior notes.  If a change of control under our ABL credit facility were to occur, we would need to obtain a waiver from our lenders or amend the facility.  If a change of control under the indenture were to occur, we could be required to repurchase our senior notes at the option of the holders.  If we are unable to obtain a waiver/amendment or repurchase the notes, as applicable, or otherwise refinance these debts, the lenders or noteholders, as applicable, could potentially accelerate these debts, and our liquidity and capital resources could be significantly limited and our business operations could be materially and adversely affected.

If we fail to retain our executive officers, our business could be harmed.

Our success largely depends on the efforts and abilities of our executive officers. Their skills, experience and industry contacts significantly contribute to the success of our business and our results of operations. The loss of any one of them could have a material adverse effect on our business, results of operations or financial condition. All of our executive officers are at will, but, as noted below, many of them have a severance agreement.  In addition, our future success and profitability will also depend, in part, upon our continuing ability to attract and retain highly qualified personnel throughout our Company.


We have entered into typical severance arrangements with certain of our senior management employees, which may result in certain costs associated with strategic alternatives.

Severance and retention agreements with certain senior management employees provide that the participating executive is entitled to a regular severance payment if we terminate the participating executive’s employment without “cause” or if the participating executive terminates his or her employment with us for “good reason” (as these terms are defined in the agreement) at any time other than during a “Protection Period.”  The regular severance benefit is equal to the participating executive’s base salary for one year. See “Item 10—Directors and Executive Officers of the Registrant.”  A Protection Period begins on the date on which a “change in control” (as defined in the agreement) occurs and ends 18 months after a “change in control.”

The change in control severance benefit is payable to an executive if his or her employment is terminated during the Protection Period either by the participating executive for “good reason” or by us without “cause.” The change in control severance benefits for Tier II executives (Messrs. Dauch, Adams, Byrnes, Hazlett, Maniatis, Martin and Wright and Ms. Blair) consist of a payment equal to 200% of the executive’s salary plus 200% of the greater of (i) the annualized incentive compensation to which the executive would be entitled as of the date on which the change of control occurs or (ii) the average incentive compensation award over the three years prior to termination. The change in control severance benefits for Tier III executives (other key executives) consist of a payment equal to 100% of the executive’s salary and 100% of the greater of (i) the annualized incentive compensation to which the executive would be entitled as of the date on which the change of control occurs or (ii) the average incentive compensation award over the three years prior to termination. If the participating executive’s termination occurs during the Protection Period, the severance and retention agreement also provides for the continuance of certain other benefits, including reimbursement for forfeitures under qualified plans and continued health, disability, accident and dental insurance coverage for the lesser of 18 months (or 12 months in the case of Tier III executives) from the date of termination or the date on which the executive receives such benefits from a subsequent employer. There are currently no Tier I executives with severance and retention agreements.
 
Neither the regular severance benefit nor the change in control severance benefit is payable if we terminate the participating executive’s employment for “cause,” if the executive voluntarily terminates his or her employment without “good reason” or if the executive’s employment is terminated as a result of disability or death.  Any payments to which the participating executive may be entitled under the agreement will be reduced by the full amount of any payments to which the executive may be entitled due to termination under any other severance policy offered by us.  These agreements would make it costly for us to terminate certain of our senior management employees and such costs may also discourage potential acquisition proposals, which may negatively affect our stock price.

Our products may be rendered obsolete or less attractive by changes in regulatory, legislative or industry requirements.

Changes in regulatory, legislative or industry requirements may render certain of our products obsolete or less attractive. Our ability to anticipate changes in these requirements, especially changes in regulatory standards, will be a significant factor in our ability to remain competitive. We may not be able to comply in the future with new regulatory, legislative and/or industrial standards that may be necessary for us to remain competitive and certain of our products may, as a result, become obsolete or less attractive to our customers.

Our strategic initiatives may be unsuccessful, may take longer than anticipated, or may result in unanticipated costs.

Future strategic initiatives could include divestitures, acquisitions, and restructurings, the success and timing of which will depend on various factors.  Many of these factors are not in our control.  In addition, the ultimate benefit of any acquisition would depend on the successful integration of the acquired entity or assets into our existing business. Failure to successfully identify, complete, and/or integrate future strategic initiatives could have a material adverse effect on our business, our results of operations, or financial condition.

Additionally, our strategy contemplates significant growth in international markets in which we have significantly less market share and experience than we have in our domestic operations and markets.  An inability to penetrate these international markets could adversely affect our results of operations.

Risks Related to Our Indebtedness

Our leverage and debt service obligations could have a material adverse effect on our financial condition or our ability to fulfill our obligations and make it more difficult for us to fund our operations.



As of December 31, 2011, our total indebtedness was $330.0 million.  Our indebtedness and debt service obligations could have important negative consequences to us, including:

 
Difficulty satisfying our obligations with respect to our indebtedness;
 
 
Difficulty obtaining financing in the future for working capital, capital expenditures, acquisitions or other purposes;
 
 
Increased vulnerability to general economic downturns and adverse industry conditions;
 
 
Limited flexibility in planning for, or reacting to, changes in our business and in our industry in general;
 
 
Placing us at a competitive disadvantage compared to our competitors that have less debt, and
 
 
Limited flexibility in planning for, or reacting to, changes in our business and industry.

Despite our leverage, we and our subsidiaries will be able to incur more indebtedness. This could further exacerbate the risk immediately described above, including our ability to service our indebtedness.

We and our subsidiaries may be able to incur additional indebtedness in the future. Although our ABL credit facility and indenture governing our senior notes contain restrictions on the incurrence of additional indebtedness, such restrictions are subject to a number of qualifications and exceptions, and under certain circumstances indebtedness incurred in compliance with such restrictions (or with the consent of our lenders) could be substantial. For example, we may incur additional debt to, among other things, finance future acquisitions, expand through internal growth, fund our working capital needs, comply with regulatory requirements, respond to competition or for general financial reasons alone.  To the extent new debt is added to our and our subsidiaries’ current debt levels, the risks described above would increase.

To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.

Our ability to make payments on and to refinance our indebtedness and to fund planned capital expenditures and research and development efforts will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory, and other factors that are beyond our control.

Our business may not, however, generate sufficient cash flow from operations. Future borrowings may not be available to us under our ABL credit facility in an amount sufficient to enable us to pay our indebtedness or to fund other liquidity needs. If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell material assets or operations, obtain additional equity capital or refinance all or a portion of our indebtedness. We are unable to predict the timing of such sales or the proceeds which we could realize from such sales, or whether we would be able to refinance any of our indebtedness on commercially reasonable terms or at all.

Risks Related to Our Emergence from Chapter 11 Bankruptcy Proceedings
 
 
Our actual financial results may vary significantly from the projections filed with the Bankruptcy Court, and investors should not rely on the projections.

Neither the projected financial information that we previously filed with the bankruptcy court in connection with the October 2009 to February 2010 Chapter 11 bankruptcy proceedings nor the financial information included in the Disclosure Statement filed with the bankruptcy court in conjunction with our Chapter 11 bankruptcy proceedings (the “Disclosure Statement”) should be considered or relied on in connection with the purchase of our Common Stock, or other securities. We were required to prepare projected financial information to demonstrate to the Bankruptcy Court the feasibility of the Plan of Reorganization and our ability to continue operations upon emergence from Chapter 11 bankruptcy proceedings. This projected financial information was filed with the Bankruptcy Court as part of our Disclosure Statement approved by the Bankruptcy Court. The projections reflected numerous assumptions concerning anticipated future performance and prevailing and anticipated market and economic conditions that were and continue to be beyond our control and that may not materialize. Projections are inherently subject to uncertainties and to a wide variety of significant business, economic and competitive risks. Our actual results will vary from those contemplated by the projections for a variety of reasons including the subsequent sales of assets related to our discontinued operations and the acquisition of our Camden, South Carolina aluminum wheel manufacturing operations.  Furthermore, the projections were limited by the information available to us as of the date of the preparation of the projections, including production forecasts published by ACT Publications for 2011 and beyond. Therefore, variations from the projections may be material, and investors should not rely on such projections.


 
 
Because of the adoption of fresh-start accounting and the effects of the transactions contemplated by the Plan of Reorganization, financial information subsequent to February 26, 2010, will not be comparable to financial information prior to February 26, 2010.

Upon our emergence from Chapter 11 bankruptcy proceedings, we adopted fresh-start accounting in accordance with the provisions of ASC 852, Reorganizations, pursuant to which the midpoint of the range of our reorganization value was allocated to our assets and liabilities in conformity with the procedures specified by ASC 805, Business Combinations. Accordingly, our consolidated statements of financial position and consolidated statements of operations subsequent to February 26, 2010, will not be comparable in many respects to our consolidated statements of financial position and consolidated statements of operations prior to February 26, 2010. The lack of comparable historical financial information may discourage investors from purchasing our capital stock.

Our emergence from Chapter 11 bankruptcy proceedings in February 2010 may limit our ability to offset future U.S. taxable income with tax losses and credits incurred prior to emergence from Chapter 11 bankruptcy proceedings.
 
In connection with our emergence from Chapter 11 bankruptcy proceedings in February 2010, we were able to retain a portion of our U.S. net operating loss and tax credit carryforwards (collectively, the “Tax Attributes”). However, Internal Revenue Code (“IRC”) Sections 382 and 383 provide an annual limitation with respect to the ability of a corporation to utilize its Tax Attributes against future U.S. taxable income in the event of a change in ownership. Our emergence from Chapter 11 bankruptcy proceedings is considered a change in ownership for purposes of IRC Section 382. In our situation, the limitation under the IRC will be based on the value of our Common Stock on or around the time of emergence, and increased to take into account the recognition of built-in gains. As a result, our future U.S. taxable income may not be fully offset by the Tax Attributes if such income exceeds our annual limitation, and we may incur a tax liability with respect to such income. In addition, subsequent changes in ownership for purposes of the IRC could further diminish our ability to utilize Tax Attributes.
 
