10-Q 1 acw13-210q2.htm FORM 10-Q acw13-210q2.htm
 
 


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 June 30, 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 August 1, 2013, 47,515,155 shares of Accuride Corporation common stock, par value $.01 per share, were outstanding.
 
 



 
 

 

ACCURIDE CORPORATION






 
2

 
 
Part I.  FINANCIAL INFORMATION


ACCURIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

             
   
June 30,
   
December 31,
 
(In thousands, except for share and per share data)
 
2013
   
2012
 
ASSETS
           
CURRENT ASSETS:
           
Cash and cash equivalents
  $ 32,880     $ 26,751  
Customer receivables, net of allowance for doubtful accounts of $506 and $549 in 2013 and 2012, respectively
    82,688       56,888  
Other receivables
    9,296       7,708  
Inventories
    58,525       61,192  
Deferred income taxes
    4,592       4,591  
Prepaid expenses and other current assets
    11,626       5,584  
Total current assets
    199,607       162,714  
PROPERTY, PLANT AND EQUIPMENT, net
    247,868       267,377  
OTHER ASSETS:
               
Goodwill
    100,697       100,697  
Other intangible assets, net
    129,645       134,180  
Deferred financing costs, net of accumulated amortization of $4,981 and $4,127 in 2013 and 2012, respectively
    5,886       6,741  
Deferred income taxes
    4,874       5,052  
Other
    1,267       1,055  
TOTAL
  $ 689,844     $ 677,816  
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
CURRENT LIABILITIES:
               
Accounts payable
  $ 72,174     $ 59,181  
Accrued payroll and compensation
    9,960       10,726  
Accrued interest payable
    12,634       12,543  
Accrued workers compensation
    4,344       5,868  
Accrued and other liabilities
    17,516       18,443  
Total current liabilities
    116,628       106,761  
LONG-TERM DEBT
    349,658       324,133  
DEFERRED INCOME TAXES
    20,376       19,021  
NON-CURRENT INCOME TAXES PAYABLE
    8,211       8,211  
OTHER POSTRETIREMENT BENEFIT PLAN LIABILITY
    83,256       82,689  
PENSION BENEFIT PLAN LIABILITY
    52,147       56,438  
OTHER LIABILITIES
    14,112       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, 47,515,155 and 47,385,314 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively, and additional paid-in-capital
    439,421       438,277  
Accumulated other comprehensive loss
    (51,086 )     (51,834 )
Accumulated deficiency
    (342,879 )     (321,570 )
Total stockholders’ equity
    45,456       64,873  
TOTAL
  $ 689,844     $ 677,816  

See notes to unaudited condensed consolidated financial statements.

 
3

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


   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
(In thousands except per share data)
 
2013
   
2012
   
2013
   
2012
 
                         
NET SALES
  $ 211,318     $ 268,783     $ 403,778     $ 538,301  
COST OF GOODS SOLD
    192,871       243,958       380,245       491,376  
GROSS PROFIT
    18,447       24,825       23,533       46,925  
OPERATING EXPENSES:
                               
Selling, general and administrative
    12,747       15,233       23,822       30,097  
INCOME (LOSS) FROM OPERATIONS
    5,700       9,592       (289 )     16,828  
OTHER INCOME (EXPENSE):
                               
Interest expense, net
    (9,157 )     (8,658 )     (17,851 )     (17,403 )
Other income (loss), net
    (441 )     (436 )     (296 )     (279 )
INCOME (LOSS) BEFORE INCOME TAXES
    (3,898 )     498       (18,436 )     (854 )
INCOME TAX PROVISION
    1,464       1,339       2,873       2,936  
NET LOSS
  $ (5,362 )   $ (841 )   $ (21,309 )   $ (3,790 )
Weighted average common shares outstanding—basic
    47,563       47,376       47,508       47,347  
Basic income (loss) per share
  $ (0.11 )   $ (0.02 )   $ (0.45 )   $ (0.08 )
Weighted average common shares outstanding—diluted
    47,563       47,376       47,508       47, 347  
Diluted income (loss) per share
  $ (0.11 )   $ (0.02 )   $ (0.45 )   $ (0.08 )
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
                               
Defined benefit plans
    417       179       748       (39 )
COMPREHENSIVE LOSS
  $ (4,945 )   $ (662 )   $ (20,561 )   $ (3,829 )

See notes to unaudited condensed consolidated financial statements.

