10-Q 1 acw16-110q1.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, 2016.

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 28, 2016, 48,244,674 shares of Accuride Corporation common stock, par value $0.01 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, 2016
 
December 31, 2015
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
18,456
 
$
29,759
Customer receivables, net of allowance for doubtful accounts of $1,445 and $1,285 in 2016 and 2015, respectively
 
65,046
 
 
58,866
Other receivables
 
7,229
 
 
7,114
Inventories
 
40,923
 
 
47,792
Prepaid expenses and other current assets
 
7,849
 
 
8,399
Total current assets
 
139,503
 
 
151,930
PROPERTY, PLANT AND EQUIPMENT, net
 
220,472
 
 
224,762
OTHER ASSETS:
 
 
 
 
 
Goodwill
 
96,283
 
 
96,283
Other intangible assets, net
 
109,722
 
 
111,791
Deferred financing costs, net of accumulated amortization of $3,178 and $3,073 in 2016 and 2015, respectively
 
872
 
 
977
Deferred income taxes
 
828
 
 
741
Pension asset
 
13,882
   
12,060
Other
 
5,108
 
 
5,075
TOTAL
$
586,670
 
$
603,619
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 
 
Accounts payable
$
59,701
 
$
71,782
Accrued payroll and compensation
 
11,262
 
 
9,232
Accrued interest payable
 
5,124
 
 
12,521
Accrued workers compensation
 
2,749
 
 
3,133
Short-term debt obligations
 
8,689
   
10,286
Accrued and other liabilities
 
13,273
 
 
14,944
Total current liabilities
 
100,798
 
 
121,898
LONG-TERM DEBT
 
315,020
 
 
304,254
DEFERRED INCOME TAXES
 
13,310
 
 
13,133
NON-CURRENT INCOME TAXES PAYABLE
 
6,676
 
 
6,676
OTHER POSTRETIREMENT BENEFIT PLAN LIABILITY
 
50,720
 
 
49,734
PENSION BENEFIT PLAN LIABILITY
 
25,151
 
 
26,545
OTHER LIABILITIES
 
9,761
 
 
10,525
COMMITMENTS AND CONTINGENCIES (Note 7)
 
 
 
STOCKHOLDERS' EQUITY:
 
 
 
 
 
Preferred Stock, $0.01 par value; 10,000,000 shares authorized
 
 
 
Common Stock, $0.01 par value; 80,000,000 shares authorized, 48,244,674 and 47,953,555 shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively, and additional paid-in-capital
 
444,605
 
 
444,253
Accumulated other comprehensive loss
 
(18,174)
 
 
(17,425)
Accumulated deficiency
 
(374,568)
 
 
(369,824)
Total stockholders' equity
 
51,863
 
 
57,004
Noncontrolling interest
 
13,371
 
 
13,850
Total equity
 
65,234
   
70,854
TOTAL
$
586,670
 
$
603,619

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)
2016
 
2015
 
 
 
 
NET SALES
$
160,942
 
$
183,659
COST OF GOODS SOLD
 
145,643
 
 
162,728
GROSS PROFIT
 
15,299
 
 
20,931
OPERATING EXPENSES:
 
 
 
 
 
Selling, general and administrative
 
12,881
 
 
11,603
INCOME FROM OPERATIONS
 
2,418
 
 
9,328
OTHER INCOME (EXPENSE):
 
 
 
 
 
Interest expense, net
 
(8,401)
 
 
(8,350)
Other income (loss), net
 
1,061
 
 
(1,172)
LOSS BEFORE INCOME TAXES FROM CONTINUING OPERATIONS
 
(4,922)
 
 
(194)
INCOME TAX PROVISION
 
301
 
 
386
LOSS FROM CONTINUING OPERATIONS
 
(5,223)
 
 
(580)
DISCONTINUED OPERATIONS, NET OF TAX
 
 
 
(8)
NET LOSS
 
(5,223)
 
 
(588)
NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST
 
(479)
   
NET LOSS ATTRIBUTABLE TO STOCKHOLDERS
$
(4,744)
 
$
(588)
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX:
 
 
 
 
 
Amounts reclassified from accumulated other income
 
(749)
 
 
1,274
COMPREHENSIVE (LOSS) INCOME
$
(5,493)
 
$
686
           
Loss per common share:
         
Amounts attributable to stockholders:
         
Loss from continuing operations, net of tax
$
(4,744)
 
$
(580)
Discontinued operations, net of tax
 
   
(8)
Net loss attributable to stockholders
$
(4,744)
 
$
(588)
           
Weighted average common shares outstanding-basic
 
48,100
 
 
47,822
Basic loss attributable to stockholders
         
Basic loss per common share-continuing operations
$
(0.10)
 
$
(0.01)
Basic loss per common share-discontinued operations
 
 
 
Basic loss per common share
$
(0.10)
 
$
(0.01)
Weighted average common shares outstanding-diluted
 
48,100
 
 
47,822
Diluted loss attributable to stockholders
         
Diluted loss per common share-continuing operations
$
(0.10)
 
$
(0.01)
Diluted loss per common share-discontinued operations
 
 
 
Diluted loss per common share
$
(0.10)
 
$
(0.01)


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
 
 
 
 
 
 
 
Noncontrolling Interest
 
Total
Stockholders'
Equity
BALANCE—January 1, 2016
$
444,253
 
$
(17,425)
 
$
(369,824)
 
$
13,850
 
$
70,854
Net loss
 
 
 
 
 
(4,744)
   
(479)
 
 
(5,223)
Share-based compensation expense
 
614
 
 
 
 
   
 
 
614
Tax impact of forfeited vested shares
 
(262)
 
 
 
 
   
 
 
(262)
Other comprehensive loss
 
 
 
(749)
 
 
   
 
 
(749)
BALANCE—March 31, 2016
$
444,605
 
$
(18,174)
 
$
(374,568)
 
$
13,371
 
$
65,234

(In thousands)
Common
Stock and
Additional
Paid-in-
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Accumulated
Deficiency
 
 
 
 
 
 
 
Noncontrolling Interest
 
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)
2016
 
2015
 
 
 
 
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net loss
$
(5,223)
 
$
(588)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
 
 
Depreciation of property, plant and equipment
 
8,946
 
 
8,557
Amortization – deferred financing costs and debt discount
 
621
 
 
620
Amortization – other intangible assets
 
2,069
 
 
2,039
Loss (Gain) on disposal of assets
 
99
 
 
(1)
Provision for deferred income taxes
 
14
 
 
30
Non-cash share-based compensation
 
614
 
 
663
Changes in certain assets and liabilities:
 
 
 
 
 
Receivables
 
(6,295)
 
 
(19,095)
Inventories
 
6,869
 
 
1,102
Prepaid expenses and other assets
 
(1,010)
 
 
919
Accounts payable
 
(8,104)
 
 
8,349
Accrued and other liabilities
 
(9,168)
 
 
(13,085)
Net cash used in operating activities
 
(10,568)
 
 
(10,490)
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
Purchases of property, plant and equipment
 
(8,732)
 
 
(4,071)
Net cash used in investing activities
 
(8,732)
 
 
(4,071)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
Proceeds from revolver
 
18,399
 
 
11,000
Payments on revolver
 
(9,746)
   
(8,000)
Principal payments on capital leases
 
(656)
   
(642)
Net provided by financing activities
 
7,997
 
 
2,358
NET DECREASE IN CASH AND CASH EQUIVALENTS
 
(11,303)
 
 
(12,203)
CASH AND CASH EQUIVALENTS—Beginning of period
 
29,759
 
 
29,773
CASH AND CASH EQUIVALENTS—End of period
$
18,456
 
$
17,570
 
 
 
 
 
 
Supplemental cash flow information:
 
 
 
 
 
Cash paid for interest
$
15,209
 
$
15,017
Cash paid for income taxes
$
278
 
$
952
Non-cash transactions:
 
 
 
 
 
Purchases of property, plant and equipment in accounts payable
$
2,314
 
$
2,643
 
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.  