We may be subject to claims that were not discharged in the Chapter 11 bankruptcy proceedings, which could have a material adverse effect on our results of operations and profitability.
 
Substantially all of the claims against us that arose prior to the date of our bankruptcy filing were resolved during our Chapter 11 bankruptcy proceedings or are in the process of being resolved in the bankruptcy court as part of the claims reconciliation process. Although we anticipate that the remaining claims will be handled in due course with no material adverse effect to our business, financial operations or financial conditions, we cannot assure you that this will be the case or that the resolution of such claims will occur in a timely manner or at all. Subject to certain exceptions (such as certain employee and customer claims) and as set forth in the Plan of Reorganization, all claims against and interests in us and our domestic subsidiaries that arose prior to the initiation of our Chapter 11 bankruptcy proceedings are (1) subject to compromise and/or treatment under the Plan of Reorganization and (2) discharged, in accordance with the Bankruptcy Code and terms of the Plan of Reorganization. Pursuant to the terms of the Plan of Reorganization, the provisions of the Plan of Reorganization constitute a good faith compromise or settlement of all such claims and the entry of the order confirming the Plan of Reorganization or other orders resolving objections to claims constitute the bankruptcy court's approval of the compromise or settlement arrived at with respect to all such claims. Circumstances in which claims and other obligations that arose prior to our bankruptcy filing may not have been discharged include instances where a claimant had inadequate notice of the bankruptcy filing.

Item 1B.  Unresolved Staff Comments

None.


Item 2. Properties

The table below sets forth certain information regarding the material owned and leased properties of Accuride as of December 31, 2011. We believe these properties are suitable and adequate for our business.

Facility Overview
Location
 
Business function
 
Brands
Manufactured
 
Owned/
Leased
 
Size
(sq. feet)
 
Evansville, IN                             
 
Corporate Headquarters
 
Corporate
 
Leased
    37,229  
London, Ontario, Canada
 
Heavy- and Medium-duty Steel Wheels, Light Truck Steel Wheels
 
Accuride
 
Owned
    536,259  
Henderson, KY                             
 
Heavy- and Medium-duty Steel Wheels, R&D
 
Accuride
 
Owned
    364,365  
Monterrey, Mexico
 
Heavy- and Medium-duty Steel and Aluminum Wheels, Light Truck Wheels
 
Accuride
 
Owned
    262,000  
Camden, SC                             
 
Forging and Machining-Aluminum Wheels
 
Accuride
 
Owned
    80,000  
Erie, PA                             
 
Forging and Machining-Aluminum Wheels
 
Accuride
 
Leased
    421,229  
Springfield, OH                             
 
Assembly Line and Sequencing
 
Accuride
 
Owned
    136,036  
Whitestown, IN                             
 
Warehouse
 
Various
 
Leased
    364,000  
Rockford, IL                             
 
Wheel-end Foundry, Warehouse, Administrative Office
 
Gunite
 
Owned
    619,000  
Elkhart, IN                             
 
Machining and Assembling-Hub, Drums and Rotors
 
Gunite
 
Owned
    258,000  
Brillion, WI                             
 
Molding, Finishing, Administrative Office
 
Brillion
 
Owned
    593,200  
Portland, TN                             
 
Metal Fabricating, Stamping, Assembly, Administrative Office
 
Imperial
 
Leased
    200,000  
Portland, TN                             
 
Plating and Polishing
 
Imperial
 
Owned
    86,000  
Decatur, TX                             
 
Metal Fabricating, Stamping, Assembly, Machining and Polishing Shop
 
Imperial
 
Owned
    122,000  
Denton, TX                             
 
Assembly Line and Sequencing
 
Imperial
 
Leased
    60,000  
Dublin, VA                             
 
Tube Bending, Assembly and Line Sequencing
 
Imperial
 
Owned
    122,000  
Chehalis, WA                             
 
Metal Fabricating, Stamping, Assembly
 
Imperial
 
Owned
    90,000  

Our Erie, Pennsylvania property may be purchased for a nominal sum, subject to refinancing of $1.9 million from the local government economic development organization.

Item 3. Legal Proceedings

Neither Accuride nor any of our subsidiaries is a party to any legal proceeding which, in the opinion of management, would have a material adverse effect on our business or financial condition.  However, we from time-to-time are involved in ordinary routine litigation incidental to our business, including actions related to product liability, contractual liability, intellectual property, workplace safety and environmental claims.  We establish reserves for matters in which losses are probable and can be reasonably estimated.  While we believe that we have established adequate accruals for our expected future liability with respect to our pending legal actions and proceedings, our liability with respect to any such action or proceeding may exceed our established accruals.  Further, litigation that may arise in the future may have a material adverse effect on our financial condition.

For more information, please see “Item 1. – Business – Chapter 11 Proceedings” in this annual report.

Item 4.  Mine Safety Disclosures



PART II

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Prepetition Common Stock

Our prepetition Common Stock began trading publicly on the New York Stock Exchange (the “NYSE”) on April 26, 2005, under the symbol “ACW.” Prior to that date, there was no public market for our Common Stock. On November 7, 2008, NYSE Regulation, Inc. (“NYSER”) issued a written notice that trading of our common shares would be suspended prior to NYSE’s opening on Wednesday, November 12, 2008, and that NYSER would initiate procedures to delist our Common Stock for failing to satisfy certain listing standards. Our prepetition Common Stock commenced trading on the OTCBB on November 12, 2008, under the symbol “AURD.”

The following table sets forth the high and low sale prices, or OTCBB quotations, as applicable, of our prepetition Common Stock during 2010.

   
High
   
Low
 
Period Ended February 26, 2010
           
First Quarter
  $ 0.58     $ 0.13  

On the Effective Date of our Plan of Reorganization, our prepetition Common Stock was cancelled.

Postpetition Common Stock

On the Effective Date of the Plan of Reorganization, our postpetition Common Stock was issued.  Our postpetition Common Stock initially traded on the OTCBB under the symbol “ACUZ.”  On November 18, 2010, we effected a 1-for-10 reverse stock split of our Common Stock.  On December 22, 2010, our Common Stock began trading on the New York Stock Exchange under the symbol “ACW.”  As of March 5, 2012, there were approximately 11 holders of record of our postpetition Common Stock, although there are substantially more beneficial owners.

The following table sets forth the high and low sale prices, or OTCBB quotations, as applicable, of our postpetition Common Stock during 2010 and 2011, given the impact of the reverse split.

   
High
   
Low
 
Fiscal Year Ended December 31, 2010
           
First Quarter (February 26 through March 31)
  $ 15.00     $ 12.00  
Second Quarter
  $ 15.40     $ 12.40  
Third Quarter
  $ 13.60     $ 10.90  
Fourth Quarter
  $ 16.05     $ 10.10  
Fiscal Year Ended December 31, 2011
               
First Quarter
  $ 16.34     $ 12.74  
Second Quarter
  $ 14.40     $ 11.81  
Third Quarter
  $ 13.13     $ 5.01  
Fourth Quarter
  $ 7.25     $ 4.35  

On March 5, 2012, the closing price of our Common Stock was $8.00.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our Common Stock. For the foreseeable future, we intend to retain any earnings, and we do not anticipate paying any cash dividends on our postpetition Common Stock. In addition, our ABL credit facility and indenture governing the senior secured notes restrict our ability to pay dividends. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Resources and Liquidity.” Any future determination to pay dividends will be at the discretion of our Board of Directors and will be dependent upon then existing conditions, including our financial condition and results of operations, capital requirements, contractual restrictions, business prospects and other factors that our Board of Directors considers relevant.



2010 RESTRICTED STOCK UNIT AWARDS

In May 2010, we entered into individual restricted stock unit agreements with certain employees of the Company and its subsidiaries that provided for the issuance of up to 1,829,517 shares of Common Stock on a pre-reverse split basis.  The RSUs entitled the recipients to receive a corresponding number of shares of the Company's Common Stock on the date the RSU vests. The RSUs were not granted under the terms of any plan and are evidenced by the previously filed form Restricted Stock Unit Agreement. The RSUs vest one-third annually over three years subject to the employee's continued employment with the Company. The RSUs will fully vest upon a change in control of the Company, as defined in the Restricted Stock Unit Agreement.

In August 2010, we entered into individual restricted stock unit agreements with members of our Board of Directors that provided for the issuance of up to 557,977 shares of Common Stock on a pre-reverse split basis.  The RSUs entitled the recipients to receive a corresponding number of shares of the Company's Common Stock on the date the RSU vests. The RSUs were not granted under the terms of any plan and are evidenced by the previously filed form Restricted Stock Unit Agreement. On a pre-reverse split basis, 304,353 RSUs vested on March 1, 2011 and the remaining 253,624 RSUs vest on March 1, 2014 subject to the director’s continued service with the Company. The RSUs will fully vest upon a change in control of the Company, as defined in the Restricted Stock Unit Agreement.

STOCK INCENTIVE AND PURCHASE PLAN

In 2005, we adopted the Accuride 2005 Incentive Award Plan (the “2005 Incentive Plan”), and the Accuride Employee Stock Purchase Plan (“ESPP”).  Up to 3,633,988 shares of our pre-petition (old) Common Stock were reserved for issuance upon the grant or exercise of Awards as defined in the Incentive Plan. Under the ESPP, we reserved 653,595 shares of our pre-petition (old) Common Stock as available to issue to all of our eligible employees as determined by the Board of Directors, all of which were issued in the offering period corresponding to the fourth quarter of 2008.

As of February 26, 2010, all outstanding equity awards under the 2005 Incentive Plan and the ESPP were either cancelled or fully-vested, pursuant to the terms of the Plan of Reorganization.  The value of the awards vested was approximately $16,000.  On the Effective Date of our Plan of Reorganization, the 2005 Incentive Plan and ESPP were cancelled.

