10-Q 1 acw13-110q1.htm FORM 10-Q acw13-110q1.htm
10-Q 1 acw13-110q1.htm FORM 10-Q

 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC  20549

FORM 10-Q

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

For the quarterly period ended March 31, 2013.

OR
 
[  ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the transition period from __________ to ___________.

Commission file number 001-32483

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ý  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ý  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

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

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

As of May 1, 2013, 47,475,570 shares of Accuride Corporation common stock, par value $.01 per share, were outstanding

 


 
ACCURIDE CORPORATION






 
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Part I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

ACCURIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
             
   
March 31,
   
December 31,
 
(In thousands, except for share and per share data)
 
2013
   
2012
 
ASSETS
           
CURRENT ASSETS:
           
Cash and cash equivalents
  $ 31,518     $ 26,751  
Customer receivables, net of allowance for doubtful accounts of $431 and $549 in 2013 and 2012, respectively
    82,894       56,888  
Other receivables
    8,784       7,708  
Inventories
    57,453       61,192  
Deferred income taxes
    4,592       4,591  
Prepaid expenses and other current assets
    10,615       5,584  
Total current assets
    195,856       162,714  
PROPERTY, PLANT AND EQUIPMENT, net
    248,571       267,377  
OTHER ASSETS:
               
Goodwill
    100,697       100,697  
Other intangible assets, net
    131,907       134,180  
Deferred financing costs, net of accumulated amortization of $4,554 and $4,127 in 2013 and 2012, respectively
    6,313       6,741  
Deferred income taxes
    5,052       5,052  
Other
    1,263       1,055  
TOTAL
  $ 689,659     $ 677,816  
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
CURRENT LIABILITIES:
               
Accounts payable
  $ 71,445     $ 59,181  
Accrued payroll and compensation
    11,001       10,726  
Accrued interest payable
    5,204       12,543  
Accrued workers compensation
    5,040       5,868  
Accrued and other liabilities
    17,310       18,443  
Total current liabilities
    110,000       106,761  
LONG-TERM DEBT
    349,395       324,133  
DEFERRED INCOME TAXES
    19,707       19,021  
NON-CURRENT INCOME TAXES PAYABLE
    8,211       8,211  
OTHER POSTRETIREMENT BENEFIT PLAN LIABILITY
    83,095       82,689  
PENSION BENEFIT PLAN LIABILITY
    54,479       56,438  
OTHER LIABILITIES
    14,924       15,690  
COMMITMENTS AND CONTINGENCIES (Note 5)
           
STOCKHOLDERS’ EQUITY:
               
Preferred Stock, $0.01 par value; 10,000,000 shares authorized
           
Common Stock, $0.01 par value; 80,000,000 shares authorized, 47,475,570 and 47,419,115 shares issued and outstanding at March 31, 2013 and December 31, 2012, respectively, and additional paid-in-capital
    438,868       438,277  
Accumulated other comprehensive loss
    (51,503 )     (51,834 )
Accumulated deficiency
    (337,517 )     (321,570 )
Total stockholders’ equity
    49,848       64,873  
TOTAL
  $ 689,659     $ 677,816  

See notes to unaudited condensed consolidated financial statements.

 
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ACCURIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

   
Three Months Ended March 31,
 
(In thousands except per share data)
 
2013
   
2012
 
             
NET SALES
  $ 192,460     $ 269,518  
COST OF GOODS SOLD
    187,374       247,418  
GROSS PROFIT
    5,086       22,100  
OPERATING EXPENSES:
               
Selling, general and administrative
    11,075       14,864  
INCOME (LOSS) FROM OPERATIONS
    (5,989 )     7,236  
OTHER INCOME (EXPENSE):
               
Interest income
    38       16  
Interest expense
    (8,732 )     (8,761 )
Other income, net
    145       157  
LOSS BEFORE INCOME TAXES
    (14,538 )     (1,352 )
INCOME TAX PROVISION
    1,409       1,597  
NET LOSS
  $ (15,947 )   $ (2,949 )
Weighted average common shares outstanding—basic
    47,453       47,319  
Basic loss per share
  $ (0.34 )   $ (0.06 )
Weighted average common shares outstanding—diluted
    47,453       47,319  
Diluted loss per share
  $ (0.34 )   $ (0.06 )
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
               
Defined benefit plans
    331       (218 )
COMPREHENSIVE LOSS
  $ (15,616 )   $ (3,167 )
See notes to unaudited condensed consolidated financial statements.
 
 
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ACCURIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(In thousands)
 
Common
Stock and
Additional
Paid-in-
Capital
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Accumulated
Deficiency
   
Total
Stockholders’
Equity
 
BALANCE at January 1, 2012
  $ 435,368     $ (34,422 )   $ (143,563 )   $ 257,383  
Net loss
                (2,949 )     (2,949 )
Share-based compensation expense
    748                   748  
Tax impact of forfeited vested shares
    (81 )                 (81 )
Other comprehensive loss:
          (218 )           (218 )
BALANCE—March 31, 2012
  $ 436,035     $ (34,640 )   $ (146,512 )   $ 254,883  

(In thousands)
 
Common
Stock and
Additional
Paid-in-
Capital
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Accumulated
Deficiency
   
Total
Stockholders’
Equity
 
BALANCE—January 1, 2013
  $ 438,277     $ (51,834 )   $ (321,570 )   $ 64,873  
Net loss
                  (15,947 )     (15,947 )
Share-based compensation expense
    694                   694  
Tax impact of forfeited vested shares
    (103 )                 (103 )
Other comprehensive income:
          331             331  
BALANCE—March 31, 2013
  $ 438,868     $ (51,503 )   $ (337,517 )   $ 49,848  
 
 
 
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ACCURIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
       
   
Three Months Ended March 31,
 
(In thousands)
 
2013
   
2012
 
             
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net loss
  $ (15,947 )   $ (2,949 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation of property, plant and equipment
    9,158       9,834  
Amortization – deferred financing costs
    690       689  
Amortization – other intangible assets
    2,273       2,696  
Loss on disposal of assets
    857       76  
Provision for deferred income taxes
    686       1,322  
Non-cash stock-based compensation
    694       748  
Changes in certain assets and liabilities:
               
