UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Fiscal Year Ended December 31, 2007
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TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the
Transition Period from
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Commission
File Number 333-50239
ACCURIDE CORPORATION
(Exact Name of Registrant as Specified in Its
Charter)
Delaware
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61-1109077
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(State or Other
Jurisdiction of Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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7140
Office Circle, Evansville, Indiana
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47715
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(Address of Principal
Executive Offices)
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(Zip Code)
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Registrants telephone number, including area
code:
(812) 962-5000
Securities registered pursuant to Section 12(b) of
the Act:
None
Securities registered pursuant to Section 12(g) of
the Act:
Title of each class
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Name of each exchange on which registered
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Common Stock, $0.01 par
value
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New York Stock Exchange
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Indicate by check mark whether the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
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No
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Indicate by check mark whether the registrant is not
required to file reports pursuant to Section 13 of Section 15(d) of
the Act. Yes
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No
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Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past
90 days. Yes
x
No
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Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrants knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.
x
Indicate by check mark whether the registrant is a
large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See definitions of large accelerated filer, accelerated
filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
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Accelerated Filer
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Non-Accelerated Filer
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Smaller Reporting Company
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Indicate by check mark whether the registrant is a
shell company (as defined in Exchange Act Rule 12b-2). Yes
o
No
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The aggregate market value of the registrants common
stock held by non-affiliates based on the New York Stock Exchange closing price
as of June 30, 2007 (the last business day of registrants most recently
completed second fiscal quarter) was approximately $542,794,382. This calculation does not reflect a
determination that such persons are affiliates of registrant for any other
purposes.
The number of shares of Common Stock, $.01 par value,
of Accuride Corporation outstanding as of March 13, 2008 was 35,413,719.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the Proxy Statement for the Registrants 2008 Annual Meeting of stockholders
are incorporated by reference in Part III of this Form 10-K.
ACCURIDE
CORPORATION
FORM 10-K
FOR
THE YEAR ENDED DECEMBER 31, 2007
2
PART I
Item 1. Business
The Company
We are one of the largest and most
diversified manufacturers and suppliers of commercial vehicle components in
North America. Our products include commercial vehicle wheels, wheel-end
components and assemblies, truck body and chassis parts, seating assemblies and
other commercial vehicle components. We market our products under some of the
most recognized brand names in the industry, including Accuride, Gunite,
Imperial, Bostrom, Fabco and Brillion. We believe that we have number one or
number two market positions in steel wheels, forged aluminum wheels, brake
drums, disc wheel hubs, spoke wheels, metal grills, metal bumpers, crown
assemblies, chrome plating and polishing, seating assemblies and fuel tanks in
commercial vehicles. We serve the leading original equipment manufacturers, or
OEMs, and their related aftermarket channels in most major segments of the
commercial vehicle market, including heavy- and medium-duty trucks, commercial
trailers, light trucks, buses, as well as specialty and military vehicles.
Our primary product lines are standard
equipment used by a majority of North American heavy- and medium-duty truck
OEMs, creating a significant barrier to entry. We believe that substantially
all heavy-duty truck models manufactured in North America contain one or more
of our components.
Our diversified customer base includes substantially
all of the leading commercial vehicle OEMs, such as Daimler Truck North
America, LLC, with its Freightliner, Sterling and Western Star brand trucks,
PACCAR, Inc., with its Peterbilt and Kenworth brand trucks, International
Truck and Engine Corporation, with its International brand trucks, and Volvo
Truck Corporation, or Volvo/Mack, with its Volvo and Mack brand trucks. Our
primary commercial trailer customers include leading commercial trailer OEMs,
such as Great Dane Limited Partnership and Wabash National, Inc. Our major
light truck customer is General Motors Corporation. Our product portfolio is
supported by strong sales, marketing and design engineering capabilities and is
manufactured in 23 strategically located, technologically-advanced facilities
across the United States, Mexico, and Canada.
Our business consists of seven operating
segments that design, manufacture, and distribute components for trucks,
trailers, and other vehicles. These operating segments are aggregated into
three reportable segments as each reportable segment has similar economic
characteristics, products and production processes, class of customer and
distribution methods. The Wheels segments products consist of wheels for
heavy- and medium-duty trucks and commercial trailers. The Components segments products consist of
truck body and chassis parts, wheel-end components and assemblies, and
seats. The Other segments products
primarily consist of other commercial vehicle components, including steerable
drive axles and gearboxes. We believe this segmentation is appropriate based
upon managements operating decisions and performance assessment. Our financial
results for the previous three fiscal years are discussed in Item 7:
Managements Discussion and Analysis of Financial Condition and Results of
Operation and Item 8: Financial Statements and Supplementary Data of this
Annual Report.
Corporate History
Accuride Corporation, a Delaware corporation,
and Accuride Canada Inc., a corporation formed under the laws of the province
of Ontario, Canada, and a wholly owned subsidiary of Accuride, were
incorporated in November 1986 for the purpose of acquiring substantially
all of the assets and assuming certain of the liabilities of Firestone Steel
Products, a division of The Firestone Tire & Rubber Company. The
respective acquisitions by the companies were consummated in December 1986.
In 1988, we were purchased by Phelps Dodge Corporation.
On November 17, 1997, we entered into a
stock subscription agreement with Hubcap Acquisition L.L.C. pursuant to which
Hubcap Acquisition, an affiliate of Kohlberg Kravis Roberts & Co.
L.P., or KKR, acquired a controlling interest in our company.
On January 31, 2005, pursuant to the
terms of an agreement and plan of merger, a wholly owned subsidiary of Accuride
was merged with and into Transportation Technologies Industries, Inc., or
TTI, resulting in TTI becoming a wholly owned subsidiary of Accuride, which we
refer to as the TTI merger. Upon consummation of the TTI merger, the
stockholders of Accuride prior to consummation of the TTI merger owned 66.88%
of the common stock of the combined company and the former stockholders of TTI
owned 33.12% of the common stock of the combined company. TTI was founded as
Johnstown America Industries, Inc. in 1991 in connection with the purchase
of Bethlehem Steel Corporations freight car manufacturing
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operations. After an initial public offering in July 1993, TTI
continued to grow and transform its business through a series of acquisitions
in the truck components industry completed between 1995 and 1999, which,
together with continuing improvement in market conditions in the truck
component industry, represented substantially all of its sales growth during
such period. Following the sale of TTIs freight car operations in June 1999,
it changed its name to Transportation Technologies Industries, Inc. In March 2000,
TTI was acquired in a going-private transaction by an investor group led by its
management and Trimaran Capital Partners, or Trimaran.
Initial Public Offering
We completed the initial public offering of
11 million shares of our common stock on April 26, 2005, and our common
stock has continued to trade on the New York Stock Exchange under the symbol ACW. We used the net proceeds of approximately
$89.6 million from the IPO to repay a portion of our long-term debt.
Product Overview
We believe we design, produce, and market one
of the broadest portfolios of commercial vehicle components in the industry. We
classify our products under several categories, which include wheels, wheel-end
components and assemblies, truck body and chassis parts, seating assemblies,
and other commercial vehicle components. The following describes our major
product lines and brands.
Wheels
(Approximately 47% of our 2007 net sales and 48% of our 2006 net sales and 2005
pro forma net sales)
We are the largest North American
manufacturer and supplier of wheels for heavy- and medium-duty trucks and
commercial trailers. We offer the broadest product line in the North American
heavy- and medium-duty wheel industry and are the only North American
manufacturer and supplier of both steel and forged aluminum heavy- and
medium-duty wheels. We also produce wheels for buses, commercial light trucks,
pick-up trucks, sport utility vehicles and vans. We market our wheels under the
Accuride brand. A description of each of our major products is summarized
below.
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Heavy- and
medium-duty steel wheels.
We
offer the broadest product line of steel wheels for the heavy- and medium-duty
truck and commercial trailer markets. The wheels range in diameter from 17.5
to 24.5 and are designed for load ratings ranging from 2,400 to 13,000 lbs. We
also offer a number of coatings and finishes which we believe provide the
customer with increased durability and exceptional appearance. We are the
standard steel wheel supplier to most North American heavy- and medium-duty
truck OEMs and to a number of North American trailer OEMs.
·
Heavy- and
medium-duty aluminum wheels.
We
offer a full product line of aluminum wheels for the heavy- and medium-duty
truck and commercial trailer markets. The wheels range in diameter from 19.0
to 24.5 and are designed for load ratings ranging from 7,000 to 13,000 lbs.
Aluminum wheels are generally lighter in weight, more readily stylized, and
approximately 3.5 times as expensive as steel wheels.
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Light truck steel
wheels.
We manufacture light
truck single and dual steel wheels that range in diameter from 16 to 20 for
customers such as General Motors and DaimlerChrysler Corporation. We are
focused on larger diameter wheels designed for select truck platforms used for
carrying heavier loads.
Wheel-End Components
and Assemblies (Approximately 20% of our 2007 net sales, 21% of our 2006 net
sales, and 22% of our 2005 pro forma net sales)
We are the leading North American supplier of
wheel-end components and assemblies to the heavy- and medium-duty truck markets
and related aftermarket. We market our wheel-end components and assemblies
under the Gunite brand. We produce four basic wheel-end assemblies: (1) disc
wheel hub/brake drum, (2) spoke wheel/brake drum, (3) spoke
wheel/brake rotor and (4) disc wheel hub/brake rotor. We also manufacture
a full line of wheel-end components for the heavy- and medium-duty truck
markets, such as brake drums, disc wheel hubs, spoke wheels, rotors and
automatic slack adjusters. The majority of these components are critical to the
safe operation of vehicles. A description of each of our major wheel-end
components is summarized below:
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Brake Drums.
We offer a variety of heavy- and medium-duty brake
drums for truck, commercial trailer, bus, and off-highway applications. A brake
drum is a braking device utilized in a drum brake which is typically made of
iron and has a machined surface on the inside. When the brake is applied, air
or brake fluid is forced, under pressure, into a wheel cylinder which, in turn,
pushes a brake shoe into contact with the machined surface
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on the
inside of the drum and stops the vehicle. Our brake drums are custom-engineered
to exact requirements for a broad range of applications, including logging,
mining, and more traditional over-the-road vehicles. To ensure product quality,
we continually work with brake and lining manufacturers to optimize brake drum
and brake system performance. Brake drums are our primary aftermarket product.
The aftermarket opportunities in this product line are substantial as brake
drums continually wear with use and eventually need to be replaced, although
the timing of such replacement depends on the severity of use.
·
Disc Wheel Hubs.
We manufacture a complete line of traditional
ferrous disc wheel hubs for heavy- and medium-duty trucks and commercial
trailers. A disc wheel hub is the connecting piece between the brake system and
the axle upon which the wheel and tire are mounted. In addition, we offer a
line of lightweight cast iron hubs that provide users with improved operating
efficiency. Our lightweight hubs utilize advanced metallurgy and unique
structural designs to offer both significant weight savings and lower costs due
to fewer maintenance requirements. Our product line also includes finely
machined hubs for anti-lock braking systems, or ABS, which enhance vehicle
safety.
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Spoke Wheels.
Due to
their greater strength and reduced downtime, we manufacture a full line of
spoke wheels for heavy-and medium-duty trucks and commercial trailers. While
disc wheel hubs have begun to displace spoke
wheels,
they are still popular for severe-duty applications such as off-highway
vehicles, refuse vehicles, and school buses. Our product line also includes
finely machined wheels for ABS systems, similar to our disc wheel hubs.
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Disc Brake
Rotors.
We develop and
manufacture durable, lightweight disc brake rotors for a variety of heavy-duty
truck applications. A disc rotor is a braking device that is typically made of
iron with highly machined surfaces. Once a disc brake is applied, brake fluid
from the master cylinder is forced into a caliper where it presses against a
piston, which then squeezes two brake pads against the disc rotor and stops the
vehicle. Disc brakes are generally viewed as more efficient, although more
expensive, than drum brakes and are often found in the front of a vehicle with
drum brakes often located in the rear. We manufacture ventilated disc brake
rotors that significantly improved heat dissipation as required for
applications on Class 7 and 8 vehicles. We offer one of the most complete
lines of heavy-duty and medium-duty disc brake rotors in the industry.
·
Automatic Slack
Adjusters.
Automatic slack
adjusters react to, and adjust for, variations in brake shoe-to-drum clearance
and maintain the proper amount of space between the shoe and drum. Our
automatic slack adjusters automatically adjust the brake shoe-to-brake drum
clearance, ensuring that this clearance is always constant at the time of
braking. The use of automatic slack adjusters reduces maintenance costs,
improves braking performance and minimizes side-to-pull and stopping distance.
Truck Body and
Chassis Parts (Approximately 14% of our 2007 and 2006 net sales and 12% of our
2005 pro forma net sales)
We are a leading supplier of truck body and
chassis parts to heavy- and medium-duty truck manufacturers, including bus
manufacturers. We fabricate a broad line of truck body and chassis parts under
the Imperial brand name, including bumpers, battery and toolboxes, crown
assemblies, bus component and chassis assemblies, fuel tanks, roofs, fenders,
and crossmembers. We also provide a variety of value-added services, such as
chrome plating and polishing, hood assembly, and the kitting and assembly of
exhaust systems.
We specialize in the fabrication of
components requiring a significant amount of tooling or customization. Due to
the intricate nature of these parts, our truck body and chassis parts
manufacturing operations are characterized by low-volume production runs.
Additionally, because each truck is uniquely customized to end user
specifications, we have developed flexible production systems that are capable
of accommodating multiple variations for each product design. A description of
each of our major truck body and chassis parts is summarized below:
·
Bumpers.
We manufacture a wide variety of steel and aluminum
bumpers, as well as polish and chrome these products with pre-plate and
decorative polishing to meet specific OEM requirements.
·
Fuel Tanks.
We manufacture and assemble aluminum and steel fuel
tanks, fuel tank ends and fuel tank straps, as well as polish fuel tanks.
·
Bus Components
and Chassis Assembly.
We
manufacture stainless steel chassis frames, body parts and fuel tanks for
buses. We have developed a particular competency in the manufacture and
assembly of low-floor bus chassis.
·
Battery Boxes and
Toolboxes.
We manufacture, as
well as polish, steel and aluminum battery and toolboxes for our heavy-duty
truck OEM customers.
·
Front-End
Crossmembers.
We fabricate and
assemble front-end crossmembers for heavy-duty trucks. A
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crossmember
is a structural component of a chassis. These products are manufactured from
heavy steel and assembled to customer line-set schedules.
·
Muffler Assemblies.
We fabricate, assemble, chrome-plate and polish
muffler assemblies consisting of large diameter exhaust tubing assembled with a
muffler manufactured by a third party.
·
Crown Assemblies
and Components.
We manufacture
multiple styles of crown assemblies and components. A crown assembly is the
highly visible front grill and nameplate of the truck. These products are
fabricated from both steel and aluminum and are chrome-plated and polished.
·
Other Products.
We fabricate a wide variety of assemblies and
chrome-plate and polish numerous other components for truck manufacturers, bus
manufacturers, and OEM suppliers. These products include fenders, exhaust
components, sun visors, windshield masts, step assemblies, quarter fender
brackets, underbells, fuel tank supports, hood inner panels, door assemblies,
dash panel assemblies, outrigger assemblies, diesel particulate filter
assemblies, and various other components.
Seating Assemblies
(Approximately 5% of our 2007 net sales and 6% of our 2006 net sales and our
2005 pro forma net sales)
Under the Bostrom brand name, we design,
engineer and manufacture air suspension and static seating assemblies for
heavy- and medium-duty trucks, the related aftermarket, and school and transit
buses. The majority of North American heavy-duty truck manufacturers offer our
seats as standard equipment or as an option.