The results of operations for the three months ended March 31, 2016 are not necessarily indicative of the results to be expected for the year ending December 31, 2016.  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, 2015.

Noncontrolling Minority Interest—Noncontrolling interests represent ownership interest in the Company's majority-owned subsidiary, Gianetti, held by third parties. Noncontrolling minority interest is recognized as a component of equity in the Company's consolidated balance sheets and as net income (loss) attributable to noncontrolling interest in the consolidated statements of operations and comprehensive income (loss) and is captured within the summary of changes in equity attributable to controlling and noncontrolling interest. 

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 attributable to stockholders were computed as follows:
 
 
Three Months Ended March 31,
(In thousands except per share data)
2016
 
2015
 Numerator:
 
 
 
 
 
     Loss from continuing operations
$
(4,744)
 
$
(580)
     Income (Loss) from discontinued operations
 
 
 
(8)
     Net loss
$
(4,744)
 
$
(588)
Denominator:
 
 
 
 
 
     Weighted average shares outstanding – Basic
 
48,100
 
 
47,822
     Weighted average shares outstanding - Diluted
 
48,100
 
 
47,822
 
 
 
 
 
 
Basic loss per common share:
 
 
 
 
 
     From continuing operations
$
(0.10)
 
$
(0.01)
     From discontinued operations
 
 
 
     Basic loss per common share
$
(0.10)
 
$
(0.01)
 
 
 
 
 
 
Diluted loss per common share
 
 
 
 
 
     From continuing operations
$
(0.10)
 
$
(0.01)
     From discontinued operations
 
 
 
     Diluted loss per common share
$
(0.10)
 
$
(0.01)

As of March 31, 2016, there were options exercisable for 138,231 shares that were not included in the computation of diluted earnings per share because the effect would be anti-dilutive.  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.


Share-Based Compensation  Compensation expense for share-based compensation programs recognized as a component of operating expenses was $0.6 million and $0.7 million for the three months ended March 31, 2016 and March 31, 2015, respectively.
 
As of March 31, 2016, there was approximately $4.0 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 2.0 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 (benefit) 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.
 
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. 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.


New 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.

On August 12, 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606):  Deferral of the Effective Date".  The amendments in this update defer the effective date of Update 2014-09 for all entities by one year. 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 July 22, 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. The FASB is using this update as part of its Simplification Initiative. The amendments in this update more closely align the measurement of inventory in GAAP with the measurement of Inventory in IFRS. This amendment is for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The amendment should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is evaluating the effect, if any, on its financial statements.

On January 5, 2016, the FASB issued ASU 2016-01. Financial Instructions-Overall (Topic 825-10).  The amendments in this update address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This amendment is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is evaluating the effect, if any, on its financial statements.

On February 25, 2016, the FASB issued ASU 2016-02, Leases (Topic 842).  The amendments in this update will increase the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This amendment is effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. The Company is evaluating the effect, if any, on its financial statements.

On March 17, 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606).  The amendments in this update clarify the implementation guidance on principal versus agent considerations. The amendments in this update are effective and the transition requirements are the same as the effective date and transition requirements of Update 2014-09.  The Company is evaluating the effect, if any, on its financial statements.

On March 30, 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensations (Topic 718).  The amendments in this update are intended to simplify accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in this update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods.  Early adoption is permitted.  The Company is evaluating the effect, if any, on its financial statements.

Recent Accounting Adoptions – On June 19, 2014, the FASB issued 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.  This amendment did not have a material effect on the 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. This amendment did not have a material effect on the financial statements.
 
On April 15, 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. This amendment did not have a material effect on the financial statements.

On April 7, 2015, the FASB issued ASU 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. FASB is issuing this update as part of its initiative to reduce complexity in accounting standards (the Simplification Initiative). To simplify presentation of debt issuance costs, the amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.

At the June 18, 2015, EITF meeting, the SEC staff clarified that the ASU does not address issuance costs associated with revolving-debt arrangements and announced that it would not object to an entity deferring and presenting [such] costs as an asset and subsequently amortizing the costs ratably over the term of the revolving debt arrangement. Based in the SEC staff's comments, the Company has elected to recognize costs incurred in connection with the revolving ABL Credit Agreement as deferred and presented as an asset. These deferred financing costs are subsequently amortized over the life of the related debt using the effective interest method. Deferred financing costs net of accumulated amortization associated with the revolving ABL credit facility as of March 31, 2016 and December 31, 2015 were $0.9  million and $1.0 million respectively.

The Company has recently adopted ASU 2015-03, therefore costs relating to obtaining the Senior Secured Notes ("the Notes") which are capitalized and amortized over the term of the related debt using the effective interest method have been reclassified to Long Term Debt in the accompanying condensed consolidated balance sheets. The prior year consolidated balance sheet has been adjusted to conform to the current year presentation, in accordance with the retroactive requirements of ASU 2015-03.  These deferred financing costs net of accumulated amortization associated with the Notes as of March 31, 2016 and December 31, 2015 were $2.8 million and $3.1 million respectively.

Note 2 - Acquisitions

On November 3, 2015, Accuride subscribed to a controlling seventy percent (70%) ownership interest in Gianetti Route, S.r.l., an Italian manufacturer of steel wheels for heavy- and medium-duty commercial vehicles and motorcycles ("Gianetti"), in exchange for a commitment to invest €19.75 million ($21.8 million) in Gianetti. The remaining 30% percent ownership interest in Gianetti was retained by MW Italia S.r.l., a subsidiary of Coils Lamiere Nastri - C.L.N. S.p.A.  Accuride contributed €3.75 million ($4.1 million) to Gianetti after closing and has agreed to invest the remaining commitments no later than as follows:  €5.4 million ($5.9 million) in 2016, €9.1 million ($10.1 million) in 2017, and the remainder in 2018.  Accuride will finance its remaining investment in Gianetti through general working capital and availability under its existing credit agreements.  Gianetti's principle manufacturing and engineering facility is located in Ceriano Laghetto, near Milan, Italy. The Company acquired the controlling interest to expand into the European market under its "Grow" strategy. The results of operations have been included in the consolidated financial statements since the date of acquisition.