Receivables
    (27,082 )     (21,683 )
Inventories
    3,739       (9,850 )
Prepaid expenses and other assets
    (5,050 )     (651 )
Accounts payable
    21,608       12,355  
Accrued and other liabilities
    (11,448 )     (3,430 )
Net cash used in operating activities
    (19,822 )     (10,843 )
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchases of property, plant and equipment
    (15,355 )     (10,434 )
Proceeds from sale leaseback transactions
    14,944        
Proceeds from sale of discontinued operations
          1,000  
Net cash used in investing activities 
    (411 )     (9,434 )
CASH FLOWS FROM FINANCING ACTIVITIES
               
Proceeds from revolver
    25,000        
Net cash provided from financing activities
    25,000        
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    4,767       (20,277 )
CASH AND CASH EQUIVALENTS—Beginning of period
    26,751       56,915  
CASH AND CASH EQUIVALENTS—End of period
  $ 31,518     $ 36,638  
                 
Supplemental cash flow information:
               
Cash paid for interest
  $ 15,367     $ 15,380  
Cash paid for income taxes
    1,097       216  
Non-cash transactions:
               
Purchases of property, plant and equipment in accounts payable
  $ 3,730     $ 4,471  

See notes to unaudited condensed consolidated financial statements.

 
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ACCURIDE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(AMOUNTS IN THOUSANDS, UNLESS OTHERWISE NOTED, EXCEPT SHARE AND PER SHARE DATA)

Note 1 – Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation – The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), except that the unaudited condensed consolidated financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.  However, in the opinion of Accuride Corporation (“Accuride” or the “Company”), all adjustments (consisting primarily of normal recurring accruals) considered necessary to present fairly the condensed consolidated financial statements have been included.

The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the results to be expected for the year ending December 31, 2013.  The unaudited consolidated financial statements and notes thereto should be read in conjunction with the audited condensed consolidated financial statements and notes thereto disclosed in Accuride’s Annual Report on Form 10-K for the year ended December 31, 2012.

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

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

             
   
Three Months Ended March 31,
 
(In thousands except per share data)
 
2013
   
2012
 
             
Numerator:
           
     Net loss
  $ (15,947 )   $ (2,949 )
Denominator:
               
     Weighted average shares outstanding – Basic
    47,453       47,319  
     Weighted average shares outstanding - Diluted
    47,453       47,319  
                 
Basic loss per common share
  $ (0.34 )   $ (0.06 )
Diluted loss per common share
  $ (0.34 )   $ (0.06 )

As of March 31, 2013, there were options exercisable for 194,068 shares that were not included in the computation of diluted earnings per share because the effect would be anti-dilutive.  As of March 31, 2012, there were options exercisable for 225,922 shares that were not included in the computation of diluted earnings per share because the effect would be anti-dilutive

Stock-Based Compensation –Compensation expense for share-based compensation programs recognized as a component of operating expenses, was $694 and $748 for the three months ended March 31, 2013 and March 31, 2012 respectively.
 
As of March 31, 2013, there was approximately $4.8 million of unrecognized pre-tax compensation expense related to share-based awards not yet vested that will be recognized over a weighted-average period of 1.7 years.
 
Income Tax –Under Interim Financial Reporting, we compute on a quarterly basis an estimated annual effective tax rate considering ordinary income and related income tax expense. Ordinary income refers to income (loss) before income tax expense excluding significant, unusual, or infrequently occurring items. The tax effect of an unusual or infrequently occurring item is recorded in the interim period in which it occurs. Other items included in income tax expense in the periods in which they occur include the cumulative effect of changes in tax laws or rates, foreign exchange gains and losses, adjustments to uncertain tax positions, and adjustments to our valuation allowance due to changes in judgment in the realizability of deferred tax assets in future years.
 
We have assessed the need to maintain a valuation allowance for deferred tax assets based on an assessment of whether it is more likely than not that deferred tax benefits will be realized through the generation of future taxable income. Appropriate consideration is given to all available evidence, both positive and negative, in assessing the need for a valuation allowance. Due to our recent history of U.S. operating and taxable losses, the inconsistency of these profits, and the uncertainty of our financial outlook, we continue to maintain a full valuation allowance against our domestic deferred tax assets.
 
 
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Sale Leaseback transactions –We have accounted for the sale-leaseback transactions under ASC 840-40, Sale-Leaseback Transactions.  The company entered into two sale-leaseback transactions during the quarter and as a result had net gross cash inflow of $15.3 million.  Under the guidance, the leases were classified as operating leases.  The company recognized a gain on the transaction involving the Mexican aluminum line of $0.4 million, which is deferred, and will be amortized over the life of the lease. The deferred gain is included in the prepaid assets. The company recognized a loss on the Camden aluminum equipment of $0.9 million that was recognized in the current quarter.
 
Recent Accounting Adoptions

In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. The amendments in this update require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. This update will enhance disclosures required by U.S. GAAP by requiring improved information about financial instruments and derivative instruments. The requirements of this update are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. Entities should provide the disclosures required retrospectively for all comparative periods presented. The Company adopted ACU 2011-11 as of January 1, 2013.  The adoption did not have a material impact on our consolidated financial statements.

In July 2012, FASB issued ASU 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment.  The objective of the amendments in this update is to reduce the cost and complexity of performing an impairment test for indefinite-lived intangible assets by simplifying how an entity tests those assets for impairment and to improve consistency in impairment testing guidance among long-lived asset categories.  The amendments permit an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test.  The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance.  The Company adopted ACU 2012-02 as of January 1, 2013.  The adoption did not have a material impact on our consolidated financial statements.

In January 2013, the Financial Accounting Standards Board (“FASB”) issued ASU 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities (“ASU 2013-01”). ASU 2013-01 contains no amendments to disclosure requirements. The amendments clarify that the scope of ASU 2011-11, Disclosures about Offsetting Assets and Liabilities, which introduced new disclosure requirements, applies to derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement. ASU 2013-01 is effective for fiscal years beginning on or after January 1, 2013 and interim periods within those annual periods. The Company believes adoption of this new guidance will not have a material impact on the Company’s financial statements as these updates have an impact on presentation only.