 
4

 
 
ACCURIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(In thousands)
 
Common
Stock and
Additional
Paid-in-
Capital
   
Accumulated
Other
Comprehensive
Income
   
Accumulated
Deficiency
   
Total
Stockholders’
Equity
 
BALANCE— April 1, 2012
  $ 436,035     $ (34,640 )   $ (146,512 )   $ 254,883  
Net loss
                (841 )     (841 )
Share-based compensation expense
    967                   967  
Tax impact of forfeited vested shares
    (129 )                 (129 )
Other comprehensive income
          179             179  
BALANCE—June 30, 2012
  $ 436,873     $ (34,461 )   $ (147,353 )   $ 255,059  
                                 
BALANCE—April 1, 2013
    438,868       (51,503 )     (337,517 )     49,848  
Net loss
                (5,362 )     (5,362 )
Share-based compensation expense
    659                   659  
Tax impact of forfeited vested shares
    (106 )                 (106 )
Other comprehensive income
          417             417  
BALANCE—June 30, 2013
  $ 439,421     $ (51,086 )   $ (342,879 )   $ 45,456  




(In thousands)
 
Common
Stock and
Additional
Paid-in-
Capital
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Accumulated
Deficiency
   
Total
Stockholders’
Equity
 
BALANCE— January 1, 2012
  $ 435,368     $ (34,422 )   $ (143,563 )   $ 257,383  
Net loss
                (3,790 )     (3,790 )
Share-based compensation expense
    1,715                   1,715  
Tax impact of forfeited vested shares
    (210 )                 (210 )
Other comprehensive loss
          (39 )           (39 )
BALANCE—June 30, 2012
  $ 436,873     $ (34,461 )   $ (147,353 )   $ 255,059  
                                 
BALANCE—January 1, 2013
    438,277       (51,834 )     (321,570 )     64,873  
Net loss
                (21,309 )     (21,309 )
Share-based compensation expense
    1,353                   1,353  
Tax impact of forfeited vested shares
    (209 )                 (209 )
Other comprehensive income
          748             748  
BALANCE—June 30, 2013
  $ 439,421     $ (51,086 )   $ (342,879 )   $ 45,456  


See notes to unaudited condensed consolidated financial statements


 
5

 
 
ACCURIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

       
   
Six Months Ended June 30,
 
(In thousands)
 
2013
 
2012
 
           
CASH FLOWS FROM OPERATING ACTIVITIES:
         
Net loss
 
$
(21,309
)
$
(3,790
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
         
Depreciation of property, plant and equipment
 
17,848
 
19,921
 
Amortization – deferred financing costs
 
1,380
 
1,379
 
Amortization – other intangible assets
 
4,535
 
5,391
 
Loss on disposal of assets
 
942
 
171
 
Provision for deferred income taxes
 
1,356
 
1,395
 
Non-cash stock-based compensation
 
1,353
 
1,715
 
Changes in certain assets and liabilities:
         
Receivables
 
(27,388
)
(16,603
)
Inventories
 
2,667
 
(9,472
)
Prepaid expenses and other assets
 
(5,648
)
(1,111
)
Accounts payable
 
20,370
 
7,064
 
Accrued and other liabilities
 
(8,461
)
(2,663
)
Net cash provided by (used in) operating activities
 
(12,355
)
3,397
 
CASH FLOWS FROM INVESTING ACTIVITIES:
         