Seating assemblies are primarily
differentiated on comfort, price, and quality, with driver comfort being
especially important given the substantial amount of time that truck drivers
spend on the road. Our seating assemblies typically utilize a scissor-type
suspension, which we believe offers superior cushioning for the driver.
Other Components
(Approximately 15% of our 2007 net sales, 11% of our 2006 net sales, and 12% of
our 2005 pro forma net sales)
We produce other commercial vehicle
components, including steerable drive axles and gearboxes as well as engine and
transmission components.
·
Military Wheels.
We produce steel wheels for military applications
under the Accuride brand name. In addition, we are developing aluminum wheels
for future applications to reduce vehicle weight.
·
Steerable Drive
Axles and Gear Boxes.
We
believe we are a leading supplier of steerable drive axles, gearboxes and
related parts for heavy- and medium-duty on/off highway trucks and utility
vehicles under the Fabco and Sisu brand names. Our axles and gearboxes are
utilized by most major North American heavy- and medium-duty truck
manufacturers and modification centers. We also supply replacement parts for
all of our products to OEMs and, in some cases, directly to end users. Our
quick turnaround of parts minimizes the need for our customers to maintain their
own parts inventory.
·
Transmission and
Engine-Related Components.
We
believe we are a leading manufacturer of transmission and engine-related
components to the heavy- and medium-duty truck markets under the Brillion brand
name, including flywheels, transmission and engine-related housings and chassis
brackets.
·
Industrial
Components.
We produce
components for a wide variety of applications to the industrial machinery and
construction equipment markets under the Brillion brand name, including
flywheels, pump housings, small engine components, and other industrial
components. Our industrial components are made to specific customer
requirements and, as a result, our product designs are typically proprietary to
our customers.
·
Non-Powered Farm
Equipment.
We also design,
manufacture and market a line of farm equipment and lawn and garden products
for the behind-the-tractor market, including pulverizers, seeders, mulchers,
deep tillers, grass feeders, and cultivators under the Brillion brand name.
Customers
We market our components to more than 1,000
customers, including most of the major North American heavy- and medium-duty
truck and commercial trailer OEMs, as well as to the major aftermarket
suppliers, including OEM dealer networks, wholesale distributors, and
aftermarket buying groups. Our largest customers are Freightliner, PACCAR,
International, and Volvo/ Mack, which combined accounted for approximately 55%
of our net sales in 2007. We have long-term relationships with our larger
customers, many of whom have purchased components from us or our predecessors
for
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more than 45 years. We garner repeat business through our
reputation for quality and position as a standard supplier for a variety of
truck lines. We believe that we will continue to be able to effectively compete
for our customers business due to the high quality of our products, the
breadth of our product portfolio, and our continued innovation.
Sales and Marketing
We have an integrated, corporate-wide sales
and marketing group. We have dedicated salespeople and sales engineers who
reside near the headquarters of each of the four major truck OEMs and who
spend substantially all of their professional time coordinating new sales
opportunities and developing our relationship with the OEMs. These sales
professionals function as a single point of contact with the OEMs, providing one-stop
shopping for all of our products. Each brand has marketing personnel who,
together with applications engineers, have in-depth product knowledge and
provide support to the designated OEM salespeople.
We also have fleet sales coverage focused on
our wheel-end and seating assembly markets who seek to develop relationships
directly with fleets to create pull-through demand for our products. This
effort is intended to help convince the truck OEMs to designate our
products as standard equipment and to create sales by encouraging fleets to
specify our products on the trucks that they purchase, even if our product is not
standard equipment. This same group provides aftermarket sales coverage for our
various products, particularly wheels, wheel-ends, and seating assemblies.
These salespeople promote and sell our products to the aftermarket, including
OEM dealers, warehouse distributors and aftermarket buying groups. This group
has contributed to our growth in aftermarket sales.
International Sales
We consider sales to customers outside of the
United States as international sales. International sales were $139.5 million,
or approximately 14%, of our 2007 net sales.
For additional information, see Note 12 to the Notes to Consolidated
Financial Statements included herein.
Manufacturing
We operate 23 facilities, which are
characterized by advanced manufacturing capabilities, in North America. Our
U.S. manufacturing operations are located in Alabama, California, Illinois,
Indiana, Kentucky, Ohio, Pennsylvania, Tennessee, Texas, Virginia, Washington,
and Wisconsin. In addition, we have manufacturing facilities in Canada and
Mexico. These facilities are strategically located to meet our manufacturing
needs and the demands of our customers.
All of our significant operations are
QS-9000/TS 16949 certified, which means that they comply with certain quality
assurance standards for truck components suppliers. We believe our
manufacturing operations are highly regarded by our customers, and we have
received numerous quality awards from our customers including PACCARs
Preferred Supplier
award and Freightliners
Masters of Quality
award.
Competition
We operate in highly competitive markets.
However, no single manufacturer competes with all of the products manufactured
and sold by us in the heavy-duty truck market, and the degree of competition
varies among the different products that we sell. In each of our markets, we
compete on the basis of price, manufacturing and distribution capabilities,
product quality, product design, product line breadth, delivery, and service.
The competitive landscape for each of our
brands is unique. Our primary competitors in the wheel markets include
Alcoa Inc., ArvinMeritor, Inc., and Hayes Lemmerz International, Inc.
The competition in the wheel-ends and assemblies markets for heavy-duty trucks
and commercial trailers is ArvinMeritor, Consolidated Metco Inc., and Webb
Wheel Products Inc. The truck body and chassis parts markets are
fragmented and characterized by many small private companies. The seating
assemblies market has a limited number of competitors, with National Seating
Company as our main competitor. Our major competitors in the industrial
components market include 10 to 12 foundries operating in the Midwest and
Southern regions of the United States and Mexico.
Raw Materials and Suppliers
We typically purchase steel for our wheel products
from a number of different suppliers by negotiating high-volume contracts with
terms ranging from one to three years. While we believe that our supply
contracts can be renewed on acceptable terms, we may not be able to renew these
contracts on such terms or at all. However, we do not believe that we are
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overly
dependent on long-term supply contracts for our steel requirements as we have
alternative sources available if need requires. Furthermore, it should be
understood that the domestic steel industry does not have the capacity to
support the economy at large and the market thus depends on a certain level of
imports. Depending on market dynamics
and raw material availability, the market is occasionally in tight supply,
which may result in occasional industry allocations and surcharges.
We obtain aluminum for our wheel products through
third-party suppliers. We believe that aluminum is readily available from a
variety of sources. Aluminum prices have been volatile from time-to-time and
increased significantly during 2005 before dropping off in the fourth quarter
of 2007. We attempt to minimize such impact through selected customer supported
hedge agreements, supplier agreements and customer price increases.
Major raw materials for our wheel-end and industrial
component products are steel scrap and pig iron. We do not have any long-term
contractual commitments with any steel scrap or pig iron suppliers, but do not
anticipate having any difficulty in obtaining steel scrap or pig iron due to
the large number of potential suppliers and our position as a major purchaser
in the industry. A portion of the increases in steel scrap prices for our
wheel-ends and industrial components are passed-through to most of our
customers by way of a fluctuating surcharge, which is calculated and adjusted
on a periodic basis. Other major raw materials include silicon sand, binders,
sand additives and coated sand, which are generally available from multiple
sources. Coke and natural gas, the primary energy sources for our melting
operations, have historically been generally available from multiple sources,
and electricity, another of these energy sources, has historically been
generally available.
The main raw materials for our truck body and chassis
parts are sheet and formed steel and aluminum. Certain price increases for
these raw materials are passed-through to our largest customers for those parts
on a contractual basis. We purchase major fabricating and seating materials, such
as fasteners, steel, foam, fabric and tube steel, from multiple sources, and
these materials have historically been generally available.
Employees and Labor Unions
As of December 31, 2007, we had approximately
3,500 employees, of which 927 were salaried employees with the remainder paid
hourly. Unions represent approximately 1,650 of our employees, or 47% of the
total. We have collective bargaining agreements with several unions, including (1) the
United Auto Workers (UAW), (2) the International Brotherhood of
Teamsters (Teamsters), (3) the United Steelworkers, (4) the
International Association of Machinists and Aerospace Workers (Machinists), (5) the
National Automobile, Aerospace, Transportation, and General Workers Union of
Canada (CAW) and (6) El Sindicato Industrial de Trabajadores de Nuevo
Leon.
Each of our unionized facilities has a separate contract with the union
that represents the workers employed at such facility. The union contracts
expire at various times over the next few years with the exception of our union
contract that covers the hourly employees at our Monterrey, Mexico, facility,
which expires on an annual basis in January unless otherwise renewed. The
2008 negotiations in Monterrey were successfully completed prior to the expiration
of our union contract. There is one
contract expiring on August 31, 2008 for our Fabco facility in California.
We do not anticipate that the outcome of these negotiations will have a
material adverse effect on our operating performance or costs. Our contract
with the UAW at our Rockford, Illinois, facility expired in November 2007. We were not able to negotiate a mutually
acceptable agreement with the UAW, and as a result on November 18, 2007,
we began an indefinite lock-out in order to protect the supply of products to
our customers as well as provide security for facility personnel and
equipment. On March 9, 2008, the
workers represented by the UAW voted to approve a new contract. Although we expect the UAW workers to return
to work in the near future, we continue to operate the facility with salaried
employees and outside contractors. While
we did not experience a supply disruption to our customers during the lockout,
there is no guarantee that the lock-out and the reinstatement of the unionized
workforce will not have a material adverse affect on pre-tax earnings in 2008.
Intellectual Property
We believe that our trademarks, patents,
copyrights and other proprietary rights are important to our business. We have
numerous trademarks, patents, and copyrights in the United States and in
certain foreign countries. We are not aware of any current or pending suits in
connection with any of our trademarks, patents or copyrights.
Backlog
Our production is based on firm customer
orders and estimated future demand. Since firm orders generally do not extend
beyond 15-45 days and we generally meet all requirements, backlog volume
is generally not significant.
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Cyclical and Seasonal Industry
The commercial vehicle components industry is
highly cyclical and, in large part, depends on the overall strength of the
demand for heavy- and medium-duty trucks. These industries have historically
experienced significant fluctuations in demand based on factors such as general
economic conditions, gas prices, interest rates, government regulations, and
consumer confidence. From mid-2000 through 2003, the industry was in a severe
downturn. From 2004 though 2006, major
OEM customers experienced an upturn in net orders, which resulted in stronger
industry conditions. Since the second quarter of 2007, the commercial vehicle
market has experienced a severe drop in production as predicted by analysts,
including Americas Commercial Transportation (ACT) Publications. This is mostly due to changes in emissions
standards that became effective in 2007.
We expect that demand for our products in 2008 will be similar to 2007
from a full year perspective.
In addition, our operations are typically
seasonal as a result of regular customer maintenance and model changeover
shutdowns, which typically occur in the third and fourth quarter of each
calendar year. This seasonality may result in decreased net sales and
profitability during the third and fourth fiscal quarters of each calendar
year.
Environmental Matters
Our operations, facilities, and properties
are subject to extensive and evolving laws and regulations pertaining to air
emissions, wastewater discharges, the handling and disposal of solid and
hazardous materials and wastes, the investigation and remediation of
contamination, and otherwise relating to health, safety and the protection of
the environment and natural resources. As a result, we are involved from time
to time in administrative or legal proceedings relating to environmental,
health and safety matters, and have in the past and will continue to incur
capital costs and other expenditures relating to such matters. In addition to
environmental laws that regulate our subsidiaries ongoing operations, our
subsidiaries are also subject to environmental remediation liability. Under the
federal Comprehensive Environmental Response, Compensation, and Liability Act,
or CERCLA, and analogous state laws, our subsidiaries may be liable as a result
of the release or threatened release of hazardous materials into the
environment. Our subsidiaries are currently involved in several matters
relating to the investigation and/or remediation of locations where they have
arranged for the disposal of foundry and other wastes. Such matters include
situations in which we have been named or are believed to be Potentially
Responsible Parties under CERCLA or state and local laws in connection with the
contamination of these sites. Additionally, environmental remediation may be
required to address soil and groundwater contamination identified at certain
facilities.
As of December 31, 2007, we had an
environmental reserve of approximately $2.6 million, related primarily to
TTIs foundry operations. This reserve is based on current cost estimates and
does not reduce estimated expenditures to net present value, but does take into
account the benefit of a contractual indemnity given to us by a prior owner of
our wheel-end subsidiary. The failure of the indemnitor to fulfill its
obligations could result in future costs that may be material. Any cash
expenditures required by us or our subsidiaries to comply with applicable
environmental laws and/or to pay for any remediation efforts will not be
reduced or otherwise affected by the existence of the environmental reserve. We
currently anticipate spending approximately $0.2 million per year in 2008
through 2011 for monitoring the various environmental sites associated with the
environmental reserve, including attorney and consultant costs for strategic
planning and negotiations with regulators and other potentially responsible
parties, and payment of remedial investigation costs. Based on all of the
information presently available to us, we believe that our environmental
reserves will be adequate to cover the future costs related to the sites
associated with the environmental reserves, and that any additional costs will
not have a material adverse effect on our financial condition, results of
operations or cash flows. However, the discovery of additional sites, the
modification of existing or the promulgation of new laws or regulations, 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 such a material adverse effect.
The final Iron and Steel Foundry National
Emission Standard for Hazardous Air Pollutants, or NESHAP, was developed
pursuant to Section 112(d) of the Clean Air Act and requires all
major sources of hazardous air pollutants to install controls representative of
maximum achievable control technology. We are evaluating the applicability of
the Iron and Steel Foundry NESHAP to our foundry operations. If applicable,
compliance with the Iron and Steel Foundry NESHAP may result in future
significant capital costs, which we currently expect to be approximately
$6 million in total during the period 2008 through 2009.
Website Access to Reports
We make our periodic and current reports
available, free of charge, on our website as soon as practicable after such
9
material is electronically filed with the Securities and Exchange
Commission. Our website address is www.accuridecorp.com and the reports are
filed under SEC Filings in the Investor Information section of our
website.
Item 1A. Risk Factors
Factors That May Affect
Future Results
In this report, we have made various
statements regarding current expectations or forecasts of future events. These
statements are forward-looking statements within the meaning of that term in Section 27A
of the Securities Act of 1933 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 our officers. Forward-looking
statements are identified by the words estimate, project, anticipate, will
continue, will likely result, expect, intend, believe, plan, predict
and similar expressions. The following statements are also considered
forward-looking:
·
the commercial vehicle industry appears to be in a cyclical downturn;
·
the availability of working capital and additional capital to Accuride;
·
continuation of operational improvements and sources of supply of raw
materials; and
·
the lack of future supply disruption as a result of labor issues.
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. These statements or estimates may not 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. Our expectations, beliefs, or
projections may not be achieved or accomplished. In addition to other factors
discussed in the report, some of the important factors that could cause actual
results to differ from those discussed in the forward-looking statements
include the following:
Risks Related to Our Business and Industry
We are dependent on sales to a
small number of our major customers and on our status as standard supplier on
certain truck platforms of each of our major customers.
Sales, including aftermarket sales, to
PACCAR, Freightliner, International Truck, and Volvo/Mack constituted approximately
16.6%, 16.5%, 13.5%, and 8.1%, respectively, of our 2007 net sales. No other
customer accounted for more than 5% of our net sales for this period. The loss
of any significant portion of sales to any of our major customers could have a
material adverse effect on our business, results of operations, or financial
condition.
We are a standard supplier of various
components at a majority of our major customers, which results in recurring
revenue as our standard components are installed on most trucks ordered from
that platform, unless the end user specifically requests a different product,
generally at an additional charge. The selection of one of our products as a
standard component may also create a steady demand for that product in the
aftermarket. We may not maintain our current standard supplier positions in the
future, and may not become the standard supplier for additional truck
platforms. The loss of a significant standard supplier position or a
significant number of standard supplier positions with a major customer could
have a material adverse effect on our business, results of operations, or
financial condition.