In February 2013, FASB issued ASU 2013-02, Comprehensive Income.  The objective of the amendments in this update is to improve the reporting of reclassifications out of accumulated other comprehensive income.  The amendment requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under US GAAP to be reclassified in its entirety to net income.  For other amounts that are not required under US GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under US GAAP that provide additional detail about those amounts.  The amendments are effective prospectively for reporting periods beginning after December 15, 2012.  Early adoption is permitted.  The Company adopted ASU 2013-02 on January 1, 2013.  The adoption did not have a material impact on our consolidated financial statements.
 
 
 
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Note 2 - Inventories

Inventories at March 31, 2013 and December 31, 2012, on a FIFO basis, were as follows:

   
March 31, 2013
   
December 31, 2012
 
Raw materials
  $ 15,168     $ 15,731  
Work in process
    13,893       13,168  
Finished manufactured goods
    28,392       32,293  
Total inventories
  $ 57,453     $ 61,192  

Note 3 - Goodwill and Other Intangible Assets

The following represents the carrying amount of goodwill, on a reportable segment basis, as of December 31, 2012 and March 31, 2013:

   
Wheels
   
Brillion Iron Works
   
Total
 
Balance as of December 31, 2012
  $ 96,283     $ 4,414     $ 100,697  
Balance as of March 31, 2013
  $ 96,283     $ 4,414     $ 100,697  

The changes in the carrying amount of other intangible assets for the period December 31, 2011 to March 31, 2012, by reportable segment, are as follows:

   
Wheels
   
Gunite
   
Brillion Iron Works
   
Corporate
   
Total
 
Balance as of December 31, 2011
  $ 138,575     $ 38,968     $ 2,997     $ 809     $ 181,349  
Amortization
    (1,977 )     (551 )     (40 )     (128 )     (2,696 )
Balance as of March 31, 2012
  $ 136,598     $ 38,417     $ 2,957     $ 681     $ 178,653  

The changes in the carrying amount of other intangible assets for the period December 31, 2012 to March 31, 2013, by reportable segment, are as follows:

   
Wheels
   
Brillion Iron Works
   
Corporate
   
Total
 
Balance as of December 31, 2012
  $ 130,668     $ 2,833     $ 679     $ 134,180  
Amortization
    (1,975 )     (41 )     (257 )     (2,273 )
Balance as of March 31, 2013
  $ 128,693     $ 2,273     $ 422     $ 131,907  
 
 
The summary of goodwill and other intangible assets is as follows:

         
As of March 31, 2013
   
As of December 31, 2012
 
   
Weighted Average
Useful Lives
   
Gross Amount
   
Accumulated Amortization
   
Carrying Amount
   
Gross Amount
   
Accumulated Amortization
   
Carrying Amount
 
Goodwill
        $ 100,697     $       $ 100,697     $ 100,697     $       $ 100,697  
Other intangible assets:
                                                       
Non-compete agreements
    2.0     $ 1,552     $ 1,130     $ 422     $ 1,552     $ 873     $ 679  
Trade names
          25,200             25,200       25,200             25,200  
Technology
    10.0       38,849       18,284       20,565       38,849       17,547       21,302  
Customer relationships
    19.9       129,093       43,373       85,720       129,093       42,094       86,999  
Other intangible assets:
          $ 194,694     $ 62,787     $ 131,907     $ 194,694     $ 60,514     $ 134,180  

We estimate that our amortization expense for our other intangible assets for 2013 through 2017 will be approximately $8.7 million for 2013, $8.1 million for 2014 through 2017.


 
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Note 4 - Pension and Other Postretirement Benefit Plans

Components of net benefit cost charged to income for the three months ended March 31:

   
Pension Benefits
   
Other Benefits
 
   
2013
   
2012
   
2013
   
2012
 
Service cost-benefits earned during the period
  $ 286     $ 517     $ 142     $ 115  
Interest cost on projected benefit obligation
    2,624       2,831       890       974  
Expected return on plan assets
    (2,988 )     (2,988 )            
Amortization of prior service (credit) cost
    11       11              
Amortization of (gain)/loss
    663       270       26       (8 )
Total benefits cost charged to income
  $ 596     $ 641     $ 1,058     $ 1,081  

As of March 31, 2013, $1.7 million has been contributed to our sponsored pension plans.  We presently anticipate contributing an additional $9.7 million to fund our pension plans during 2013 for a total of $11.4 million.  Not included in the anticipated contributions for the year are any potential payments related to the plan associated with our Elkhart, Indiana facility that was recently closed.  The amount of those contributions have not been determined as of the date of this filing.

Note 5 – Commitments and Contingencies

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

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

As of March 31, 2013, we had an environmental reserve of approximately $1.5 million, related primarily to our foundry operations. This reserve is based on management’s review of potential liabilities as well as cost estimates related thereto. The reserve takes into account the benefit of a contractual indemnity given to us by a prior owner of our wheel-end subsidiary. The failure of the indemnitor to fulfill its obligations could result in future costs that may be material. Any expenditures required for us to comply with applicable environmental laws and/or pay for any remediation efforts will not be reduced or otherwise affected by the existence of the environmental reserve. Our environmental reserve may not be adequate to cover our future costs related to the sites associated with the environmental reserve, and any additional costs may have a material adverse effect on our business, results of operations or financial condition. The discovery of additional environmental issues, the modification of existing laws or regulations or the promulgation of new ones, more vigorous enforcement by regulators, the imposition of joint and several liability under CERCLA or analogous state laws, or other unanticipated events could also result in a material adverse effect.

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

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

As of March 31, 2013, we had approximately 2,784 employees, of which 603 were salaried employees with the remainder paid hourly. Unions represent approximately 1,515 of our employees, which is approximately 54% of our total employees. Each of our unionized facilities has a separate contract with the union that represents the workers employed at such facility. The union contracts expire at various times over the next few years with the exception of our union contract that covers the hourly employees at our Monterrey, Mexico, facility, which expires on an annual basis in January unless otherwise renewed. The 2013 negotiations in Monterrey were successfully completed prior to the expiration of our union contract.  In 2013, we have collective bargaining agreements expiring at our Brillion, Wisconsin facility.  We do not anticipate that the outcome of our 2013 negotiations will have a material adverse effect on our operating performance or cost.