Purchases of property, plant and equipment
 
(21,460
)
(25,651
)
Proceeds from sale leaseback transactions
 
14,944
 
 
Proceeds from sale of discontinued operations
 
 
1,000
 
Net cash used in investing activities
 
(6,516
)
(24,651
)
CASH FLOWS FROM FINANCING ACTIVITIES:
         
Proceeds from revolver
 
25,000
 
 
Net cash provided by financing activities
 
25,000
 
 
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
 
6,129
 
(21,254
)
CASH AND CASH EQUIVALENTS—Beginning of period
 
26,751
 
56,915
 
CASH AND CASH EQUIVALENTS—End of period
 
$
32,880
 
$
35,661
 
           
Supplemental cash flow information:
         
Cash paid for interest
 
$
16,069
 
$
15,905
 
Cash paid for income taxes
 
1,658
 
893
 
Non-cash transactions:
         
Purchases of property, plant and equipment in accounts payable
 
$
5,697
 
$
4,702
 

See notes to unaudited condensed consolidated financial statements.

 
6

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

Note 1 - Summary of Significant Accounting Policies

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

The results of operations for the three and six months ended June 30, 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 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 June 30,
   
Six Months Ended June 30,
 
(In thousands except per share data)
 
2013
   
2012
   
2013
   
2012
 
                         
Numerator:
                       
     Net loss
  $ (5,362 )   $ (841 )   $ (21,309 )   $ (3,790 )
Denominator:
                               
     Weighted average shares outstanding – Basic
    47,563       47,376       47,508       47,347  
     Weighted average shares outstanding - Diluted
    47,563       47,376       47,508       47,347  
                                 
Basic income (loss) per common share
  $ (0.11 )   $ (0.02 )   $ (0.45 )   $ (0.08 )
Diluted income (loss) per common share
  $ (0.11 )   $ (0.02 )   $ (0.45 )   $ (0.08 )

As of June 30, 2013, there were options exercisable for 176,927 shares that were not included in the computation of diluted earnings per share because the effect would be anti-dilutive.  As of June 30, 2012, there were options exercisable for 221,541 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 $1,353 and $1,715 for the six months ended June 30, 2013 and June 30, 2012, respectively.  Compensation expense for share based compensation programs recognized as a component of operating expense was $659 and $967 for the three months ended June 30, 2013 and June 30, 2012, respectively.
 
As of June 30, 2013, there was approximately $3.2 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 1.1 years.
 

 
7

 

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.
 
Sale Leaseback transactions-We have accounted for sale-leaseback transactions in accordance with ASC 840-40, Sale-Leaseback Transactions.  The Company entered into two sale-leaseback transactions during the first quarter, and as a result, had net cash inflow of $15.3 million.  Under the guidance, the leases were classified as operating leases.  The Company recognized a loss on the Camden aluminum equipment of $0.9 million that was recognized during the quarter ended March 31, 2013.

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. 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, 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.  The Company adopted ASU 2013-02 on January 1, 2013.  The adoption did not have a material impact on our consolidated financial statements.

In February 2013, FASB issued ASU 2013-4, Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date.  The objective of the amendments in this update is to provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, except for those obligations addressed within existing guidance in U.S. GAAP.  The amendment requires an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and an additional amount the reporting entity expects to pay on behalf of its co-obligors.  The entity is required to disclose the nature and amount of the obligation as well as other information about those obligations.  The update is effective for fiscal years and interim periods within those years beginning after December 15, 2013.  We are currently evaluating the impact of adopting ASU 2013-04 on the consolidated financial statements.