We are continuing to engage in efforts
intended to improve and expand our relations with each of PACCAR, Freightliner,
International Truck, and Volvo/Mack. We have supported our position with these
customers through direct and active contact with end users, trucking fleets,
and dealers, and have located certain of our marketing personnel in offices
near these customers and most of our other major customers. We may not be able
to successfully maintain or improve our customer relationships so that these
customers will continue to do business with us as they have in the past or be
able to supply these customers or any of our other customers at current levels.
The loss of a significant portion of our sales to Freightliner, PACCAR,
International, or Volvo/Mack could have a material adverse effect on our
business, results of operations or financial condition. In addition, the delay
or cancellation of material orders from, or problems at, PACCAR, Freightliner,
International Truck, or Volvo/Mack, or any of our other major customers could
have a material adverse effect on our business, results of operations, or
financial condition.
10
Increased cost or reduced supply of raw materials and purchased
components may adversely affect our business, results of
operations or financial condition.
Our business is subject to the risk of price
increases and fluctuations and periodic delays in the delivery of raw materials
and purchased components that are beyond our control. Our operations require
substantial amounts of raw steel, aluminum, steel scrap, pig iron, electricity,
coke, natural gas, sheet and formed steel, bearings, purchased components,
fasteners, foam, fabrics, silicon sand, binders, sand additives, coated sand,
and tube steel. Fluctuations in the delivery of these materials may be driven
by the supply/demand relationship for material, factors particular to that
material or governmental regulation for raw materials such as electricity and
natural gas. In addition, if any of our suppliers seeks bankruptcy relief or
otherwise cannot continue its business as anticipated or we cannot renew our
supply contracts on favorable terms, the availability or price of raw materials
could be adversely affected. Fluctuations in prices and/or availability of the
raw materials or purchased components used by us, which at times may be more
pronounced during periods of higher truck builds, may affect our profitability
and, as a result, have a material adverse effect on our business, results of
operations, or financial condition.
We use substantial amounts of raw steel and
aluminum in our production processes. Although raw steel is generally available
from a number of sources, we have obtained favorable sourcing by negotiating
and entering into high-volume contracts with third parties with terms ranging
from one to three years. We obtain raw steel and aluminum from various
third-party suppliers. We may not be successful in renewing our supply
contracts on favorable terms or at all. A substantial interruption in the
supply of raw steel or aluminum or inability to obtain a supply of raw steel or
aluminum on commercially desirable terms could have an adverse effect on our
business, results of operations or financial condition. We are not always able,
and may not be able in the future, to pass on increases in the price of raw
steel or aluminum to our customers. In particular, when raw material prices
increase rapidly or to significantly higher than normal levels, we may not be
able to pass price increases through to our customers on a timely basis, if at
all, which could adversely affect our operating margins and cash flow. Any
fluctuations in the price or availability of raw steel or aluminum may have a
material adverse effect on our business, results of operations or financial
condition.
Steel scrap and pig iron are also major raw
materials used in our business to produce our wheel-end and industrial
components. Steel scrap is derived from, among other sources, junked
automobiles, industrial scrap, railroad cars, agricultural and heavy machinery,
and demolition steel scrap from obsolete structures, containers and machines. Pig
iron is a low-grade cast iron that is a product of smelting iron ore with coke
and limestone in a blast furnace. The availability and price of steel scrap and
pig iron are subject to market forces largely beyond our control, including
North American and international demand for steel scrap and pig iron, freight
costs, speculation and foreign exchange rates. Steel scrap and pig iron
availability and price may also be subject to governmental regulation. We are
not always able, and may not be able in the future, to pass on increases in the
price of steel scrap and pig iron to our customers. In particular, when raw
material prices increase rapidly or to significantly higher than normal levels,
we may not be able to pass price increases through to our customers on a timely
basis, if at all, which could adversely affect our operating margins and cash
flow. Any fluctuations in the price or availability of steel scrap or pig iron
may have a material adverse effect on our business, results of operations or
financial condition. See Item 1BusinessRaw Materials and Suppliers.
Our business is
affected by the cyclical and regulatory nature of the industries and markets
that we serve.
The heavy- and medium-duty truck and truck
components industries, the heavy-duty truck OEM market and, to a lesser extent,
the medium-duty truck OEM market and the heavy- and medium-wheel and
light-wheel industries are highly cyclical. These industries and markets
fluctuate in response to factors that are beyond our control, such as general
economic conditions, interest rates, federal and state regulations (including
engine emissions regulations, tariffs, import regulations and other taxes),
consumer spending, fuel costs and our customers inventory levels and
production rates. These industries and markets are particularly sensitive to
the industrial sector of the economy, which generates a significant portion of
the freight tonnage hauled by trucks. Economic downturns in the industries or
markets that we serve generally result in reduced sales of our products, which
could lower our profits and cash flows. The North American truck industry
experienced a significant decline in 2007 due to more stringent emissions
standards that became effective in 2007. We expect that the industry demand in
2008 will be similar to 2007.
In addition, our operations are typically
seasonal as a result of regular customer maintenance and model changeover
shutdowns, which typically occur in the third and fourth quarter of each
calendar year. This seasonality may result in decreased net sales and
profitability during the third and fourth fiscal quarters. Weakness in overall
economic conditions or in the markets that we serve, or significant reductions
by our customers in their inventory levels or future production rates, could
result in decreased demand for our products and could have a material adverse
effect on our business, results of operations or financial condition.
Additionally, higher energy costs may negatively impact customer demand for our
products.
11
Cost reduction and quality improvement initiatives by OEMs could
have a material adverse effect on our business, results of operations or
financial condition.
We are primarily a components supplier to the heavy-
and medium-duty truck industries, which are characterized by a small number of
OEMs that are able to exert considerable pressure on components suppliers
to reduce costs, improve quality and provide additional design and engineering
capabilities. Given the fragmented nature of the industry, OEMs continue
to demand and receive price reductions and measurable increases in quality
through their use of competitive selection processes, rating programs, and
various other arrangements. We may be unable to generate sufficient production
cost savings in the future to offset such price reductions. OEMs may also
seek to save costs by relocating production to countries with lower cost
structures, which could in turn lead them to purchase components from local
suppliers with lower production costs. Additionally, OEMs have generally
required component suppliers to provide more design engineering input at
earlier stages of the product development process, the costs of which have, in
some cases, been absorbed by the suppliers. Future price reductions, increased
quality standards and additional engineering capabilities required by
OEMs may reduce our profitability and have a material adverse effect on
our business, results of operations, or financial condition.
We operate in highly competitive
markets.
The markets in which we operate are highly
competitive. We compete with a number of other manufacturers and distributors
that produce and sell similar products. Our products primarily compete on the
basis of price, manufacturing and distribution capability, product design,
product quality, product delivery and product service. Some of our competitors
are companies, or divisions, units or subsidiaries of companies that are larger
and have greater financial and other resources than we do. Our products may not
be able to compete successfully with the products of our competitors. In
addition, our competitors may foresee the course of market development more
accurately than we do, develop products that are superior to our products, have
the ability to produce similar products at a lower cost than we can, or adapt
more quickly than we do to new technologies or evolving regulatory, industry,
or customer requirements. As a result, our products may not be able to compete
successfully with their products. In addition, OEMs may expand their
internal production of components, shift sourcing to other suppliers, or take
other actions that could reduce the market for our products and have a negative
impact on our business. We may encounter increased competition in the future
from existing competitors or new competitors. We expect these competitive
pressures in our markets to remain strong. See Item 1BusinessCompetition.
In addition, potential competition from foreign
truck components suppliers, especially in the aftermarket, may lead to an
increase in truck components imports into North America, adversely affecting
our market share and negatively affecting our ability to compete. Foreign truck
components suppliers may in the future increase their currently modest share of
the markets for truck components in which we compete. Some of these foreign
suppliers may be owned, controlled or subsidized by their governments, and
their decisions with respect to production, sales and exports may be influenced
more by political and economic policy considerations than by prevailing market
conditions. In addition, foreign truck components suppliers may be subject to
less restrictive regulatory and environmental regimes that could provide them
with a cost advantage relative to North American suppliers. Therefore, there is
a risk that some foreign suppliers may increase their sales of truck components
in North American markets despite decreasing profit margins or losses. If
future trade cases do not provide relief from such potential trade practices, U.S.
protective trade laws are weakened or international demand for trucks and/or
truck components decreases, an increase of truck component imports into the
United States may occur, which could have a material adverse effect on our
business, results of operations, or financial condition.
We face exposure to foreign business and operational risks including
foreign exchange rate fluctuations and if we were to experience a substantial
fluctuation, our profitability may change.
In the normal course of doing business, we are
exposed to risks associated with changes in foreign exchange rates,
particularly with respect to the Canadian dollar. From time to time, we use
forward foreign exchange contracts, and other derivative instruments, to help
offset the impact of the variability in exchange rates on our operations, cash
flows, assets and liabilities. At December 31, 2007, we had no open
foreign exchange forward contracts. Factors that could further impact the risks
associated with changes in foreign exchange rates include the accuracy of our
sales estimates, volatility of currency markets and the cost and availability
of derivative instruments. See Item 7A.
Quantitative and Qualitative Disclosure about Market Risk Foreign
Currency Risk. In addition, changes in
the laws or governmental policies in the countries in which we operate could
affect our business in such countries and our results of operations.
We may not be able to continue to
meet our customers demands for our products and services.
We must continue to meet our customers demand for
our products and services. However, we may not be
12
successful
in doing so. If our customers demand for our products and/or services exceeds
our ability to meet that demand, we may be unable to continue to provide our
customers with the products and/or services they require to meet their business
needs. Factors that could result in our inability to meet customer demands
include an unforeseen spike in demand for our products and/or services, a
failure by one or more of our suppliers to supply us with the raw materials and
other resources that we need to operate our business effectively or poor
management of our company or one or more divisions or units of our company,
among other factors. Our ability to provide our customers with products and
services in a reliable and timely manner, in the quantity and quality desired
and with a high level of customer service, may be severely diminished as a
result. If this happens, we may lose some or all of our customers to one or
more of our competitors, which would have a material adverse effect on our
business, results of operations, or financial condition.
In addition, it is important that we continue to
meet our customers demands in the truck components industry for product
innovation, improvement and enhancement, including the continued development of
new-generation products, design improvements and innovations that improve the
quality and efficiency of our products. Developing product innovations for the
truck components industry has been and will continue to be a significant part
of our strategy. However, such development will require us to continue to
invest in research and development and sales and marketing. In the future, we
may not have sufficient resources to make such necessary investments, or we may
be unable to make the technological advances necessary to carry out product
innovations sufficient to meet our customers demands. We are also subject to
the risks generally associated with product development, including lack of
market acceptance, delays in product development and failure of products to
operate properly. We may, as a result of these factors, be unable to
meaningfully focus on product innovation as a strategy and may therefore be
unable to meet our customers demand for product innovation.
Equipment failures, delays in deliveries or catastrophic loss at any of
our facilities could lead to production or service curtailments or shutdowns.
We manufacture our products at 23 facilities and
provide logistical services at our just-in-time sequencing facilities in the
United States. An interruption in production or service capabilities at any of
these facilities as a result of equipment failure or other reasons could result
in our inability to produce our products, which would reduce our net sales and
earnings for the affected period. In the event of a stoppage in production
at any of our facilities, even if only temporary, or if we experience delays as
a result of events that are beyond our control, delivery times to our customers
could be severely affected. Any significant delay in deliveries to our
customers could lead to increased returns or cancellations and cause us to lose
future sales. Our facilities are also subject to the risk of catastrophic loss
due to unanticipated events such as fires, explosions or violent weather
conditions. We may experience plant shutdowns or periods of reduced production
as a result of equipment failure, delays in deliveries or catastrophic loss,
which could have a material adverse effect on our business, results of
operations or financial condition.
We may incur potential product
liability, warranty and product recall costs.
We are subject to the risk of exposure to product
liability, warranty and product recall claims in the event any of our products
results in property damage, personal injury or death, or does not conform to
specifications. We may not be able to continue to maintain suitable and
adequate insurance in excess of our self-insured amounts on acceptable terms
that will provide adequate protection against potential liabilities. In
addition, if any of our products proves to be defective, we may be required to
participate in a recall involving such products. A successful claim brought
against us in excess of available insurance coverage, if any, or a requirement
to participate in any product recall, could have a material adverse effect on
our business, results of operations or financial condition.
Work stoppages or other labor
issues at our facilities or at our customers facilities could adversely affect
our operations.
As of December 31, 2007, unions represented
approximately 47% of our workforce. As a result, we are subject to the risk of
work stoppages and other labor relations matters. Any prolonged
strike or other work stoppage at any one of our principal unionized
facilities could have a material adverse effect on our business, results of
operations or financial condition. We have collective bargaining agreements with
different unions at various facilities. These collective bargaining agreements
expire at various times over the next few years, with the exception of our
union contract at our Monterrey, Mexico facility, which expires on an annual
basis. The 2008 negotiations in
Monterrey were successfully completed prior to the expiration of our union
contract. The contract at our Fabco
facility in California expires on August 31, 2008. Our contract with the
UAW at our Rockford, Illinois, facility expired in November 2007. We were not able to negotiate a mutually
acceptable agreement with the UAW, and as a result on November 18, 2007,
we began an indefinite lock-out in order to protect the supply of products to
our customers as well as provide security for facility personnel and
equipment. On March 9, 2008, the
workers represented by the UAW voted to approve a new contract. Although we expect the UAW workers to return
to work in the near future, we continue to operate the facility with salaried
employees and outside contractors. While
we did not experience
13
a
supply disruption to our customers during the lockout, there is no guarantee
that the lock-out and the reinstatement of the unionized workforce will not
have a material adverse affect on pre-tax earnings in 2008. Any failure by us
to reach a new agreement upon expiration of other union contracts may have a
material adverse effect on our business, results of operations, or financial
condition.
In addition, if any of our customers experience a
material work stoppage, that customer may halt or limit the purchase of our
products. This could cause us to shut down production facilities relating to
these products, which could have a material adverse effect on our business,
results of operations or financial condition.
We are subject to a number of
environmental rules and regulations that may require us to make
substantial expenditures.
Our operations, facilities, and properties are
subject to extensive and evolving laws and regulations pertaining to air
emissions, wastewater discharges, the handling and disposal of solid and
hazardous materials and wastes, the investigation and remediation of
contamination, and otherwise relating to health, safety, and the protection of
the environment and natural resources. As a result, we are involved from time
to time in administrative or legal proceedings relating to environmental,
health and safety matters, and have in the past incurred and will continue to
incur capital costs and other expenditures relating to such matters. In
addition to environmental laws that regulate our subsidiaries ongoing
operations, our subsidiaries are also subject to environmental remediation
liability. Under the federal Comprehensive Environmental Response,
Compensation, and Liability Act, or CERCLA, and analogous state laws, our
subsidiaries may be liable as a result of the release or threatened release of
hazardous materials into the environment. Our subsidiaries are currently
involved in several matters relating to the investigation and/or remediation of
locations where they have arranged for the disposal of foundry and other
wastes. Such matters include situations in which we have been named or are
believed to be Potentially Responsible Parties under CERCLA or state or local
laws in connection with the contamination of these sites. Additionally,
environmental remediation may be required to address soil and groundwater
contamination identified at certain facilities.