 
-10-

 
 
Note 6 – Financial Instruments

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

The hierarchy consists of three levels:

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

The carrying amounts of cash and cash equivalents, trade receivables, and accounts payable approximate fair value because of the relatively short maturity of these instruments.  The fair value of our 9.5% senior secured notes based on market quotes, which we determined to be Level 1 inputs, at March 31, 2013 was approximately $311.3 million compared to the carrying amount of $304.4 million.  The fair value of our 9.5% senior secured notes based on market quotes, which we determined to be Level 1 inputs, at December 31, 2012 was approximately $310.0 million compared to the carrying amount of $304.1 million.  The Company believes the fair value of our ABL facility at March 31, 2013 and December 31, 2012 equals the carrying value of $45.0 million and  $20.0 million, respectively.  As of March 31, 2013 and December 31, 2012 we had no outstanding financial instruments.

Note 7 – Segment Reporting

Based on our continual monitoring of the long-term economic characteristics, products and production processes, class of customer, and distribution methods of our operating segments, we have identified each of our operating segments below as reportable segments.  We believe this segmentation is appropriate based upon operating decisions and performance assessments by our President and Chief Executive Officer.  The accounting policies of the reportable segments are the same as described in Note 1, Summary of Significant Accounting Policies of our Annual Report on Form 10-K for the year ended December 31, 2012.
 
       
   
Three Months Ended March 31,
 
   
2013
   
2012
 
Net sales:
           
Wheels
  $ 93,162     $ 116,944  
Gunite
    39,396       68,563  
Brillion Iron Works
    30,429       43,810  
Imperial Group
    29,473       40,201  
Consolidated total
  $ 192,460     $ 269,518  
                 
Operating Income (loss):
               
Wheels
  $ 5,743     $ 18,442  
Gunite
    (1,777 )     (2,168 )
Brillion Iron Works
    575       3,173  
Imperial Group
    (1,217 )     (519 )
Corporate / Other
    (9,313 )     (11,692 )
Consolidated total
  $ (5,989 )   $ 7,236  


Excluded from net sales above are inter-segment sales from Brillion Iron Works to Gunite, as shown in the table below: 

   
Three Months Ended March 31,
 
   
2013
   
2012
 
Inter-segment sales
  $ 2,448     $ 8,856  

   
As of
 
   
March 31, 2013
   
December 31, 2012
 
Total assets:
           
Wheels
  $ 479,037     $ 486,118  
Gunite 
    58,666       54,707  
Brillion Iron Works
    55,378       51,435  
Imperial Group
    52,990       49,189  
Corporate / Other
    43,588       36,367  
Consolidated total
  $ 689,659     $ 677,816  
 
 
-11-

 
 
Note 8 - Debt

As of March 31, 2013, total debt was $349.4 million consisting of $304.4 million of our outstanding 9.5% senior secured notes, net of discount and a $45.0 million draw on our ABL facility. As of December 31, 2012, total debt was $324.1 million consisting of $304.1 million of our outstanding 9.5% senior secured notes, net of discount and a $20.0 million draw on our ABL facility.
 
 
Our credit documents (the ABL facility and the indenture governing the senior secured notes) contain operating covenants that limit the discretion of management with respect to certain business matters.  These covenants place significant restrictions on, among other things, the ability to incur additional debt, to pay dividends, to create liens, to make certain payments and investments and to sell or otherwise dispose of assets and merge or consolidate with other entities.  In addition, the ABL facility contains a financial covenant which requires us to maintain a fixed charge coverage ratio during any compliance period, which is anytime when the excess availability is less than or equal to the greater of $10.0 million or 15 percent of the total commitment under the ABL facility.  Due to the amount of our excess availability (as calculated under the ABL facility), the Company is not currently in a compliance period and, we do not have to maintain a fixed charge coverage ratio, although this is subject to change.

 
-12-

 
 
Note 9 – Guarantor and Non-guarantor Financial Statements

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

CONDENSED CONSOLIDATED BALANCE SHEET

   
March 31, 2013
 
(in thousands)
 
Parent
   
Guarantor Subsidiaries
   
Non-guarantor Subsidiaries
   
Eliminations
   
Total
 
ASSETS
                             
Cash and cash equivalents
  $ 29,412     $ (202 )   $ 2,308           $ 31,518  
Accounts and other receivables, net
    43,975       38,935       4,304     $ 4,464       91,678  
Inventories
    18,574       35,582       3,624       (327 )     57,453  
Other current assets
    2,500       7,256       5,451             15,207  
Total current assets
    94,461       81,571       15,687       4,137       195,856  
Property, plant, and equipment, net
    77,205       134,474       36,892             248,571  
Goodwill
    96,283       4.414                   100,697  
Intangible assets, net
    129,115       2,792                   131,907  
Investments in and advances to subsidiaries and affiliates
    96,439                   (96,439 )      
Deferred income taxes
    5,052       35,153       4,015       (39,168 )     5,052  
Other non-current assets
    7,128       448                   7,576  
TOTAL
  $ 505,683     $ 258,852     $ 56,594     $ (131,470 )   $ 689,659  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                       
Accounts payable
  $ 14,140     $ 45,437     $ 11,868           $ 71,445  
Accrued payroll and compensation
    1,338       7,803       1,860             11,001  
Accrued interest payable
    5,204                         5,204  
Accrued and other liabilities
    50       15,191       2,972     $ 4,137       22,350  
Total current liabilities
    20,732       68,431       16,700       4,137       110,000  
Long term debt
    349,395                         349,395  
Deferred and non-current income taxes
    67,086                   (39,168 )     27,918  
Other non-current liabilities
    18,622       105,633       28,243             152,498  
Stockholders’ equity
    49,848       84,788       11,651       (96,439 )     49,848  
TOTAL
  $ 505,683     $ 258,852     $ 56,594     $ (131,470 )   $ 689,659  

   
December 31, 2012
 
(in thousands)
 
