10-Q 1 acw15-110q1.htm FORM 10-Q (FIRST QUARTER)  
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC  20549

FORM 10-Q

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

For the quarterly period ended March 31, 2015.

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 Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
 
 
 
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   No
 
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   No
 
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
Accelerated Filer
Non-Accelerated Filer 
Smaller Reporting Company
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No
 
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  No
 
As of April 22, 2015, 47,929,789 shares of Accuride Corporation common stock, par value $.01 per share, were outstanding.


ACCURIDE CORPORATION

Table of Contents

Page
 
 
 
 
 
 
 

 
Part I.  FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

ACCURIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except for share and per share data)
 
March 31, 2015
   
December 31, 2014
 
ASSETS
 
   
 
CURRENT ASSETS:
 
   
 
Cash and cash equivalents
 
$
17,570
   
$
29,773
 
Customer receivables, net of allowance for doubtful accounts of $589 and $327 in 2015 and 2014, respectively
   
76,120
     
56,271
 
Other receivables
   
6,545
     
7,299
 
Inventories
   
41,963
     
43,065
 
Deferred income taxes
   
2,687
     
2,687
 
Prepaid expenses and other current assets
   
10,445
     
10,785
 
Total current assets
   
155,330
     
149,880
 
PROPERTY, PLANT AND EQUIPMENT, net
   
207,948
     
212,183
 
OTHER ASSETS:
               
Goodwill
   
100,697
     
100,697
 
Other intangible assets, net
   
115,924
     
117,963
 
Deferred financing costs, net of accumulated amortization of $5,434 and $5,077 in 2015 and 2014, respectively
   
4,655
     
5,012
 
Deferred income taxes
   
2,713
     
1,289
 
Pension asset
   
9,804
     
9,518
 
Other
   
1,820
     
1,880
 
TOTAL
 
$
598,891
   
$
598,422
 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
CURRENT LIABILITIES:
               
Accounts payable
 
$
65,051
   
$
56,452
 
Accrued payroll and compensation
   
7,898
     
10,620
 
Accrued interest payable
   
5,122
     
12,428
 
Accrued workers compensation
   
2,945
     
3,137
 
Accrued and other liabilities
   
13,414
     
14,434
 
Total current liabilities
   
94,430
     
97,071
 
LONG-TERM DEBT
   
326,497
     
323,234
 
DEFERRED INCOME TAXES
   
16,654
     
14,837
 
NON-CURRENT INCOME TAXES PAYABLE
   
6,534
     
6,534
 
OTHER POSTRETIREMENT BENEFIT PLAN LIABILITY
   
80,844
     
82,157
 
PENSION BENEFIT PLAN LIABILITY
   
31,348
     
32,348
 
OTHER LIABILITIES
   
10,795
     
11,438
 
COMMITMENTS AND CONTINGENCIES (Note 6)
   
     
 
STOCKHOLDERS' EQUITY:
               
Preferred Stock, $0.01 par value; 10,000,000 shares authorized
   
     
 
Common Stock, $0.01 par value; 80,000,000 shares authorized, 47,929,789 and 47,718,818 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively, and additional paid-in-capital
   
442,931
     
442,631
 
Accumulated other comprehensive loss
   
(48,364
)
   
(49,638
)
Accumulated deficiency
   
(362,778
)
   
(362,190
)
Total stockholders' equity
   
31,789
     
30,803
 
TOTAL
 
$
598,891
   
$
598,422
 

See notes to unaudited condensed consolidated financial statements.
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)
 
2015
   
2014
 
 
 
   
 
NET SALES
 
$
183,659
   
$
166,784
 
COST OF GOODS SOLD
   
162,728
     
149,761
 
GROSS PROFIT
   
20,931
     
17,023
 
OPERATING EXPENSES:
               
Selling, general and administrative
   
11,603
     
10,454
 
INCOME FROM OPERATIONS
   
9,328
     
6,569
 
OTHER INCOME (EXPENSE):
               
Interest expense, net
   
(8,350
)
   
(8,420
)
Other loss, net
   
(1,172
)
   
(530
)
LOSS BEFORE INCOME TAXES FROM CONTINUING OPERATIONS
   
(194
)
   
(2,381
)
INCOME TAX PROVISION
   
386
     
904
 
LOSS FROM CONTINUING OPERATIONS
   
(580
)
   
(3,285
)
DISCONTINUED OPERATIONS, NET OF TAX
   
(8
)
   
(288
)
NET LOSS
 
$
(588
)
 
$
(3,573
)
OTHER COMPREHENSIVE INCOME, NET OF TAX:
               
Defined benefit plans
   
1,274
     
333
 
COMPREHENSIVE INCOME (LOSS)
 
$
686
   
$
(3,240
)
                 
Weighted average common shares outstanding-basic
   
47,822
     
47,596
 
Basic loss per common share-continuing operations
   
(0.01
)
   
(0.07
)
Basic loss per common share-discontinued operations
   
     
(0.01
)
Basic loss per common share
 
$
(0.01
)
 
$
(0.08
)
Weighted average common shares outstanding-diluted
   
47,822
     
47,596
 
Diluted loss per common share-continuing operations
   
(0.01
)
   
(0.07
)
Diluted loss per common share-discontinued operations
   
     
(0.01
)
Diluted loss per common share
 
$
(0.01
)
 
$
(0.08
)

See notes to unaudited condensed consolidated financial statements.

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— January 1, 2014
 
$
440,479
   
$
(18,712
)
 
$
(359,883
)
 
$
61,884
 
Net loss
   
     
     
(3,573
)
   
(3,573
)
Share-based compensation expense
   
499
     
     
     
499
 
Tax impact of forfeited vested shares
   
(253
)
   
     
     
(253
)
Other comprehensive income
   
     
333
     
     
333
 
BALANCE—March 31, 2014
 
$
440,725
   
$
(18,379
)
 
$
(363,456
)
 
$
58,890
 

(In thousands)
 
Common
Stock and
Additional
Paid-in-
Capital
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Accumulated
Deficiency
   
Total
Stockholders'
Equity
 
BALANCE—January 1, 2015
 
$
442,631
   
$
(49,638
)
 
$
(362,190
)
 
$
30,803
 
Net loss
   
     
     
(588
)
   
(588
)
Share-based compensation expense
   
663
     
     
     
663
 
Tax impact of forfeited vested shares
   
(363
)
   
     
     
(363
)
Other comprehensive income
   
     
1,274
     
     
1,274
 
BALANCE—March 31, 2015
 
$
442,931
   
$
(48,364
)
 
$
(362,778
)
 
$
31,789
 

 See notes to unaudited condensed consolidated financial statements.

ACCURIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
 
 
Three Months Ended March 31,
 
(In thousands)
 
2015
   
2014
 
 
 
   
 
CASH FLOWS FROM OPERATING ACTIVITIES:
 
   
 
Net loss
 
$
(588
)
 
$
(3,573
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation of property, plant and equipment
   
8,557
     
8,253
 
Amortization – deferred financing costs and debt discount
   
620
     
620
 
Amortization – other intangible assets
   
2,039
     
2,019
 
Loss on disposal of assets
   
(1
)
   
(7
)
Provision for deferred income taxes
   
30
     
182
 
Non-cash share-based compensation
   
663
     
499
 
Changes in certain assets and liabilities:
               
Receivables
   
(19,095
)
   
(23,775
)
Inventories
   
1,102
     
(5,980
)
Prepaid expenses and other assets
   
919
     
(1,458
)
Accounts payable
   
8,349
     
15,151
 
Accrued and other liabilities
   
(13,085
)
   
(7,448
)
Net cash used in operating activities
   
(10,490
)
   
(15,517
)
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchases of property, plant and equipment
   
(4,071
)
   
(6,709
)
Proceeds from sale of property, plant, and equipment
   
     
1,235
 
Net cash used in investing activities
   
(4,071
)
   
(5,474
)
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds from revolver
   
11,000
     
10,000
 
Payments on revolver
   
(8,000
)
   
 
Principal payments on capital leases
   
(642
)
   
(795
)
Net cash provided by financing activities
   
2,358
     
9,205
 
NET DECREASE IN CASH AND CASH EQUIVALENTS
   
(12,203
)
   
(11,786
)
CASH AND CASH EQUIVALENTS—Beginning of period
   
29,773
     
33,426
 
CASH AND CASH EQUIVALENTS—End of period
 
$
17,570
   
$
21,640
 
 
               
Supplemental cash flow information:
               
Cash paid for interest
 
$
15,017
   
$
15,188
 
Cash paid for income taxes
 
$
952
   
$
706
 
Non-cash transactions:
               
Purchases of property, plant and equipment in accounts payable
 
$
2,643
   
$
3,610
 
 
See notes to unaudited condensed consolidated financial statements.

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

The results of operations for the three months ended March 31, 2015 are not necessarily indicative of the results to be expected for the year ending December 31, 2015.  The unaudited condensed 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, 2014.

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)
 
2015
   
2014
 
 Numerator:
 
   
 
     Loss from continuing operations
 
$
(580
)
 
$
(3,285
)
     Loss from discontinued operations
   
(8
)
   
(288
)
     Net loss
 
$
(588
)
 
$
(3,573
)
Denominator:
               
     Weighted average shares outstanding – Basic
   
47,822
     
47,596
 
     Weighted average shares outstanding - Diluted
   
47,822
     
47,596
 
 
               
Basic loss per common share:
               
     From continuing operations
 
$
(0.01
)
 
$
(0.07
)
     From discontinued operations
   
     
(0.01
)
     Basic loss per common share
 
$
(0.01
)
 
$
(0.08
)
 
               
Diluted loss per common share
               
     From continuing operations
 
$
(0.01
)
 
$
(0.07
)
     From discontinued operations
   
     
(0.01
)
     Diluted loss per common share
 
$
(0.01
)
 
$
(0.08
)

As of March 31, 2015, there were options exercisable for 144,095 shares that were not included in the computation of diluted earnings per share because the effect would be anti-dilutive.  As of March 31, 2014, there were options exercisable for 153,889 shares that were not included in the computation of diluted earnings per share because the effect would be anti-dilutive.


Share-Based Compensation  Compensation expense for share-based compensation programs recognized as a component of operating expenses was $0.7 million and $0.5 million for the three months ended March 31, 2015 and March 31, 2014, respectively. 
 
As of March 31, 2015, there was approximately $6.0 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 1.6 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 federal and state deferred tax assets in future years.  Deferred tax assets in our foreign jurisdictions are more likely than not to be recognized, therefore, no valuation allowance has been recorded for these assets.
 
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 income, and the uncertainty of our financial outlook, we continue to maintain a full valuation allowance against our domestic deferred tax assets.

Recent Accounting Pronouncements – On May 28, 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue From Contracts With Customers.  The amendments in this update create Topic 606, Revenue from Contracts with Customers, and supersede the revenue recognition requirements in Topic 605. The objective of the amendment is to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and International Financial Reporting Standards ("IFRS"). The amendment is effective for annual reporting periods beginning after December 15, 2016, and interim periods therein. Early adoption is not permitted. The Company is evaluating the effect, if any, on its financial statements.

 On June 19, 2014, the FASB issued Accounting Standard Update ("ASU") 2014-12, Compensation-Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide that a Performance Target Could Be Achieved after the Requisite Service Period.  This update is intended to resolve the diverse accounting treatment of those awards in practice. The amendment is effective for annual and interim periods within those annual periods beginning after December 15, 2015. Early adoption is permitted. The Company is evaluating the effect, if any, on its financial statements.

On August 27, 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements-Going Concern. The amendments in this update provide guidance in U.S. GAAP about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. In doing so, the amendments should reduce diversity in the timing and content of footnote disclosures. The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company is evaluating the effect, if any, on its financial statements.

On January 9, 2015 , the FASB issued ASU 2015-01, Income Statement-Extraordinary and Unusual Items (Topic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.  The update eliminates from GAAP the concept of extraordinary items. The amendment is effective for fiscal years beginning after December 15, 2015. Early adoption is permitted. The Company is evaluating the effect, if any, on its financial statements.

On February 18, 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis.  This update is intended to change the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. The amendment is effective for annual and interim periods within those annual periods beginning after December 15, 2015. Early adoption is permitted. The Company is evaluating the effect, if any, on its financial statements.

On April 16, 2015, the FASB issued ASU 2015-05, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40):Customer's Accounting for Fees Paid in a Cloud Computing Arrangement.  The amendments in this update provide guidance to customers about whether a cloud computing arrangement includes a software license. The amendment is effective for annual and interim periods within those annual periods beginning after December 15, 2015. Early adoption is permitted. The Company is evaluating the effect, if any, on its financial statements.


Note 2 – Discontinued Operations

The Company has recognized certain operating results related to its Imperial Group business in Discontinued Operations.

The following table presents sales and income attributable to discontinued operations.