As of December 31, 2007, we had an environmental
reserve of approximately $2.6 million, related primarily to TTIs foundry
operations. This reserve is based on current cost estimates and does not reduce
estimated expenditures to net present value, but does take into account the
benefit of a contractual indemnity given to us by a prior owner of our
wheel-end subsidiary. The failure of the indemnitor to fulfill its obligations
could result in future costs that may be material. Any cash expenditures
required by us or our subsidiaries to comply with applicable environmental laws
and /or to 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 sites, the modification of existing or
the promulgation of new laws or regulations, 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 such a
material adverse effect.
The final Iron and Steel Foundry National Emission
Standard for Hazardous Air Pollutants, or NESHAP, was developed pursuant to Section 112(d) of
the Clean Air Act and requires all major sources of hazardous air pollutants to
install controls representative of maximum achievable control technology. We
are evaluating the applicability of the Iron and Steel Foundry NESHAP to our
foundry operations. If applicable, compliance with the Iron and Steel Foundry
NESHAP may result in future significant capital costs, which we currently expect
to be approximately $6 million in total during the period 2008 through
2009. See Item 1BusinessEnvironmental Matters.
We might fail to adequately protect
our intellectual property, or third parties might assert that our technologies
infringe on their intellectual property.
The protection of our intellectual property is
important to our business. We rely on a combination of trademarks, copyrights,
patents, and trade secrets to provide protection in this regard, but this
protection might be inadequate. For example, our pending or future trademark,
copyright, and patent applications might not be approved or, if allowed, they
might not be of sufficient strength or scope. Conversely, third parties might
assert that our technologies or other intellectual property infringe on their
proprietary rights. Although we have not had litigation with respect to such
matters in the past, litigation, which could result in substantial costs and
diversion of our efforts, might be necessary, and whether or not we are ultimately
successful, the litigation could adversely affect our business, results of
operations or financial condition. See Item 1BusinessIntellectual Property.
Litigation against us could be
costly and time consuming to defend.
We are regularly subject to legal proceedings and
claims that arise in the ordinary course of business, such as
14
workers
compensation claims, OSHA investigations, employment disputes, unfair labor
practice charges, customer and supplier disputes, and product liability claims
arising out of the conduct of our business. Litigation may result in
substantial costs and may divert managements attention and resources from the
operation of our business, which could adversely affect our business, results
of operations or financial condition.
If we fail to retain our executive
officers, our business could be harmed.
Our success largely depends on the efforts and
abilities of our executive officers. Their skills, experience and industry
contacts significantly contribute to the success of our business and our
results of operations. The loss of any one of them, in particular our President
and Chief Executive Officer, could have a material adverse effect on our
business, results of operations or financial condition. All of our executive
officers are at will, but each of them has a severance agreement, as discussed
directly below. In addition, our future success and profitability will also
depend, in part, upon our continuing ability to attract and retain highly
qualified personnel throughout our company.
Although we do not presently
anticipate terminating any senior management employees, certain senior
management employees have entered into potentially costly severance
arrangements with us.
Severance and Retention Agreements with certain
senior management employees provide that
the participating executive is entitled to a regular
severance payment if the Company terminates the participating executives
employment without cause or if the participating executive terminates his or
her employment with the Company for good reason (as these terms are defined
in the agreement) at any time other than during a Protection Period. The Protection Period begins on the date on
which a change in control (as defined in the agreement) occurs and ends 18
months after a change in control. The
regular severance benefit is equal to the participating executives base salary
for one year.
See Item 10Directors and Executive Officers of the
Registrant.
In addition, each
participating executive is entitled to a change in control severance benefit if
his or her employment with the Company is terminated during the Protection
Period either by the participating executive for good reason or by the
Company without cause.
The change in control severance benefits for
our Tier I executive (Mr. Murphy) consist of a payment equal to 300% of
the executives salary at termination, plus 300% of the greater of (i) the
annualized incentive compensation to which the executive would be entitled as
of the date on which the change of control occurs or (ii) the average
incentive compensation award over the three years prior to termination. The change in control severance benefits for
Tier II executives (Messrs. Armstrong, Gulda, Holt, Schomer and Wright)
consist of a payment equal to 200% of the executives salary plus 200% of the
greater of (i) the annualized incentive compensation to which the
executive would be entitled as of the date on which the change of control occurs
or (ii) the average incentive compensation award over the three years
prior to termination. The change in control severance benefits for Tier III
executives (other key executives) consist of a payment equal to 100% of the
executives salary and 100% of the greater of (i) the annualized incentive
compensation to which the executive would be entitled as of the date on which
the change of control occurs or (ii) the average incentive compensation
award over the three years prior to termination.
If the participating executives termination occurs
during the Protection Period, the severance and retention agreement also
provides for the continuance of certain other benefits, including reimbursement
for forfeitures under qualified plans and continued health, disability,
accident and dental insurance coverage for the lesser of 18 months (or 12
months in the case of Tier III executives) from the date of termination or the
date on which the executive receives such benefits from a subsequent employer. Tier I executives are entitled to a modified
tax gross-up.
Neither
the regular severance benefit nor the change in control severance benefit is
payable if the Company terminates the participating executives employment for cause,
if the executive voluntarily terminates his or her employment without good
reason or if the executives employment is terminated as a result of
disability or death. Any payments to
which the participating executive may be entitled under the agreement will be
reduced by the full amount of any payments to which the executive may be
entitled due to termination under any other severance policy offered by the
Company.
These agreements would make
it costly for us to terminate certain of our senior management employees and
such costs may also discourage potential acquisition proposals, which may
negatively affect our stock price.
Our products may be rendered
obsolete or less attractive by changes in regulatory, legislative or industry
requirements.
Changes in regulatory, legislative or industry
requirements may render certain of our products obsolete or less attractive.
Our ability to anticipate changes in these requirements, especially changes in
regulatory standards, will be a significant factor in our ability to remain
competitive. We may not be able to comply in the future with new regulatory,
legislative and/or industrial standards that may be necessary for us to remain
competitive or that certain of our products will not, as a result, become
obsolete or less attractive to our customers.
15
Our strategic initiatives may be
unsuccessful, may take longer than anticipated, or may result in unanticipated
costs.
Future strategic initiatives could include
divestitures, acquisitions, and restructurings, the success and timing of which
will depend on various factors. Many of
these factors are not in our control. In
addition, the ultimate benefit of any acquisition would depend on the
successful integration of the acquired entity or assets into our existing
business. Failure to successfully identify, complete, and/or integrate future
strategic initiatives could affect our results of operations.
Other Risks Related to Our Business
Our substantial leverage and
significant debt service obligations could adversely affect our financial
condition or our ability to fulfill our obligations and make it more difficult
for us to fund our operations.
At December 31, 2007, our total indebtedness
was $572.7 million. Our substantial level of indebtedness could have
important negative consequences to you and us, including:
·
We may have difficulty satisfying our obligations with respect to our
indebtedness;
·
We may have difficulty obtaining financing in the future for working
capital, capital expenditures, acquisitions or other purposes;
·
We will need to use a substantial portion of our available cash flow to
pay interest and principal on our debt, which will reduce the amount of money
available to finance our operations and other business activities;
·
Our debt level increases our vulnerability to general economic downturns
and adverse industry conditions;
·
Our debt level could limit our flexibility in planning for, or reacting
to, changes in our business and in our industry in general;
·
Our leverage could place us at a competitive disadvantage compared to our
competitors that have less debt;
·
We may not have sufficient funds available, and our debt level may
restrict us from raising the funds necessary, to repurchase all of our new
senior subordinated notes tendered to us upon the occurrence of a change of
control, which would constitute an event of default under the new senior
subordinated notes; and
·
Our failure to comply with the financial and other restrictive covenants
in our debt instruments which, among other things, require us to maintain
specified financial ratios and limit our ability to incur debt and sell assets,
could result in an event of default that, if not cured or waived, could have a
material adverse effect on our business or prospects.
In addition, certain of our borrowings are and will
continue to be at variable rates of interest, which exposes us to the risk of
increasing interest rates. As of December 31, 2007, the carrying value of
our total debt was $572.7 million, of which $297.7 million, or
approximately 52%, was subject to variable interest rates. As of December 31,
2007, we were party to two interest rate swap agreements. The first swap has a notional of $250 million
with terms to exchange with the counterparty, at specified intervals, the
difference between 4.43% from March 2007 through March 2008, and the
variable rate interest amounts calculated by reference to the notional
principal amount. The second agreement
was established in December 2007 and has terms with the counterparty, at
specified intervals, the difference between 3.81% from March 2008 through March 2010,
and the variable rate interest amounts calculated by reference to the notional
principal amount. The notional principal amounts under the terms are $200
million from March 2008 through March 2009, $150 million from March 2009
through September 2009 and $125 million from September 2009 through March 2010.
If interest rates increase, our debt service obligations on our variable rate
indebtedness would increase even though the amount borrowed remains the same.
See Item 6Selected Consolidated Financial Data.
Despite our substantial leverage, we
and our subsidiaries will be able to incur more indebtedness. This could
further exacerbate the risk immediately described above, including our ability
to service our indebtedness.
We and our subsidiaries may be able to incur
substantial additional indebtedness in the future. Although our senior credit
facilities and the indenture governing our new senior subordinated notes
contain restrictions on the incurrence of additional indebtedness, such
restrictions are subject to a number of qualifications and exceptions, and
under certain circumstances indebtedness incurred in compliance with such
restrictions could be substantial. For example, we may incur additional debt
to, among other things, finance future acquisitions, expand through internal
growth, fund our working capital needs, comply with regulatory requirements,
respond to competition or for general financial reasons alone. As of December 31,
2007, the revolving credit facility under our senior credit facility provides
for additional borrowings of up to $95 million under our U.S. facility and $30
million under our Canadian revolving credit facility. To the extent new debt is
added to our and our subsidiaries current debt levels, the risks described
above would increase.
16
To service our indebtedness, we will
require a significant amount of cash. Our ability to generate cash depends on
many factors beyond our control.
Our ability to make payments on and to refinance our
indebtedness and to fund planned capital expenditures and research and
development efforts will depend on our ability to generate cash in the future.
This, to a certain extent, is subject to general economic, financial,
competitive, legislative, regulatory, and other factors that are beyond our
control.
Our business may not generate sufficient cash flow
from operations. Our currently anticipated cost savings and operating
improvements may not be realized on schedule. Also, future borrowings may not
be available to us under our credit facilities in an amount sufficient to
enable us to pay our indebtedness or to fund our other liquidity needs. If our
cash flows and capital resources are insufficient to fund our debt service
obligations, we may be forced to reduce or delay capital expenditures, sell
material assets or operations, obtain additional equity capital or refinance
all or a portion of our indebtedness. In the absence of such operating results
and resources, we could face substantial cash flow problems and might be
required to sell material assets or operations to meet our debt service and
other obligations. We are unable to predict the timing of such asset sales or
the proceeds which we could realize from such sales and that we will be able to
refinance any of our indebtedness, including our senior credit facilities and
senior subordinated notes, on commercially reasonable terms or at all.
We are subject to a number of
restrictive covenants, which, if breached, may restrict our business and
financing activities.
Our senior credit facilities and the indenture
governing our senior subordinated notes impose, and the terms of any future
indebtedness may impose, operating and other restrictions on us. Such
restrictions will affect, and in many respects limit or prohibit, among other
things, our ability to:
·
incur additional debt;
·
pay dividends and make distributions;
·
issue stock of subsidiaries;
·
make certain investments;
·
repurchase stock;
·
create liens;
·
enter into affiliate transactions;
·
enter into sale-leaseback transactions;
·
merge or consolidate; and
·
transfer and sell assets.
In addition, our senior credit facilities include
other more restrictive covenants and prohibit us from prepaying our other
indebtedness, including our senior subordinated notes, while borrowings under
our senior credit facilities are outstanding. Our senior credit facilities also
require us to achieve certain financial and operating results and maintain
compliance with specified financial ratios. Our ability to comply with these
ratios may be affected by events beyond our control.
If we are unable to comply with the restrictions
contained in the credit facilities, the lenders could:
·
declare all borrowings outstanding, together with accrued and unpaid
interest, to be immediately due and payable;
·
require us to apply all of our available cash to repay the borrowings; or
·
prevent us from making debt service payments on the senior subordinated
notes;
any
of which would result in an event of default under our new senior subordinated
notes. If we were unable to repay or otherwise refinance these borrowings when
due, our lenders could sell the collateral securing our new senior credit facilities,
which constitutes substantially all of our and our subsidiaries assets.
Although holders of our senior subordinated notes could accelerate the notes
upon the acceleration of the obligations under our credit facilities, we may
not have sufficient assets remaining after we have paid all the borrowings
under our senior credit facilities, and any other senior debt, to repay the
senior subordinated notes.
17
Item 1B. Unresolved Staff Comments
None.
18
Item 2. Properties
The table below sets forth certain information
regarding the material owned and leased properties of Accuride and TTI. We
believe these properties are suitable and adequate for our business.
Facility Overview
Location
|
|
Business function
|
|
Brands
Manufactured
|
|
Owned/
Leased
|
|
Size
(sq. feet)
|
|
Evansville, IN
|
|
Corporate Headquarters
|
|
Corporate
|
|
Leased
|
|
37,229
|
|
London, Ontario, Canada
|
|
Heavy- and Medium-duty
Steel Wheels, Light Truck Steel Wheels
|
|
Accuride
|
|
Owned
|
|
536,259
|
|
Henderson, KY
|
|
Heavy- and Medium-duty
Steel Wheels, R&D
|
|
Accuride
|
|
Owned
|
|
364,365
|
|
Monterrey, Mexico
|
|
Heavy- and Medium-duty
Steel Wheels, Light Truck Wheels
|
|
Accuride
|
|
Owned
|
|
262,000
|
|
Erie, PA
|
|
Forging and
Machining-Aluminum Wheels
|
|
Accuride
|
|
Owned
|
|
421,229
|
|
Cuyahoga Falls, OH
|
|
Machining and
Polishing-Aluminum Wheels
|
|
Accuride
|
|
Leased
|
|
131,700
|
|
Taylor, MI
|
|
Warehouse
|
|
Accuride
|
|
Leased
|
|
75,000
|
|
Springfield, OH
|
|
Assembly Line and
Sequencing
|
|
Accuride
|
|
Owned
|
|
136,036
|
|
Rockford, IL
|
|
Wheel-end Foundry,
Warehouse, Administrative Office
|
|
Gunite
|
|
Owned
|
|
619,000
|
|
Elkhart, IN
|
|
Machining and
Assembling-Hub, Drums and Rotors
|
|
Gunite
|
|
Owned
|
|
258,000
|
|
Elkhart, IN
|
|
Machining and Assembling-Automatic
Slack Adjusters
|
|
Gunite
|
|
Leased
|
|
37,000
|
|
Bristol, IN
|
|
Warehouse
|
|
Gunite
|
|
Leased
|
|
108,000
|
|
Brillion, WI
|
|
Molding, Finishing,
Administrative Office
|
|
Brillion
|
|
Owned
|
|
451,740
|
|
Brillion, WI
|
|
Farm Equipment,
Administrative Office
|
|
Brillion
|
|
Owned
|
|
141,460
|
|
Madison, TN
|
|
Assembly Line and
Sequencing
|
|
Imperial
|
|
Leased
|
|
17,600
|
|
Portland, TN
|
|
Metal Fabricating,
Stamping, Assembly, Administrative Office
|
|
Imperial
|
|
Leased
|
|
200,000
|
|
Portland, TN
|
|
Plating and Polishing
|
|
Imperial
|
|
Owned
|
|
86,000
|
|
Decatur, TX
|
|
Metal Fabricating,
Stamping, Assembly, Machining and Polishing Shop
|
|
Imperial
|
|
Owned
|
|
122,000
|
|
Denton, TX
|
|
Assembly Line and
Sequencing
|
|
Imperial
|
|
Leased
|
|
60,000
|
|
Dublin, VA
|
|
Tube Bending, Assembly and
Line Sequencing
|
|
Imperial
|
|
Owned
|
|
122,000
|
|
Chehalis, WA
|
|
Metal Fabricating,
Stamping, Assembly
|
|
Imperial
|
|
Owned
|
|
90,000
|
|
Anniston, AL
|
|
Manufacturing
|
|
Imperial
|
|
Leased
|
|
132,000
|
|
Piedmont, AL
|
|
Manufacturing,
Administrative Office
|
|
Bostrom
|
|
Leased
|
(a)
|
200,000
|
|
Livermore, CA
|
|
Manufacturing, Warehouse,
Administrative Office
|
|
Fabco
|
|
Leased
|
|
56,800
|
|
(a)
This property is a leased
facility for which we have an option to buy at any time for a nominal price.