The following summarizes the allocation of the purchase price (in thousands) to the fair value of the assets and liabilities acquired including noncontrolling interest:

Accounts receivable
$
11,063
Inventory
 
6,571
Other current assets
 
41
Property, plant and equipment
 
21,124
Accounts payable
 
(9,911)
Short term debt
 
(8,406)
Other current liabilities
 
(3,364)
Severance indemnity
 
(2,772)
Long-term debt
 
(66)
Noncontrolling interest
 
(14,280)
Total consideration
$

The pro forma revenue and losses of the combined entity had the acquisition occurred on January 1, 2015 are as follows:

 
Revenue
 
Net Loss
           
Supplemental pro forma financial information for the period ended:
         
March 31, 2015
$
192,046
 
$
(2,860)


Pro forma financial information includes an adjustment for depreciation based on the step up value of property, plant and equipment.

Note 3 – Discontinued Operations

The Company has recognized certain operating results related to its Imperial Group, sold in 2013, and Bostrom, sold in 2011, businesses in Discontinued Operations.

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

 
Three Months Ended March 31,
(In thousands)
2016
 
2015
Net sales
$
 
$
 
 
 
 
 
 
Income (loss) from operations
 
 
 
(10)
Other Income
 
 
 
2
Discontinued operations
$
 
$
(8)

Note 4 - Inventories

Inventories at March 31, 2016 and December 31, 2015, on a first-in, first-out ("FIFO") basis, were as follows:

(In thousands)
March 31, 2016
 
December 31, 2015
Raw materials
$
8,765
 
$
9,836
Work in process
 
12,205
 
 
14,135
Finished manufactured goods
 
19,953
 
 
23,821
Total inventories
$
40,923
 
$
47,792

Note 5 - Goodwill and Other Intangible Assets

The gross goodwill is $163.5 million as of March 31, 2016 and December 31, 2015. The accumulated impairment is $67.3 million for the periods ended March 31, 2016 and December 31, 2015.  As of March 31, 2016 and December 31, 2015, the accumulated impairment is related to our Gunite and Brillion reporting units.  The carrying value of our goodwill at March 31, 2016 and December 31, 2015 of $96.3 million, relates exclusively to our Wheels reporting unit.

The changes in the carrying amount of other intangible assets for the period December 31, 2015 to March 31, 2016, by reportable segment, are as follows:

(In thousands)
Wheels
 
Brillion Iron
Works
 
Gunite
 
Total
Balance as of December 31, 2015
$
107,475
 
$
2,330
 
$
1,986
 
$
111,791
Amortization
 
(1,998)
   
(14)
   
(57)
   
(2,069)
Balance as of March 31, 2016
$
105,477
 
$
2,316
 
$
1,929
 
$
109,722

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
 
Gunite
 
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 summary of other intangible assets is as follows:

 
 
 
As of March 31, 2016
 
As of December 31, 2015
(In thousands)
Weighted
 Average
 Useful
 Lives
 
Gross Amount
 
Accumulated
Amortization/
Impairment
 
Carrying
 Amount
 
Gross Amount
 
Accumulated
 Amortization/
Impairment
 
Carrying
 Amount
Other intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trade names
 
 
$
25,200
 
$
 
$
25,200
 
$
25,200
 
$
 
$
25,200
Technology
 
10.6
 
 
41,273
 
 
27,113
 
 
14,160
 
 
41,273
 
 
26,299
 
 
14,974
Customer relationships
 
16.8
 
 
127,304
 
 
56,942
 
 
70,362
 
 
127,304
 
 
55,687
 
 
71,617
Other intangible assets
 
 
 
$
193,777
 
$
84,055
 
$
109,722
 
$
193,777
 
$
81,986
 
$
111,791

We estimate that our annual amortization expense for our other intangible assets for 2016 will be approximately $8.3 million and $8.3 million annually from 2017 through 2020.

Note 6 - Pension and Other Postretirement Benefit Plans

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

 (In thousands)
Pension Benefits
 
Other Benefits
 
2016
 
2015
 
2016
 
2015
Service cost-benefits earned during the period
$
175
 
$
177
 
$
69
 
$
103
Interest cost on projected benefit obligation
 
1,869
 
 
2,354
 
 
452
 
 
860
Expected return on plan assets
 
(2,739)
 
 
(2,772)
 
 
 
 
Amortization of prior service (credit) cost
 
11
 
 
11
 
 
(371)
 
 
(9)
Amortization of loss
 
178
 
 
311
 
 
77
 
 
101
Total benefits cost (credited) charged to income
$
(506)
 
$
81
 
$
227
 
$
1,055

As of March 31, 2016, $1.5 million has been contributed in 2016 to our sponsored pension plans.  We presently anticipate contributing an additional $3.9 million to fund our pension plans during 2016 for a total of $5.4 million.  

Starting in 2016, we refined the method to estimate the current service cost for pension and other postretirement benefits. Previously, the current service cost was estimated using a single weighted-average discount rate derived from the yield curve used to measure the defined benefit obligation at the beginning of the year. Under the refined method, different discount rates are derived from the same yield curve, reflecting the different timing of benefit payments for past service (the defined benefit obligation) and future service (the current service cost). Differentiating in this way represents a refinement in the basis of estimation applied in prior periods. This change does not affect the measurement of the total defined benefit obligation recorded on the consolidated balance sheet as of December 31, 2015 or any other period. The refinement compared to the previous method resulted in a decrease in the current service cost and interest components with an equal offset to actuarial gains (losses) with no net impact on the total benefit obligation. The refinement did not have a material impact on the March 31, 2016 consolidated statement of operations. This change is accounted for prospectively as a change in accounting estimate.

Note 7 – 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 subject to joint and several liability without regard to fault or the legality of the original conduct 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 offsite disposal locations. Additionally, environmental remediation may be required to address soil and groundwater contamination identified at certain of our facilities.

As of March 31, 2016, we had an environmental reserve of approximately $0.5 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 achieve compliance with emission limits 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.

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, 2016, we had approximately 2,173 employees, of which 516 were salaried employees with the remainder paid hourly. Unions represent approximately 1,465 of our employees, which is approximately 67 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 2016 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 contract at our London, Ontario runs through March 12, 2018. No other collective bargaining agreements expire in 2016.  Our contract at Gianetti expires in October 2017.


Note 8– 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, 2016 was $293.1 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, 2015 was approximately $263.8 million compared to the carrying amount of $304.3 million.  The Company believes the fair value of our variable interest rate Asset Based Loan ("ABL") facility at March 31, 2016 and December 31, 2015 equals the carrying value of $10.3 million, and $0 million, respectively.  As of March 31, 2016 and December 31, 2015 we had no other significant long-term financial instruments.

Note 9 – 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 2015.