 
 
Three Months Ended March 31,
 
(In thousands)
 
2015
   
2014
 
Net sales
 
$
   
$
 
 
               
Income (loss) from operations
   
(10
)
   
(11
)
Other Income (Expense)
   
2
     
(277
)
Discontinued operations
 
$
(8
)
 
$
(288
)

Note 3 - Inventories

Inventories at March 31, 2015 and December 31, 2014, on a first-in, first-out ("FIFO") basis, were as follows:

(In thousands)
 
March 31, 2015
   
December 31, 2014
 
Raw materials
 
$
8,743
   
$
8,244
 
Work in process
   
12,167
     
14,073
 
Finished manufactured goods
   
21,053
     
20,748
 
Total inventories
 
$
41,963
   
$
43,065
 

Note 4 - Goodwill and Other Intangible Assets

The following represents the carrying amount of goodwill, on a reportable segment basis:

(In thousands)
 
Wheels
   
Brillion Iron
Works
   
Total
 
Balance as of December 31, 2014
 
$
96,283
   
$
4,414
   
$
100,697
 
Balance as of March 31, 2015
 
$
96,283
   
$
4,414
   
$
100,697
 

The changes in the carrying amount of other intangible assets for the period December 31, 2014 to March 31, 2015, by reportable segment, are as follows:

(In thousands)
 
Wheels
   
Brillion Iron
Works
   
Total
 
Balance as of December 31, 2014
 
$
115,465
   
$
2,498
   
$
117,963
 
Amortization
   
(1,997
)
   
(42
)
   
(2,039
)
Balance as of March 31, 2015
 
$
113,468
   
$
2,456
   
$
115,924
 

The changes in the carrying amount of other intangible assets for the period December 31, 2013 to March 31, 2014, by reportable segment, are as follows:

(In thousands)
 
Wheels
   
Brillion Iron Works
   
Total
 
Balance as of December 31, 2013
 
$
122,764
   
$
2,666
   
$
125,430
 
Amortization
   
(1,977
)
   
(42
)
   
(2,019
)
Balance as of March 31, 2014
 
$
120,787
   
$
2,624
   
$
123,411
 


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

 
 
   
As of March 31, 2015
   
As of December 31, 2014
 
(In thousands)
 
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:
                                                       
Trade names
   
   
$
25,200
   
$
   
$
25,200
   
$
25,200
   
$
   
$
25,200
 
Technology
   
10.6
     
39,169
     
23,914
     
15,255
     
39,169
     
23,158
     
16,011
 
Customer relationships
   
16.8
     
127,304
     
51,835
     
75,469
     
127,304
     
50,552
     
76,752
 
Other intangible assets
         
$
191,673
   
$
75,749
   
$
115,924
   
$
191,673
   
$
73,710
   
$
117,963
 

We estimate that our annual amortization expense for our other intangible assets for 2015 through 2019 will be approximately $8.1 million.

Note 5 - Pension and Other Postretirement Benefit Plans

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

 
 
Pension Benefits
   
Other Benefits
 
 
 
2015
   
2014
   
2015
   
2014
 
Service cost-benefits earned during the period
 
$
177
   
$
264
   
$
103
   
$
85
 
Interest cost on projected benefit obligation
   
2,354
     
2,654
     
860
     
876
 
Expected return on plan assets
   
(2,772
)
   
(3,155
)
   
     
 
Amortization of prior service (credit) cost
   
11
     
11
     
(9
)
   
(9
)
Amortization of loss
   
311
     
50
     
101
     
77
 
Total benefits cost (credited) charged to income
 
$
$81
   
$
($176
)
 
$
$1,055
   
$
$1,029
 

As of March 31, 2015, $1.4 million has been contributed in 2015 to our sponsored pension plans.  We presently anticipate contributing an additional $6.2 million to fund our pension plans during 2015 for a total of $7.6 million.  

Note 6 – Commitments and Contingencies

We are from time to time involved in various legal proceedings of a character normally incidental to our business. We do not believe that the outcome of these proceedings will have a material adverse 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, 2015, 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. Any expenditure 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 on our consolidated financial statements.


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 NESHAP, we could incur a liability that could have a material adverse effect on our consolidated financial statements.

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 currently pending environmental proceeding will have a material adverse effect on our consolidated financial statements.

As of March 31, 2015, we had approximately 2,196 employees, of which 495 were salaried employees with the remainder paid hourly. Unions represent approximately 1,447 of our employees, which is approximately 66 percent 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 2015 negotiations in Monterrey were completed prior to the expiration of our union contract. In 2014, we successfully negotiated new bargaining agreements for our Erie, Pennsylvania and Rockford, Illinois facilities, which will expire on September 3, 2018 and March 25, 2019, respectively. The previous contract at our London, Ontario facility expired on March 12, 2015, but our previously negotiated successor agreement  became effective on March 13, 2015 and runs through March 12, 2018. No other collective bargaining agreements expire in 2015.

Note 7 – Financial Instruments

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

The hierarchy consists of three levels:

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

The carrying amounts of cash and cash equivalents, customer 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, 2015 was approximately $315.6 million compared to the carrying amount of $306.5 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, 2014 was approximately $319.2 million compared to the carrying amount of $306.2 million.  The Company believes the fair value of our variable interest rate Asset Based Loan ("ABL") facility at March 31, 2015 and December 31, 2014 equals the carrying value of $20.0 million and $17.0 million, respectively.  As of March 31, 2015 and December 31, 2014 we had no other financial instruments.


Note 8 – Segment Reporting

Based on our continual monitoring of the long-term economic characteristics, products and production processes, class of customer, and distribution methods of our operating segments, we have identified each of our operating segments below as reportable segments.  We believe this segmentation is appropriate based upon operating decisions and performance assessments by our President and Chief Executive Officer and our Senior Vice-President and CFO.  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 2014.

 
 
Three Months Ended March 31,
 
 
 
2015
   
2014
 
 Net sales:
 
   
 
Wheels
 
$
108,336
   
$
92,218
 
Gunite
   
37,740
     
43,973
 
Brillion Iron Works
   
37,583
     
30,593
 
Consolidated total
 
$
183,659
   
$
166,784
 
 
               
Income (loss) from operations:
               
Wheels
 
$
13,252
   
$
9,742
 
Gunite
   
2,741
     
3,278
 
Brillion Iron Works
   
2,196
     
1,275
 
Corporate / Other
   
(8,861
)
   
(7,726
)
Consolidated total
 
$
9,328
   
$
6,569
 

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,
 
 
2015
 
2014
 
Inter-segment sales
 
$
2,175
   
$
3,841
 


 
As of
 
(In thousands)
March 31, 2015
 
December 31, 2014
 
Total assets:
 