In August 2010, we adopted the Accuride Corporation 2010 Incentive Award Plan (the “2010 Incentive Plan”) and reserved 1,260,000 shares of Common Stock for issuance under the plan, plus such additional shares of Common Stock that the plan administrator deemed necessary to prevent unnecessary dilution upon issuance of shares pursuant to terms of our prepetition convertible notes, up to a maximum number shares of Common Stock such that the total number of shares available for issuance under the 2010 Incentive Plan would not exceed ten percent (10%) of the fully diluted shares outstanding from time to time calculated by adding the total shares issued and outstanding at any given time plus the number of shares issued upon conversion of any of the convertible notes at the time of such conversion.  During 2010, we effectively converted all outstanding convertible notes to equity, and we subsequently amended the 2010 Incentive Plan to reserve 3,500,000 shares of Common Stock for issuance under the 2010 Incentive Plan.

On April 28, 2011 the Board of Directors of the Company approved restricted stock unit grants which will vest annually over a four year period, with 20% vesting on each of May 18, 2012, May 18, 2013, and May 18, 2014, and the final 40% vesting on May 18, 2015.  The RSUs will fully vest upon a change in control of the Company, as defined in the Restricted Stock Unit Agreement.

On February 28, 2012 the Compensation Committee of the Board of Directors approved restricted stock unit and non-qualified stock option grants to certain employees of the Company that were effective as of March 5, 2012.  The restricted stock unit awards will vest annually over a four year period, with 20% vesting on each of March 5, 2013, March 5, 2014, and March 5, 2015, and the final 40% vesting on March 5, 2016.  The stock option awards will vest ratably over three years.  Both the 2012 restricted stock unit and option awards include double trigger change in control vesting provisions, as described in the award agreements.



The following table gives information about equity awards as of December 31, 2011:

Plan category
Number of securities to be issued upon exercise of outstanding options,
warrants and rights
 
Weighted-average
exercise price of
outstanding options,
warrants, and rights
 
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
 
(a)
 
(b)
 
(c)
Equity compensation plans approved by security holders
342,172
 
$
13.80
 
3,157,828
Equity compensation plans not approved by security holders
92,261
 
$
13.40
 

PERFORMANCE GRAPH

The following graph shows the total stockholder return of an investment of $100 in cash on March 3, 2010, the date public trading commenced in our postpetition Common Stock, to December 31, 2011 for (i) our postpetition Common Stock, (ii) the S&P 500 Index, and (iii) a peer group of companies we refer to as “Commercial Vehicle Suppliers.”  Five year historical data is not presented as a result of the bankruptcy and since the financial results of the Successor Company are not comparable with the results of the Predecessor Company.  We believe that a peer group of representative independent automotive suppliers of approximately comparable size and products to Accuride is appropriate for comparing shareowner return.  The Commercial Vehicle Suppliers group consists of ArvinMeritor, Inc., Commercial Vehicle Group, Inc., Cummins, Inc., Eaton Corporation, and Stoneridge, Inc.  All values assume reinvestment of the full amount of all dividends and are calculated through December 31, 2011.
 
 
   
March 3, 2010
   
June 30, 2010
   
December 31, 2010
   
June 30, 2011
   
December 31, 2011
 
Accuride Corporation
  $ 100.0     $ 94.1     $ 117.6     $ 93.6     $ 52.7  
S&P 500 Index
  $ 100.0     $ 92.1     $ 112.4     $ 118.0     $ 112.4  
Commercial Vehicle Suppliers
  $ 100.0     $ 104.4     $ 173.8     $ 168.5     $ 136.3  

RECENT SALES OF UNREGISTERED SECURITIES

None.

ISSUER PURCHASES OF EQUITY SECURITIES

None.


Item 6.  Selected Consolidated Financial Data

The following financial data is an integral part of, and should be read in conjunction with the “Consolidated Financial Statements” and notes thereto. Information concerning significant trends in the financial condition and results of operations is contained in “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations.”  Unless otherwise indicated, all share and per share data have been adjusted for the one-for-ten reverse stock split which was effective on November 18, 2010. Certain operating results from prior periods, including the predecessor periods, have been reclassified to discontinued operations to conform to the current year presentation.

Selected Historical Operations Data (In thousands, except per share data)

                 
Predecessor
Year Ended December 31,
 
   
Successor Year Ended December 31, 2011
 
Successor Period from February 26 through December 31, 2010
   
Predecessor Period from January 1 through February 26, 2010
 
2009(1)
 
2008
 
2007
 
Operating Data:
                           
Net sales
  $ 936,095   $ 582,307     $ 91,647   $ 514,749   $ 844,108   $ 916,352  
Gross profit (loss) (a)
    80,811     40,448       2,250     (7,084 )   44,383     75,710  
Operating expenses(b)
    56,899     54,147       6,479     53,378     45,487     50,117  
Intangible asset impairment expenses(c)
                  2,830     216,189     1,100  
Income (loss) from continuing operations
    23,912     (13,699 )     (4,229 )   (63,292 )   (217,293 )   24,493  
Operating income (loss) margin(d)
    2.6 %   (2.4 )%     (4.6 )%   (12.3 )%   (25.7 )%   2.7  %
Interest expense, net(e)
    (34,097 )   (33,450 )     (7,496 )   (59,753 )   (51,400 )   (48,344 )
Loss on extinguishment of debt
                  (5,389 )        
Other income (expense), net(f)
    3,596     2,575       566     6,888     (4,821 )   6,978  
Inducement expense
        (166,691 )                  
Non-cash gains on mark-to-market valuation of convertible debt
        75,574                    
Reorganization items (g)
              59,311     (14,379 )        
Income tax (expense) benefit
    (7,761 )   2,207       1,931     (2,376 )   4,099     4,947  
Discontinued operations, net of tax
    (2,681 )   6,952       719     (1,811 )   (58,851 )   3,287  
Net income (loss)
    (17,031 )   (126,532 )     50,802     (140,112 )   (328,266 )   (8,639 )
                                         
Other Data (2):
                                       
Net cash provided by (used in):
                                       
Operating activities
    (1,537 )   10,410       (20,773 )   (39,312 )   (9,165 )   82,942  
Investing activities
    (40,014 )   6,085       (2,012 )   (34,873 )   (35,307 )   (36,366 )
Financing activities
    20,000     (18,376 )     46,611     7,030     77,213     (65,845 )
Adjusted EBITDA(h)
    86,085     61,555       4,683     23,671     79,012     113,405  
Depreciation,  amortization, and impairment(i)
    51,278     43,759       7,532     55,665     323,203     62,686  
Capital expenditures
    58,371     16,328       1,457     20,364     29,685     36,499  
Ratio:  Earnings to Fixed Charges(j)
    0.81     (3.06 )     7.42     (1.27 )   (4.32 )   0.65  
Deficiency(j)
    6,589     135,691           135,925     273,514     16,873  
                                         
Balance Sheet Data (end of period):
                                       
Cash and cash equivalents
  $ 56,915   $ 78,466     $ 80,347   $ 56,521   $ 123,676   $ 90,935  
Working capital(k)
    54,745     37,518       40,245     65,803     58,465     72,476  
Total assets
    868,862     874,050       905,246     671,670     808,550     1,113,634  
Total debt
    323,082     302,031       604,113     397,472     651,169     572,725  
Liabilities subject to compromise (l)
                  302,114          
Stockholders’ equity (deficiency)
    257,383     298,099       39,034     (228,266 )   (73,815 )   273,800  
                                         
Earnings (Loss) Per Share Data:(m)
                                       
Basic/Diluted – Continuing operations
  $ (0.30 ) $ (8.52 )   $ 1.05   $ (3.54 ) $ (7.58 ) $ (0.34 )
Basic/Diluted – Discontinued operations
    (0.06 )   0.45       0.02     (0.05   (1.66 )   0.09  
Basic/Diluted – Total
  $ (0.36 ) $ (8.07 )   $ 1.07   $ (3.59 ) $ (9.24 ) $ (0.25 )
Weighted average common shares outstanding:
                                       
Basic
    47,277     15,670       47,572     39,028     35,538     35,179  
Diluted
    47,277     15,670       47,572     39,028     35,538     35,179  
 

 
(1)     
Debtors-in-possession as of October 8, 2009

(2)
Other data includes balances from discontinued operations


(a)
Gross profit for 2007 was impacted by a $10.6 million increase in revenue from a 2006 resolution of a commercial dispute with a customer, depreciation expense of certain Wheel assets of $12.8 million associated with the acceleration of depreciation in 2006, a non-cash post-employment benefit curtailment charge of $1.2 million due to a plan amendment at our Erie, Pennsylvania facility, and a non-cash curtailment charge of $9.1 million in our London, Ontario, facility.  Gross profit for 2008 was impacted by $7.7 million of costs related to a labor disruption at our Rockford, Illinois, facility, a $7.4 million charge for restructuring that was primarily severance-related, and $2.8 million in other severance charges unrelated to our restructuring activities. Gross profit for 2009 was impacted by non-cash pension curtailment charges of $2.9 million in our London, Ontario facility, operational restructuring related charges of $5.2 million primarily due to warehouse abandonment charges and employee severance related items, and $5.6 million in other severance charges unrelated to our restructuring activities.  Gross profit for 2010 for the Successor Company was impacted by $3.0 million for fresh-start inventory valuation adjustments.  Gross profit in 2011 was impacted by $2.0 million of costs related to the consolidation of our Imperial Portland, TN location.

(b)
Includes $2.4 million, $1.1 million, $0.3 million, $2.4 million, and $2.7 million of stock-based compensation expense during the years ended December 31, 2011, 2010, 2009, 2008, and 2007, respectively. The stock-based compensation expense in 2010 was fully recognized by the Successor Company.  Operating expenses for 2009 reflects $25.9 million of charges related to our credit agreement and Chapter 11 filing.  Operating expenses for the Successor Company during 2010 reflect $14.9 million of charges and fees related to bankruptcy, relisting and our senior secured notes offering.