 (In thousands)
Three Months Ended March 31,
 
2016
 
2015
 Net sales:
 
 
 
 
 
Wheels
$
105,383
 
$
108,336
Gunite
 
38,713
 
 
37,740
Brillion Iron Works
 
16,846
 
 
37,583
Consolidated total
$
160,942
 
$
183,659
 
 
 
 
 
 
Income (loss) from operations:
 
 
 
 
 
Wheels
$
11,150
 
$
13,252
Gunite
 
3,059
 
 
2,741
Brillion Iron Works
 
(3,369)
 
 
2,196
Corporate / Other
 
(8,422)
 
 
(8,861)
Consolidated total
$
2,418
 
$
9,328

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

 (In thousands)
Three Months Ended March 31,
 
2016
 
2015
Inter-segment sales
$
869
 
$
2,175


 
As of
(In thousands)
March 31, 2016
 
December 31, 2015
Total assets:
 
 
 
Wheels
$
468,498
 
$
469,405
Gunite
 
55,830
 
 
62,045
Brillion Iron Works
 
46,219
 
 
45,303
Corporate / Other
 
16,123
 
 
26,866
Consolidated total
$
586,670
 
$
603,619

Note 10 - Debt

As of March 31, 2016, total debt was $323.7 million, consisting of $304.7 million of our outstanding 9.5% senior secured notes, net of discount and debt issuance costs, $8.7 million in short term obligations related to our majority interest in Gianetti and $10.3 million drawn on our ABL Credit Facility. As of March 31, 2016, Accuride had $18.5 million of cash plus $43.3 million in availability under its ABL Credit Facility for total liquidity of $61.8 million.  As of December 31, 2015, total debt was $314.5 million, consisting of $304.3 million of our outstanding 9.5% senior secured notes, net of discount and debt issuance costs and $10.3 million in short term obligations related to our majority interest in Gianetti.  As of December 31, 2015, Accuride had $29.8 million of cash plus $46.8 million in availability under its ABL Credit Facility for total liquidity of $76.6 million.  
 
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 in a compliance period during the next twelve months.  However, we continue to operate in a challenging commercial environment and our ability to maintain liquidity and comply with our debt covenants may be affected by changes in 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, or an unused line 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 applicable.


Note 11 – 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, 2016
(In thousands)
Parent
 
Guarantor Subsidiaries
 
Non-guarantor Subsidiaries
 
Eliminations
 
Total
ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
3,051
 
$
 
$
15,405
 
$
 
$
18,456
Customer and other receivables, net
 
41,481
 
 
16,597
 
 
14,197
 
 
 
 
72,275
Intercompany receivable (payable)
 
(15,807)
 
 
199,542
 
 
86,060
 
 
(269,795)
 
 
Inventories
 
14,850
 
 
17,185
 
 
8,892
 
 
(4)
 
 
40,923
Other current assets
 
5,369
 
 
1,641
 
 
839
 
 
 
 
7,849
Total current assets
 
48,944
 
 
234,965
 
 
125,393
 
 
(269,799)
 
 
139,503
Property, plant and equipment, net
 
76,787
 
 
93,203
 
 
50,482
 
 
 
 
220,472
Goodwill
 
96,283
 
 
 
 
 
 
 
 
96,283
Other intangible assets, net
 
107,406
 
 
2,316
 
 
 
 
 
 
109,722
Investments in and advances to subsidiaries and affiliates
 
220,697
 
 
 
 
 
 
(220,697)
 
 
Deferred income taxes
 
39,511
 
 
 
 
828
 
 
(39,511)
 
 
828
Other non-current assets
 
7,995
 
 
345
 
 
16,813
 
 
(5,291)
 
 
19,862
TOTAL
$
597,623
 
$
330,829
 
$
193,516
 
$
(535,298)
 
$
586,670
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
$
14,069
 
$
27,236
 
$
18,396
 
$
 
$
59,701
Intercompany payable
 
94,497
 
 
139,815
 
 
35,487
 
 
(269,799)
 
 
Accrued payroll and compensation
 
2,778
 
 
5,335
 
 
3,149
 
 
 
 
11,262
Accrued interest payable
 
5,124
 
 
 
 
 
 
 
 
5,124
Accrued and other liabilities
 
8,689
 
 
8,625
 
 
12,688
 
 
(5,291)
 
 
24,711
Total current liabilities
 
125,157
 
 
181,011
 
 
69,720
 
 
(275,090)
 
 
100,798
Long term debt
 
314,954
 
 
 
 
66
 
 
 
 
315,020
Deferred and non-current income taxes
 
65,955
 
 
(5,804)
 
 
(654)
 
 
(39,511)
 
 
19,986
Other non-current liabilities
 
26,323
 
 
39,844
 
 
19,465
 
 
 
 
85,632
Stockholders' equity
 
65,234
 
 
115,778
 
 
104,919
 
 
(220,697)
 
 
65,234
TOTAL
$
597,623
 
$
330,829
 
$
193,516
 
$
(535,298)
 
$
586,670

 
December 31, 2015
(In thousands)
Parent
 
Guarantor Subsidiaries
 
Non-guarantor Subsidiaries
 
Eliminations
 
Total
ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
12,127
 
$
 
$
17,632
 
$
 
$
29,759
Customer and other receivables, net
 
34,900
 
 
14,348
 
 
16,366
 
 
366
 
 
65,980
Intercompany receivable (payable)
 
123,479
 
 
67,504
 
 
58,430
 
 
(249,413)
 
 
Inventories
 
20,352
 
 
19,169
 
 
8,637
 
 
(366)
 
 
47,792
Other current assets
 
3,689
 
 
2,957
 
 
1,753
 
 
 
 
8,399
Total current assets
 
194,547
 
 
103,978
 
 
102,818
 
 
(249,413)
 
 
151,930
Property, plant and equipment, net
 
78,527
 
 
95,526
 
 
50,709
 
 
 
 
224,762
Goodwill
 
96,283
 
 
 
 
 
 
 
 
96,283
Other intangible assets, net
 
109,461
 
 
2,330
 
 
 
 
 
 
111,791
Investments in and advances to subsidiaries and affiliates
 
221,676
 
 
 
 
 
 
(221,676)
 
 
Other non-current assets
 
2,806
 
 
345
 
 
15,702
 
 
 
 
18,853
TOTAL
$
703,300
 
$
202,179
 
$
169,229
 
$
(471,089)
 
$
603,619
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
$
18,239
 
$
35,890
 
$
17,653
 
$
 
$
71,782
Intercompany payable
 
239,042
 
 
 
 
10,371
 
 
(249,413)
 
 
Accrued payroll and compensation
 
1,485
 
 
5,448
 
 
2,299
 
 
 
 
9,232
Accrued interest payable
 
12,521
 
 
 
 
 
 
 
 
12,521
Accrued and other liabilities
 
4,549
 
 
8,792
 
 
15,022
 
 
 
 
28,363
Total current liabilities
 
275,836
 
 
50,130
 
 
45,345
 
 
(249,413)
 
 
121,898
Long term debt
 
304,188
 
 
 
 
66
 
 
 
 
304,254
Deferred and non-current income taxes
 
17,969
 
 
(4,754)
 
 
(82)
 
 
 
 
13,133
Other non-current liabilities
 
34,453
 
 
40,575
 
 
18,452
 
 
 
 
93,480
Stockholders' equity
 
70,854
 
 
116,228
 
 
105,448
 
 
(221,676)
 
 
70,854
TOTAL
$
703,300
 
$
202,179
 
$
169,229
 
$
(471,089)
 