 
Wheels
 
$
448,768
   
$
441,835
 
Gunite
   
60,634
     
59,600
 
Brillion Iron Works
   
55,612
     
55,226
 
Corporate / Other
   
33,877
     
41,761
 
Consolidated total
 
$
598,891
   
$
598,422
 

Note 9 - Debt

As of March 31, 2015, total debt was $326.5 million consisting of $306.5 million of our outstanding 9.5% senior secured notes, net of discount, and a $20.0 million draw on our ABL facility.  As of December 31, 2014, total debt was $323.2 million consisting of $306.2 million of our outstanding 9.5% senior secured notes, net of discount, and a $17.0 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 fixed charge coverage ratio covenant which will be applicable if the availability under the ABL Facility is less than 10.0% of the amount of the ABL Facility.  If applicable, that covenant requires us to maintain a minimum ratio of adjusted EBITDA less capital expenditures made during such period (other than capital expenditures financed with the net cash proceeds of asset sales, recovery events, incurrence of indebtedness and the sale or issuance of equity interests) to fixed charges of 1.00 to 1.00.  We are not currently in a compliance period, and we do not expect to be through the next twelve months.  However, we continue to operate in a challenging economic and commercial environment and our ability to maintain liquidity and comply with our debt covenants may be affected by economic or other conditions that are beyond our control and which are difficult to predict.

The ABL Facility provides for loans and letters of credit in an amount up to the aggregate availability under the facility, subject to meeting certain borrowing base conditions, with sub-limits of up to $10.0 million for swingline loans and $20.0 million for letters of credit.  Borrowings under the ABL Facility bear interest through maturity at a variable rate based upon, at our option, either LIBOR or the base rate (which is the greatest of one-half of 1.00% in excess of the federal funds rate, 1.00% in excess of the one-month LIBOR rate and the Agent's prime rate), plus, in each case, an applicable margin.  The applicable margin for loans under the first-in last-out term facility that are (i) LIBOR loans ranges, based on the our average excess availability, from 2.75% to 3.25% per annum and (ii) base rate loans ranges, based on our average excess availability, from 1.00% to 1.50%.  The applicable margin for other advances under the ABL Facility that are (i) LIBOR loans ranges, based on our average excess availability, from 1.75% to 2.25% and (ii) base rate loans ranges, based on our average excess availability, from 0.00% to 0.50%.

We must also pay an unused line fee equal to 0.25% per annum to the lenders under the ABL Facility if utilization under the facility is greater than or equal to 50.0% of the total available commitments under the facility and a commitment fee equal to 0.375% per annum if utilization under the facility is less than 50.0% of the total available commitments under the facility. Customary letter of credit fees are also payable, as necessary.



Note 10 – Guarantor and Non-guarantor Financial Statements

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

CONDENSED CONSOLIDATING BALANCE SHEETS

 
 
March 31, 2015
 
(In thousands)
 
Parent
   
Guarantor Subsidiaries
   
Non-guarantor Subsidiaries
   
Eliminations
   
Total
 
ASSETS
 
   
   
   
   
 
Cash and cash equivalents
 
$
13,266
   
$
   
$
4,304
   
$
   
$
17,570
 
Customer and other receivables, net
   
49,841
     
26,667
     
6,157
     
     
82,665
 
Intercompany receivable
   
     
186,757
     
83,038
     
(269,795
)
   
 
Inventories
   
19,613
     
19,477
     
3,174
     
(301
)
   
41,963
 
Other current assets
   
7,330
     
1,250
     
4,552
     
     
13,132
 
Total current assets
   
90,050
     
234,151
     
101,225
     
(270,096
)
   
155,330
 
Property, plant and equipment, net
   
77,814
     
99,003
     
31,131
     
     
207,948
 
Goodwill
   
96,283
     
4,414
     
     
     
100,697
 
Other intangible assets, net
   
113,468
     
2,456
     
     
     
115,924
 
Investments in and advances to subsidiaries and affiliates
   
134,517
     
     
     
(134,517
)
   
 
Deferred income taxes
   
39,168
     
     
2,713
     
(39,168
)
   
2,713
 
Other non-current assets
   
6,130
     
345
     
9,804
     
     
16,279
 
TOTAL
 
$
557,430
   
$
340,369
   
$
144,873
   
$
(443,781
)
 
$
598,891
 
LIABILITIES AND STOCKHOLDERS' EQUITY
                                       
Accounts payable
 
$
17,981
   
$
35,974
   
$
11,096
   
$
   
$
65,051
 
Intercompany payable
   
70,129
     
172,638
     
27,329
     
(270,096
)
   
 
Accrued payroll and compensation
   
630
     
6,107
     
1,161
     
     
7,898
 
Accrued interest payable
   
5,122
     
     
     
     
5,122
 
Accrued and other liabilities
   
3,769
     
9,803
     
2,787
     
     
16,359
 
Total current liabilities
   
97,631
     
224,522
     
42,373
     
(270,096
)
   
94,430
 
Long term debt
   
326,497
     
     
     
     
326,497
 
Deferred and non-current income taxes
   
87,300
     
(25,918
)
   
974
     
(39,168
)
   
23,188
 
Other non-current liabilities
   
14,213
     
91,563
     
17,211
     
     
122,987
 
Stockholders' equity
   
31,789
     
50,202
     
84,315
     
(134,517
)
   
31,789
 
TOTAL
 
$
557,430
   
$
340,369
   
$
144,873
   
$
(443,781
)
 
$
598,891
 

 
 
December 31, 2014
 
(In thousands)
 
Parent
   
Guarantor Subsidiaries
   
Non-guarantor Subsidiaries
   
Eliminations
   
Total
 
ASSETS
 
   
   
   
   
 
Cash and cash equivalents
 
$
22,710
   
$
   
$
7,063
   
$
   
$
29,773
 
Customer and other receivables, net
   
35,630
     
20,994
     
6,543
     
403
     
63,570
 
Intercompany receivables
   
191,272
     
5,086
     
53,055
     
(249,413
)
   
 
Inventories
   
18,693
     
21,352
     
3,423
     
(403
)
   
43,065
 
Other current assets
   
4,970
     
3,386
     
5,116
     
     
13,472
 
Total current assets
   
273,275
     
50,818
     
75,200
     
(249,413
)
   
149,880
 
Property, plant and equipment, net
   
78,603
     
101,648
     
31,932
     
     
212,183
 
Goodwill
   
96,283
     
4,414
     
     
     
100,697
 
Other intangible assets, net
   
115,465
     
2,498
     
     
     
117,963
 
Investments in and advances to subsidiaries and affiliates
   
128,372
     
     
     
(128,372
)
   
 
Other non-current assets
   
3,118
     
3,774
     
10,807
     
     
17,699
 
TOTAL
 
$
695,116
   
$
163,152
   
$
117,939
   
$
(377,785
)
 