(c)
During 2007, an intangible asset impairment of $1.1 million was recorded related to our Gunite trade name.  During 2008, a goodwill and intangible asset impairment charge of $216.2 million was recognized.  In 2009, an intangible asset impairment of $2.8 million was recorded related to our Brillion and Imperial trade names.

(d)
Represents operating income as a percentage of sales.

(e)
Includes $1.6 million for fees related to an amendment of covenants during the year ended December 31, 2007.

(f)
Consists primarily of realized and unrealized gains and losses related to the changes in foreign currency exchange rates.  During 2010, the Successor Company recognized a gain of $2.6 million related to the valuation of our Common Stock warrants.  In 2011, a gain of $4.0 million was recognized related to the valuation of our Common Stock warrants.  The Common Stock warrants expired on February 26, 2012 unexercised.

(g)
Applicable standards require the recognition of certain transactions directly related to the reorganization as reorganization expense in the statement of operations. In 2010 and 2009, the Predecessor Company recognized the following reorganization income (expense) in our financial statements:


   
Predecessor
 
   
Period from January 1 to February 26,
   
Year Ended December 31,
 
(In thousands)
 
2010
   
2009
 
             
Debt discharge – Senior subordinate notes and interest
  $ 252,798     $  
Market valuation of $140 million convertible notes
    (155,094 )      
Professional fees
    (25,030 )     (10,829 )
Market valuation of warrants issued
    (6,618 )      
Deferred financing fees
    (3,847 )     (3,550 )
Term loan facility discount
    (2,974 )      
Other
    76        
Total
  $ 59,311     $ (14,379 )

(h)
We define Adjusted EBITDA as our net income or loss before income tax expense or benefit, interest expense, net, depreciation and amortization, restructuring, severance, and other charges, impairment, and currency losses, net. Adjusted EBITDA has been included because we believe that it is useful for us and our investors as a measure of our performance and our ability to provide cash flows to meet debt service. Adjusted EBITDA should not be considered an alternative to net income (loss) or other traditional indicators of operating performance and cash flows determined in accordance with accounting principles generally accepted in the United States of America (“GAAP”). We present the table of Adjusted EBITDA because covenants in certain of the agreements governing our material indebtedness contain


ratios based on this measure that require evaluation on a quarterly basis. Due to the amount of our excess availability (as calculated under the ABL facility), the Company is not currently in a compliance period. Adjusted EBITDA is not necessarily comparable to other similarly titled captions of other companies due to differences in methods of calculations. Our reconciliation of net income (loss) to Adjusted EBITDA is as follows:

                     
Predecessor
Year Ended December 31,
 
   
Successor Year Ended December 31, 2011
   
Successor Period from February 26 through December 31, 2010
   
Predecessor Period from January 1 through February 26, 2010
   
2009
   
2008
   
2007
 
Net income (loss)
  $ (17,031 )   $ (126,532 )   $ 50,802     $ (140,112 )   $ (328,266 )   $ (8,639 )
Income tax expense (benefit)
    7,408       1,591       (1,534 )     2,384       (4,598 )     (3,131 )
Interest expense, net
    34,097       33,450       7,496       65,142       51,400       48,344  
Depreciation and amortization
    51,278       43,759       7,532       52,335       46,162       61,583  
Goodwill & intangible asset impairment
                      3,330       277,041       1,103  
Restructuring, severance and other charges1
    4,806       19,091       (59,092 )     46,867       29,665       17,919  
Other items related to our credit agreement2
    5,527       90,196       (521 )     (6,275 )     7,608       (3,774 )
Adjusted EBITDA
  $ 86,085     $ 61,555     $ 4,683     $ 23,671     $ 79,012     $ 113,405  

 
1.
Restructuring, severance and other charges, are as follows:

                     
Predecessor
Year Ended December 31,
 
   
Successor Year Ended December 31, 2011
   
Successor Period from February 26 through December 31, 2010
   
Predecessor Period from January 1 through February 26, 2010
   
2009
   
2008
   
2007
 
Restructuring, severance, and curtailment charges
  $ 2,216     $ 338     $ 219     $ 11,573     $ 15,698     $ 17,227  
Business interruption costs less recoveries(i)
                                  (3,225 )
Strike avoidance costs (ii)
                            7,653       2,141  
Loss on sale of assets (iii)
                      256       3,057        
Other items (iv)
    2,590       18,753       (59,311 )     35,038       3,257       1,776  
Total
  $ 4,806     $ 19,091     $ (59,092 )   $ 46,867     $ 29,665     $ 17,919  

 
i.
Business interruption costs related to equipment failures at our Erie, Pennsylvania facility in 2006 were offset by insurance proceeds of $9.1 million in 2007 upon settlement of insurance claims.

 
ii.
In 2008 and 2007, we incurred $7.7 million and $2.1 million, respectively, for lockout related costs associated with the expiration of the labor contract at our facility in Rockford, Illinois.

 
iii.
In 2008, we recognized a loss on the sale of assets at our Anniston, Alabama, facility of $3.1 million and charges of $0.2 million were recognized in 2009 as part of the 2008 sale of assets.

 
iv.
Other items in 2011 included $1.3 million of fees related to divestitures and acquisitions.  Other items in 2010 for the Successor Company included $15.7 million of fees related to bankruptcy, relisting, activities related to divestitures and our senior secured notes offering and $3.0 million for fresh-start inventory valuation adjustments.  Other items in 2009 included $31.6 million of reorganization and prepetition professional fees and $3.4 million for warehouse abandonment costs associated with the consolidation of our Taylor and Bristol warehouses. Other items in 2008 included $3.3 million for product development costs in our seating business.  Other items in 2007 included $0.5 million for fees associated with our secondary stock offerings.

 
2.
Items related to our credit agreement refer to other amounts utilized in the calculation of financial covenants in Accuride’s senior debt facility. Items related to our credit agreement that are included in this summary are primarily currency gains or losses and non-cash related charges for share-based compensation.



                     
Predecessor
Year Ended December 31,
 
   
Successor Year Ended December 31, 2011
   
Successor Period from February 26 through December 31, 2010
   
Predecessor Period from January 1 through February 26, 2010
   
2009
   
2008
   
2007
 
Currency gains and losses
  $ 3,130     $ (2,022 )   $ (521 )   $ (6,608 )   $ 5,174     $ (6,493 )
Non-cash mark-to-market valuation (gains) and losses on convertible debt
          (75,574 )                        
Inducement expense
          166,691                          
Non-cash share-based compensation
    2,397       1,101             333       2,434       2,719  
Total
  $ 5,527     $ 90,196     $ (521 )   $ (6,275 )   $ 7,608     $ (3,774 )

(i)
During 2007, we recorded $12.8 million of accelerated depreciation of certain wheel assets as a result of a reduction of the useful lives of the assets in 2006. During 2007, an intangible asset impairment loss of $1.1 million was recorded related to our Gunite trade name.  During 2008, we recognized impairment losses of $277.0 million.

(j)
The ratio of earnings to fixed charges and deficiency, as defined by SEC rules, is calculated as follows:

                     
Predecessor
Year Ended December 31,
 
   
Successor Year Ended December 31, 2011
   
Successor Period from February 26 through December 31, 2010
   
Predecessor Period from January 1 through February 26, 2010
   
2009
   
2008
   
2007
 
Net income (loss)
  $ (17,031 )   $ (126,532 )   $ 50,802     $ (140,112 )   $ (328,266 )   $ (8,639 )
Less:
                                               
Discontinued operations, net of tax
    (2,681 )     6,952       719       (1,811 )     (58,851 )     3,287  
Income tax (expense) benefit
    (7,761 )     2,207       1,931       (2,376 )     4,099       4,947  
Income (loss) before income taxes from continuing operations
    (6,589 )     (135,691 )     48,152       (135,925 )     (273,514 )     (16,873 )
“Fixed Charges” (interest expense, net)
    34,097       33,450       7,496       59,753       51,400       48,344  
“Earnings”
  $ 27,508     $ (102,241 )   $ 55,648     $ (76,172 )   $ (222,114 )   $ 31,471  
                                                 
Ratio:  Earnings to Fixed Charges
    0.81       (3.06 )     7.42       (1.27 )     (4.32 )     0.65  
Deficiency
  $ 6,589     $ 135,691     $     $ 135,925     $ 273,514     $ 16,873  

(k)
Working capital represents current assets less cash and current liabilities, excluding debt.

(l)
As a result of the Chapter 11 filings, the payment of prepetition indebtedness is subject to compromise or other treatment under a plan of reorganization. In accordance with applicable accounting standards, we are required to segregate and disclose all prepetition liabilities that are subject to compromise. Refer to Note 6, Debt and Note 1, Significant Accounting Policies, Liabilities Subject to Compromise to the consolidated financial statements.

Liabilities subject to compromise consisted of the following:

   
December 31, 2009
 
Debt
 
$
275,000
 
Accrued interest
   
15,976
 
Accounts payable
   
7,978
 
Executory contracts and leases
   
3,160
 
    Liabilities subject to compromise
 
$
302,114
 

(m)
Basic and diluted earnings per share data are calculated by dividing net income (loss) by the weighted average basic and diluted shares outstanding.


 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) describes matters we consider important to understanding the results of our operations for each of the three years in the period ended December 31, 2011, including the Predecessor Company and Successor Company results for 2010, and our capital resources and liquidity as of December 31, 2011 and 2010.  References to “Successor Company” refer to the Company after February 26, 2010, after giving effect to the application of fresh-start reporting.  References to “Predecessor Company” refer to the Company prior to February 26, 2010.