$
603,619


CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 
Three Months Ended March 31, 2016
(In thousands)
Parent
 
Guarantor
Subsidiaries
 
Non-guarantor
Subsidiaries
 
Eliminations
 
Total
Net sales
$
111,644
 
$
59,243
 
$
33,883
 
$
(43,828)
 
$
160,942
Cost of goods sold
 
95,662
 
 
59,484
 
 
34,321
 
 
(43,824)
 
 
145,643
Gross profit (loss)
 
15,982
 
 
(241)
 
 
(438)
 
 
(4)
 
 
15,299
Operating expenses
 
12,300
 
 
(66)
 
 
647
 
 
 
 
12,881
Income (loss) from operations
 
3,682
 
 
(175)
 
 
(1,085)
 
 
(4)
 
 
2,418
Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income (expense), net
 
(8,897)
 
 
29
 
 
467
 
 
 
 
(8,401)
Equity in earnings of subsidiaries
 
106
 
 
 
 
 
 
(106)
 
 
Other expense, net
 
414
 
 
 
 
647
 
 
 
 
1,061
Income (loss) before income taxes
 
(4,695)
 
 
(146)
 
 
29
 
 
(110)
 
 
(4,922)
Income tax provision
 
49
 
 
 
 
252
 
 
 
 
301
Net loss
 
(4,744)
   
(146)
   
(223)
   
(110)
   
(5,223)
Loss attributable to noncontrolling interest
 
   
   
(479)
   
   
(479)
Net loss attributable to stockholders
$
(4,744)
 
$
(146)
 
$
256
 
$
(110)
 
$
(4,744)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss)
$
(5,493)
 
$
(450)
 
$
(136)
 
$
586
 
$
(5,493)
 
 
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  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)
Loss attributable to noncontrolling interest
 
   
   
   
   
Net income (loss)
$
(588)
 
$
6,775
 
$
1,139
 
$
(7,914)
 
$
(588)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss)
$
686
 
$
6,865
 
$
2,301
 
$
(9,166)
 
$
686



CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

 
Three Months Ended March 31, 2016
(In thousands)
Parent
 Company
 
Guarantor
 Subsidiaries
 
Non-guarantor
 Subsidiaries
 
Eliminations
 
Total
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
 
Net loss
$
(4,744)
 
$
(146)
 
$
(223)
 
$
(110)
 
$
(5,223)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation
 
3,052
 
 
4,671
 
 
1,223
 
 
 
 
8,946
Amortization – deferred financing costs
 
621
 
 
 
 
 
 
 
 
621
Amortization – other intangible assets
 
2,055
 
 
14
 
 
 
 
 
 
2,069
Loss (gain) on disposal of assets
 
146
 
 
(133)
 
 
86
 
 
 
 
99
Deferred income taxes
 
14
 
 
 
 
 
 
 
 
14
Non-cash share-based compensation
 
614
 
 
 
 
 
 
 
 
614
Equity in earnings of subsidiaries and affiliates
 
(106)
 
 
 
 
 
 
106
 
 
Change in other operating items
 
(29,901)
 
 
11,962
 
 
227
 
 
4
 
 
(17,708)
Net cash provided by (used in) operating activities
 
(28,249)
 
 
16,368
 
 
1,313
 
 
 
 
(10,568)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Purchases of property, plant, and equipment
 
(2,632)
 
 
(4,157)
 
 
(1,943)
 
 
 
 
(8,732)
Proceeds from notes receivable
 
(7)
 
 
(3,130)
 
 
 
 
3,137
 
 
Payments on notes receivable
 
9,686
 
 
1,254
 
 
 
 
(10,939)
 
 
Other
 
1,597
 
 
 
 
(1,597)
 
 
 
 
Net cash provided by (used in) investing activities
 
8,644
 
 
(6,033)
 
 
(3,540)
 
 
(7,802)
 
 
(8,732)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from notes payable
 
21,529
 
 
7
 
 
 
 
(3,137)
 
 
18,399
Payments on notes payable
 
(11,000)
   
(9,686)
   
   
10,939
   
(9,746)
Principal payments on capital leases
 
 
 
(656)
 
 
 
 
 
 
(656)
Net cash provided by (used in) financing activities
 
10,529
 
 
(10,335)
 
 
 
 
7,802
 
 
7,997
Net decrease in cash and cash equivalents
 
(9,076)
 
 
 
 
(2,227)
 
 
 
 
(11,303)
Cash and cash equivalents, beginning of period
 
12,127
 
 
 
 
17,632
 
 
 
 
29,759
Cash and cash equivalents, end of period
$
3,051
 
$
 
$
15,405
 
$
 
$
18,456
 
 
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
(Gain) loss on disposal of assets
 
17
 
 
(18)
 
 
 
 
 
 
(1)
Deferred income taxes
 
30
 
 
 
 
 
 
 
 
30
Non-cash share-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
   
Payment 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)
Other
 
   
(642)
   
   
   
(642)
Net cash provided by (used in) financings 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


Note 12 – Changes in Accumulated Other Comprehensive Income (Loss) by Component


 
(In thousands)
Pension Plan
 
Post Retirement
Plan
 
 
 
 
 
Foreign Exchange
 
Total
Balance as of December 31, 2015
$
(35,355)
 
$
17,855
 
$
75
 
$
(17,425)
Amounts reclassified from accumulated other comprehensive loss:
                     
Actuarial costs (reclassified to salaries, wages, and benefits)
 
168
 
 
(271)
   
 
 
(103)
Prior service costs (reclassified to salaries, wages, and benefits)
 
11
   
(30)
   
   
(19)
Foreign currency translation
 
(628)
   
(222)
   
14
   
(836)
Tax expense
 
157
 
 
52
   
 
 
209
Other comprehensive income (loss), net of tax
 
(292)
   
(471)
   
14
   
(749)
Balance as of March 31, 2016
$
(35,647)
 
$
17,384
 
$
89
 
$
(18,174)


(In thousands)
Pension Plan
 
Post Retirement
Plan
 
Total
Balance as of December 31, 2014
$
(40,160)
 
$
(9,478)
 
$
(49,638)
Amounts reclassified from accumulated other comprehensive loss:
               
Actuarial costs (reclassified to salaries, wages, and benefits)
 
311
 
 
101
 
 
412
Prior service costs (reclassified to salaries, wages, and benefits)
 
11
   
(9)
   
2
Foreign currency translation related to pension and postretirement plans
 
885
   
321
   
1,206
Tax expense
 
(256)
 
 
(90)
 
 
(346)
Other comprehensive income (loss), net of tax
 
951
   
323
   
1,274
Balance as of March 31, 2015
$
(39,209)
 
$
(9,155)
 
$
(48,364)

Certain of our post-retirement benefit programs were re-measured as of May 31, 2015 and October 1, 2015 to reflect post-65 health benefits transitioning from a self-insured plan to a Medicare Advantage Plan. The transition to the Medicare Advantage plan provides comparable benefits while taking advantage of certain government subsidies which help manage the continually rising costs of medical and prescription drug coverage.