$
598,422
 
LIABILITIES AND STOCKHOLDERS' EQUITY
                                       
Accounts payable
 
$
15,209
   
$
31,931
   
$
9,312
   
$
   
$
$56,452
 
Intercompany payable
   
249,407
     
     
6
     
(249,413
)
   
 
Accrued payroll and compensation
   
4,002
     
5,458
     
1,160
     
     
10,620
 
Accrued interest payable
   
12,428
     
     
     
     
12,428
 
Accrued and other liabilities
   
4,183
     
10,060
     
3,328
     
     
17,571
 
Total current liabilities
   
285,229
     
47,449
     
13,806
     
(249,413
)
   
97,071
 
Long term debt
   
323,234
     
     
     
     
323,234
 
Deferred and non-current income taxes
   
41,775
     
(20,736
)
   
332
     
     
21,371
 
Other non-current liabilities
   
14,075
     
93,245
     
18,623
     
     
125,943
 
Stockholders' equity
   
30,803
     
43,194
     
85,178
     
(128,372
)
   
30,803
 
TOTAL
 
$
695,116
   
$
163,152
   
$
117,939
   
$
(377,785
)
 
$
598,422
 


CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 
 
Three Months Ended March 31, 2015
 
(In thousands)
 
Parent
   
Guarantor
Subsidiaries
   
Non-guarantor
Subsidiaries
   
Eliminations
   
Total
 
Net sales
 
$
119,499
   
$
89,243
   
$
31,770
   
$
(56,853
)
 
$
183,659
 
Cost of goods sold
   
107,236
     
82,017
     
30,027
     
(56,552
)
   
162,728
 
Gross profit
   
12,263
     
7,226
     
1,743
     
(301
)
   
20,931
 
Operating expenses
   
11,303
     
254
     
46
     
     
11,603
 
Income (loss) from operations
   
960
     
6,972
     
1,697
     
(301
)
   
9,328
 
Other income (expense):
                                       
Interest income (expense), net
   
(8,688
)
   
(54
)
   
392
     
     
(8,350
)
Equity in earnings of subsidiaries
   
7,613
     
     
     
(7,613
)
   
 
Other income (expense), net
   
(569
)
   
     
(603
)
   
     
(1,172
)
Income (loss) before income taxes from continuing operations
   
(684
)
   
6,918
     
1,486
     
(7,914
)
   
(194
)
Income tax  (benefit) provision
   
(96
)
   
143
     
339
     
     
386
 
Income (loss) from continuing operations
   
(588
)
   
6,775
     
1,147
     
(7,914
)
   
(580
)
Discontinued operations, net of tax
   
     
     
(8
)
   
     
(8
)
Net income (loss)
 
$
(588
)
 
$
6,775
   
$
1,139
   
$
(7,914
)
 
$
(588
)
 
                                       
Comprehensive income (loss)
 
$
686
   
$
6,865
   
$
2,301
   
$
(9,166
)
 
$
686
 
 
 
 
Three Months Ended March 31, 2014
 
(In thousands)
 
Parent
   
Guarantor
Subsidiaries
   
Non-guarantor
Subsidiaries
   
Eliminations
   
Total
 
Net sales
 
$
108,531
   
$
74,302
   
$
32,654
   
$
(48,703
)
 
$
166,784
 
Cost of goods sold
   
98,882
     
69,704
     
29,439
     
(48,264
)
   
149,761
 
Gross profit
   
9,649
     
4,598
     
3,215
     
(439
)
   
17,023
 
Operating expenses
   
10,122
     
280
     
52
     
     
10,454
 
Income (loss) from operations
   
(473
)
   
4,318
     
3,163
     
(439
)
   
6,569
 
Other income (expense):
                                       
Interest income (expense), net
   
(8,657
)
   
(61
)
   
298
     
     
(8,420
)
Equity in earnings of subsidiaries
   
5,673
     
     
     
(5,673
)
   
 
Other income (expense), net
   
(77
)
   
63
     
(516
)
   
     
(530
)
Income (loss) before income taxes from continuing operations
   
(3,534
)
   
4,320
     
2,945
     
(6,112
)
   
(2,381
)
Income tax  provision
   
39
     
143
     
722
     
     
904
 
Income (loss) from continuing operations
   
(3,573
)
   
4,177
     
2,223
     
(6,112
)
   
(3,285
)
Discontinued operations, net of tax
   
     
     
(288
)
   
     
(288
)
Net income (loss)
 
$
(3,573
)
 
$
4,177
   
$
1,935
   
$
(6,112
)
 
$
(3,573
)
 
                                       
Comprehensive income (loss)
 
$
(3,240
)
 
$
4,164
   
$
2,270
   
$
(6,434
)
 
$
(3,240
)



CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

 
 
Three Months Ended March 31, 2015
 
(In thousands)
 
Parent
Company
   
Guarantor
Subsidiaries
   
Non-guarantor
Subsidiaries
   
Eliminations
   
Total
 
CASH FLOWS FROM OPERATING ACTIVITIES:
 
   
   
   
   
 
Net income (loss)
 
$
(588
)
 
$
6,775
   
$
1,139
   
$
(7,914
)
 
$
(588
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
                                       
Depreciation
   
2,863
     
4,681
     
1,013
     
     
8,557
 
Amortization – deferred financing costs
   
620
     
     
     
     
620
 
Amortization – other intangible assets
   
1,997
     
42
     
     
     
2,039
 
Loss on disposal of assets
   
17
     
(18
)
   
     
     
(1
)
Deferred income taxes
   
30
     
     
     
     
30
 
Non-cash stock-based compensation
   
663
     
     
     
     
663
 
Equity in earnings of subsidiaries and affiliates
   
(7,613
)
   
     
     
7,613
     
 
Change in other operating items
   
(11,688
)
   
(8,972
)
   
(1,451
)
   
301
     
(21,810
)
Net cash provided by (used in) operating activities
   
(13,699
)
   
2,508
     
701
     
     
(10,490
)
 
                                       
CASH FLOWS FROM INVESTING ACTIVITIES:
                                       
Purchases of property, plant, and equipment
   
(2,388
)
   
(1,387
)
   
(296
)
   
     
(4,071
)
Proceeds from notes receivable
   
(24,726
)
   
(9,691
)
   
     
34,417
     
 
Payments on notes receivable
   
37,197
     
21,683
     
     
(58,880
)
   
 
Other
   
3,164
     
     
(3,164
)
   
     
 
Net cash provided by (used in) investing activities
   
13,247
     
10,605
     
(3,460
)
   
(24,463
)
   
(4,071
)
 
                                       
CASH FLOWS FROM FINANCING ACTIVITIES
                                       
Proceeds from notes payable
   
20,691
     
24,726
     
     
(34,417
)
   