Parent
   
Guarantor Subsidiaries
   
Non-guarantor Subsidiaries
   
Eliminations
   
Total
 
ASSETS
                             
Cash and cash equivalents
  $ 24,113     $ (109 )   $ 2,747           $ 26,751  
Accounts and other receivables, net
    62,719       29,285       3,219     $ (30,627 )     64,596  
Inventories
    19,563       39,443       2,766       (580 )     61,192  
Other current assets
    (1,348 )     10,737       786             10,175  
Total current assets
    105,047       79,356       9,518       (31,207 )     162,714  
Property, plant, and equipment, net
    93,990       135,215       38,172             267,377  
Goodwill
    96,283       4,414                   100,697  
Intangible assets, net
    131,347       2,833                   134,180  
Investments in and advances to subsidiaries and affiliates
    95,958                   (95,958 )      
Deferred income taxes
    48,071       (12,042 )     (1,894 )     (6,903 )     27,232  
Other non-current assets
    (2,694 )     20,261       2,184             12,848  
TOTAL
  $ 519,931     $ 242,079     $ 49,874     $ (134,068 )   $ 677,816  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                       
Accounts payable
  $ 14,838     $ 36,702     $ 7,641           $ 59,181  
Accrued payroll and compensation
    1,241       7,488       1,997             10,726  
Accrued interest payable
    12,543                         12,543  
Accrued and other liabilities
    35,756       16,479       3,283     $ (32,207 )     24,311  
Total current liabilities
    64,378       60,669       12,921       (31,207 )     106,761  
Long term debt
    324,133                         324,133  
Deferred and non-current income taxes
    48,071       (12,042 )     (1,894 )     (6,093 )     27,232  
Other non-current liabilities
    18,476       106,671       29,670             154,817  
Stockholders’ equity
    64,873       86,781       9,177       (95,958 )     64,873  
TOTAL
  $ 519,931     $ 242,079     $ 49,874     $ (134,068 )   $ 677,816  



 
-13-

 
Table of Contents
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

   
Three Months Ended March 31, 2013
 
(in thousands)
 
Parent
   
Guarantor Subsidiaries
   
Non-guarantor Subsidiaries
   
Eliminations
   
Total
 
Net sales
  $ 105,159     $ 103,672     $ 35,851     $ (52,222 )   $ 192,460  
Cost of goods sold
    101,125       105,143       33,328       (52,222 )     187,374  
Gross profit
    4,034       (1,471 )     2,523             5,086  
Operating expenses
    10,524       470       81             11,075  
Income (loss) from operations
    (6,490 )     (1,941 )     2,442             (5,989 )
Other income (expense):
                                       
Interest expense, net
    (8,848 )     (64 )     218             (8,694 )
Equity in earnings of subsidiaries
    150                   (150 )        
Other income (expense), net
    (73 )     12       206             145  
Income (loss) before income taxes from continuing operations
    (15,261 )     (1,993 )     2,866       (150 )     (14,538 )
Income tax  provision
    686               723             1,409  
Net Income (loss)
  $ (15,947 )   $ (1,993 )   $ 2,143     $ (150 )   $ (15,947 )
                                         
Comprehensive income (loss)
  $ (15,616 )   $ (1,993 )   $ 2,474     $ (481 )   $ (15,616 )


   
Three Months Ended March 31, 2012
 
(in thousands)
 
Parent
   
Guarantor Subsidiaries
   
Non-guarantor Subsidiaries
   
Eliminations
   
Total
 
Net sales
  $ 122,576     $ 155,792     $ 37,454     $ (46,304 )   $ 269,518  
Cost of goods sold
    102,934       155,041       35,747       (46,304 )     247,418  
Gross profit
    19,642       751       1,707             22,100  
Operating expenses
    13,672       1,120       72             14,864  
Income (loss) from operations
    5,970       (369 )     1,635             7,236  
Other income (expense):
                                       
Interest expense, net
    (8,579 )     (75 )     (91 )           (8,745 )
Equity in earnings of subsidiaries
    241                   (241 )      
Other income (expense), net
    780             (623 )           157  
Income (loss) before income taxes from continuing operations
    (1,588 )     (444 )     921       (241 )     (1,352 )
Income tax  provision (benefit)
    1,361             236             1,597  
Income (loss) from continuing operations
    (2,949 )     (444 )     685       (241 )     (2,949 )
Discontinued operations, net of tax
                               
Net income (loss)
  $ (2,949 )   $ (444 )   $ 685     $ (241 )   $ (2,949 )
                                         
Comprehensive income (loss)
  $ (3,167 )   $ (444 )   $ 467     $ (23 )   $ (3,167 )







 
-14-

 
Table of Contents
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

   
Three Months Ended March 31, 2013
 
in thousands)
 
Parent Company
   
Guarantor Subsidiaries
   
Non-guarantor Subsidiaries
   
Eliminations
   
Total
 
CASH FLOWS FROM OPERATING ACTIVITIES:
                             
Net income (loss)
  $ (15,947 )   $ (1,993 )   $ 2,143     $ (150 )   $ (15,947 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
                                       
Depreciation                                                        
    2,761       4,996       1,401             9,158  
Amortization – deferred financing costs
    690                         690  
Amortization – other intangible assets
    2,232       41                   2,273  
(Gain) loss on disposal of assets
    862       8       (13 )           857  
Deferred income taxes
    686                         686  
Non-cash stock-based compensation
    694                         694  
Equity in earnings of subsidiaries and affiliates
    (150 )                 150        
Change in other operating items
    (21,468 )     6,779       (3,544 )           (18,233 )
Net cash provided by (used in) operating activities
    (29,640 )     9,831       (13 )           (19,822 )
                                         
CASH FLOWS FROM INVESTING ACTIVITIES:
                                       
Purchases of property, plant, and equipment
    (5,005 )     (9,924 )     (426 )           (15,355 )
Other
    14,944                         14,944  
Net cash provided by (used in) investing activities
    9,939       (9,924 )     (426 )           (411 )
                                         
CASH FLOWS FROM FINANCING ACTIVITIES
                                       
Proceeds from debt issuance
    25,000                         25,000  
Increase (decrease) in cash and cash equivalents
    5,299       (93 )     (439 )           4,767  
Cash and cash equivalents, beginning of period
    24,113       (109 )     2,747             26,751  
Cash and cash equivalents, end of period
  $ 29,412     $ (202 )   $ 2,308     $     $ 31,518  


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



 
-15-

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

The accompanying unaudited condensed interim consolidated financial statements are prepared in conformity with U.S. GAAP and such principles are applied on a basis consistent with the information reflected in our Annual Report on Form 10-K for the year ended December 31, 2012 filed with the Securities and Exchange Commission (“SEC”).  Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations promulgated by the SEC.  In the opinion of management, the interim financial information includes all adjustments and accruals, consisting only of normal recurring adjustments, which are necessary for a fair presentation of results for the respective interim periods.  The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2013 or any interim period.  Except for the historical information contained herein, this quarterly report on Form 10-Q contains forward-looking statements that involve risks and uncertainties.  Our actual results may differ materially from those indicated by such forward-looking statements.