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, 2015 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, 2016 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2016 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 believe we are one of the largest manufacturers and suppliers of commercial vehicle components in North America and are one of the leading steel wheel manufacturers in Europe. 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, Brillion, and Gianetti. 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 and European heavy- and medium-duty truck OEMs.

Our diversified customer base includes a large number of the leading commercial vehicle OEMs, such as Daimler Truck North America, LLC ("DTNA"), 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 Group North America, with its Volvo and Mack brand trucks, Daimler Trucks Europe, with its Mercedes brand trucks, Volvo Group Europe, with its Volvo and Renault brand trucks, Industrial Vehicle Corporation ("Iveco") with its Iveco brand trucks, and MAN Commercial Vehicles, with its MAN brand trucks. Our primary commercial trailer customers include leading commercial trailer OEMs, such as Great Dane Limited Partnership, Utility Trailer Manufacturing Company, and Wabash National, Inc. Our major light truck customer is General Motors Corporation. Our product portfolio is supported by strong sales, marketing and design engineering capabilities and is manufactured in ten strategically located, technologically advanced facilities across the United States, Canada, Italy and Mexico.

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 and European 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 a decline in North American Class 8 commercial vehicle builds in 2016 compared to 2015. North American medium-duty truck builds are expected to hold steady in 2016 compared to 2015.  With regards to North American trailer production, industry experts expect year-over-year sales to marginally decline in 2016.   Compared to 2015, industry forecasts for 2016 predict a modest increase in the European Heavy- and Medium-Duty commercial vehicle builds and for European trailer builds.  With our core aftermarket business, industry experts predict year-over-year sales that show flat to marginal growth. Our Brillion castings business, which is driven more by global industrial, construction, and mining markets, expects to face continued headwinds in 2016 from broader economic weakness, particularly in the oil and gas, agriculture and global mining end-markets that it serves.

Our markets and those of our customers are becoming increasingly competitive as the global, North American, and European 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 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 global wheel business is tied to the OEM market with the remaining 30 percent tied to the aftermarket.  Approximately 80 percent of our Gunite business is tied to the North American Aftermarket, with the remaining 20 percent tied to the North American Class 8 OEM segment. We are also continuing to see the impact of low cost country sourced products in our markets, which has particularly impacted the aftermarket for steel wheels and brake drums.  Further, broader economic weaknesses in industrial manufacturing, agriculture, mining, and oil and gas exploration impacted our Brillion business through reduced customer orders beginning in March 2015.  We expect that the substantial reductions in commodity prices that occurred in 2015 will continue to impact demand in Brillion's end markets in 2016. 

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 future recoveries in our end markets.  Specifically, we have taken actions to align our cost run-rate to the anticipated lower volumes by adjusting our plant schedules and staffing levels. In addition, we are agressively managing corporate selling, general and administrative spending for 2016, lowering our capital expenditures by $5 million. We also continue to implement lean manufacturing practices across our facilities and our functional/administrative areas, which have resulted in significant reductions in working capital. These reductions have freed up cash for other opportunities and priorities. We have completed all of our previously disclosed capital investment projects in North America 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 fleets 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 2016 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, 2016 and March 31, 2015:

 
Three Months Ended March 31,
(In thousands)
2016
 
2015
Net sales
$
160,942
 
$
183,659
Cost of goods sold
 
145,643
 
 
162,728
Gross profit
 
15,299
 
 
20,931
Operating expenses
 
12,881
 
 
11,603
Income from operations
 
2,418
 
 
9,328
Interest expense, net
 
(8,401)
 
 
(8,350)
Other income (loss), net
 
1,061
 
 
(1,172)
Income tax expense
 
301
 
 
386
Income from continuing operations
 
(5,223)
 
 
(580)
Discontinued operations, net of tax
 
-
 
 
(8)
Net loss
 
(5,223)
   
(588)
Net loss attributable to noncontrolling interest
 
(479)
   
Net loss attributable to stockholders
$
(4,744)
 
$
(588)
 
Net Sales

 
Three Months Ended March 31,
(In thousands)
2016
 
2015
Wheels
$
105,383
 
$
108,336
Gunite
 
38,713
 
 
37,740
Brillion
 
16,846
 
 
37,583
Total
$
160,942
 
$
183,659

Net sales for the three months ended March 31, 2016, were $160.9 million, down $22.7 million, or 12.4 percent, from the same period a year ago.  The decrease, was driven by $19.4 million related to the continued softness in demand at our Brillion business unit, $12.8 million in pricing related to the pass-through of lower raw material costs and $4.9 million due to lower demand in North American wheels. Partially offsetting those decreases were $10.4 million in net sales related to our majority investment in Gianetti Ruote and $4.0 million from increased market share at Gunite.


Net sales for our Wheels segment decreased 2.7 percent during the three months ended March 31, 2016 compared to the same period in 2015 primarily due to decreased production volume from our OEM customers and aftermarket customers, partially offset with new European sales.  Net sales for our Gunite segment increased 2.6 percent primarily due to increased market share of aftermarket drums partially offset by lower year-over-year pricing primarily related to a pass-through of lower raw material and commodity costs.  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 decreased by 55.2 percent due to lower demand in industrial manufacturing, agriculture, mining, and oil and gas markets stemming from recent substantial reductions in commodity prices.

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

 
For the Three Months Ended March 31,
 
2016
 
2015
Class 8
64,027
 
79,320
Classes 5-7
63,798
 
56,646
Trailer
73,754
 
73,987

European commercial vehicle industry production builds as reported by LMC Automotive Limited were as follows:

 
For the Three Months Ended March 31,
 
2016
 
2015
European Heavy Trucks (>16t)
103,740
 
96,321
European Medium Trucks (3.5lt-16t)
23,413
 
22,280
Trailers
76,560
 
70,445

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.  Approximately 70 percent of our global Wheels business is tied to the OEM markets, with the remaining 30 percent tied to the aftermarket. Approximately 80 percent of our Gunite business is tied to the North American Aftermarket, with the remaining 20 percent tied to the North American Class 8 segment. We expect to continue to experience competition from low-cost country sourced products that compete with products produced by our Wheels and Gunite operating segments.  We expect that the substantial reductions in commodity prices that occurred in 2015 will continue to impact demand in Brillion's end markets in 2016.

Cost of Goods Sold

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

 
Three Months Ended March 31,
(In thousands)
2016
 
2015
Raw materials
$
67,167
 
$
83,902
Depreciation
 
8,937
 
 
8,541
Labor and other overhead
 
69,539
 
 
70,285
Total
$
145,643
 
$
162,728

Raw materials costs decreased by $16.7 million, or 19.9 percent, during the three months ended March 31, 2016 due to decreased production volume and decreased raw material commodity costs.    

Labor and overhead costs decreased by $0.7 million, or 1.1 percent, primarily due to decreased demand for our products, coupled with continued efficiencies gained through operational lean manufacturing initiatives. This decrease is partially offset by increases in production at Gianetti.