11,000
 
Payments on notes payable
   
(29,683
)
   
(37,197
)
   
     
58,880
     
(8,000
)
Principal payments on capital leases
   
     
(642
)
   
     
     
(642
)
Net cash provided by (used in) financing activities
   
(8,992
)
   
(13,113
)
   
     
24,463
     
2,358
 
Net decrease in cash and cash equivalents
   
(9,444
)
   
     
(2,759
)
   
     
(12,203
)
Cash and cash equivalents, beginning of period
   
22,710
     
     
7,063
     
     
29,773
 
Cash and cash equivalents, end of period
 
$
13,266
   
$
   
$
4,304
   
$
   
$
17,570
 
 
 
 
Three Months Ended March 31, 2014
 
(In thousands)
 
Parent
Company
   
Guarantor
Subsidiaries
   
Non-guarantor
Subsidiaries
   
Eliminations
   
Total
 
CASH FLOWS FROM OPERATING ACTIVITIES:
 
   
   
   
   
 
Net income (loss)
 
$
(3,573
)
 
$
4,177
   
$
1,935
   
$
(6,112
)
 
$
(3,573
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
                                       
Depreciation
   
2,736
     
4,456
     
1,061
     
     
8,253
 
Amortization – deferred financing costs
   
620
     
     
     
     
620
 
Amortization – other intangible assets
   
1,977
     
42
     
     
     
2,019
 
(Gain) loss on disposal of assets
   
(93
)
   
57
     
29
     
     
(7
)
Deferred income taxes
   
182
     
     
     
     
182
 
Non-cash stock-based compensation
   
499
     
     
     
     
499
 
Equity in earnings of subsidiaries and affiliates
   
(5,673
)
   
     
     
5,673
     
-
 
Change in other operating items
   
(8,538
)
   
(14,798
)
   
(613
)
   
439
     
(23,510
)
Net cash provided by (used in) operating activities
   
(11,863
)
   
(6,066
)
   
2,412
     
     
(15,517
)
 
                                       
CASH FLOWS FROM INVESTING ACTIVITIES:
                                       
Purchases of property, plant, and equipment
   
(3,651
)
   
(2,956
)
   
(102
)
   
     
(6,709
)
Proceeds from notes receivable
   
(29,370
)
   
(28,742
)
   
     
58,112
     
 
Payment on notes receivable
   
11,607
     
19,561
     
     
(31,168
)
   
 
Other
   
0
     
1,235
     
     
     
1,235
 
Net cash provided by (used in) investing activities
   
(21,414
)
   
(10,902
)
   
(102
)
   
26,944
     
(5,474
)
 
                                       
CASH FLOWS FROM FINANCING ACTIVITIES
                                       
Proceeds from notes payable
   
38,742
     
29,370
     
     
(58,112
)
   
10,000
 
Payments on notes payable
   
(19,561
)
   
(11,607
)
   
     
31,168
     
 
Other
   
     
(795
)
   
     
     
(795
)
Net Cash provided by (used in) financings activities
   
19,181
     
16,968
     
     
(26,944
)
   
9,205
 
Net increase (decrease) in cash and cash equivalents
   
(14,096
)
   
     
2,310
     
     
(11,786
)
Cash and cash equivalents, beginning of period
   
31,018
     
     
2,408
     
     
33,426
 
Cash and cash equivalents, end of period
 
$
16,922
   
$
   
$
4,718
   
$
   
$
21,640
 



Note 11 – Changes in Accumulated Other Comprehensive Income (Loss) by Component

 
Three Months Ended March 31, 2015
 
(In thousands)
Pension Plan
 
Post Retirement Plan
 
Total
 
Accumulated other comprehensive income (loss) as of December 31, 2014
 
$
(40,160
)
 
$
(9,478
)
 
$
(49,638
)
Amounts reclassified from accumulated other comprehensive income (loss)
   
951
     
323
     
1,274
 
Accumulated other comprehensive income (loss) as of March 31, 2015
 
$
(39,209
)
 
$
(9,155
)
 
$
(48,364
)



 
Three Months Ended March 31, 2014
 
(In thousands)
Pension Plan
 
Post Retirement Plan
 
Total
 
Accumulated other comprehensive income (loss) as of December 31, 2013
 
$
($20,429
)
 
$
$1,717
   
$
($18,712
)
Amounts reclassified from accumulated other comprehensive income (loss)
   
(4
)
   
337
     
333
 
Accumulated other comprehensive income (loss) as of March 31, 2014
 
$
($20,433
)
 
$
$2,054
   
$
($18,379
)


Reclassifications out of Accumulated Other Comprehensive Income (loss):
 
 
 
Three Months Ended March 31, 2015
   
Three Months Ended March 31, 2014
 
(In thousands)
 
Pension Plan
   
Post Retirement
Plan
   
Total
   
Pension Plan
   
Post Retirement
Plan
   
Total
 
Amortization of Pension and Postretirement Plan items
 
   
   
             
Prior Service Costs
 
$
11
   
$
(9
)
 
$
2
   
$
11
   
$
(9
)
 
$
2
 
Actuarial (losses)
   
311
     
101
     
412
     
50
     
77
     
127
 
Foreign currency translation related to pension and postretirement plans
   
885
     
321
     
1,206
     
24
     
269
     
293
 
Total before tax
 
$
1,207
   
$
413
   
$
1,620
   
$
85
   
$
337
   
$
422
 
Tax expense
   
(256
)
   
(90
)
   
(346
)
   
(89
)
   
     
(89
)
Total reclassified for the period
 
$
951
   
$
323
   
$
1,274
   
$
(4
)
 
$
337
   
$
333
 




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

The accompanying unaudited condensed consolidated financial statements are prepared in conformity with U.S. GAAP and such principles are applied on a basis consistent with the information reflected in our Annual Report on Form 10-K for the year ended December 31, 2014 filed with the Securities and Exchange Commission ("SEC").  Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations promulgated by the SEC.  In the opinion of management, the interim financial information includes all adjustments and accruals, consisting primarily of normal recurring adjustments, which are necessary for a fair presentation of results for the respective interim periods.  The results of operations for the three months ended March 31, 2015 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2015 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 a leading North American manufacturer and supplier of commercial vehicle components. Our products include commercial vehicle wheels, wheel-end components and assemblies, and ductile and gray iron castings. We market our products under some of the most recognized brand names in the industry, including Accuride, Gunite, and Brillion. We serve the leading OEMs and their related aftermarket channels in most major segments of the commercial vehicle market, including heavy- and medium-duty trucks, commercial trailers, light trucks, buses, as well as specialty and military vehicles.