Item 3. Legal Proceedings
Neither Accuride nor any of our subsidiaries is a
party to any legal proceeding which, in the opinion of management, would have a
material adverse effect on our business or financial condition. However, we from time-to-time are involved in
ordinary routine litigation incidental to our business, including actions
related to product liability, contractual liability, workplace safety and
environmental claims. We establish
reserves for matters in which losses are probable and can be reasonably
estimated. While we believe that we have
established adequate accruals for our expected future liability with respect to
our pending legal actions and proceedings, our liability with respect to any
such action or proceeding may exceed our established accruals. Further, litigation that may have a material
adverse affect on our financial condition may arise in the future.
On January 19, 2007, the Public Works
Superintendent of the City of Portland, Tennessee issued a cease and desist
order to our Imperial Group subsidiary, alleging Imperial Groups Portland,
Tennessee facility was discharging wastewater into the City of Portlands
wastewater treatment system that contained nickel in excess of permit
limits. We fully cooperated with the
City of Portland to address the alleged wastewater discharge issue, negotiated
a settlement, and paid damages and penalties totaling approximately $0.3
million.
Item 4. Submissions of Matters to a Vote of Security Holders
None.
19
Part II
Item 5.
Market for Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Our common stock began trading publicly on
the New York Stock Exchange on April 26, 2005, under the symbol ACW.
Prior to that date, there was no public market for our common stock. As
of March 7, 2008, there were approximately 22 holders of record of our
common stock, although there are many more beneficial owners.
The
following table sets forth the high and low sale prices of the common stock
during 2006 and 2007.
|
|
High
|
|
Low
|
|
Fiscal Year Ended December 31, 2006
|
|
|
|
|
|
First Quarter
|
|
$
|
13.36
|
|
$
|
10.05
|
|
Second Quarter
|
|
$
|
12.52
|
|
$
|
9.92
|
|
Third Quarter
|
|
$
|
12.60
|
|
$
|
9.85
|
|
Fourth Quarter
|
|
$
|
12.75
|
|
$
|
10.92
|
|
Fiscal Year Ended December 31, 2007
|
|
|
|
|
|
First Quarter
|
|
$
|
15.00
|
|
$
|
10.96
|
|
Second Quarter
|
|
$
|
16.11
|
|
$
|
13.60
|
|
Third Quarter
|
|
$
|
16.91
|
|
$
|
12.11
|
|
Fourth Quarter
|
|
$
|
12.65
|
|
$
|
6.94
|
|
DIVIDEND POLICY
We have never declared or paid any cash
dividends on our common stock. For the foreseeable future, we intend to retain
any earnings, and we do not anticipate paying any cash dividends on our common
stock. In addition, our senior credit facilities and the indenture governing
our senior subordinated notes restrict our ability to pay dividends. See Managements
Discussion and Analysis of Financial Condition and Results of
OperationsCapital Resources and Liquidity. Any future determination to pay
dividends will be at the discretion of our Board of Directors and will be dependent
upon then existing conditions, including our financial condition and results of
operations, capital requirements, contractual restrictions, business prospects
and other factors that our Board of Directors considers relevant. Furthermore,
as a holding company, we depend on the cash flow of our subsidiaries.
STOCK OPTION AND PURCHASE PLAN
In connection with the initial public
offering of 11,000,000 shares of our common stock in 2005, we adopted the
Accuride 2005 Incentive Award Plan, which we refer to as the Incentive Plan,
and the Accuride Employee Stock Purchase Plan, or ESPP. The Incentive Plan will terminate on the
earlier of ten years after it was approved by our stockholders or when our
Board of Directors terminates the Incentive Plan. Up to 1,633,988 shares of our
common stock were reserved for issuance upon the grant or exercise of Awards
under the Incentive Award Plan. On June 14, 2007, the 2005 Incentive Award
Plan was amended to increase the number of shares available for common stock
grants to 3,633,988. Under the Accuride ESPP, we reserved 653,595 shares as
available to issue to all of our eligible employees as determined by the Board
of Directors. The ESPP has quarterly offering periods, however, payroll
deductions for participants are accumulated during the quarterly offering
periods. Effective January 1,
2006, the ESPP allows for shares to be purchased at a price per share equal to
95% of the fair market value per share on the purchase dates.
20
The following table gives information about
equity awards as of December 31, 2007:
Plan category
|
|
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
|
|
Weighted-average
exercise price of
outstanding options,
warrants, and rights
|
|
Number of securities remaining
available for future issuance
under equity compensation plans
(excluding securities reflected in
column (a))
|
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
Equity compensation plans approved by
security holders
|
|
1,782,555
|
|
$
|
11.14
|
|
2,048,973
|
|
Equity compensation plans not approved by
security holders
|
|
|
|
$
|
|
|
|
|
PERFORMANCE GRAPH
The following graph shows the total
stockholder return of an investment of $100 in cash on April 26, 2005, the
date public trading commenced in our common stock, for (i) our common
stock, (ii) the S&P 500 Index, and (iii) a peer group of
companies we call Commercial Vehicle Suppliers.
We believe that a peer group of representative independent automotive
suppliers of approximately comparable size and products to Accuride Corporation
is appropriate for comparing shareowner return.
The Commercial Vehicle Suppliers group consists of ArvinMeritor, Inc.,
Commercial Vehicle Group, Inc., Cummins, Inc., Eaton Corporation, and
Stoneridge, Inc. All values assume
reinvestment of the full amount of all dividends and are calculated through December 31,
2007.
|
|
April 26,
2005
|
|
December 31,
2005
|
|
December 31,
2006
|
|
December 31,
2007
|
|
Accuride Corporation
|
|
$
|
100.0
|
|
$
|
143.3
|
|
$
|
125.1
|
|
$
|
87.3
|
|
S&P 500 Index
|
|
$
|
100.0
|
|
$
|
108.4
|
|
$
|
123.1
|
|
$
|
127.5
|
|
Commercial Vehicle Suppliers
|
|
$
|
100.0
|
|
$
|
118.5
|
|
$
|
151.1
|
|
$
|
207.0
|
|
RECENT SALES OF UNREGISTERED SECURITIES
None.
ISSUER PURCHASES OF EQUITY SECURITIES
None.
21
Item 6.
Selected Consolidated Financial Data
The following financial data is an integral
part of, and should be read in conjunction with the Consolidated Financial
Statements and notes thereto. Information concerning significant trends in the
financial condition and results of operations is contained in Item 7Managements
Discussion and Analysis of Financial Condition and Results of Operations.
Selected Historical Operations Data
(In thousands, except per share data)
|
|
2007(1)
|
|
2006(1)
|
|
2005(1)
|
|
2004
|
|
2003
|
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,013,686
|
|
$
|
1,408,155
|
|
$
|
1,229,311
|
|
$
|
494,008
|
|
$
|
364,258
|
|
Gross profit(a)
|
|
86,494
|
|
196,897
|
|
201,136
|
|
102,657
|
|
62,457
|
|
Operating expenses(b)
|
|
56,898
|
|
53,458
|
|
51,601
|
|
25,550
|
|
23,918
|
|
Income from operations
|
|
29,596
|
|
143,439
|
|
149,535
|
|
77,107
|
|
38,539
|
|
Operating income margin(c)
|
|
2.9
|
%
|
10.2
|
%
|
12.2
|
%
|
15.6
|
%
|
10.6
|
%
|
Interest income (expense), net(d)
|
|
(48,344
|
)
|
(50,910
|
)
|
(71,117
|
)
|
(36,845
|
)
|
(49,877
|
)
|
Equity in earnings of affiliates(e)
|
|
|
|
621
|
|
455
|
|
646
|
|
485
|
|
Other income (expense), net(f)
|
|
6,978
|
|
602
|
|
563
|
|
108
|
|
825
|
|
Income tax (expense) benefit
|
|
3,131
|
|
(28,619
|
)
|
(28,209
|
)
|
(19,526
|
)
|
1,076
|
|
Net income (loss)
|
|
(8,639
|
)
|
65,133
|
|
51,229
|
|
21,490
|
|
(8,952
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
82,942
|
|
151,013
|
|
91,915
|
|
58,329
|
|
8,964
|
|
Investing activities
|
|
(36,366
|
)
|
(40,795
|
)
|
(47,606
|
)
|
(27,272
|
)
|
(20,672
|
)
|
Financing activities
|
|
(65,845
|
)
|
(48,429
|
)
|
(67,737
|
)
|
(1,906
|
)
|
13,134
|
|
EBITDA(g)
|
|
99,260
|
|
211,691
|
|
196,107
|
|
106,299
|
|
69,653
|
|
Unusual items (increasing) decreasing
EBITDA(h)
|
|
9,647
|
|
5,445
|
|
2,045
|
|
(427
|
)
|
2,061
|
|
Depreciation, amortization, and
impairment(i)
|
|
62,686
|
|
67,029
|
|
45,552
|
|
28,438
|
|
29,804
|
|
Capital expenditures
|
|
36,499
|
|
42,189
|
|
39,958
|
|
26,421
|
|
20,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data (end of year):
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
90,935
|
|
$
|
110,204
|
|
$
|
48,415
|
|
$
|
71,843
|
|
$
|
42,692
|
|
Working capital(j)
|
|
72,476
|
|
101,137
|
|
106,256
|
|
32,944
|
|
34,403
|
|
Total assets
|
|
1,113,634
|
|
1,233,187
|
|
1,220,354
|
|
563,297
|
|
511,395
|
|
Total debt
|
|
572,725
|
|
642,725
|
|
697,725
|
|
488,680
|
|
490,475
|
|
Stockholders equity (deficiency)
|
|
273,800
|
|
263,582
|
|
175,743
|
|
(45,781
|
)
|
(66,765
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) Per Share Data:(k)
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.25
|
)
|
$
|
1.90
|
|
$
|
1.74
|
|
$
|
1.47
|
|
$
|
(0.61
|
)
|
Diluted
|
|
(0.25
|
)
|
1.88
|
|
1.70
|
|
1.41
|
|
(0.61
|
)
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
35,179
|
|
34,280
|
|
29,500
|
|
14,657
|
|
14,655
|
|
Diluted
|
|
35,249
|
|
34,668
|
|
30,075
|
|
15,224
|
|
14,655
|
|
(1)
The consolidated information provided since January 31,
2005 includes the acquisition of TTI.
(a)
Gross profit for 2003 reflects $2.2 million
for costs associated with the fire damage and resulting business interruption
sustained at our facility in Cuyahoga Falls, Ohio in August 2003,
$0.4 million for strike contingency costs associated with the renewal of
our labor contract at our facility in Erie, Pennsylvania, and $0.3 million
for pension related costs at our facility in London, Ontario. Gross profit for
2004 reflects $0.5 million for costs associated with the fire damage and
resulting business interruption sustained at our facility in Cuyahoga Falls,
Ohio in August 2003, $1.2 million for costs associated with roof
damage and resulting business interruption sustained at our facility in
Cuyahoga Falls, Ohio, offset by $2.0 million of insurance proceeds
received in the fourth quarter of 2004 related to the business interruption
portion of our 2003 fire claim. Gross
profit for 2005 reflects $0.7 million of pension curtailment costs associated
with our facility in Rockford, Illinois.
Gross profit for 2006 was impacted by a $10.4 million increase in
revenue from a resolution of a commercial dispute with a customer, accelerated
depreciation expense of certain light wheel assets in our London, Ontario, and
Monterrey, Mexico, facilities of $16.3 million, a loss of $1.4 million from a
sale of property in Columbia, Tennessee, an impairment of tooling assets in our
Piedmont, Alabama, facility of $2.3 million and a non-cash pension curtailment
charge of $2.5 million in our London, Ontario, facility. Gross profit for 2007
was impacted by a $10.6 million increase in revenue from a 2006 resolution of a
commercial dispute with a customer, depreciation expense of certain Wheel
assets of $12.8 million associated the acceleration of depreciation in 2006, a
non-cash post-employment benefit curtailment charge of $1.2 million due to a
plan amendment at our Erie, Pennsylvania facility, and a non-cash curtailment
charge of $9.1 million in our London, Ontario, facility.
22
(b)
Includes $2.7 million and
$1.5 million of stock-based compensation expense during the years ended December 31,
2007 and 2006, respectively, due to the adoption of SFAS 123(R),
Share-Based Payment
, on January 1, 2006. During 2007, an intangible asset impairment
of $1.1 million was recorded related to our Gunite trade name.
(c)
Represents operating income
as a percentage of sales.
(d)
Includes $1.6 million for
fees related to an amendment of covenants during the year ended December 31,
2007. Includes $11.3 million and $20.0 million of refinancing costs and
$0.0 million and $4.5 million of losses on debt extinguishment during the years
ended December 31, 2003 and December 31, 2005, respectively.
(e)
Includes our income from AOT, Inc.,
a joint venture in which we owned a 50% interest through October 31,
2006. On October 31, 2006, Accuride
acquired the remaining interest from Goodyear, making AOT, Inc. a
wholly-owned subsidiary of the Company.
(f)
Consists primarily of
realized and unrealized gains and losses related to the change in market value
of our currency, commodity and interest rate derivative instruments.
(g)
EBITDA is not intended to
represent cash flows as defined by generally accepted accounting principles, or
GAAP, and should not be considered as an alternative to net income as an
indicator of our operating performance or to cash flows as a measure of
liquidity. We have included information concerning EBITDA because it is a basis
upon which we assess our financial performance and incentive compensation, and
certain covenants in our borrowing arrangements are tied to this measure. In
addition, EBITDA is used by certain investors as a measure of the ability of a
company to service or incur indebtedness and because it is a financial measure
commonly used in our industry. EBITDA as presented in this report may not be
comparable to similarly titled measures used by other companies in our
industry. EBITDA consists of our net income (loss) before interest expense,
income tax expense (benefit), depreciation and amortization. Set forth below is
a reconciliation of our net income (loss) to EBITDA:
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
Net income (loss)
|
|
$
|
(8,639
|
)
|
$
|
65,133
|
|
$
|
51,229
|
|
$
|
21,490
|
|
$
|
(8,952
|
)
|
Income tax expense (benefit)
|
|
(3,131
|
)
|
28,619
|
|
28,209
|
|
19,526
|
|
(1,076
|
)
|
Interest expense, net
|
|
48,344
|
|
50,910
|
|
71,117
|
|
36,845
|
|
49,877
|
|
Depreciation, amortization, and impairment
|
|
62,686
|
|
67,029
|
|
45,552
|
|
28,438
|
|
29,804
|
|
EBITDA
|
|
$
|
99,260
|
|
$
|
211,691
|
|
$
|
196,107
|
|
$
|
106,299
|
|
$
|
69,653
|
|
(h)
EBITDA was affected by the
unusual items presented pre-tax in the following table:
(in thousands)
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
Restructuring and curtailment costs(1)
|
|
$
|
16,774
|
|
$
|
3,392
|
|
|
|
|
|
|
|
Business interruption costs less
recoveries(2)
|
|
(3,225
|
)
|
|
|
$
|
(871
|
)
|
$
|
(319
|
)
|
$
|
2,157
|
|
Strike avoidance costs(3)
|
|
2,141
|
|
|
|
|
|
|
|
444
|
|
Other unusual items(4)
|
|
450
|
|
2,111
|
|
1,728
|
|
|
|
285
|
|
Items related to Accurides credit
agreement(5)
|
|
(6,493
|
)
|
(58
|
)
|
(565
|
)
|
(108
|
)
|
(825
|
)
|
Inventory adjustment(6)
|
|
|
|
|
|
1,753
|
|
|
|
|
|
Unusual items (increasing) decreasing
EBITDA
|
|
$
|
9,647
|
|
$
|
5,445
|
|
$
|
2,045
|
|
$
|
(427
|
)
|
$
|
2,061
|
|
(1)
Restructuring and curtailment
costs for 2007 and 2006 are $15.6 million and $3.4 million of costs associated
with a reduction in the employee workforce in our London, Ontario facility,
respectively. Also included in 2007 is a
$1.2 million curtailment charge associated with the reduction of certain
postretirement benefits at our Erie, Pennsylvania facility.