 
 
 
8

 
Note 2 - Inventories

Inventories at June 30, 2013 and December 31, 2012, on a FIFO basis, were as follows:

(In thousands)
 
June 30, 2013
   
December 31, 2012
 
Raw materials
  $ 14,482     $ 15,731  
Work in process
    14,769       13,168  
Finished manufactured goods
    29,274       32,293  
Total inventories
  $ 58,525     $ 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 June 30, 2013:

(In thousands)
 
Wheels
   
Brillion Iron Works
   
Total
 
Balance as of December 31, 2012
  $ 96,283     $ 4,414     $ 100,697  
Balance as of June 30, 2013
  $ 96,283     $ 4,414     $ 100,697  

The changes in the carrying amount of other intangible assets for the period December 31, 2011 to June 30, 2012, by reportable segment, are as follows:

(In thousands)
 
Wheels
   
Gunite
   
Brillion Iron Works
   
Corporate
   
Total
 
Balance as of December 31, 2011
  $ 138,575     $ 38,968     $ 2,997     $ 809     $ 181,349  
Amortization
    (3,953 )     (1,100 )     (82 )     (256 )     (5,391 )
Balance as of June 30, 2012
  $ 134,622     $ 37,868     $ 2,915     $ 553     $ 175,958  



The changes in the carrying amount of other intangible assets for the period December 31, 2012 to June 30, 2013, by reportable segment, are as follows:

(In thousands)
 
Wheels
   
Brillion Iron Works
   
Corporate
   
Total
 
Balance as of December 31, 2012
  $ 130,668     $ 2,833     $ 679     $ 134,180  
Amortization
    (3,952 )     (83 )     (500 )     (4,535 )
Balance as of June 30, 2013
  $ 126,716     $ 2,750     $ 179     $ 129,645  
 
 
The summary of goodwill and other intangible assets is as follows:

                   
(In thousands)
       
As of June 30, 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     $ 1,373     $ 179     $ 1,552     $ 873     $ 679  
Trade names
          25,200             25,200       25,200             25,200  
Technology
    10.0       38,849       19,023       19,826       38,849       17,547       21,302  
Customer relationships
    19.9       129,093       44,653       84,440       129,093       42,094       86,999  
Other intangible assets:
          $ 194,694     $ 65,049     $ 129,645     $ 194,694     $ 60,514     $ 134,180  

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

 
9

 
Note 4 - Pension and Other Postretirement Benefit Plans

Components of net periodic benefit cost for the three and six months ended June 30:

             
   
For the three months ended June 30
   
For the six months ended June 30
 
   
Pension Benefits
   
Other Benefits
   
Pension Benefits
   
Other Benefits
 
(In thousands)
 
2013
   
2012
   
2013
   
2012
   
2013
   
2012
   
2013
   
2012
 
Service cost-benefits earned during the period
  $ 281     $ 511     $ 139     $ 113     $ 567     $ 1,028     $ 281     $ 228  
Interest cost on projected benefit obligation
    2,583       2,806       883       971       5,207       5,637       1,773       1,945  
Expected return on plan assets
    (2,936 )     (2,957 )                 (5,924 )     (5,945 )            
Amortization of net transition (asset) obligation
                                               
Amortization of prior service (credit) cost
    11       11                   22       22              
Amortization of (gain)/loss
    649       266       24       (8 )     1,312       536       50       (16 )
Total benefits cost charged to income
  $ 588     $ 637     $ 1,046     $ 1,076     $ 1,184     $ 1,278     $ 2,104     $ 2,157  

As of June 30, 2013, $4.3 million has been contributed to our sponsored pension plans.  We presently anticipate contributing an additional $6.9 million to fund our pension plans during 2013 for a total of $11.2 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 amounts of those contributions have not been determined as of the date of this filing.

 
10

 
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 June 30, 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 June 30, 2013, we had approximately 2,869 employees, of which 587 were salaried employees with the remainder paid hourly. Unions represent approximately 1,563 of our employees, which is approximately 54.5% 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.