The following discussion should be read in conjunction with “Selected Consolidated Financial Data” and our Consolidated Financial Statements and the notes thereto, all included elsewhere in this report. The information set forth in this MD&A includes forward-looking statements that involve risks and uncertainties. Many factors could cause actual results to differ from those contained in the forward-looking statements including, but not limited to, those discussed in Item 7A. “Quantitative and Qualitative Disclosure about Market Risk,” Item 1A. “Risk Factors” and elsewhere in this report.

General 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 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.

Key economic factors on our cost structure are raw material costs and production levels.  Higher production levels enable us to spread costs that are more fixed in nature over a greater number of products.  We use the commercial vehicle production levels forecasted by industry experts to help us predict our production levels along with other assumptions for aftermarket demand.  Raw material costs represent the most significant component of our product cost and are driven by a combination of purchase contracts and spot market purchases as discussed in Item 1. “Raw Materials and Suppliers” and elsewhere in this report.  We expect that our Wheels business will incur $10 million higher raw material costs during 2012 as compared to 2011, which will impact profitability, while our other businesses should reflect costs per the spot market.

Reverse Stock-Split

Effective November 18, 2010, Accuride Corporation implemented a one-for-ten reverse stock split of its Common Stock.  Unless otherwise indicated, all share amounts and per share data in this Annual Report on Form 10-K for the Successor Company have been adjusted to reflect this reverse stock split.

Business Outlook

Global market and economic conditions have been challenging with slow economic growth in most major economies expected to continue into 2012.  As a result of these market conditions, the cost and availability of credit has been and may continue to be adversely affected by illiquid credit markets and wider credit spreads.  Concern about the stability of the markets generally and the strength of counterparties specifically has led many lenders and institutional investors to reduce, and in some cases, cease to provide credit to businesses and consumers.  These factors have lead to a decrease in


spending by businesses and consumers alike. Continued turbulence in the U.S. and international markets and economies and prolonged declines in business and consumer spending may adversely affect our liquidity and financial condition, and the liquidity and financial condition of our customers, including our ability to refinance maturing liabilities and access the capital markets to meet liquidity needs.

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.  Accordingly, the economic conditions described above led to a severe downturn in the North American truck and vehicle supply industries, which resulted in a significant decline in our sales volume and necessitated our bankruptcy filings in October 2009, as described above in “Item 1—Business—Chapter 11 Proceedings.”  Although current industry forecasts predict continued improvement in commercial vehicle production in 2012, we cannot accurately predict the commercial vehicle cycle.  Accordingly, 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. In February 2010, we emerged from bankruptcy with reduced financial leverage and an improved capital structure, which we believe has better enabled us to operate in this economic environment.  However, we continue to be a highly leveraged company, and a delayed or failed economic recovery would likely have a material adverse effect on our business, results of operations and financial condition.

Based upon the 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.

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, which continues.  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% to 46.6% ad valorem, and in October 2011, the U.S. Department of Commerce issued a preliminary determination of antidumping duty margins ranging from 110.6% to 243.9% ad valorem.  As a result of these determinations, the U.S. Department of Commerce has instructed U.S. Customs to collect a cash deposit or bond of the applicable aggregate rate.  If the Department of Commerce makes a final determination that dumping or subsidies are present and the International Trade Commission determines that the domestic industry has been injured or is threatened with injury, the Department of Commerce will impose duties on the covered products imported from China in order to offset the effects of the dumping and subsidies.  No assurance can be given that these determinations will be made, that duties will be imposed or as to the amount of any duties that may be imposed.

Liabilities Subject to Compromise

In accordance with applicable accounting standards, we were required to segregate and disclose all prepetition liabilities that were subject to compromise as of December 31, 2009. Liabilities subject to compromise represented the amounts expected to be allowed, even if they were settled for lesser amounts. Unsecured liabilities of the Debtors, other than those specifically approved for payment by the Court, were classified as liabilities subject to compromise. Liabilities subject to compromise were adjusted for changes in estimates and settlements of prepetition obligations. The key factors which impacted our estimates were (1) court actions; (2) further developments with respect to disputed claims; (3) determinations of the secured status of certain claims; and (4) the values of any collateral securing such claims.



Results of Operations

In connection with our emergence from Chapter 11 bankruptcy proceedings and the adoption of fresh-start accounting, the results of operations for 2010 separately present the 2010 Successor Period and the 2010 Predecessor Period.

Certain operating results from prior periods, including the predecessor periods, have been reclassified to discontinued operations to conform to the current year presentation.

Comparison of Fiscal Years 2011 and 2010

As a result of the adoption of fresh-start reporting, our consolidated balance sheets and consolidated statements of operations subsequent to February 26, 2010, will not be comparable in many respects to our consolidated balance sheets and consolidated statements of operations prior to February 26, 2010, unless otherwise specified.  References to “Successor Company” refer to the Company after February 26, 2010, after giving effect to the application of fresh-start reporting.  References to “Predecessor Company” refer to the Company prior to February 26, 2010.

 
Successor Company
   
Predecessor Company
 
(Dollars in thousands)
Year ended December 31, 2011
 
Period from February 26, 2010 to December 31, 2010
   
Period from January 1, 2010 to February 26, 2010
 
Net sales
$
936,095
 
$
582,307
   
$
91,647
 
Cost of goods sold
855,284
 
541,859
   
89,397
 
Gross profit
80,811
 
40,448
   
2,250
 
Operating expenses
56,899
 
54,147
   
6,479
 
Income (loss) from operations
23,912
 
(13,699
)
 
(4,229
)
Interest (expense), net
(34,097
)
(33,450
)
 
(7,496
)
Non-cash market valuation – convertible notes
 
75,574
   
 
Inducement (expense)
 
(166,691
)
 
 
Other income, net
3,596
 
2,575
   
566
 
Reorganization income
 
   
(59,311
)
Income tax provision (benefit)
7,761
 
(2,207
)
 
(1,931
)
Income (loss) from continuing operations
(14,350
)
(133,484
)
 
50,083
 
Discontinued operations, net of tax
(2,681
)
6,952
   
719
 
Net income (loss)
$
(17,031
)
$
(126,532
)
 
$
50,802
 

Net Sales

   
Successor Company
   
Predecessor Company
 
(Dollars in thousands)
 
Year ended December 31, 2011
 
Period from February 26 to December 31, 2010
   
Period from January 1 to February 26, 2010
 
Wheels
  $ 406,587   $ 247,673     $ 38,379  
Gunite
    251,113     175,352       29,804  
Brillion
    146,837     90,492       11,442  
Imperial
    131,558     68,790       12,022  
Total
  $ 936,095   $ 582,307     $ 91,647  

Fresh start accounting did not have an impact on the accounting for net sales during the year ended December 31, 2010.  Therefore, net sales from the Successor Company are comparable to the net sales of the Predecessor Company.  Our net sales for 2011 of $936.1 million were 38.9 percent above the combined net sales for 2010 of $674.0 million.  Of the total increase, approximately $222.0 million was a result of higher volume demanded due to increased production levels of the commercial vehicle market and its aftermarket segments in North America.  The increased production is a result of continued increased maintenance and replacement demand of commercial vehicles (see OEM production builds in the table below).  The remaining $40.1 million increase of net sales recognized during 2011 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 42.1 percent during 2011 primarily due to increased volume for all three major OEM segments (see OEM production builds in the table below).  Net sales for our Gunite segment rose by 22.4


percent due to industry demand and approximately $21.1 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 44.1 percent during 2011 due to higher demand in the industrial and agricultural markets and increased pricing of approximately $20.0 million related to raw material costs.  Net sales for our Imperial segment increased by 62.8 percent due to increased volume in Class 8 OEM production.

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

   
For the year ended December 31,
 
   
2011
   
2010
 
Class 8                                                                                                      
    255,261       154,173  
Classes 5-7                                                                                                      
    166,798       117,901  
Trailer                                                                                                      
    209,005       124,162  

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.

   
Successor Company
   
Predecessor Company
 
(Dollars in thousands)
 
Year ended December 31, 2011
   
Period from February 26 to December 31, 2010
   
Period from January 1 to February 26, 2010
 
Raw materials                                                                                
  $ 442,084     $ 265,793     $ 38,921  
Depreciation
    38,397       33,008       6,344  
Labor and other overhead
    374,803       243,058       44,132  
Total
  $ 855,284     $ 541,859     $ 89,397  

Except for depreciation, fresh start accounting did not have an impact on the accounting for costs of goods sold during the year ended December 31, 2010.  Raw materials costs increased by $137.4 million, or 45.1 percent, during the year ended December 31, 2011 due to increases in sales volume of approximately 34.7 percent and price of approximately 10.4 percent.  The price increases were primarily related to steel and aluminum, which represent nearly all of our material costs.

Depreciation was impacted by fresh start accounting, which increased the book value of our property, plant, and equipment slightly, yet extended the average useful life associated with each of those assets.

Labor and overhead costs increased by 30.5 percent due to increased volume, which is lower than the overall net sales volume increase of approximately 38.9 percent due to the impact of certain of our costs (i.e. salaries, rent, etc) being fixed in nature, as opposed to variable.

Operating Expenses

   
Successor Company
   
Predecessor Company
 
(Dollars in thousands)
 
Year ended December 31, 2011
   
Period from February 26 to December 31, 2010
   
Period from January 1 to February 26, 2010
 
Selling, general, and administration                                                                             
  $ 40,673     $ 43,448     $ 5,085  
Research and development
    4,803       3,382       745  
Depreciation and amortization
    11,423       7,317       649  
Total
  $ 56,899     $ 54,147     $ 6,479  

Other than depreciation and amortization, operating expenses were not impacted by fresh start accounting.  Selling, general, and administrative costs decreased by $7.9 million in 2011 primarily due to fees incurred in 2010 related to the conversion of


our outstanding convertible notes and relisting on the NYSE.  Research and development costs increased by $0.7 million due to increase in staff and traveling expenses.