Our primary product lines are standard equipment used by many North American heavy- and medium-duty truck OEMs as well as commercial trailer OEMs.

Our diversified customer base includes substantially all of the leading commercial vehicle OEMs, such as Daimler Truck North America, LLC, with its Freightliner and Western Star brand trucks, PACCAR, Inc., with its Peterbilt and Kenworth brand trucks, Navistar, Inc., with its International brand trucks, and Volvo/Mack, with its Volvo and Mack brand trucks. Our primary commercial trailer customers include leading commercial trailer OEMs, such as Great Dane Limited Partnership, Wabash National, Inc., and Utility Trailer Manufacturing Company. Our largest aftermarket customer is Advanced Wheel Sales, LLC. Our major light truck customer is General Motors Corporation. Our product portfolio is supported by strong sales, marketing and design engineering capabilities and is manufactured in eight strategically located, technologically-advanced facilities across the United States, Mexico and Canada.

The heavy- and medium-duty truck and commercial trailer markets, the related aftermarket, and the global industrial, construction, and mining markets are the primary drivers of our sales. The commercial vehicle manufacturing and replacement part markets are, in turn, directly influenced by conditions in the North American truck industry and generally by conditions in other industries which indirectly impact the truck industry, such as the home-building industry, and by overall economic growth and consumer spending.  The global industrial, construction, and mining markets are driven by more macro- and global economic conditions, such as coal, oil and gas exploration, demand for mined products that are converted into industrial raw materials such as steel, iron and copper, and global construction trends.  Industry forecasts predict modest growth in class 5-8 commercial vehicle production in 2015 compared to 2014 as customers focus on replacing older commercial vehicles. With respect to trailer production, industry experts also expect year-over-year production in 2015 to increase over 2014.  Industry experts predict flat to marginal growth in the commercial vehicle aftermarket.  Our Brillion castings business, driven more by global industrial, construction, and mining markets expects to face headwinds from broader economic weakness, particularly in the oil and gas end-markets that it serves.

Our markets and those of our customers are becoming increasingly competitive as the global and North American economic recoveries remain modest.  In the North American commercial vehicle market, OEMs are competing to maintain or increase market share in the face of evolving emissions regulations, increasing customer emphasis on light weight and fuel efficient platforms and an economic recovery that is holding new equipment purchases at or near replacement levels.  Shifts in the market share held by each of our OEM customers impact our business to varying degrees depending on whether our products are designated as standard or optional equipment on the various platforms at each OEM.  Approximately 70 percent of our wheel business is tied to the OEM market with the remaining 30 percent tied to the aftermarket.  We are also continuing to see the impacts of low cost country sourced products in our markets, which has particularly impacted the aftermarket for steel wheels and brake drums.  Approximately 75 percent of our Gunite business is tied to the North American Aftermarket, with the remaining 25 percent tied to the North American Class 8 segment. Further, broader economic weaknesses in industrial manufacturing impacted our Brillion business through reduced customer orders beginning in March 2015.  We expect that recent substantial reductions in commodity prices will reduce demand in Brillion's end markets in 2015. 

In response to these conditions, we are working to continue to increase our market share and to control costs while positioning our businesses to compete at current demand levels and maintain capacity to meet further recoveries in our markets.  We continue to implement lean manufacturing practices across our facilities, which have resulted in significant reductions in working capital.  These reductions have freed up cash for other opportunities and priorities.  We are also committed and focused on driving these lean practices into our functional/administrative areas.  We have completed substantially all of our previously disclosed capital investment projects that have selectively increased our manufacturing capacity on core products, reduced labor and manufacturing costs and improved product quality.  Additionally, we have introduced and will continue to develop and roll-out new products and technologies that we believe offer better value to customers.  Further, we have been pursuing new business opportunities with both OEM and aftermarket customers and will work towards increasing our market share at OEMs by developing our relationships with large fleets in order to "pull through" our products when they order new equipment.  We continue to monitor competition from products manufactured in low cost countries and will take steps to combat unfair trade practices, as warranted, such as filing anti-dumping petitions with the United States government.

We believe that cash from operations, existing cash reserves, and our ABL revolving credit facility will provide adequate funds for our working capital needs, planned capital expenditures and cash interest payments through 2015 and the foreseeable future.

Results of Operations

The following tables set forth certain income statement information for Accuride for the three months ended March 31, 2015 and March 31, 2014:

   
Three Months Ended March 31,
 
(In thousands)
 
2015
   
2014
 
Net sales
 
$
183,659
   
$
166,784
 
Cost of goods sold
   
162,728
     
149,761
 
Gross profit
   
20,931
     
17,023
 
Operating expenses
   
11,603
     
10,454
 
Income from operations
   
9,328
     
6,569
 
Interest expense, net
   
(8,350
)
   
(8,420
)
Other loss, net
   
(1,172
)
   
(530
)
Income tax provision
   
386
     
904
 
Loss from continuing operations
   
(580
)
   
(3,285
)
Discontinued operations, net of tax
   
(8
)
   
(288
)
Net Loss
 
$
(588
)
 
$
(3,573
)
 
Net Sales

 
 
Three Months Ended March 31,
 
(In thousands)
 
2015
   
2014
 
Wheels
 
$
108,336
   
$
92,218
 
Gunite
   
37,740
     
43,973
 
Brillion
   
37,583
     
30,593
 
Total
 
$
183,659
   
$
166,784
 

Net sales for the three months ended March 31, 2015, were $183.7 million, which was an increase of 10.1 percent, compared to net sales of $166.8 million for the three months ended March 31, 2014.  Of the total increase, approximately $14.8 million was a result of an increase in volume demand due to increased production levels in the commercial vehicle market and its aftermarket segments in North America.  The increased commercial vehicle demand is a result of continued recovery of the commercial vehicle end-market.  The remaining $2.1 million increase in net sales was related to pricing, which primarily represented a pass-through of fluctuating raw material and commodity costs.

Net sales for our Wheels segment increased 17.5 percent during the three months ended March 31, 2015 compared to the same period in 2014 primarily due to increased production volume from our OEM customers and increased demand from aftermarket customers.  Net sales for our Gunite segment decreased 14.2 percent due to decreased demand in the OEM and aftermarket for brake drums and hubs.  Our Gunite products have a higher concentration of aftermarket demand, primarily due to the brake drum products that Gunite produces, which are replaced more often than our other products.  Our Brillion segment's net sales increased by 22.9 percent due to a higher demand in the industrial and oil and gas markets.  We do not expect the trend for Brillion to continue due to the recently reduced demand for products that serve the oil and gas market.