 
11

 
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 June 30, 2013 was approximately $313.1 million compared to the carrying amount of $304.7 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 June 30, 2013 and December 31, 2012 equals the carrying value of $45.0 million and $20.0 million, respectively.  As of June 30, 2013 and December 31, 2012 we had no other remaining 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 June 30,
   
Six Months Ended June 30,
 
(In thousands)
 
2013
   
2012
   
2013
   
2012
 
Net sales:
                       
Wheels
  $ 99,468     $ 112,881     $ 192,630     $ 229,825  
Gunite
    51,207       67,280       90,603       135,843  
Brillion Iron Works
    29,266       49,326       59,695       93,136  
Imperial Group
    31,377       39,296       60,850       79,497  
Consolidated total
  $ 211,318     $ 268,783     $ 403,778     $ 538,301  
                                 
Operating income (loss):
                               
Wheels
  $ 11,751     $ 16,106     $ 17,494     $ 34,548  
Gunite
    3,323       (1,875 )     1,546       (4,043 )
Brillion Iron Works
    1,855       7,598       2,430       10,771  
Imperial Group
    (284 )     (302 )     (1,501 )     (821 )
Corporate / Other
    (10,945 )     (11,935 )     (20,258 )     (23,627 )
Consolidated total
  $ 5,700     $ 9,592     $ (289 )   $ 16,828  
                                 
Income (loss) Before Income Taxes:
                               
Wheels
  $ 12,513     $ 18,157     $ 19,868     $ 37,359  
Gunite
    (3,701 )     (6,967 )     (11,840 )     (13,505 )
Brillion Iron Works
    2,113       6,642       2,730       8,622  
Imperial Group
    6       (377 )     (1,059 )     (991 )
Corporate / Other
    (14,829 )     (16,957 )     (28,135 )     (32,339 )
Consolidated total
  $ (3,898 )   $ 498     $ (18,436 )   $ (854 )

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

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
(In thousands)
 
2013
   
2012
   
2013
   
2012
 
Inter-segment sales
  $ 6,187     $ 8,874     $ 8,635     $ 17,730  

   
As of
 
(In thousands)
 
June 30, 2013
   
December 31, 2012
 
Total assets:
           
Wheels
  $ 477,797     $ 486,118  
Gunite 
    67,254       54,707  
Brillion Iron Works
    54,643       51,435  
Imperial Group
    49,863       49,189  
Corporate / Other
    40,287       36,367  
Consolidated total
  $ 689,844     $ 677,816  


 
12

 


Note 8 - Debt

As of June 30, 2013, total debt was $349.7 million consisting of $304.7 million of our outstanding 9.5% senior secured notes, net of discount and a $45.0 million draw on our Prior ABL facility existing at that time (the “Prior 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 Prior ABL Facility.
 
 
Our credit documents (the Prior ABL Facility and the indenture governing the senior secured notes) contain (or in the case of the Prior ABL Facility, contained) 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 Prior ABL Facility contains a financial covenant which required us to maintain a fixed charge coverage ratio during any compliance period, which was anytime when the excess availability was less than or equal to the greater of $10.0 million or 15 percent of the total commitment under the Prior ABL Facility.  Due to the amount of our excess availability (as calculated under the Prior ABL facility), the Company was not currently in a compliance period at June 30, 2013 and, we did not have to maintain a fixed charge coverage ratio.  As of July 11, 2013, we refinanced our Prior ABL Facility and entered into a new ABL facility (the “New ABL Facility”), which is described in further detail below under Note 10-Subsequent Events.


 
13

 

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 SHEETS

   
June 30, 2013
 
(In thousands)
 