Overview

We are one of the largest and most diversified manufacturers and suppliers of commercial vehicle components in North America. Our products include commercial vehicle wheels, wheel-end components and assemblies, truck body and chassis parts, and ductile and gray iron castings. We market our products under some of the most recognized brand names in the industry, including Accuride, Gunite, Imperial, and Brillion. We believe that we have number one or number two market positions in steel wheels and forged aluminum wheels 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 competitive advantage. 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, Inc. with its Peterbilt and Kenworth brand trucks, Navistar International Corporation, with its International brand trucks, and Volvo Group North America, with its Volvo and Mack brand trucks. Our primary commercial trailer customers include leading commercial trailer OEMs, such as Great Dane Limited Partnership, Utility Trailer Manufacturing Company, and Wabash National Corporation. Our major light truck customer is General Motors Company. Our product portfolio is supported by strong sales, marketing and design engineering capabilities and is manufactured in 13 strategically located, technologically-advanced facilities across the United States, Mexico and Canada.

The heavy- and medium-duty truck and commercial trailer markets, the related aftermarket, and the global industrial and agricultural markets are the primary drivers of our sales. These markets are, in turn, directly influenced by conditions in the North American truck industry and generally by conditions in other industries which indirectly impact the truck industry, such as the home-building industry, and by overall economic growth and consumer spending.  Current industry forecasts predict a significant increase in commercial vehicle production in the second half of 2013.  Based upon the overall commercial vehicle industry production forecasts, we expect results from operations to improve in 2013 compared to 2012.  We cannot, however, accurately predict the commercial vehicle cycle, and any deterioration of the economic recovery may lead to further reduced spending and deterioration in the North American truck and vehicle supply industries for the foreseeable future. Additionally, as previously disclosed, our Gunite business lost primary position with two of our OEMs, which impacted our operating results in the quarter and will continue to impact operating results for the remainder of 2013. Further, broader economic weaknesses in industrial manufacturing impacted our Brillion business through reduced customer orders.  In response to these conditions, we are working to control costs in the first half of 2013 while positioning the business for the expected market recovery in the second half of the year.

On March 30, 2011, we, along with one other United States domestic commercial vehicle steel wheel supplier, filed antidumping and countervailing duty petitions with the United States International Trade Commission and the United States Department of Commerce alleging that manufacturers of certain steel wheels in China are dumping their products in the United States and that these manufacturers have been subsidized by their government in violation of United States trade laws.  In May 2011, the International Trade Commission issued a preliminary determination that there was a reasonable indication that the U.S. steel wheel industry is materially injured or threatened with material injury by reason of imports from China of certain steel wheels, and began the final phase of its investigation.  In August 2011, the U.S. Department of Commerce issued a preliminary determination of countervailing duties on steel wheels imported from China ranging from 26.2 percent to 46.6 percent ad valorem, and in October 2011, the U.S. Department of Commerce issued a preliminary determination of antidumping duty margins ranging from 110.6 percent to 243.9 percent ad valorem.  On March 19, 2012, the Department of Commerce made final determinations of dumping and subsidy margins which cumulatively were approximately 70 percent to 228 percent ad valorem.  On April 17, 2012, the International Trade Commission determined that the domestic industry had not been injured and was not threatened with injury from subject imports, and consequently withdrew all import duties on the subject imports.  Subsequent to the withdrawal of import duties, we have seen increased imports of wheels from low cost countries, which have led to reduced sales in the aftermarket.

 
-16-

 
 
Results of Operations

The following table sets forth certain income statement information of Accuride for the three months ended March 31, 2013 and March 31, 2012.
 
 
   
Three Months Ended March 31,
 
(Dollars in thousands)
 
2013
   
2012
 
Net sales
  $ 192,460     $ 269,518  
Cost of goods sold
    187,374       247,418  
Gross profit
    5,086       22,100  
Operating expenses
    11,075       14,864  
Income (Loss) from operations
    (5,989 )     7,236  
Interest (expense), net
    (8,694 )     (8,745 )
Other income, net
    145       157  
Income tax provision
    1,409       1,597  
Net loss
  $ (15,947 )   $ (2,949 )

Net Sales

   
Three Months Ended March 31,
 
(Dollars in thousands)
 
2013
   
2012
 
Wheels
  $ 93,162     $ 116,944  
Gunite
    39,396       68,563  
Brillion
    30,429       43,810  
Imperial
    29,473       40,201  
Total
  $ 192,460     $ 269,518  

Our net sales for the three months ended March 31, 2013, were $192.5 million, which was a decrease of 28.6 percent, compared to net sales of $269.5 million for the three months ended March 31, 2012.  Of the total decrease, approximately $74.6 million was a result of lower volume demand due to decreased production levels of the commercial vehicle market and its aftermarket segments in North America, as well as reduced sales by our Gunite business unit due to the lost of OEM business.  The decreased vehicle production is a result of softer market conditions for commercial vehicles.  The remaining $2.4 million decrease of net sales recognized was related to pricing.

Net sales for our Wheels segment decreased nearly 20.3 percent during the three months ended March 31, 2013 compared to the same period in 2012 primarily due to decreased volume for all three major OEM segments.  Net sales for our Gunite segment dropped 42.5 percent due to the loss of standard position at two of its major OEM customers along with lower demand in the aftermarket.  Our Gunite products have a higher concentration of aftermarket demand due to being items that require replacement more often than our other products.  Our Brillion segment’s net sales decreased by 30.5 percent due to  lower demand in the industrial and agricultural markets and decreased pricing.  Net sales for our Imperial segment decreased by 26.7 percent due to decreased volume in Class 8 OEM production.


 
-17-

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

   
Three months ended March 31,
 
   
2013
   
2012
 
Class 8
    54,984       77,701  
Classes 5-7
    45,003       48,234  
Trailer
    59,043       58,915  

While we serve the commercial vehicle aftermarket segment, there is no relevant industry data to compare our aftermarket sales or Brillion’s industrial and agricultural sales to industry demand from period to period.