North American commercial vehicle industry production builds as reported by ACT Publications were as follows:

 
For the Three Months ended March 31,
 
2015
 
2014
Class 8
79,320
 
66,833
Classes 5-7
56,646
 
50,315
Trailer
73,987
 
57,924

While we serve the commercial vehicle aftermarket segment, there is no industry data to compare our aftermarket sales to industry demand from period to period. We expect to continue to experience increased competition from low-cost country sourced products that compete with products produced by our Wheels and Gunite operating segments. Approximately 70 percent of our Wheels business is tied to the OEM markets, with the remaining 30 percent tied to the aftermarket. Approximately 75 percent of our Gunite business is tied to the North American Aftermarket, with the remaining 25 percent tied to the North American Class 8 segment. We expect relative softness in Brillion's end markets for the remainder of 2015 given the current outlook on commodity pricing.  

Cost of Goods Sold

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

 
 
Three Months Ended March 31,
 
(In thousands)
 
2015
   
2014
 
Raw materials
 
$
83,902
   
$
73,979
 
Depreciation
   
8,541
     
8,237
 
Labor and other overhead
   
70,285
     
67,545
 
Total
 
$
162,728
   
$
149,761
 

Raw materials costs increased by $9.9 million, or 13.4 percent, during the three months ended March 31, 2015 due mainly to increased production volumes with a small portion attributable to higher raw material commodity costs.  

Depreciation increased by $0.3 million, or 3.7 percent during the three months ended March 31, 2015 primarily due to the age of fixed assets in relation to the amount of new capital spending.

Labor and overhead costs increased by $2.7 million, or 4.1 percent, due to increased production partially offset by savings created by operational efficiencies.

Operating Expenses

 
 
Three Months Ended March 31,
 
(In thousands)
 
2015
   
2014
 
Selling, general, and administrative
 
$
7,995
   
$
7,110
 
Research and development
   
1,563
     
1,320
 
Depreciation and amortization
   
2,045
     
2,024
 
Total
 
$
11,603
   
$
10,454
 

Selling, general, and administrative costs increased by $0.9 million in 2015 compared to the same period in 2014.  This increase was related to planned growth in our sales and marketing area coupled with planned year-over-year increases in research and development.


Operating Income (Loss)

 
 
Three Months Ended March 31,
 
(In thousands)
 
2015
   
2014
 
Wheels
 
$
13,252
   
$
9,742
 
Gunite
   
2,741
     
3,278
 
Brillion
   
2,196
     
1,275
 
Corporate/Other
   
(8,861
)
   
(7,726
)
Total
 
$
9,328
   
$
6,569
 

Operating income for the Wheels segment was 12.2 percent of its net sales for the three months ended March 31, 2015 compared to 10.6 percent for the three months ended March 31, 2014.  This increased operating income is a result of the contribution to earnings from the higher revenue in the current period compared to the same period in the prior year slightly offset by negative currency impacts related to re-measurement of foreign non-cash assets.

The operating income for the Gunite segment was 7.3 percent of its net sales for the three months ended March 31, 2015 and 7.5 percent for the three months ended March 31, 2014.  During the three months ended March 31, 2015, Gunite showed lower contribution on decreased sales due mainly to general aftermarket softness in demand.

Operating income for the Brillion segment was 5.8 percent of its net sales for the three months ended March 31, 2015 compared to 4.2 percent for same period in 2014 due to increased gross profit as a result of the contribution to earnings from the higher revenue in the current period compared to the same period in the prior year.  Volume increases were attributable to strong oil and gas related sales in the first quarter of 2015 that is not expected to continue.

The operating losses for the Corporate segment were 4.8 percent of consolidated net sales for the three months ended March 31, 2015 as compared to 4.6 percent for the comparative period in 2014.  This increase was related to planned growth in our sales and marketing area as well as, research and development.

Interest Expense

Net interest expense remained flat at $8.4 million for the three months ended March 31, 2015 and March 31, 2014.

Income Tax Provision

We recognized income tax expense of $0.4 million in the three months ended March 31, 2015, compared to income tax expense of $0.9 million for the three months ended March 31, 2014.

Our effective tax rate is (199.0) percent and (38.0) percent for the three months ended March 31, 2015 and 2014, respectively.  The effective tax rate for the quarter is impacted by the relative impact of discrete items, which are accounted for as they occur, as well as the recognition of a full valuation against deferred tax assets for our U.S. operations.

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 income, and the uncertainty of our financial outlook, we continue to maintain a full valuation allowance against our domestic deferred tax assets.

Changes in Financial Condition

As of March 31, 2015, we had total assets of $598.9 million, compared to total assets of $598.4 million at December 31, 2014.  The $0.5 million, or 0.1%, increase in total assets primarily resulted from changes in working capital, offset by a decrease in noncurrent assets. 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 define working capital as current assets (excluding cash) less current liabilities.  We require working capital investment to maintain our position as a leading manufacturer and supplier of commercial vehicle components.  We continue to strive to align our working capital investment with our customers' purchase requirements and our production schedules.


The following table summarizes the major components of our working capital as of the periods listed below:

(In thousands)
 
March 31, 2015
   
December 31, 2014
 
Accounts receivable
 
$
82,665
   
$
63,570
 
Inventories
   
41,963
     
43,065
 
Deferred income taxes (current)
   
2,687
     
2,687
 
Other current assets
   
10,445
     
10,785
 
Accounts payable
   
(65,051
)
   
(56,452
)
Accrued payroll and compensation
   
(7,898
)
   
(10,620
)
Accrued interest payable
   
(5,122
)
   
(12,428
)
Accrued workers compensation
   
(2,945
)
   
(3,137
)
Other current liabilities
   
(13,414
)
   
(14,434
)
Working capital
 
$
43,330
   
$
23,036
 

Significant changes in working capital included:

an increase in receivables of $19.1 million due to the comparative increase in revenue in the months leading up to the respective period-end dates;
an decrease in inventory of $1.1 million due to lean initiatives;
an increase in accounts payable of $8.6 million primarily due to timing of purchases leading into the end of the respective periods; and
a decrease in interest payable of $7.3 million primarily due the semi-annual interest payment in February.

Capital Resources and Liquidity

Our primary sources of liquidity during the three months ended March 31, 2015 were cash from operations and cash reserves offset by a payment on our ABL Facility.  We believe that cash from operations, existing cash reserves, and our ABL facility will provide adequate funds for our working capital needs, planned capital expenditures and cash interest payments through 2014 and the foreseeable future.

As of March 31, 2015, we had $17.6 million of cash plus $53.3 million in availability under our ABL Facility for a total liquidity of $70.9 million.  As of December 31, 2014, we had $29.8 million in cash plus $40.5 million in availability under our ABL credit facility for total liquidity of $70.3 million.