Depreciation and amortization were impacted by the fresh start accounting process, mostly due to establishing the opening balance sheet for other intangible assets for our Wheels business unit that had not previously been required to have its intangible assets recorded at fair value since they were acquired prior to the applicable accounting guidance being in place.

Operating Income (Loss)

 
Successor Company
   
Predecessor Company
 
(Dollars in thousands)
Year ended December 31, 2011
 
Period from February 26 to December 31, 2010
   
Period from January 1 to February 26, 2010
 
Wheels                                                                               
$
57,864
 
$
23,577
   
$
2,663
 
Gunite
 
(1,785
)
 
2,623
     
277
 
Brillion
 
2,301
   
(1,171
)
   
(986
)
Imperial
 
3,141
   
(579
)
   
(1,011
)
Corporate/Other
 
(37,609
)
 
(38,149
)
   
(5,172
)
Total
$
23,912
 
$
(13,699
)
 
$
(4,229
)
 
 
Operating income for the Wheels segment was 14.2 percent of its net sales for the year ended December 31, 2011, 6.9 percent for the period January 1, 2010 through February 26, 2010, and 9.5 percent for the period February 26, 2010 through December 31, 2010.  Included in the period February 26, 2010 through December 31, 2010 was $5.6 million of intangible amortization that was recognized as a result of intangible assets being recorded at fair value through the fresh start accounting process.  Prior to that period in 2010, the Wheels segment did not recognize any intangible asset amortization.

Operating income (loss) for the Gunite segment was (0.7) percent of its net sales for the year ended December 31, 2011, 0.9 percent for the period January 1, 2010 through February 26, 2010, and 1.5 percent for the period February 26, 2010 through December 31, 2010.  Operating income for Gunite was affected during 2011 by excess costs related to production inefficiencies and quality issues that resulted in increased inspection costs.

Operating income (loss) for the Brillion segment was 1.6 percent of its net sales for the year ended December 31, 2011, (8.6) percent for the period January 1, 2010 through February 26, 2010, and (1.3) percent for the period February 26, 2010 through December 31, 2010.  Sales volume for our Brillion segment increased during 2011 as the industrial and agricultural markets continued to gain strength while increased pricing offset rising material costs.  The increase in sales volume was the primary reason for improved operating income for Brillion.

The operating income (loss) for the Imperial segment was 2.4 percent of its net sales for the year ended December 31, 2011, (8.4) percent for the period January 1, 2010 through February 26, 2010, and (0.8) percent for the period February 26, 2010 through December 31, 2010.  Rising demand contributed to the positive operating income for Imperial during 2011.  Depreciation and amortization for Imperial was $0.4 million for 2011, $0.8 million for the period January 1, 2010 through February 26, 2010, and $0.9 million for the period February 26, 2010 through December 31, 2010.

The operating losses for the Corporate segment were 4.0 percent of consolidated net sales for the year ended December 31, 2011, 5.6 percent for the period January 1, 2010 through February 26, 2010, and 6.6 percent for the period February 26, 2010 through December 31, 2010.  The operating losses during the period February 26, 2010 through December 31, 2010 were impacted by prepetition fees and other bankruptcy costs, including fees associated with financing costs of the asset-based loan, the 9.5 percent notes, and the conversion offer, of $15.7 million, respectively.

Interest Expense

Net interest expense was not affected by fresh start accounting.  However, the capital structure of the Successor Company was significantly different than for the Predecessor Company.  The Successor Company had, upon emergence from bankruptcy and continues to have, significantly less debt than the Predecessor Company.  Net interest expense decreased $6.8 million to $34.1 million for the year ended December 31, 2011 from $40.9 million for the year ended December 31, 2010.  This was mostly due to not recognizing interest related to our prepetition senior subordinated notes that were cancelled as part of our Plan of Reorganization and a lower debt level maintained in 2011 compared to 2010.


Non-cash valuation changes of convertible notes & Inducement expense

In connection with accounting guidance following the emergence from Chapter 11, we recorded the conversion option on our convertible notes at fair value.  Due to the change in fair value of the conversion option, we recorded income of $75.6 million during 2010.  Also during 2010, we issued a conversion offer to holders of our convertible notes which resulted in conversion of all such notes outstanding.  ASC 470 requires the recognition of expense equal to the fair value of securities transferred in excess of the fair value of securities issuable pursuant to the original conversion terms.  Related to the conversion, we recorded inducement expenses of $166.7 million.  This charge represents the fair value of the incremental shares of common stock that were issued as a result of the Conversion Offer over the fair value of the shares of the common stock that the convertible note-holders would have otherwise received contractually as of the date of the Conversion Offer.

Reorganization items

ASC 852 requires the recognition of certain transactions directly related to the reorganization as reorganization expense or income in the statement of operations. The reorganization gain of $59.3 million for 2010 consisted of $25.0 million professional fees directly related to reorganization and an $84.3 million gain on the discharge and issuance of our debt instruments.  The reorganization expense of $14.4 million for 2009 consisted of $10.8 million professional fees directly related to reorganization and a $3.6 million loss on deferred financing fees related to our prepetition senior subordinated notes that were included in Liabilities Subject to Compromise.

Income tax provision

Our effective tax rate for 2011 and 2010 was 117.8 percent and (5.6) percent, respectively.  Our tax rate is affected by recurring items, such as change in valuation allowance, tax rates in foreign jurisdictions and the relative amount of income we earn in jurisdictions, which we expect to be fairly consistent in the near term.  It is also affected by discrete items that may occur in any given year, but are not consistent from year to year.  In addition to state income taxes, the following items had the most significant impact on the difference between our statutory U.S. federal income tax rate of 35 percent and our effective tax rate.  In 2011, we experienced a $15.8 million (239.1) percent increase resulting from a change in our valuation allowance against deferred tax assets in excess of deferred tax liabilities.

In 2010, we experienced a decrease of $26.4 million (19.5) percent as a result from the fair valuation of our convertible notes.  Also in 2010, we experienced increases of $8.5 million (33.6) percent and $17.8 million (29.5) percent as a result from reorganization items and a change in our valuation allowance against deferred tax assets in excess of deferred tax liabilities, respectively.

Discontinued Operations

Discontinued operations represent reclassification of operating results, including gain/loss on sale, for Fabco Automotive, Bostrom Seating and Brillion Farm, net of tax.  The sales of Fabco and Bostrom were in 2011 and the Brillion Farm assets were sold during 2010.  We have reclassified current and prior period operating results, including the gain/loss on the sale transactions, to discontinued operations.






Comparison of Fiscal Years 2010 and 2009

As a result of the adoption of fresh-start reporting, our consolidated balance sheets and consolidated statements of operations subsequent to February 26, 2010, will not be comparable in many respects to our consolidated balance sheets and consolidated statements of operations prior to February 26, 2010, unless otherwise specified.  References to “Successor Company” refer to the Company after February 26, 2010, after giving effect to the application of fresh-start reporting.  References to “Predecessor Company” refer to the Company prior to February 26, 2010.

   
Successor Company
 
Predecessor Company
 
(Dollars in thousands)
 
Period from February 26, 2010 to December 31, 2010
 
Period from January 1, 2010 to February 26, 2010
 
Year Ended December 31, 2009
 
Net sales
 
$
582,307
 
$
91,647
 
$
514,749
 
Cost of goods sold
 
541,859
 
89,397
 
521,833
 
Gross profit (loss)
 
40,448
 
2,250
 
(7,084
)
Prepetition fees
 
 
 
17,015
 
Goodwill and intangible asset impairments
 
 
 
2,830
 
Operating expenses
 
54,147
 
6,479
 
36,363
 
Loss from operations
 
(13,699
)
(4,229
)
(63,292
)
Interest (expense), net
 
(33,450
)
(7,496
)
(59,753
)
Loss on extinguishment of debt
 
 
 
(5,389
)
Non-cash market valuation – convertible notes
 
75,574
 
 
 
Inducement (expense)
 
(166,691
)
 
 
Other income, net
 
2,575
 
566
 
6,888
 
Reorganization expense (income)
 
 
(59,311
)
14,379
 
Income tax provision (benefit)
 
(2,207
)
(1,931
)
2,376
 
Income (loss) from continuing operations
 
(133,484
)
50,083
 
(138,301
)
Discontinued operations, net of tax
 
6,952
 
719
 
(1,811
)
Net income (loss)
 
$
(126,532
)
$
50,802
 
$
(140,112
)

Net Sales

   
Successor Company
 
Predecessor Company
 
(Dollars in thousands)
 
Period from February 26 to December 31, 2010
 
Period from January 1 to February 26, 2010
 
Year Ended December 31, 2009
 
Wheels
 
$
247,673
 
$
38,379
 
$
238,745
 
Gunite
   
175,352
   
29,804
   
153,713
 
Brillion
   
90,492
   
11,442
   
49,829
 
Imperial
   
68,790
   
12,022
   
72,462
 
Total
 
$
582,307
 
$
91,647
 
$
514,749
 

Fresh start accounting did not have an impact on the accounting for net sales during the year ended December 31, 2010.  Therefore, net sales from the Successor Company are comparable to the net sales of the Predecessor Company.  Our combined net sales were $674.0 million during 2010, which represented an increase of $159.3 million, or 30.9 percent, as compared to 2009.  Of the total increase, approximately $142.4 million was a result of higher volume demanded due to increased production levels of the commercial vehicle market and its aftermarket segments in North America.  The increased production is a result of increased maintenance and replacement demand of commercial vehicles (see OEM production builds in the table below).  The remaining $16.9 million increase of net sales recognized during 2010 was related to higher pricing, which mostly represented a pass-through of increased raw material and commodity costs.