(2)
Business interruption costs
related to equipment failures at our Erie, Pennsylvania facility in 2006 were
offset by insurance proceeds of $9.1 million in 2007 upon settlement of
insurance claims. Business interruption
costs for 2003 included $2.2 million of costs associated with the fire
damage and resulting business interruption sustained at our facility in
Cuyahoga Falls, Ohio in August 2003. Business interruption costs for 2004
and 2005 included $1.2 million for costs associated with roof damage and
resulting business interruption sustained at Accurides facility in Cuyahoga
Falls, Ohio and $0.5 million of additional costs associated with the fire
damage and resulting business interruption sustained at Accurides facility in
Cuyahoga Falls, Ohio in August 2003.
23
These costs were offset by insurance proceeds
in the amount of $2.0 million related to our business interruption claim
for the 2003 fire.
(3)
In 2007, we incurred
$2.1 million for lockout related costs associated with the expiration of
the labor contract at our facility in Rockford, Illinois. In 2003, we incurred
$0.4 million for strike contingency costs associated with the renewal of
our labor contract at our facility in Erie, Pennsylvania.
(4)
Other unusual items in 2007
included $0.5 million for fees associated with our secondary stock
offerings. Other unusual items in 2006 included $1.4 million for
write-downs and fees related to the sale of our Columbia, Tennessee, facility
and $0.7 million for other
non-operating/non-recurring items at our Erie, Pennsylvania, facility.
Other unusual items in 2005 included $0.8 million for fees associated with
our secondary stock offering, $0.3 million inventory write-down for a business
exit and $0.7 million for a pension curtailment charge. Other unusual items in
2003 included $0.3 million for pension-related costs at our facility in
London, Ontario.
(5)
Items related to our credit agreement refer to
amounts utilized in the calculation of financial covenants in Accurides senior
debt facility. Items related to our credit agreement that are included in this
summary are primarily currency gains or losses.
(6)
Cost of sales in 2005 included $1.8 million to
reflect the sale of inventory that has been adjusted to fair market value as part
of the TTI acquisition.
(i)
During 2007 and 2006, we
recorded $12.8 million and $16.3 million of accelerated depreciation of certain
wheel assets as a result of a reduction of the useful lives of the assets in
2006. During 2007, an intangible asset impairment loss of $1.1 million was
recorded related to our Gunite trade name.
(j)
Working capital represents
current assets less cash and current liabilities, excluding debt.
(k)
Basic and diluted earnings
per share data are calculated by dividing net income (loss) by the weighted
average basic and diluted shares outstanding.
24
Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Managements Discussion and Analysis of Financial Condition and
Results of Operations, or MD&A, describes matters we consider important to
understanding the results of our operations for each of the three years in the
period ended December 31, 2007, and our capital resources and liquidity as
of December 31, 2007 and 2006.
The following discussion should be read in conjunction with the Selected
Consolidated Financial Data and our Consolidated Financial Statements and the
notes thereto, all included elsewhere in this report. The information set forth
in this Managements Discussion and Analysis of Financial Condition and
Results of Operations includes forward-looking statements that involve risks
and uncertainties. Many factors could cause actual results to differ from those
contained in the forward-looking statements including, but not limited to,
those discussed in Item 7A. Quantitative and Qualitative Disclosure about
Market Risk, Item 1A. Risk Factors and elsewhere in this report.
General Overview
We are one of the largest and most diversified manufacturers and
suppliers of commercial vehicle components in North America. Our products
include commercial vehicle wheels, wheel-end components and assemblies, truck
body and chassis parts, seating assemblies and other commercial vehicle
components. We market our products under some of the most recognized brand
names in the industry, including Accuride, Gunite, Imperial, Bostrom, Fabco,
and Brillion. We believe that we have number one or number two market positions
in steel wheels, forged aluminum wheels, brake drums, disc wheel hubs, spoke
wheels, metal grills, metal bumpers, crown assemblies, chrome plating and
polishing, seating assemblies, and fuel tanks in commercial vehicles. We serve
the leading original equipment manufacturers, or OEMs, and their related
aftermarket channels in most major segments of the commercial vehicle market,
including heavy- and medium-duty trucks, commercial trailers, light trucks,
buses, as well as specialty and military vehicles.
Our primary product lines are standard equipment used by a majority of
North American heavy- and medium-duty truck OEMs, creating a significant barrier
to entry. We believe that substantially all heavy-duty truck models
manufactured in North America contain one or more Accuride components.
Our diversified customer base includes substantially all of the leading
commercial vehicle OEMs, such as Daimler Truck north America, LLC, with its
Freightliner, Sterling and Western Star brand trucks, PACCAR, Inc., with
its Peterbilt and Kenworth brand trucks, International Truck and Engine
Corporation, with its International brand trucks, and Volvo Truck Corporation,
or Volvo/Mack, with its Volvo and Mack brand trucks. Our primary commercial
trailer customers include leading commercial trailer OEMs, such as Great Dane
Limited Partnership and Wabash National, Inc. Our major light truck
customer is General Motors Corporation. Our product portfolio is supported by
strong sales, marketing and design engineering capabilities and is manufactured
in 23 strategically located, technologically-advanced facilities across the
United States, Mexico and Canada.
TTI Merger
On January 31, 2005, pursuant to the terms of an agreement and
plan of merger, a wholly owned subsidiary of Accuride was merged with and into
TTI, resulting in TTI becoming a wholly-owned subsidiary of Accuride. We refer to this transaction as the TTI
merger. Upon consummation of the TTI merger, the stockholders of Accuride
(prior to consummation
25
of the TTI merger) owned 66.88% of the common stock of the combined
company and the former stockholders of TTI owned 33.12% of the common stock of
the combined company.
We completed our initial public offering of 11 million shares of our
common stock on April 26, 2005, and our common stock now trades on the New
York Stock Exchange under the symbol ACW.
We used the net proceeds of approximately $89.6 million from the IPO to
repay a portion of our long-term debt.
Dispute Resolution
During the fourth quarter of 2006, we resolved a commercial dispute
with Ford Motor Company. As a result of the resolution, we recognized
$10.4 million and $10.6 million of revenue in 2006 and 2007,
respectively. In addition, cash flow increased by $10.0 million and $11.0
million in 2006 and 2007, respectively. Ford re-sourced its Accuride business
to another supplier during 2007. In
2007, total sales to Ford were less than 5% of total revenues. See Note 5 for a
discussion of accelerated depreciation associated with the light wheel assets
as a result of the reduction in product sales to Ford.
Business Outlook
Following a strong 2006, the North American heavy- and medium-duty
truck and commercial trailer markets experienced a significant decline in 2007
due to stricter emissions standards that became effective in January 2007.
The emissions regulations that took effect in 2007 were expected to result in
cleaner operating, yet more costly, trucks. As a result, some of our customers
altered their traditional buying trends, which resulted in higher than normal
demand in late 2006, which was followed by a period of reduced demand in 2007. Industry analysts expect that demand in 2008
will be similar to 2007 The heavy- and
medium-duty truck and commercial trailer markets and the related aftermarket
are the primary drivers of our sales. These markets are, in turn, directly
influenced by conditions in the North American truck industry generally and by
overall economic growth and consumer spending. Delayed or failed economic
recovery could have a material adverse effect on our business, results of
operations, or financial condition.
Our operating challenges are to meet these varying levels of production
while improving our internal productivity.
26
Results of
Operations
Comparison of Fiscal
Years 2007 and 2006
The following table sets forth certain income statement information for
the years ended December 31, 2007 and 2006:
(In thousands except per share data)
|
|
Fiscal 2007
|
|
Fiscal 2006
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
Wheels
|
|
$
|
477,115
|
|
47.1
|
%
|
$
|
678,499
|
|
48.2
|
%
|
Components
|
|
491,324
|
|
48.5
|
%
|
681,371
|
|
48.4
|
%
|
Other
|
|
45,247
|
|
4.4
|
%
|
48,285
|
|
3.4
|
%
|
Total net sales
|
|
$
|
1,013,686
|
|
100.0
|
%
|
$
|
1,408,155
|
|
100.0
|
%
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
Wheels
|
|
69,555
|
|
14.6
|
%
|
115,508
|
|
17.0
|
%
|
Components
|
|
7,108
|
|
1.4
|
%
|
72,458
|
|
10.6
|
%
|
Other
|
|
11,676
|
|
25.8
|
%
|
12,041
|
|
24.9
|
%
|
Corporate
|
|
(1,845
|
)
|
|
%
|
(3,110
|
)
|
|
%
|
Total gross profit
|
|
86,494
|
|
8.5
|
%
|
196,897
|
|
14.0
|
%
|
Operating expenses
|
|
56,898
|
|
5.6
|
%
|
53,458
|
|
3.8
|
%
|
Income from operations
|
|
29,596
|
|
2.9
|
%
|
143,439
|
|
10.2
|
%
|
Interest (expense), net
|
|
(48,344
|
)
|
(4.8
|
)%
|
(50,910
|
)
|
(3.6
|
)%
|
Equity in earnings of affiliates
|
|
|
|
|
%
|
621
|
|
0.0
|
%
|
Other income
|
|
6,978
|
|
0.7
|
%
|
602
|
|
0.0
|
%
|
Income tax provision (benefit)
|
|
(3,131
|
)
|
(0.3
|
)%
|
28,619
|
|
2.0
|
%
|
Net income (loss)
|
|
$
|
(8,639
|
)
|
(0.9
|
)%
|
$
|
65,133
|
|
4.6
|
%
|
Net Sales.
Net sales for the year ended December 31,
2007 were $1,013.7 million, which decreased 28.0% compared to net sales of
$1,408.2 million for the year ended December 31, 2006. The decrease in net sales was realized in
each of our segments and was primarily a result of the reduced demand in the
commercial vehicle industry due to a change of emission standards that became
effective in 2007, partially offset by approximately $40 million of other price
increases realized to offset increased material costs.
Gross Profit.
Gross profit decreased $110.4 million to $86.5 million
for the year ended December 31, 2007 from $196.9 million for the year
ended December 31, 2006 primarily due to reduced sales and operating
inefficiencies related to low production volume. Gross profit as a percent of sales dropped
from 14.0% to 8.5%, due to our Components segments gross margin of 10.6% in
2006 dropping to 1.4% in 2007 due to inefficiencies caused by reduced sales.
Included in 2007 in our Components segment were $2.1 million of costs related
to a labor disruption at Rockford, Illinois. Included in 2007 results in our
Wheels segment are additional severance and other charges of $15.5 million
related to a reduction-in-force in our Canadian facility, other benefit charges
of $1.2 million related to a post-employment benefit plan amendment at our
facility in Erie, Pennsylvania, accelerated depreciation of $12.8 million, and
recognition of a gain of $3.8 million from an insurance settlement.
Operating Expenses.
Operating expenses increased $3.4 million to $56.9 million for the year
ended December 31, 2007 from $53.5 million for the year ended December 31,
2006. This was primarily due to
year-over-year increases in non-cash share-based compensation expense of $1.3
million, start-up costs for our facility in Alabama of $1.4 million, an
intangible asset impairment loss of $1.1 million recorded in our Components
segment related to Gunites trade name, and expenses of $0.5 million related to
the secondary stock offerings by selling shareholders in 2007.
Interest Expense.
Net interest expense
decreased $2.6 million to $48.3 million for the year ended December 31,
2007 from $50.9 million for the year ended December 31, 2006. The reduction of expense is attributable to a
decrease in interest expense related to reduced debt, partially offset by $0.3
million of losses from our interest rate swap agreements in the current year
compared to $2.4 million of gains in the prior years results and $1.6 million
of costs incurred in 2007 related to amending our credit agreements. Total debt as of December 31, 2007, was
$572.7 million compared to $642.7 million as of December 31, 2006.
27
Income Tax Provision.
The
$3.1 million
of
income tax benefits recorded in the
year ended December 31, 2007, was $31.7 million lower than the $28.6
million expense in the year ended December 31, 2006, which was due to the
decrease in pre-tax earnings of $105.5 million and the impact of foreign
currency exchange rates during 2007. The
effective rate for the year ended December 31, 2007, was (26.6%) compared
to 30.5% for the year ended December 31, 2006. The differences between the
effective rates and statutory rates for our U.S. and Mexico tax jurisdictions
have not changed significantly. However,
recent changes in the Canadian dollar to U.S. dollar exchange rates during the
period have resulted in a pre-tax loss (and, therefore, an income tax benefit)
for our Canadian tax jurisdiction, whereas we recorded pre-tax income under
U.S. GAAP.
Net Income.
We had a net loss of $8.6 million for the year ended December 31,
2007 compared to net income of $65.1 million for the year ended December 31,
2006. This was primarily a result of the
lower gross profit due to the reduction in sales demand and the additional
depreciation, severance and other benefit charges.
Comparison of Fiscal
Years 2006 and 2005
The following table sets forth certain income statement information for
the years ended December 31, 2006 and 2005:
(In thousands except per share data)
|
|
Fiscal 2006
|
|
Fiscal 2005
|
|
|
|
|
|
%
|
|
|
|
%
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
Wheels
|
|
$
|
678,499
|
|
48.2
|
%
|
$
|
619,985
|
|
50.4
|
%
|
Components
|
|
681,371
|
|
48.4
|
%
|
570,119
|
|
46.4
|
%
|
Other
|
|
48,285
|
|
3.4
|
%
|
39,207
|
|
3.2
|
%
|
Total net sales
|
|
$
|
1,408,155
|
|
100.0
|
%
|
$
|
1,229,311
|
|
100.0
|
%
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
Wheels
|
|
115,508
|
|
17.0
|
%
|
137,952
|
|
22.3
|
%
|
Components
|
|
72,458
|
|
10.6
|
%
|
57,591
|
|
10.1
|
%
|
Other
|
|
12,041
|
|
24.9
|
%
|
8,164
|
|
20.8
|
%
|
Corporate
|
|
(3,110
|
)
|
|
%
|
(2,571
|
)
|
|
%
|
Total gross profit
|
|
196,897
|
|
14.0
|
%
|
201,136
|
|
16.4
|
%
|
Operating expenses
|
|
53,458
|
|
3.8
|
%
|
51,601
|
|
4.2
|
%
|
Income from operations
|
|
143,439
|
|
10.2
|
%
|
149,535
|
|
12.2
|
%
|
Interest (expense), net
|
|
(50,910
|
)
|
(3.6
|
)%
|
(71,117
|
)
|
(5.8
|
)%
|
Equity in earnings of affiliates
|
|
621
|
|
0.0
|
%
|
455
|
|
0.0
|
%
|
Other income
|
|
602
|
|
0.0
|
%
|
565
|
|
0.1
|
%
|
Net income
|
|
$
|
65,133
|
|
4.6
|
%
|
$
|
51,229
|
|
4.2
|
%
|
Net Sales.