Operating Expenses

 
Three Months Ended March 31,
(In thousands)
2016
 
2015
Selling, general, and administrative
$
8,653
 
$
7,995
Research and development
 
2,150
 
 
1,563
Depreciation and amortization
 
2,078
 
 
2,045
Total
$
12,881
 
$
11,603

Operating expenses increased by $1.3 million in 2016 compared to the same period in 2015.  This increase was related to selling, general and administrative from Gianetti facility, calendar timing of spending on North America selling, general and administrative costs, year-over-year increases in research and development, one-time severance costs associated with corporate cost reductions, and the continued pursuit of appropriate strategic growth initiatives.

Operating Income (Loss)

 
Three Months Ended March 31,
(In thousands)
2016
 
2015
Wheels
$
11,150
 
$
13,252
Gunite
 
3,059
 
 
2,741
Brillion
 
(3,369)
 
 
2,196
Corporate/Other
 
(8,422)
 
 
(8,861)
Total
$
2,418
 
$
9,328

Operating income for the Wheels segment was 10.6 percent of its net sales for the three months ended March 31, 2016 compared to 12.2 percent for the three months ended March 31, 2015.  This decreased operating income is a result of reduced North American sales and lower margin European sales.

Operating income for the Gunite segment was 7.9 percent of its net sales for the three months ended March 31, 2016 and 7.3 percent for the three months ended March 31, 2015.  During the three months ended March 31, 2016, Gunite showed higher contribution on relatively flat sales due mainly to savings created by operational efficiencies in the form of annual continuous improvement initiatives, coupled with decreased raw material commodity costs.

The operating loss for the Brillion segment was 20.0 percent of its net sales for the three months ended March 31, 2016 compared to 5.8 percent of income for same period in 2015 primarily due to volume decreases resulting from weakening oil and gas, agriculture, and global mining related sales.

The operating loss for the Corporate segment was 5.2 percent of consolidated net sales for the three months ended March 31, 2016 as compared to 4.8 percent for the comparative period in 2015.  This increase was related to calendar timing of spending on North America selling, general, and administrative costs and one-time severance costs associated with corporate cost reductions.

Impairment

During 2015, the Brillion reporting unit experienced declining sales due to the overall market conditions of the industries it serves. Based on Brillion's 2015 financial performance and its end market customer projections as of yearend, management determined that a triggering event had occurred and performed an additional step one goodwill impairment analysis as of December 31, 2015. The Wheels reporting unit passed and the Brillion reporting unit failed the step one test. Brillion's failure of the step one test indicated that goodwill was impaired and a step two analysis was performed to determine the amount of the impairment. Management completed the step two analysis, resulting in the Company recognizing goodwill impairment charges of $4.4 million (the entire carrying amount of goodwill at Brillion) in the statement of operations and comprehensive loss for the year ended December 31, 2015.  Based on the impairment test for December 31, 2014, no goodwill impairment was recognized.

The Wheels reporting unit, which has $96.3 million of goodwill recorded as of December 31, 2015, passed the step one test at both the annual measurement testing date, November 30, 2015, and the December 31, 2015 testing date. As of December 31, 2015, the Wheels reporting unit fair value was estimated to be four percent 4% in excess of its carrying value.  The valuation for the Wheels reporting unit is significantly driven by projected builds for Class 5-8 and Trailers for the North American commercial vehicle industry. A sustained, long-term decline in projected builds for these trucks and trailers could have a significant impact on the Wheels reporting unit's ability to pass the step one test in future periods. 

Due to the cyclical nature of the North American commercial vehicle industry and our other end-markets, along with other economic trends, the Company has continued to closely monitor the performance of the Wheels reporting unit for indication of potential impairment. As of March 31, 2016 the Company concluded that there was no indication of impairment to its Wheels reporting unit Goodwill. With that said, the Company will continue to closely monitor the performance of the Wheels reporting unit for any further indication of potential impairment.

Interest Expense

Net interest expense remained flat at $8.4 million for the three months ended March 31, 2016 and March 31, 2015.

Income Tax Provision

We recognized an income tax expense of $0.3 million and $0.4 in the three months ended March 31, 2016, and March 31, 2015, respectively.

Our effective tax rate is (6.1) percent and (199.0) percent for the three months ended March 31, 2016 and 2015, 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, and the exception provided in ASC740, Accounting for Income Taxes, which is discussed below.

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, 2016, we had total assets of $586.7 million, compared to total assets of $603.6 million at December 31, 2015.  The $16.9 million, or 2.8%, decrease in total assets primarily resulted from changes in working capital. 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, 2016
 
December 31, 2015
Receivables
$
72,275
 
$
65,980
Inventories
 
40,923
 
 
47,792
Other current assets
 
7,849
 
 
8,399
Accounts payable
 
(59,701)
 
 
(71,782)
Accrued payroll and compensation
 
(11,262)
 
 
(9,232)
Accrued interest payable
 
(5,124)
 
 
(12,521)
Accrued workers compensation
 
(2,749)
 
 
(3,133)
Short-term debt obligations
 
(8,689)
   
(10,286)
Other current liabilities
 
(13,273)
 
 
(14,944)
Working capital
$
20,249
 
$
273

Significant changes in working capital included:

an increase in receivables of $6.3 million due to increased sales the last month of the quarter;
a decrease in inventory of $6.9 million due to planned inventory reductions for the quarter;
a decrease in accounts payable of $12.1 million primarily due to timing of purchases leading into the end of the respective periods;
an increase in accrued payroll and compensation of $2.0 million primarily due to the reduction of bonus accruals;
a decrease in interest payable of $7.4 million primarily due to the semi-annual interest payment in February 2016; and
a decrease in short-term debt of $1.6 million primarily due to the reduction in factoring payable reflected on the balance sheet.

Capital Resources and Liquidity

Our primary sources of liquidity during the three months ended March 31, 2016 were cash from operations and cash reserves.  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 2016 and the foreseeable future.

As of March 31, 2016, we had $18.5 million of cash plus $43.3 million in availability under our ABL Facility for a total liquidity of $61.8 million.  As of December 31, 2015, we had $29.8 million in cash plus $46.8 million in availability under our ABL credit facility for total liquidity of $76.6 million.

Our ability to fund working capital needs, planned capital expenditures, scheduled semi-annual interest payments, and to comply with any financial covenants under our ABL Facility depends on our future operating performance and cash flow, which in turn, are subject to prevailing economic conditions and to financial, business and other factors, some of which are beyond our control.

Operating Activities

Net cash used in operating activities during the three months ended March 31, 2016 amounted to $10.6 million compared to cash used in operations of $10.5 million for the period ended March 31, 2015.  The cash used in operating activities was flat versus the previous year and was a result of our lower net income for the quarter (volume driven) being offset by planned reductions in inventory for the quarter.

Investing Activities

Net cash used in investing activities totaled $8.7 million for the three months ended March 31, 2016 compared to a use of $4.1 million for the period ended March 31, 2015.  Our most significant cash outlays for investing activities are the purchases of property, plant and equipment.  Capital expenditures for 2016 are currently expected to be around $30 million, which we expect to fund through existing cash from operations, cash reserves, or from our ABL facility.  

Financing Activities

Net cash provided by financing activities for the three months ended March 31, 2016 was $8.0 million compared to $2.4 million for the three months ended March 31, 2015.  The increase in cash used reflects larger draws on the facility to finance current quarter needs.