Cost of Goods Sold

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

   
Three Months Ended March 31,
 
(Dollars in thousands)
 
2013
   
2012
 
Raw materials
  $ 95,703     $ 130,982  
Depreciation
    9,155       9,822  
Labor and other overhead
    82,516       106,614  
Total
  $ 187,374     $ 247,418  

Raw materials costs decreased by $35.3 million, or 26.9 percent, during the three months ended March 31, 2013 due to decreases in sales volume of approximately 40.6 percent offset by price increases of approximately 4.0 percent.  The price increases were primarily related to steel and aluminum, which represent nearly all of our material costs.

Labor and overhead costs decreased by 29.2 percent due to decreased volume, which is higher than the overall net sales volume decrease of approximately 0.6 percent due to decreased production and operational efficiencies.

Operating Expenses

   
Three Months Ended March 31,
 
(Dollars in thousands)
 
2013
   
2012
 
Selling, general, and administration                                                                             
  $ 7,540     $ 10,621  
Research and development
    1,259       1,535  
Depreciation and amortization
    2,276       2,708  
Total
  $ 11,075     $ 14,864  

Selling, general, and administrative costs decreased by $3.1 million in 2013 primarily due to reductions in spending and staffing.

Depreciation and amortization expenses were reduced due to decreased intangible assets at Gunite resulting from the impairment recognized during the fourth quarter, 2012.

Operating Income (Loss)

   
Three Months Ended March 31,
 
(Dollars in thousands)
 
2013
   
2012
 
Wheels                                                                               
  $ 5,743     $ 18,442  
Gunite
    (1,777 )     (2,168 )
Brillion
    575       3,173  
Imperial
    (1,217 )     (519 )
Corporate/Other
    (9,313 )     (11,692 )
Total
  $ (5,989 )   $ 7,236  
 
 
 
-18-

 
 
Operating income for the Wheels segment was 6.1 percent of its net sales for the three months ended March 31, 2013 compared to 15.8 percent for the three months ended March 31, 2012.  Despite lower year-over-year build rates, we continue to see stronger demand for aluminum wheels being driven by the fleets’ desire to reduce fuel and maintenance costs, along with total vehicle weight.  Also impacting the wheels operating income were one-time charges of $0.9 million related to the sale leasebacks of equipment in the most recent period.

Operating loss for the Gunite segment was 4.5 percent of its net sales for the three months ended March 31, 2013 compared to 3.2 percent for the three months ended March 31, 2012.  During the three months ended March 31, 2013, the increased loss per sales dollar was due to the impact of certain of our costs (i.e. salaries, rent, etc.) being fixed in nature, as opposed to fully variable in an environment that has experienced a significant decrease in product demand.
 
 
Operating income for the Brillion segment was 1.9 percent of its net sales for the three months ended March 31, 2013 compared to 7.2 percent for same period in 2012.  Sales volume for our Brillion segment decreased during 2013 as the global industrial and agricultural markets softened, therefore reducing earnings.

The operating loss for the Imperial segment was 4.1 percent of its net sales for the three months ended March 31, 2013 and 1.3 percent for the three months ended March 31, 2012.  Again, the significant reduction in sales demand reduced their earnings.  Imperial is also in the process of consolidating operations, resulting in higher overhead spending, that will see reductions in the second half of  2013.

The operating losses for the Corporate segment were 4.8 percent of consolidated net sales for the three months ended March 31, 2013 as compared to 4.3 percent for the comparative period in 2012.

Changes in Financial Condition

At March 31, 2013, we had total assets of $689.7 million, as compared to total assets of $677.8 million at December 31, 2012.  The $11.9 million, or 1.8%, increase in total assets primarily resulted from changes in working capital, offset by cash inflows from aluminum wheel manufacturing equipment sale/leaseback transactions.   We define working capital as current assets (excluding cash) less current liabilities.

We use working capital and cash flow measures to evaluate the performance of our operations and our ability to meet our financial obligations. We require working capital investment to maintain our position as a leading manufacturer and supplier of commercial vehicle components.  We continue to strive for aligning 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:
 
   
March 31,
   
December 31,
 
   
2013
   
2012
 
Accounts receivable
  $ 91,678     $ 64,596  
Inventories
    57,453       61,192  
Deferred income taxes (current)
    4,592       4,591  
Other current assets
    10,615       5,584  
Accounts payable
    (71,445 )     (59,181
Accrued payroll and compensation
    (11,001 )     (10,726 )
Accrued interest payable
    (5,204 )     (12,543 )
Accrued workers compensation
    (5,040 )     (5,868 )
Other current liabilities
    (17,310 )     (18,443 )
Working Capital
  $ 54,338     $ 29,202 )
 
 
Significant changes in working capital included:
·  
an increase in receivables of $27.1 million due to an increase in revenue in the month leading up to the end of the period;
·  
an increase of accounts payable of $12.3 million primarily due to the increase in raw material purchases in the months leading up to the respective period-end;
·  
a decrease in accrued interest payable of $7.3 million primarily due to payment in February 2013 of our semi-annual interest payment for our senior secured notes.

 
 
-19-

 
 
Capital Resources and Liquidity

Our primary sources of liquidity during the three months ended March 31, 2013 were cash reserves, proceeds from our ABL, and proceeds from sale leaseback transactions.  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 2013 and the foreseeable future.

As of March 31, 2013, we had $31.5 million of cash plus $33.0 million in availability under our ABL credit facility for total liquidity of $64.5 million.

Our ability to fund working capital needs, planned capital expenditures, scheduled semi-annual interest 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 during the three months ended March 31, 2013 amounted to $19.8 million compared to a use of $10.8 million for the period ended March 31, 2012.  The use of cash in 2013 was a result of increased working capital requirements, primarily receivables, which are expected in an environment of increasing product demand.  During a period of increasing sales demand, our working capital needs also rise.  Also, an increase in prepaid expenses resulting from our operating leases of $4.9 was reflected in the operating activity.  These increases are related to security deposits and prepaid rents.