Net sales increased by $178.9 million,
or 14.6%, in 2006 to $1,408.2 million, compared to $1,229.3 million
for 2005. The 2005 results include the acquisition of TTI as of January 31,
2005. Approximately $60 million of the increase in net sales was the
result of consolidating the TTI subsidiaries results for the full year of
2006. Approximately $81 million of the increase was due to the cyclical
recovery in the commercial vehicle industry. In addition to the increase in the
sales volume, net sales increased approximately $38 million due to raw
material surcharges and price increases that were necessitated by the rising
costs of raw materials.
Gross Profit.
Gross profit decreased by $4.2 million to
$196.9 million for 2006 from $201.1 million for 2005. The decrease
was mostly realized in our Wheels segment and was primarily attributable to
accelerated depreciation expense of certain light wheel assets in our London, Ontario,
and Monterrey, Mexico facilities of $16.3 million, a loss of $1.4 million from
a sale of property in Columbia, Tennessee, an impairment of tooling assets in
our Piedmont, Alabama facility of $2.3 million, and other costs associated with
a reduction of workforce in our London, Ontario facility of $3.4 million. These
decreases were partially offset by a $10.4 million increase in revenue from a
resolution of a commercial dispute with a customer and other increases due to
the higher sales volume mentioned above.
Operating Expenses.
Operating expenses increased by
$1.9 million, or 3.7%, to $53.5 million for 2006 from
$51.6 million for 2005. This increase was primarily due to recording $1.5
million of stock-based compensation expense in 2006 due to the adoption of SFAS
123(R),
Share-Based Payment
, on January 1,
2006. Included in 2005 was $0.8 million of expenses related to the secondary
stock offerings by selling shareholders.
Interest Expense.
Net interest expense decreased by $20.2
million to $50.9 million for 2006 compared to $71.1 million for 2005.
Included in 2005 are $20.0 million of expenses related to the refinancing of
notes and term debt.
28
Net Income.
We had net income of $65.1 million for the
year ended December 31, 2006 compared to net income of $51.2 million
for the year ended December 31, 2005. Tax expense increased
$0.4 million to $28.6 million for 2006 from $28.2 million in
2005 due to the increased earnings before taxes. The effective tax rate for
2006 was 30.5%, which was a reduction from the 2005 effective tax rate of
35.5%. The lower effective tax rate in 2006 was mainly due to lower effective
tax rates incurred in foreign jurisdictions, a change in expected realization
of federal and state net operating losses, and favorable resolutions of certain
tax contingencies.
Changes in Financial Condition
Total assets decreased from $1,233.2 million at December 31,
2006 to $1,113.6 million at December 31, 2007 for a
$119.6 million decrease in total assets during the year ended December 31,
2007.
Net working capital, defined as current assets less cash and current
liabilities, decreased $28.6 million from $101.1 million in December 31,
2006, to $72.5 million in December 31, 2007.
Significant changes in net working capital from December 31, 2006,
were as follows:
·
A decrease in receivables of $55.5 million due
to the reduction in sales,
·
A decrease in inventories and supplies of
$12.7 million due to the reduction in sales demand,
·
A decrease in accounts payable of $27.1 million due
to the reduction in amounts due related to inventory and other items,
·
A decrease in accrued and other liabilities of
$7.4 million primarily due to the settlement of a contingency with a
customer.
Capital Resources and Liquidity
Our primary sources of liquidity during 2007 were cash provided by
operating activities and cash reserves. In addition, we have a
$125 million revolving credit facility, as defined and discussed below,
all of which is currently undrawn. Primary uses of cash were working capital
needs, capital expenditures, and debt service.
Cash Flow Provided by Operating Activities
Net cash provided by operating activities in 2007 amounted to $82.9
million compared to net cash provided by operating activities of
$151.0 million for the comparable period in 2006, a decrease of
$68.1 million. Our net loss of $8.6 million for 2007 compared to net
income of $65.1 million for the comparable period of 2006 was the primary
contributor to the decreased cash flow.
Investing Activities
Net cash used in investing activities totaled $36.4 million for
the year ended December 31, 2007, compared to a use of $40.8 million for
the year ended December 31, 2006, a decrease of $4.4 million. Our
most significant cash outlays for investing activities are the purchases of
property, plant, and equipment. Our capital expenditures in 2007 were $36.5
million compared to capital expenditures of $42.2 million in 2006. Cash
generated from operations and existing cash reserves funded these
expenditures. Capital expenditures for
2008 are expected to be between $35 million and $40 million, which we expect to
fund through our cash from operations or existing cash reserves. During 2006,
we sold our property in Columbia, Tennessee, for net proceeds of $1.9 million
and purchased the remaining 50% interest of a joint venture with Goodyear for
$0.7 million, net of cash acquired.
Financing Activities
Net cash used by financing activities totaled $65.8 million for
2007 compared to net cash used by financing activities of $48.4 million
for the comparable period in 2006. During 2007, we paid down $70 million of
term debt. Also during 2007, we received
proceeds from stock-based compensation activity and related income tax benefits
of $4.2 million, compared to $6.7 million in 2006.
29
Bank Borrowing
Effective January 31, 2005, we entered into a fourth amended and
restated credit agreement in conjunction with the acquisition of TTI to
refinance substantially all of our existing bank facilities, as well as the
senior bank debt and subordinated debt of TTI. Under the refinancing, we
entered into (i) a new term credit facility in an aggregate principal
amount of $550 million that requires annual amortization payments of 1%
per year, with the balance payable on January 31, 2012, and (ii) a
revolving facility in an aggregate amount of $125 million (comprised of a
$95 million U.S. revolving credit facility and a $30 million Canadian
revolving credit facility) which matures on January 31, 2010. Neither
revolving facility was drawn as of December 31, 2007. The loans under the
term credit facility and the U.S. revolving credit facility are secured by,
among other things, a lien on substantially all of our U.S. properties, assets
and domestic subsidiaries and a pledge of 65% of the stock of our foreign
subsidiaries. The loans under the Canadian revolving facility are secured by
substantially all the properties and assets of Accuride Canada, Inc. As of
December 31, 2007, the outstanding balance on the term debt was $294.6
million.
On November 28, 2007, we entered into an amendment to the Fourth
Amended and Restated Credit Agreement, dated as of January 31, 2005. The
amendment increased pricing and modified certain financial covenants through
2008, including changes to the leverage, interest coverage and fixed charge
coverage ratios.
Restrictive Debt Covenants.
Our credit documents contain numerous
financial and 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. Accuride is also required to meet certain financial ratios and tests
including a leverage ratio, an interest coverage ratio, and a fixed charge
coverage ratio. A failure to comply with the obligations contained in the
credit documents could result in an event of default, and possibly the
acceleration of the related debt and the acceleration of debt under other
instruments evidencing indebtedness that may contain cross-acceleration or cross-default
provisions. We were in compliance with all such covenants at December 31,
2007.
Senior Subordinated Notes.
Effective January 31, 2005, we issued
$275 million aggregate principal amount of 8
1
/
2
%
senior subordinated notes due 2015 in a private placement transaction. Interest
on the senior subordinated notes is payable on February 1 and August 1
of each year, beginning on August 1, 2005. The notes mature on February 1,
2015 and may be redeemed, at our option, in whole or in part, at any time on or
before February 1, 2010 in cash at the redemption prices set forth in the
indenture, plus interest. In addition, until February 1, 2008, we were
entitled to redeem up to 40% of the aggregate principal amount of notes issued
under the indenture with the proceeds of certain equity offerings. The notes
are general unsecured obligations ranking senior in right of payment to all of
our existing and future subordinated indebtedness. The notes are subordinated
to all of our existing and future senior indebtedness including indebtedness
incurred under our credit agreement.
In May 2005, we successfully completed an exchange offer as
required per the terms of the registration rights agreement we entered into
with the initial purchasers in connection with the issuance of our senior
subordinated notes issued in January 2005. Pursuant to an effective
exchange offer registration statement filed with the SEC, holders of our
outstanding unregistered 8
1
¤
2
% senior subordinated notes due 2015
exchanged such notes for otherwise identical 8
1
¤
2
% senior subordinated notes due 2015
which have been registered under the Securities Act of 1933, as amended.
Off-Balance Sheet Arrangements.
Our off-balance sheet arrangements include
the operating leases and unconditional purchase obligations which are
principally take-or-pay obligations related to the purchase of certain
materials, including natural gas, consistent with customary industry practice
as well as letters of credit.
30
Contractual
Obligations and Commercial Commitments
The
following table summarizes our contractual obligations as of December 31,
2007 and the effect such obligations and commitments are expected to have on
our liquidity and cash flow in future periods:
|
|
Payments due by period
|
|
(dollars in millions)
|
|
Total
|
|
Less than 1 year
|
|
1 - 3 years
|
|
3 - 5 years
|
|
More than 5 years
|
|
Long-term debt
|
|
$
|
572.7
|
|
$
|
|
|
$
|
|
|
$
|
294.6
|
|
$
|
278.1
|
|
Interest on long-term debt(a)
|
|
165.6
|
|
23.4
|
|
46.8
|
|
46.8
|
|
48.6
|
|
Interest on variable rate debt(b)
|
|
103.1
|
|
25.2
|
|
50.3
|
|
27.5
|
|
0.1
|
|
Capital leases
|
|
0.5
|
|
0.2
|
|
0.2
|
|
0.1
|
|
|
|
Operating leases
|
|
26.4
|
|
6.3
|
|
9.1
|
|
5.7
|
|
5.3
|
|
Purchase commitments(c)
|
|
36.6
|
|
34.8
|
|
1.1
|
|
0.7
|
|
|
|
Other long-term liabilities(d)
|
|
172.1
|
|
19.3
|
|
28.5
|
|
31.0
|
|
93.3
|
|
Total obligations
|
|
$
|
1,077.0
|
|
$
|
109.2
|
|
$
|
136.0
|
|
$
|
406.4
|
|
$
|
425.4
|
|
(a)
Consists of
interest payments for our outstanding 8
1
/
2
% senior subordinated notes due 2015 at a fixed rate of 8
1
/
2
%.
(b)
Consists of
interest payments for our average outstanding balance of our senior credit
facilities at a variable rate of LIBOR of 5.00% plus the applicable rate. The
interest rate for the outstanding industrial revenue bond was the 2007 average
rate of 3.83%.
(c)
The unconditional
purchase commitments are principally take-or-pay obligations related to the
purchase of certain materials, including natural gas, consistent with customary
industry practice.
(d)
Consists
primarily of estimated post-retirement and pension contributions for 2008 and
estimated future post-retirement and pension benefit payments for the years
2009 through 2017. Amounts for 2018 and thereafter are unknown at this time.
(e) Since it
is not possible to determine in which future period it might be paid, excluded
above is the $9.9 million uncertain tax liability recorded due to our adoption
of FIN 48,
Accounting for Uncertainty of Income Taxes
,
on January 1, 2007.
(f) Since
it is not possible to determine in which future period it might be paid,
excluded above is a $13.5 million guarantee of a lease liability over a
three-year period ending on February 28, 2011. That obligation will diminish by
approximately $375 thousand per month pursuant to payments made by the lessee.
Critical Accounting Policies and Estimates
Our
consolidated financial statements and accompanying notes have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues, and expenses during the reporting periods.
We
continually evaluate our accounting policies and estimates we use to prepare
the consolidated financial statements. In general, managements estimates are
based on historical experience, on information from third party professionals
and on various other assumptions that are believed to be reasonable under the
facts and circumstances. Actual results could differ from those estimates made
by management.
Critical
accounting policies and estimates are those where the nature of the estimates
or assumptions is material due to the levels of subjectivity and judgment
necessary to account for highly uncertain matters or the susceptibility of such
matters to change, and the impact of the estimates and assumptions on financial
condition or operating performance is material. We believe our critical
accounting policies and estimates, as reviewed and discussed with the Audit
Committee of our Board of Directors, include accounting for impairment of
long-lived assets, goodwill, self-insurance, pensions, and taxes.
Impairment of Long-lived Assets
We evaluate long-lived assets whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. In performing the review of recoverability, we estimate
future cash flows expected to result from the use of the asset and our eventual
disposition. The estimates of future cash flows, based on reasonable and
supportable assumptions and projections, require managements subjective
judgments. The time periods for estimating future cash flows is often lengthy,
which increases the sensitivity to assumptions made. Depending on the
assumptions and estimates used, the estimated future cash flows projected in
the evaluation of long-lived assets can vary within a wide range of outcomes.
We consider the likelihood of possible outcomes in determining the best estimate
of future cash flows.
Accounting for Goodwill and Other
Intangible Assets
Since the
adoption of Statement of Financial Accounting Standards, or SFAS, No. 142
on January 1, 2002, we no longer amortize goodwill but instead test
annually for impairment as required by SFAS No. 142. If the carrying
value of goodwill or other intangible assets exceeds our fair value, an
impairment
31
loss
must be recognized. A present value technique is used to estimate the fair
value of a group of assets. The use of a present value technique requires the
use of estimates of future cash flows. These cash flow estimates incorporate
assumptions that marketplace participants would use in their estimates of fair
value as well as our own assumptions. These cash flow estimates are based on
reasonable and supportable assumptions and consider all available evidence.
However, there is inherent uncertainty in estimates of future cash flows and
terminal values. As such, several different terminal values were used in our
calculations and the likelihood of possible outcomes was considered. Indefinite
lived intangibles assets (trade names) are not amortized but are reviewed for
impairment at least annually or more frequently if impairment indicators arise.
However, as a result of a recent decline in our common stock price, we will
evaluate goodwill on a quarterly basis for potential impairment if such
conditions continue. The impairment test that was performed in the fourth
quarter of 2007 resulted in an intangible asset impairment loss in our
Components segment of $1.1 million related to Gunites trade name.
Self-Insurance
Managements judgment is required to estimate
our medical insurance and workers compensation liabilities since we are
self-insured. We evaluate the trends of claims to determine the appropriate
liability and adjust the amount of such liability, if necessary. Although we
are self-insured, we do use insurance policies to cover claims over a
pre-determined limit.
Pensions and Other Post-Employment
Benefits
We account for
our defined benefit pension plans and other post-employment benefit plans in
accordance with SFAS No. 87,
Employers
Accounting for Pensions
, SFAS No. 106,
Employers Accounting for Postretirement Benefits Other
Than Pensions
, and SFAS No. 158,
Employers
Accounting for Defined Benefit Pension and Other Postretirement Plans
,
which require that amounts recognized in financial statements be determined on
an actuarial basis. As permitted by SFAS No. 87, we use a smoothed value
of plan assets (which is further described below). SFAS No. 87 requires
that the effects of the performance of the pension plans assets and changes in
pension liability discount rates on our computation of pension income (cost) be
amortized over future periods. SFAS No. 158
requires an employer to fully recognize the obligations associated with
single-employer defined benefit pension, retiree healthcare, and other
postretirement plans in their financial statements.
The
most significant element in determining our pension income (cost) in accordance
with SFAS No. 87 is the expected return on plan assets. In 2007, we
assumed that the expected long-term rate of return on plan assets would be
8.00%. The assumed long-term rate of return on assets is applied to a
calculated value of plan assets, which recognizes changes in the fair value of
plan assets in a systematic manner over five years. This produces the expected
return on plan assets that is included in pension income (cost). The difference
between this expected return and the actual return on plan assets is deferred.
The net deferral of past asset gains (losses) affects the calculated value of
plan assets and, ultimately, future pension income (cost).