Bank Borrowing

The ABL Facility

The ABL Facility is a senior secured asset based credit facility in an aggregate principal amount of up to $100.0 million, consisting of a $90.0 million revolving credit facility and a $10.0 million first-in last-out term facility, with the right, subject to certain conditions, to increase the availability under the facility by up to $50.0 million in the aggregate. The ABL Facility currently matures on the earlier of (i) July 11, 2018 and (ii) 90 days prior to the maturity date of the Company's 9.5% first priority senior security notes due August 1, 2018, but may be extended under certain circumstances pursuant to the terms of the ABL Facility.

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 one percent 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, or an unused line 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 applicable.


The obligations under the ABL Facility are secured by (i) first-priority liens on substantially all of the Company's accounts receivable and inventories, subject to certain exceptions and permitted liens (the "ABL Priority Collateral") and (ii) second-priority liens on substantially all of the Company's owned real property and tangible and intangible assets other than the ABL Priority Collateral, including all of the outstanding capital stock of our domestic subsidiaries, subject to certain exceptions and permitted liens (the "Notes Priority Collateral").
 
Senior Secured Notes
 
On July 29, 2010, we issued $310.0 million aggregate principal amount of senior secured notes.  Under the terms of the indenture governing the senior secured notes, the senior secured notes bear interest at a rate of 9.5% per year, paid semi-annually in February and August, and mature on August 1, 2018.  Prior to maturity we may redeem the senior secured notes on the terms set forth in the indenture governing the senior secured notes. The senior secured notes are guaranteed by the Guarantors, and the senior secured notes and the related guarantees are secured by first priority liens on the Notes Priority Collateral and second priority liens on the ABL Priority Collateral.  On February 15, 2011, we completed an exchange offer pursuant to which all our outstanding senior secured notes were exchanged for registered securities with identical terms (other than terms related to registration rights) to the senior secured notes issued July 29, 2010.

Italy Bank Credit Lines

As of March 31, 2016, the Gianetti business unit utilized bank credit lines totaling a combined limit of €7.6 million ($8.7 million).  These credit lines provide liquidity to Gianetti for supplier payments, payroll, taxes and other disbursements.  Accounts receivable receipts from customers are also deposited to these credit lines to reduce the outstanding balance.  The average interest rate for all credit lines, determined per calculations as set forth in the bank agreements, equals 3.6%.  Interest is paid monthly.  Credit lines are classified as short term due to the agreements allowing for termination with notice by either party.

Restrictive Debt Covenants.

Our credit documents (the ABL Facility and the indenture governing the senior secured notes) contain operating covenants that limit the discretion of management with respect to certain business matters.  These covenants place significant restrictions on, among other things, the ability to incur additional debt, to pay dividends, to create liens, to make certain payments and investments and to sell or otherwise dispose of assets and merge or consolidate with other entities.  In addition, the ABL Facility contains a 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 in a compliance period during the next twelve months.

However, we continue to operate in a challenging commercial environment and our ability to maintain liquidity and comply with our debt covenants may be affected by changes in economic or other conditions that are beyond our control and which are difficult to predict.

Off-Balance Sheet Arrangements.

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

Critical Accounting Policies and Estimates.

We have made a number of estimates and assumptions relating to the reporting of results of operations and financial position in the preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America.  Actual results could differ significantly from those estimates under different assumptions and conditions.  We included in our Form 10-K for the year ended December 31, 2015 a discussion of our most critical accounting policies, which are those that have a material impact on our financial condition or operating performance and require management's most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.


Cautionary Statements Regarding Forward-Looking Statements

In this report, we have made various statements regarding current expectations or forecasts of future events, which speak only as of the date the statements, are made.  These statements are "forward-looking statements" within the meaning of that term in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  Forward-looking statements are also made from time-to-time in press releases and in oral statements made by the officers of Accuride.  Forward-looking statements are identified by the words "estimate," "project," "anticipate," "will continue," "will likely result," "expect," "intend," "believe," "plan," "predict" and similar expressions.  Forward looking statements also include, but are not limited to, statements regarding the commercial vehicle market, projections of revenue, income, loss, or working capital, capital expenditure levels, ability to mitigate rising raw material costs through increases in selling prices, plans for future operations, financing needs, the ultimate outcome and impact of any litigation involving Accuride, the sufficiency of our capital resources and plans and assumptions relating to the foregoing.
 
Such forward-looking statements are based on assumptions and estimates, which although believed to be reasonable, may turn out to be incorrect.  Therefore, undue reliance should not be placed upon these estimates and statements.  We cannot assure that any of these statements, estimates, or beliefs will be realized and actual results may differ from those contemplated in these "forward-looking statements."  We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise.  You are advised to consult further disclosures we may make on related subjects in our filings with the SEC.  In addition to other factors discussed in this report, some of the important factors that could cause actual results to differ materially from those discussed in the forward-looking statements include, without limitation, the following:

changes in commercial vehicle industry build rates and demand in 2016 and 2017 could have a material adverse effect on our business;
further demand reductions in the global oil and gas, industrial, mining, and agricultural industries in 2016 and 2017 could have a material adverse effect on our business;
the loss of a major customer could have a material adverse effect on our business;
competition from products sourced in low cost countries could have an adverse effect on our business;
the demands of original equipment manufacturers for price reductions may adversely affect profitability;
we use a substantial amount of raw steel, aluminum, cast scrap, and foundry steel and are vulnerable to industry shortages, significant price increases, and surcharges, some of which we may not be able to pass through to our customers;
our credit documents contain significant financial and operating covenants that may limit the discretion of management with respect to certain business matters;
failure to comply with the obligations, including applicable financial ratios and tests, contained in the debt agreements could result in an event of default, and possibly the acceleration of the related debt and the acceleration of debt under other instruments evidencing debt that may contain cross-acceleration or cross-default provisions;
a labor strike may disrupt our supply of products to our customer base;
we may encounter increased competition in the future from existing competitors or new competitors;
our significant indebtedness may have important consequences, including, but not limited to, impairment of our ability to obtain additional financing, reduction of funds available for operations and business opportunities or limitations on our ability to dispose of assets;
significant volatility in the foreign currency markets could have an adverse effect on us;
our ability to service our indebtedness is dependent upon operating cash flow;
an interruption of performance of our machinery and equipment could have an adverse effect on us;
an interruption in supply of metals could reduce our ability to obtain favorable sourcing of such raw materials;
any product quality issue or an adverse judgment in legal proceedings could have an adverse effect on our business;
we may be subject to liability under certain environmental laws and the cost of compliance with these regulations could have a material adverse effect on our financial condition and may adversely affect our ability to sell or rent such property or to borrow using such property as collateral; and
our success depends largely upon the abilities and experience of certain key management personnel and the loss of the services of one or more of these key personnel could have a negative impact on our business.

For further information, refer to the business description and additional risk factors sections included in our Form 10-K for the year ended December 31, 2015, as filed with the SEC.


Item 3.                          Quantitative and Qualitative Disclosures about Market Risk

In the normal course of doing business, we are exposed to risks associated with chang