Parent
   
Guarantor Subsidiaries
   
Non-guarantor Subsidiaries
   
Eliminations
   
Total
 
ASSETS
                             
Cash and cash equivalents
  $ 29,660     $ (896 )   $ 4,116           $ 32,880  
Customer and other receivables, net
    44,668       43,767       3,948     $ (399 )     91,984  
Inventories
    20,373       35,282       3,332       (462 )     58,525  
Other current assets
    5,927       4,929       5,362             16,218  
Total current assets
    100,628       83,082       16,758       (861 )     199,607  
Property, plant, and equipment, net
    77,486       134,428       35,954             247,868  
Goodwill
    96,283       4,414                   100,697  
Intangible assets, net
    126,895       2,750                   129,645  
Investments in and advances to subsidiaries and affiliates
    105,087                   (105,087 )      
Deferred income taxes
    4,874       20,397       1,963       (22,360 )     4,874  
Other non-current assets
    6,701       452                   7,153  
TOTAL
  $ 517,954     $ 245,523     $ 54,675     $ (128,308 )   $ 689,844  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                       
Accounts payable
  $ 14,972     $ 45,924     $ 11,278           $ 72,174  
Accrued payroll and compensation
    939       7,527       1,494             9,960  
Accrued interest payable
    12,634                         12,634  
Other current liabilities
    5,297       13,981       3,443     $ (861 )     21,860  
Total current liabilities
    33,842       67,432       16,215       (861 )     116,628  
Long-term debt
    349,658                         349,658  
Deferred and non-current income taxes
    62,127       (17,497 )     (1,894 )     (22,360 )     20,376  
Other non-current liabilities
    26,871       104,150       26,705             157,726  
Stockholders’ equity
    45,456       91,438       13,649       (105,087 )     45,456  
TOTAL
  $ 517,954     $ 245,523     $ 54,675     $ (128,308 )   $ 689,844  

   
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  
Customer 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
    (14,909 )     19,671       2,141       (6,903 )      
Other non-current assets
    12,215       590       43               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  
Other current 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  


 
14

 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

   
Three Months Ended June 30, 2013
 
(In thousands)
 
Parent
   
Guarantor Subsidiaries
   
Non-guarantor Subsidiaries
   
Eliminations
   
Total
 
Net sales
  $ 121,949     $ 108,899     $ 38,176     $ (57,706 )   $ 211,318  
Cost of goods sold
    113,261       101,802       35,514       (57,706 )     192,871  
Gross profit
    8,688       7,097       2,662             18,447  
Operating expenses
    12,301       374       72             12,747  
Income from operations
    (3,613 )     6,723       2,590             5,700  
Other income (expense):
                                       
Interest expense, net
    (9,297 )     (73 )     213             (9,157 )
Equity in earnings of subsidiaries
    8,231                   (8,231 )      
Other income (loss), net
    (13 )           (428 )           (441 )
Income (loss) before income taxes
    (4,692 )     6,650       2,375       (8,231 )     (3,898 )
Income tax  provision
    670             794             1,464  
Net income (loss)
  $ (5,362 )   $ 6,650     $ 1,581     $ (8,231 )   $ (5,362 )
                                         
Comprehensive income (loss)
  $ (4,945 )   $ 6,650     $ 1,998     $ (8,648 )   $ (4,945 )


   
Three Months Ended June 30, 2012
 
(In thousands)
 
Parent
   
Guarantor Subsidiaries
   
Non-guarantor Subsidiaries
   
Eliminations
   
Total
 
Net sales
  $ 119,374     $ 159,890     $ 41,505     $ (51,986 )   $ 268,783  
Cost of goods sold
    103,971       154,919       37,054       (51,986 )     243,958  
Gross profit
    15,403       4,971       4,451             24,825  
Operating expenses
    13,919       1,230       84             15,233  
Income from operations
    1,484       3,741       4,367             9,592  
Other income (expense):
                                       
Interest expense, net
    (8,540 )     (122 )     4             (8,658 )
Equity in earnings of subsidiaries
    7,284                   (7,284 )      
Other income (loss), net
    (996 )           560             (436 )
Income (loss) before income taxes
    (768 )     3,619       4,931       (7,284 )     498  
Income tax  provision (benefit)
    73             1,266             1,339  
Net income (loss)
  $ (841 )   $ 3,619     $ 3,665     $ (7,284 )   $ (841 )
                                         
Comprehensive income (loss)
  $ (662 )   $ 3,619     $ 3,844     $ (7,463 )   $ (662 )