Combined net sales for Wheels increased nearly 19.8 percent during 2010 primarily due to increased volume for all three major OEM segments (see OEM production builds in the table below).  Combined net sales for our Gunite products rose by 33.5 percent due to the same reasons as Wheels along with increased volume demanded by the aftermarket segment.  Our Gunite products have a higher concentration of aftermarket demand due to being an item that requires replacement more often than our other products.  Combined net sales at Brillion increased by 104.6 percent during 2010 over 2009 due to


higher demand in the industrial and agricultural segments and increased pricing of $18.0 million.  Combined net sales at Imperial were 11.5 percent higher in 2010 than during 2009 due to increased demand.

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

   
For the year ended December 31,
 
   
2010
   
2009
 
Class 8                                                                                                      
    154,173       118,396  
Classes 5-7                                                                                                      
    117,901       97,733  
Trailer                                                                                                      
    124,162       79,027  

While we serve the commercial vehicle aftermarket segment, there is no industry data to compare our 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.

   
Successor Company
   
Predecessor Company
 
(Dollars in thousands)
 
Period from February 26 to December 31, 2010
   
Period from January 1 to February 26, 2010
 
Year Ended December 31, 2009
 
Raw materials                                                                           
 
$
265,793
   
$
38,921
 
$
217,208
 
Depreciation
   
33,008
     
6,344
   
44,593
 
Labor and other overhead
   
243,058
     
44,132
   
260,032
 
Total
 
$
541,859
   
$
89,397
 
$
521,833
 

Except for depreciation, fresh start accounting did not have an impact on the accounting for costs of goods sold during the year ended December 31, 2010.  Raw materials have increased by $87.5 million, or 40.3 percent, during the year ended December 31, 2010 due to increases in sales volume of approximately 28.5 percent and price of approximately 11.8 percent.  The price increases were primarily related to steel and aluminum, which represent nearly all of our material costs.

Depreciation was impacted by fresh start accounting, which increased the book value of our property, plant, and equipment slightly, yet extended the average useful life associated with each of those assets.

Labor and overhead increased by 10.4 percent due to increased volume, which is lower than the overall net sales volume increase mentioned above due to the impact of certain of our costs (i.e. salaries, rent, etc) being fixed in nature, as opposed to variable.

Operating Expenses

   
Successor Company
   
Predecessor Company
 
(Dollars in thousands)
 
Period from February 26 to December 31, 2010
   
Period from January 1 to February 26, 2010
 
Year Ended December 31, 2009
 
Selling, general, and administration
 
$
43,448
   
$
5,085
 
$
28,143
 
Research and development
   
3,382
     
745
   
4,323
 
Depreciation and amortization
   
7,317
     
649
   
3,897
 
Total
 
$
54,147
   
$
6,479
 
$
36,363
 

Other than depreciation and amortization, operating expenses were not impacted by fresh start accounting.  Selling, general, and administrative costs increased by $20.4 million in 2010 on a combined basis primarily due to fees incurred during 2010 for bankruptcy, relisting on the New York Stock Exchange, charges related to a product recall campaign, and our senior secured notes offering.  Research and development costs did not materially change from 2009 to 2010.


Depreciation and amortization were impacted by the fresh start accounting process, mostly due to establishing the opening balance sheet for other intangible assets for our Wheels business unit that had not previously been required to have its intangible assets recorded at fair value since they were acquired prior to the applicable accounting guidance being in place.  Specifically, operating income was impacted in the period February 26, 2010 to December 31, 2010 by the increase of intangible asset amortization as a result of the fresh start accounting process.

Operating Income (Loss)

   
Successor Company
 
Predecessor Company
 
(Dollars in thousands)
 
Period from February 26 to December 31, 2010
 
Period from January 1 to February 26, 2010
 
Year Ended December 31, 2009
 
Wheels
 
$
23,577
 
$
2,663
 
$
14,888
 
Gunite
   
2,623
   
277
   
(10,052
)
Brillion
   
(1,171
)
 
(986
)
 
(13,984
)
Imperial
   
(579
)
 
(1,011
)
 
(9,235
)
Corporate/Other
   
(38,149
)
 
(5,172
)
 
(44,909
)
Total
 
$
(13,699
)
$
(4,229
)
$
(63,292
)
 
 
Operating income for the Wheels segment was 6.2 percent of its net sales for the year ended December 31, 2009, 6.9 percent for the period January 1, 2010 through February 26, 2010, and 9.5 percent for the period February 26, 2010 through December 31, 2010.  Included in the period February 26, 2010 through December 31, 2010 was $5.6 million of intangible amortization that was recognized as a result of intangible assets being recorded at fair value through the fresh start accounting process.  During 2009 and the period January 1, 2010 through January 26, 2010, the Wheels segment did not recognize any intangible asset amortization.  During 2009, the Wheels segment recognized a pension curtailment charge of $2.9 million.

Operating income (loss) for the Gunite segment was (6.5) percent of its net sales for the year ended December 31, 2009, 0.9 percent for the period January 1, 2010 through February 26, 2010, and 1.5 percent for the period February 26, 2010 through December 31, 2010.  The increased volume of net sales during the period February 26, 2010 through December 31, 2010 created positive operating income, partially offset by $2.3 million of charges related to a product recall campaign related to automatic slack adjusters.  During 2009, our Gunite segment recognized a charge of $3.2 million of costs related to lease abandonment charges recognized related to consolidating our warehouses.

The operating losses for the Brillion segment were 28.1 percent of its net sales for the year ended December 31, 2009, 8.6 percent for the period January 1, 2010 through February 26, 2010, and 1.3 percent for the period February 26, 2010 through December 31, 2010.  Sales volume for our Brillion segment increased by 104.6 percent during 2010 as the industrial and agricultural markets rebounded after a significantly down year in 2009.  The increase in sales volume and approximately $18.0 million in increased pricing were the primary reasons for improved operating results for Brillion despite increasing material costs.  During 2009, Brillion recorded $1.9 million of intangible asset impairments and approximately $0.9 million of severance related charges.

The operating losses for the Imperial segment were 12.7 percent of its net sales for the year ended December 31, 2009, 8.4 percent for the period January 1, 2010 through February 26, 2010, and 0.8 percent for the period February 26, 2010 through December 31, 2010.  Depreciation and amortization for Imperial was $5.8 million for the year ended December 31, 2009, $0.8 million for the period January 1, 2010 through February 26, 2010, and $0.9 million for the period February 26, 2010 through December 31, 2010.  During 2009, Imperial recognized charges of $1.3 million of costs related to severance and other restructuring and $0.9 million of intangible asset impairments.

The operating losses for the Corporate segment were 8.7 percent of consolidated net sales for the year ended December 31, 2009, 5.6 percent for the period January 1, 2010 through February 26, 2010, and 6.6 percent for the period February 26, 2010 through December 31, 2010.  The operating losses during 2009 and the period February 26, 2010 through December 31, 2010 were impacted by prepetition fees and other bankruptcy costs, including fees associated with financing costs of the asset-based loan, the 9.5 percent notes, and the conversion offer, of $17.0 million and $15.7 million, respectively.

Interest Expense

Net interest expense was not affected by fresh start accounting.  However, the capital structure of the Successor Company was significantly different than for the Predecessor Company.  The Successor Company had, upon emergence from


bankruptcy and continues to have, significantly less debt than the Predecessor Company.  Net interest expense decreased $18.9 million to $40.9 million for the year ended December 31, 2010 from $59.8 million for the year ended December 31, 2009.  This was mostly due to not recognizing interest related to our prepetition senior subordinated notes that were cancelled as part of our Plan of Reorganization and a lower debt level maintained in 2010 compared to 2009.

Non-cash valuation changes of convertible notes & Inducement expense

In connection with accounting guidance following the emergence from Chapter 11, we recorded the conversion option on our convertible notes at fair value.  Due to the change in fair value of the conversion option, we recorded income of $75.6 million during 2010.  Also during 2010, we issued a conversion offer to holders of our convertible notes which resulted in conversion of all such notes outstanding.  ASC 470 requires the recognition of expense equal to the fair value of securities transferred in excess of the fair value of securities issuable pursuant to the original conversion terms.  Related to the conversion, we recorded inducement expenses of $166.7 million.  This charge represents the fair value of the incremental shares of common stock that were issued as a result of the Conversion Offer over the fair value of the shares of the common stock that the convertible note-holders would have otherwise received contractually as of the date of the Conversion Offer.

Reorganization items

ASC 852 requires the recognition of certain transactions directly related to the reorganization as reorganization expense or income in the statement of operations. The reorganization gain of $59.3 million for 2010 consisted of $25.0 million professional fees directly related to reorganization and an $84.3 million gain on the discharge and issuance of our debt instruments.  The reorganization expense of $14.4 million for 2009 consisted of $10.8 million professional fees directly related to reorganization and a $3.6 million loss on deferred financing fees related to our prepetition senior subordinated notes that were included in Liabilities Subject to Compromise. In addition, we incurred $17.0 million of prepetition professional fees in 2009 directly related to our reorganization, which we reported separately in the statement of operations.

Discontinued Operations

Discontinued operations represent reclassification of operating results, including gain/loss on sale, for Fabco Automotive, Bostrom Seating and Brillion Farm, net of tax.  The sales of Fabco and Bostrom were in 2011 and the Brillion Farm assets were sold during 2010.  We have reclassified current and prior period operating results, including the gain/loss on the sale transactions, to discontinued operations.

Changes in Financial Condition

At December 31, 2011, we had total assets of $868.9 million, as compared to $874.1 million at December 31, 2010.  The $5.2 million, or 0.6%, decrease in total assets primarily resulted from the divestiture of our discontinued operations and a reduction in our ending cash position.  An increase in working capital partially offset these decreases.