Investing Activities

Net cash used in investing activities totaled $0.4 million for the three months ended March 31, 2013 compared to a use of $9.4 million for the period ended March 31, 2012.  Our most significant cash outlays for investing activities are the purchases of property, plant and equipment.  During the three months ended March 31, 2013, we entered into two sale/leaseback agreements and, as a result, had cash inflows of $15.3 million from the gross proceeds of the sale of the equipment.  The leases are classified as operating leases.  Capital expenditures for 2013 are currently expected to be approximately $30 million to $40 million, which we expect to fund through existing cash reserves or from our ABL facility.  

Financing Activities

Cash provided by financing activities for the three months ended March 31, 2013 was $25.0 million.  The cash provided was a result of a draw on our ABL facility.

Bank Borrowing

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 post petition senior credit facility and to pay related fees and expenses (the “Refinancing”).

The ABL Facility

In connection with the Refinancing, we entered into our ABL facility, which is a senior secured asset based revolving credit facility, in an aggregate principal amount of up to $75.0 million, with the right to increase the availability under the facility by up to $25.0 million in the aggregate.  On February 7, 2012, we exercised our option to increase the loan commitments under the ABL facility by $25.0 million (for a total aggregate availability of $100.0 million) by entering into an asset-backed loan (ABL) incremental agreement.  The 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 bear interest at an annual rate equal to, at our option, either LIBOR plus 3.50% 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”).
 
 
-20-

 
 
Senior Secured Notes

Also in connection with 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 Guarantor Subsidiaries, 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.  We expect to be in compliance with all restrictive debt covenants through the next twelve months.

We continue 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.  

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.
 
 
Critical Accounting Policies and Estimates.  We have made a number of estimates and assumptions relating to the reporting of results of operations and financial position in the preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America.  Actual results could differ significantly from those estimates under different assumptions and conditions.  We included in our Form 10-K for the year ended December 31, 2012 a discussion of our most critical accounting policies, which are those that have a material impact on our financial condition or operating performance and require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

 
-21-

 
 
Cautionary Statements Regarding Forward-Looking Statements

In this report, we have made various statements regarding current expectations or forecasts of future events, which speak only as of the date the statements, are made.  These statements are “forward-looking statements” within the meaning of that term in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  Forward-looking statements are also made from time-to-time in press releases and in oral statements made by the officers of Accuride.  Forward-looking statements are identified by the words “estimate,” “project,” “anticipate,” “will continue,” “will likely result,” “expect,” “intend,” “believe,” “plan,” “predict” and similar expressions.  Forward looking statements also include, but are not limited to, statements regarding commercial vehicle market recovery, projections of revenue, income, loss, or working capital, capital expenditure levels, ability to mitigate rising raw material costs through increases in selling prices, plans for future operations, financing needs, the ultimate outcome and impact of any litigation involving Accuride, the sufficiency of our capital resources and plans and assumptions relating to the foregoing.
 
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 estimates and statements.  We cannot assure that any of these statements, estimates, or beliefs will be realized and actual results may differ from those contemplated in these “forward-looking statements.”  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.  In addition to other factors discussed in this report, some of the important factors that could cause actual results to differ materially from those discussed in the forward-looking statements include, without limitation, the following:

·  
a delayed or less robust than anticipated commercial vehicle industry recovery in 2013 and 2014 could have a material adverse effect on our business;
·  
a delayed or less robust than anticipated global industrial and agricultural industries recovery in 2013 and 2014 could have a material adverse effect on our business;
·  
the loss of a major customer could have a material adverse effect on our business;
·  
the demands of original equipment manufacturers for price reductions may adversely affect profitability;
·  
we use a substantial amount of raw steel, aluminum, cast scrap, and foundry steel and are vulnerable to industry shortages, significant price increases, and surcharges, some of which we may not be able to pass through to our customers;
·  
our credit documents contain significant financial and operating covenants that may limit the discretion of management with respect to certain business matters.  We must also meet certain financial ratios and tests as described above.  Failure to comply with the obligations contained in the debt agreements could result in an event of default, and possibly the acceleration of the related debt and the acceleration of debt under other instruments evidencing debt that may contain cross-acceleration or cross-default provisions;
·  
a labor strike may disrupt our supply to our customer base;
·  
we may encounter increased competition in the future from existing competitors or new competitors;
·  
our significant indebtedness may have important consequences, including, but not limited to, impairment of our ability to obtain additional financing, reduction of funds available for operations and business opportunities or limitations on our ability to dispose of assets;
·  
significant volatility in the foreign currency markets could have an adverse effect on us;
·  
our ability to service our indebtedness is dependent upon operating cash flow;
·  
an interruption of performance of our machinery and equipment could have an adverse effect on us;
·  
an interruption in supply of metals could reduce our ability to obtain favorable sourcing of such raw materials;
·  
we may be subject to liability under certain environmental laws and the cost of compliance with these regulations could have a material adverse effect on our financial condition and may adversely affect our ability to sell or rent such property or to borrow using such property as collateral; and
·  
our success depends largely upon the abilities and experience of certain key management personnel and the loss of the services of one or more of these key personnel could have a negative impact on our business.

For further information, refer to the business description and additional risk factors sections included in our Form 10-K for the year ended December 31, 2012, as filed with the SEC.

 
-22-

 
 
Item 3. Quantitative and Qualitative Disclosures about Market Risk

In the normal course of doing business, we are exposed to risks associated with changes in foreign exchange rates, raw material/commodity prices, and interest rates.  We use derivative instruments to manage these exposures.  The objectives for holding derivatives are to minimize the risks using the most effective methods to eliminate or reduce the impacts of these exposures.

Foreign Currency Risk

Certain forecasted transactions, assets, and liabilities are exposed to foreign currency risk. We monitor our foreign currency exposures to maximize the overall effectiveness of our foreign currency derivatives. The principal currencies of exposure are the Canadian Dollar and Mexican Peso. From time to time, we use foreign currency financial instruments to offset the impact of the variability in exchange rates on our operations, cash flows, assets and liabilities.  At March 31, 2013, there were no open foreign exchange forward contracts.

Foreign currency derivative contracts provide only limited protection against currency risks. Factors that could impact the effectiveness of our currency risk management programs include accuracy of sales estimates, volatility of currency markets and the cost and availability of derivative instruments.

The counterparty to the foreign exchange contracts is a financial institution with an investment grade credit rating. The use of forward contracts protects our cash flows against unfavorable movements in exchange rates, to the extent of the amount under contract.