 
15

 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

   
Six Months Ended June 30, 2013
 
(In thousands)
 
Parent
   
Guarantor Subsidiaries
   
Non-guarantor Subsidiaries
   
Eliminations
   
Total
 
Net sales
  $ 227,108     $ 212,571     $ 74,027     $ (109,928 )   $ 403,778  
Cost of goods sold
    214,386       206,945       68,842       (109,928 )     380,245  
Gross profit
    12,722       5,626       5,185             23,533  
Operating expenses
    22,825       844       153             23,822  
Income from operations
    (10,103 )     4,782       5,032             (289 )
Other income (expense):
                                       
Interest expense, net
    (18,145 )     (137 )     431             (17,851 )
Equity in earnings of subsidiaries
    8,381                   (8,381 )      
Other income (loss), net
    (86 )     12       (222 )           (296 )
Income (loss) before income taxes
    (19,953 )     4,657       5,241       (8,381 )     (18,436 )
Income tax  provision
    1,356             1,517             2,873  
Net income (loss)
  $ (21,309 )   $ 4,657     $ 3,724     $ (8,381 )   $ (21,309 )
                                         
Comprehensive income (loss)
  $ (20,561 )   $ 4,657     $ 4,472     $ (9,129 )   $ (20,561 )


   
Six Months Ended June 30, 2012
 
(In thousands)
 
Parent
   
Guarantor Subsidiaries
   
Non-guarantor Subsidiaries
   
Eliminations
   
Total
 
Net sales
  $ 241,950     $ 315,682     $ 78,959     $ (98,290 )   $ 538,301  
Cost of goods sold
    206,905       309,960       72,801       (98,290 )     491,376  
Gross profit
    35,045       5,722       6,158             46,925  
Operating expenses
    27,591       2,350       156             30,097  
Income (loss) from operations
    7,454       3,372       6,002             16,828  
Other income (expense):
                                       
Interest expense, net
    (17,119 )     (197 )     (87 )           (17,403 )
Equity in earnings of subsidiaries
    7,525                   (7,525 )      
Other income (loss), net
    (216 )           (63 )           (279 )
Income (loss) before income taxes from continuing operations
    (2,356 )     3,175       5,852       (7,525 )     (854 )
Income tax  provision (benefit)
    1,434             1,502             2,936  
Income (loss) from continuing operations
    (3,790 )     3,175       4,350       (7,525 )     (3,790 )
Discontinued operations, net of tax
                             
Net income (loss)
  $ (3,790 )   $ 3,175     $ 4,350     $ (7,525 )   $ (3,790 )
                                         
Comprehensive income (loss)
  $ (3,829 )   $ 3,175     $ 4,311     $ (7,486 )   $ (3,829 )




 
16

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

   
Six Months Ended June 30, 2013
 
(In thousands)
 
Parent Company
   
Guarantor Subsidiaries
   
Non-guarantor Subsidiaries
   
Eliminations
   
Total
 
CASH FLOWS FROM OPERATING ACTIVITIES:
                             
Net income (loss)
  $ (21,309 )   $ 4,657     $ 3,724     $ (8,381 )   $ (21,309 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
                                       
Depreciation                                                        
    5,330       10,065       2,453             17,848  
Amortization – deferred financing costs
    1,380                         1,380  
Amortization – other intangible assets
    4,452       83                   4,535  
(Gain) loss on disposal of assets
    949       8       (15 )           942  
Deferred income taxes
    1,356                         1,356  
Non-cash stock-based compensation
    1,353                         1,353  
Equity in earnings of subsidiaries and affiliates
    (8,381 )                 8,381        
Change in other operating items
    (12,879 )     (1,137 )     (4,444 )           (18,460 )
Net cash provided by (used in) operating activities
    (27,749 )     13,676       1,718             (12,355 )
                                         
CASH FLOWS FROM INVESTING ACTIVITIES:
                                       
Purchases of property, plant, and equipment
    (6,648 )