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:
 
   
December 31,
   
December 31,
 
   
2011
   
2010
 
Accounts receivable
  $ 98,075     $ 75,702  
Inventories
    72,827       55,818  
Deferred income taxes (current)
    7,675       13,061  
Other current assets
    4,657       5,457  
Accounts payable
    (80,261 )     (55,324 )
Accrued payroll and compensation
    (16,466 )     (17,320 )
Accrued interest payable
    (12,503 )     (12,682 )
Accrued workers compensation
    (4,936 )     (6,994 )
Other current liabilities
    (14,323 )     (20,200 )
Working Capital
  $ 54,745     $ 37,518  


Significant changes in working capital included:
 
·  
an increase in accounts receivable of $22.4 million due to the comparative increase in revenue in the months leading up to the respective period-end dates;
 
·  
an increase in inventory of $17.0 million primarily in finished goods due to increase in sales demand and increase in our pre-build inventory for the upcoming brake season; and
 
·  
an increase of accounts payable of $25.0 million primarily due to the increase in inventory-related purchases in the months leading up to the respective period-end dates, and stronger initiatives to improve payment terms with our key suppliers.

Capital Resources and Liquidity

Our primary sources of liquidity during the twelve months ended December 31, 2011 were cash reserves, proceeds from the sale of Fabco Automotive and our ABL facility.  We believe that cash from operations, existing cash reserves, and our ABL facility will provide adequate funds for our working capital needs, planned capital expenditures and cash interest payments through 2012 and the foreseeable future.

As of December 31, 2011, we had $56.9 million of cash plus $42.1 million in availability under our ABL credit facility for total liquidity of $99.0 million.  In June 2011, we had a $20.0 million advance on our ABL credit facility to partially finance the acquisition of the Camden operations.  In September, we received $32.8 million in proceeds related to the sale of Fabco Automotive, which excludes $2.1 million of fees paid at closing.

No provision has been made for U.S. income taxes related to undistributed earnings of our Canadian foreign subsidiary that we intend to permanently reinvest in order to finance capital improvements and/or expend operations either through the expansion of the current operations or the purchase of new operations. At December 31, 2011, Accuride Canada had $9.4 million of cumulative retained earnings. The Company distributes earnings for the Mexican foreign subsidiary and expects to distribute earnings annually.  Therefore, deferred tax liabilities in the amounts of $1.0 million and $1.9 million for 2010 and 2011, respectively, have been established for the undistributed earnings of our Mexican foreign subsidiary.

Our ability to fund working capital needs, planned capital expenditures, scheduled debt payments, and to comply with any financial covenants under our ABL credit 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 used in operating activities for the year ended December 31, 2011 amounted to $1.5 million.  Net cash used for the period January 1, 2010 through February 26, 2010 was $20.8 million while net cash provided by operating activities for the period February 26, 2010 through December 31, 2010 was $10.4 million.  This net decrease in funds used was primarily a result of increased demand for our products during 2011 and stronger initiatives to improve payment terms with our key suppliers.  Cash used during 2010 included approximately $43.8 million in fees and other expenses related to bankruptcy, the Refinancing, the Conversion Offer, and the sale of certain assets.


Investing Activities

Net cash used by investing activities totaled $40.0 million for the year ended December 31, 2011, compared to cash provided of $6.1 million for the period February 26, 2010 through December 31, 2010.  Cash used in investing activities for the period January 1, 2010 through February 26, 2010 was $2.0 million.  Our most significant cash outlays for investing activities were the purchases of property, plant, and equipment.  Our capital expenditures in 2011 were $58.4 million, which was higher than historical levels due to increased investments in aluminum wheel capacity and other equipment.  Cash generated from operations and existing cash reserves funded these expenditures.  During 2011 we had cash inflows of $40.7 million related to the sale of discontinued operations.  During 2011 we had cash outflows of $22.4 million related to the acquisition of the Camden operations.  During the period February 26, 2010 through December 31, 2010 we had cash inflows of $13.0 million related to issuance of letters of credit to replace restricted cash from previously drawn letters of credit and $9.1 million related to the sale of certain assets.  Capital expenditures for 2012 are expected to be between $70 million and $80 million, which we expect to fund through our cash from operations and existing cash reserves.  Due to the continued challenges facing our industry and the economy as a whole, we are managing our capital expenditures very closely in order to preserve liquidity throughout 2012, while still maintaining our production capacity and making investments necessary to meet competitive threats and to seize upon growth opportunities.

Financing Activities

Net cash provided by financing activities for the year ended December 31, 2011 totaled $20.0 million related to an increase in our ABL credit facility to partially finance the acquisition of the Camden, South Carolina facility.  Net cash provided by financing activities of $46.6 million during the period January 31, 2010 through February 26, 2010, while net cash used for the period February 26, 2010 through December 31, 2010 was $18.4 million.  During the two periods in 2010, we received $140 million of proceeds related to issuance of our convertible notes and exchanged our postpetition senior credit facility for the $310 million aggregate principal amount of senior secured notes and $75 million ABL credit facility, as discussed below.  During the period February 26, 2010 through December 31, 2010, we paid $10.9 million in fees related to the refinancing.

Bank Borrowing and Senior Notes

Refinancing

On July 29, 2010, we completed an offering of $310.0 million aggregate principal amount of senior secured notes and entered into the ABL Credit Agreement (the “ABL facility”). We used the net proceeds from the offering of the senior secured notes, $15.0 million of borrowings under the ABL facility and cash on hand to refinance our postpetition senior credit facility and to pay related fees and expenses (the “Refinancing”).

The ABL Facility

In connection with the Refinancing, we entered into the ABL facility.  Initially, the ABL facility was a senior secured asset based revolving credit facility in an aggregate principal amount of up to $75.0 million, with the right, subject to certain conditions, to increase the availability under the facility by up to $25.0 million in the aggregate (for a total aggregate availability of $100.0 million). On February 7, 2012, we exercised this right and increased the maximum capacity under the ABL Facility to $100.0 million. The four-year ABL facility matures on July 29, 2014 and provides for loans and letters of credit in an aggregate amount up to the amount of the facility, subject to meeting certain borrowing base conditions, with sub-limits of up to $10.0 million for swingline loans and $25.0 million to be available for the issuance of letters of credit.  Loans under the ABL facility initially bear interest at an annual rate equal to, at our option, either LIBOR plus 3.75% or Base Rate plus 2.75%, subject to changes based on our leverage ratio as defined in the ABL facility.
 
We must also pay a commitment fee equal to 0.50% per annum to the lenders under the ABL facility if utilization under the facility exceeds 50.0% of the total commitments under the facility and a commitment fee equal to 0.75% per annum if utilization under the facility is less than or equal to 50.0% of the total commitments under the facility. Customary letter of credit fees are also payable as necessary.
 
The obligations under the ABL facility are secured by (i) first-priority liens on substantially all of the Company’s accounts receivable and inventories, subject to certain exceptions and permitted liens (the “ABL Priority Collateral”) and (ii) second-priority liens on substantially all of the Company’s owned real property and tangible and intangible assets other than the ABL Priority Collateral, including all of the outstanding capital stock of our domestic subsidiaries, subject to certain exceptions and permitted liens (the “Notes Priority Collateral”).


Senior Secured Notes

Also in connection the Refinancing, we issued $310.0 million aggregate principal amount of senior secured notes.  Under the terms of the indenture governing the senior secured notes, the senior secured notes bear interest at a rate of 9.5% per year, paid semi-annually in February and August, and mature on August 1, 2018.  Prior to maturity we may redeem the senior secured notes on the terms set forth in the indenture governing the senior secured notes. The senior secured notes are guaranteed by the Guarantors, and the senior secured notes and the related guarantees are secured by first priority liens on the Notes Priority Collateral and second priority liens on the ABL Priority Collateral.  On February 15, 2011, we completed an exchange offer pursuant to which all our outstanding senior secured notes were exchanged for registered securities with identical terms (other than terms related to registration rights) to the senior secured notes issued July 29, 2010.

Restrictive Debt Covenants.  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.  Based on the forecasted production volumes below, we expect to be in compliance with all restrictive debt covenants through the next twelve months.

We continue, however, to operate in a challenging economic environment and our ability to maintain liquidity and comply with our debt covenants may be affected by economic or other conditions that are beyond our control and which are difficult to predict.  The 2012 production forecasts by ACT Publications for the significant commercial vehicle markets that we serve, as of February 10, 2012, are as follows:
 
North American Class 8
    296,493  
North American Classes 5-7
    173,493  
U.S. Trailers
    248,350  
 
Prior Convertible Notes

In connection with a conversion offer completed in November 2010, we accepted all of our previously outstanding $145.3 million of convertible notes for conversion and issued 34,600,145 shares of common stock to holders participating in the conversion of such notes (the “Conversion Offer”). ASC 470 requires the recognition of expense equal to the fair value of securities transferred in excess of the fair value of securities issuable pursuant to the original conversion terms.  Related to the conversion offer, we recorded inducement expenses of $166.7 million.  This charge represents the fair value of the incremental shares of common stock that were issued as a result of the Conversion Offer over the fair value of the shares of the Common Stock that the convertible note-holders would have otherwise received contractually as of the date of the Conversion Offer.

Off-Balance Sheet Arrangements.  We do not currently have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.  From time to time we may enter into operating leases, letters of credit, or take-or-pay obligations related to the purchase of raw materials that would not be reflected in our balance sheet.



Contractual Obligations and Commercial Commitments

The following table summarizes our contractual obligations as of December 31, 2011 and the effect such obligations and commitments are expected to have on our liquidity and cash flow in future periods:

   
Payments due by period
 
(dollars in millions)
 
Total
   
Less than 1 year
   
1 - 3 years
   
3 - 5 years
   
More than 5 years
 
Long-term debt(a)
  $ 330.0     $     $ 20.0     $     $ 310.0  
Interest on long-term debt(b)
    194.0       29.5       58.9       58.9       46.7  
Interest on variable rate debt (c)
    2.1       0.8       1.3              
Capital leases (d)
    2.2       0.4       0.6       0.6       0.6  
Operating leases
    14.9       3.5       5.7       2.9       2.8  
Purchase commitments(e)
    105.2       87.7       17.5              
Other long-term liabilities(f)
    189.9       18.8       35.4       36.7