Over
the long term, our pension plan assets have earned approximately 8.0%. The
expected return on plan assets is reviewed annually, and if conditions should
warrant, will be revised. If we were to lower this rate, future pension cost
would increase.
At
the end of each year, we determine the discount rates to be used to calculate
the present value of each of the plan liabilities. The discount rate is an
estimate of the current interest rate at which the pension liabilities could be
effectively settled at the end of the year. In estimating this rate, we look to
rates of return on high-quality, fixed-income investments that receive one of
the two highest ratings given by a recognized ratings agency. At December 31,
2007, we determined the blended rate to be 5.58%. Changes in discount rates
over the past three years have not materially affected pension income (cost),
and the net effect of changes in the discount rate, as well as the net effect
of other changes in actuarial assumptions and experience, have been deferred,
in accordance with SFAS No. 87.
For
the year ended December 31, 2007, we recognized consolidated pretax
pension cost of $13.5 million (including the $11.1 million curtailment
charge as a result of a reduction of our hourly workforce in our London,
Ontario facility) compared to $7.5 million in 2006 (including a $2.4
million curtailment charge as a result of an reduction of our hourly workforce
in our London, Ontario facility). We currently expect that the consolidated
pension cost for 2008 will be approximately $2.3 million. We currently
expect to contribute $15.9 million to our pension plans during 2008, however,
we may elect to adjust the level of contributions based on a number of factors,
including performance of pension investments, changes in interest rates, and
changes in workforce compensation.
For
the year ended December 31, 2007, we recognized a consolidated pre-tax
post-retirement welfare benefit cost of $4.0 million (including a net $0.7
million curtailment gain) compared to $6.0 million in 2006. We currently
expect that the consolidated post-retirement welfare benefit cost for 2008 will
be approximately $2.6 million. We expect to contribute $3.4 million
during 2008 to our post-retirement welfare benefit plans.
32
Income Taxes
Management judgment is required in developing
our provision for income taxes, including the determination of deferred tax
assets, liabilities and any valuation allowances recorded against the deferred
tax assets. We evaluate quarterly the realizability of our net deferred tax
assets by assessing the valuation allowance and adjusting the amount of such
allowance, if necessary. The factors used to assess the likelihood of
realization are our forecast of future taxable income and the availability of
tax planning strategies that can be implemented to realize the net deferred tax
assets. Failure to achieve forecasted taxable income might affect the ultimate
realization of the net deferred tax assets. Factors that may affect our ability
to achieve sufficient forecasted taxable income include, but are not limited
to, the following: increased competition, a decline in sales or margins, or
loss of market share.
We
operate in multiple jurisdictions and are routinely under audit by federal,
state and international tax authorities.
Exposures exist related to various filing positions that may require an
extended period of time to resolve and may result in income tax adjustments by
the taxing authorities. Reserves for these potential exposures that have been
established represent managements best estimate of the probable adjustments.
On a quarterly basis, management evaluates the reserve amounts in light of any
additional information and adjusts the reserve balances as necessary to reflect
the best estimate of the probable outcomes. We believe that we have established
the appropriate reserve for these estimated exposures. However, actual results
may differ from these estimates. The resolution of these matters in a
particular future period could have an impact on our consolidated statement of
operations and provision for income taxes.
Recent Developments
New Accounting
Pronouncements
SFAS No. 157
In September 2006,
the FASB issued SFAS No. 157,
Fair Value Measurements
,
to eliminate the diversity in practice that exists due to the different
definitions of fair value and the limited guidance for applying those
definitions in GAAP that are dispersed among the many accounting pronouncements
that require fair value measurements.
SFAS No. 157 will apply to fiscal years beginning after November 15,
2007.
In November 2007, the FASB provided a one year
deferral for the implementation of SFAS No. 157 for other nonfinancial
assets and liabilities.
Management does not currently anticipate a material
impact of SFAS No. 157 on the consolidated financial statements
SFAS No. 159
In February 2007, the FASB issued SFAS No. 159,
Establishing the Fair Value Option for Financial
Assets and Liabilities
, to permit all entities to choose to elect to
measure eligible financial instruments at fair value. SFAS No. 159 applies to fiscal years
beginning after November 15, 2007, with early adoption permitted for an
entity that has also elected to apply the provisions of SFAS No. 157,
Fair Value Measurements.
An entity is
prohibited from retrospectively applying SFAS No. 159, unless it chooses
early adoption. Management does not currently anticipate that it will have a
material impact of SFAS No. 159 on the consolidated financial statements.
SFAS No. 141(R)
In December 2007, the FASB issued
SFAS No. 141(R),
Business Combinations
,
which replaces SFAS No. 141,
Business Combinations
.
SFAS No. 141(R) requires the acquirer of a business to recognize and
measure the identifiable assets acquired, the liabilities assumed, and any
non-controlling interest in the acquiree at fair value. SFAS No. 141(R) also
requires transactions costs related to the business combination to be expensed
as incurred. SFAS No. 141(R) applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008.
Management is currently evaluating the impact of SFAS No. 141(R) related
to future acquisitions, if any, on our consolidated financial statements.
SFAS No. 160
In December 2007, the FASB issued
SFAS No. 160,
Noncontrolling Interests
in Consolidated Financial Statements
. SFAS No. 160 requires all entities to
report noncontrolling (minority) interests in subsidiaries as equity in the
consolidated financial statements. Its intention is to eliminate the diversity
in practice regarding the accounting for transactions between an entity and
noncontrolling interests. SFAS No. 160 will apply to fiscal years
beginning on or after December 15, 2008. Management is currently evaluating
the impact of SFAS No. 160 on our consolidated financial statements.
Effects of Inflation.
The
effects of inflation were not considered material during fiscal years 2007,
2006, or 2005.
33
Item 7A. Quantitative and
Qualitative Disclosure about Market Risk
In
the normal course of doing business, we are exposed to the risks associated
with changes in foreign exchange rates, raw material/commodity prices, and
interest rates. We use derivative instruments to manage these exposures. The
objectives for holding derivatives are to minimize the risks using the most
effective methods to eliminate or reduce the impacts of these exposures.
Foreign Currency Risk
Certain
forecasted transactions, assets, and liabilities are exposed to foreign
currency risk. We monitor our foreign currency exposures to maximize the
overall effectiveness of our foreign currency derivatives. The principal
currency of exposure is the Canadian dollar. From time to time we use foreign
currency financial instruments to offset the impact of the variability in
exchange rates on our operations, cash flows, assets and liabilities. At December 31,
2007, we had no open foreign exchange forward contracts.
Foreign
currency derivative contracts provide only limited protection against currency
risks. Factors that could impact the effectiveness of our currency risk
management programs include accuracy of sales estimates, volatility of currency
markets and the cost and availability of derivative instruments.
The
counterparty to the foreign exchange contracts is a financial institution with
an investment grade credit rating. The use of forward contracts protects our
cash flows against unfavorable movements in exchange rates, to the extent of
the amount under contract.
Raw Material/Commodity Price Risk
We
rely upon the supply of certain raw materials and commodities in our production
processes, and we have entered into firm purchase commitments for steel,
aluminum, and natural gas. A 10% adverse change in pricing (considering 2007
production volume) would be approximately $4.9 million, which would be reduced
through the terms of the sales, supply, and procurement contracts.
Additionally, from time to time, we use commodity price swaps and futures contracts
to manage the variability in certain commodity prices on our operations and
cash flows. At December 31, 2007, the notional amount of open commodity
price swaps or futures contracts was $12.5 million.
Interest Rate Risk
We
use long-term debt as a primary source of capital. The following table presents
the principal cash repayments and related weighted average interest rates by
maturity date for our long-term debt at December 31, 2007. The weighted
average interest rates are based on 12 month LIBOR in effect as of December 31,
2007:
(Dollars in thousands)
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
Thereafter
|
|
Total
|
|
Fair
Value
|
|
Long-term Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
|
|
|
|
|
|
|
|
|
|
|
|
$
|
275,000
|
|
$
|
275,000
|
|
$
|
224,298
|
|
Average Rate
|
|
|
|
|
|
|
|
|
|
|
|
8.50
|
%
|
8.50
|
%
|
|
|
Variable
|
|
|
|
|
|
|
|
|
|
$
|
294,625
|
|
$
|
3,100
|
|
$
|
297,725
|
|
$
|
280,048
|
|
Average Rate
|
|
|
|
|
|
|
|
|
|
8.50
|
%
|
3.67
|
%
|
8.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We
have used interest rate swaps to alter interest rate exposure between fixed and
variable rates on a portion of our long-term debt. As of December 31, 2007, we were party
to two interest rate swap agreements.
The first swap has a notional of $250 million with terms to exchange
with the counterparty, at specified intervals, the difference between 4.43% from
March 2007 through March 2008, and the variable rate interest amounts
calculated by reference to the notional principal amount. The second agreement was established in December 2007
and has terms with the counterparty, at specified intervals, the difference
between 3.81% from March 2008 through March 2010, and the variable
rate interest amounts calculated by reference to the notional principal amount.
The notional principal amounts under the terms are $200 million from March 2008
through March 2009, $150 million from March 2009 through September 2009
and $125 million from September 2009 through March 2010.
Item 8. Financial
Statements and Supplementary Data
Attached,
beginning at page 45.
34
Item 9. Changes in and
Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and
Procedures
Evaluation of disclosure controls and procedures
.
In accordance with Rule 13a-15(b) of
the Securities Exchange Act of 1934 (the Exchange Act), our management
evaluated, with the participation of our Chief Executive Officer and Chief
Financial Officer, the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rule 13a-15(e) under
the Exchange Act) as of December 31, 2007. Based upon their evaluation of
these disclosure controls and procedures, the Chairman of the Board and Chief
Executive Officer and Chief Financial Officer concluded that the disclosure
controls and procedures were effective as of December 31, 2007 to ensure
that information required to be disclosed under the Exchange Act is recorded,
processed, summarized, and reported, within the time period specified in the
Securities and Exchange Commission rules and forms, and to ensure that
information required to be disclosed under the Exchange Act is accumulated and
communicated to our management, including our principal executive and principal
financial officers, as appropriate, to allow timely decisions regarding
required disclosure.
Managements Annual Report on Internal Control Over
Financial Reporting.
Our management is responsible for establishing and
maintaining adequate internal control over financial reporting, as such term is
defined in Rule 13a-15(f) of the Securities Exchange Act of 1934. Our
internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of published financial statements in accordance with generally accepted accounting
principles.
Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, has assessed the effectiveness of our internal control over
financial reporting based on the framework and criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this assessment, our
management has concluded that, as of December 31, 2007, our internal
controls over financial reporting were effective based on that framework.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of the
effectiveness to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Deloitte &
Touche LLP, the Companys independent registered public accounting firm, issued
an audit report on the effectiveness of the Companys internal control over
financial reporting as of December 31, 2007, which is included herein.
Changes in Internal Controls Over Financial Reporting
During the
fourth quarter of fiscal 2007 there were no material changes in our internal controls over financial reporting or
in other factors that have materially affected or are reasonably likely to
materially affect our internal control over financial reporting.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of Accuride Corporation
We
have audited the internal control over financial reporting of Accuride
Corporation and subsidiaries (the Company) as of December 31, 2007,
based on criteria established in
Internal Control
Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Companys management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying
Evaluation of Disclosure
Controls and Procedures
. Our responsibility is to express an
opinion on the Companys internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
35
A
companys internal control over financial reporting is a process designed by,
or under the supervision of, the companys principal executive and principal
financial officers, or persons performing similar functions, and effected by
the companys board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A companys internal control
over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors
of the company; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.
Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In
our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2007, based
on the criteria established in
Internal Control
Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We
have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated financial
statements as of and for the year ended December 31, 2007 of the Company
and our report dated March 10, 2008 expressed an unqualified opinion on
those consolidated financial statements and included an explanatory paragraph
regarding the adoption of Financial Accounting Standards Board Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
,
Statement of Financial Accounting Standards No. 123(R),
Share Based Payment
, and Statement of Financial
Accounting Standards No. 158,
Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans
.
/s/ DELOITTE & TOUCHE LLP
|
Indianapolis,
Indiana
|
March 10,
2008
|
Item 9B. Other Information
None.
36
PART
III
Item 10.
Directors, Executive Officers, and Corporate Governance
The
information required by Item 10 is incorporated by reference to the information
set forth in our Proxy Statement in connection to our 2008 Annual Meeting of
Shareholders to be filed with the SEC not later than 120 days after the end of
our fiscal year covered by this Form 10-K.
Code of Ethics for CEO and Senior Financial
Officers
As part of our
system of corporate governance, our Board of Directors has adopted a code of
conduct that is applicable to all employees including our Chief Executive
Officer and senior financial officers. The Accuride Code of Conduct is
available on our website at http://www.accuridecorp.com. We intend to disclose
on our website any amendments to, or waivers from, our Code of Conduct that are
required to be publicly disclosed pursuant to the rules of the Securities and
Exchange Commission.
Item 11.
Executive Compensation
The
information required by Item 11 is incorporated by reference to the information
set forth in our 2008 Proxy Statement.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and
Related Shareholder Matters
The
information required by Item 12 is incorporated by reference to the information
set forth in our 2008 Proxy Statement.
Item 13.
Certain Relationships and Related Transactions and Director Independence
The
information required by Item 13 is incorporated by reference to the information
set forth in our 2008 Proxy Statement.
Item 14. Principal Accountant Fees and
Services
The
information required by Item 14 is incorporated by reference to the information
set forth in our 2008 Proxy Statement.
37
PART
IV
Item 15.
Exhibits and Financial Statement Schedules
(a)
The following
constitutes a list of Financial Statements and Financial Statement Schedules
required to be included in this report:
1.
Financial
Statements
The following financial statements of the Registrant are filed herewith
as part of this report:
Report of Independent Registered Public Accounting Firm.
Consolidated Balance SheetsDecember 31, 2007 and 2006,
Consolidated Statements of OperationsYears ended December 31,
2007, 2006, and 2005.
Consolidated Statements of Stockholders EquityYears ended
December 31, 2007, 2006, and 2005.
Consolidated Statements of Cash FlowsYears ended December 31,
2007, 2006, and 2005.
Notes to Consolidated Financial StatementsYears ended
December 31, 2007, 2006, and 2005.
2.
Financial
Statement Schedules
Schedules are omitted because of the absence of conditions under which
they are required or because the required information is presented in the
Financial Statements or notes thereto.
3.
Exhibits
2.1
|
|
|
Agreement and Plan of Merger, dated as of December 24, 2004, by
and among Accuride Corporation, Amber Acquisition Corp., Transportation
Technologies Industries, Inc., certain signing stockholders and the
Company Stockholders Representatives. Previously filed as an exhibit to the
Form 8-K filed on December 30, 2004 and incorporated herein by
reference.
|
2.2
|
|
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Stock Subscription and Redemption Agreement, dated as of
November 17, 1997, among Accuride Corporation, Hubcap Acquisition L.L.C.
and Phelps Dodge Corporation. Previously filed as an exhibit to the
Form S-4 effective July 23, 1998 (Reg. No. 333-50239) and
incorporated herein by reference.
|
2.3
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|
|
Amendment to Agreement and Plan of Merger, dated as of
January 28, 2005, by and among Accuride Corporation, Amber Acquisition
Corp., Transportation Technologies Industries, Inc. certain signing
stockholders and the Company Stockholders Representatives. Previously filed
as an exhibit to the Form 8-K filed on February 4, 2005 and
incorporated herein by reference.
|
3.1
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|
|
Amended and Restated Certificate of Incorporation of Accuride
Corporation. Previously filed as an exhibit to Amendment 4, filed on
April 21, 2005, to the Form S-1 effective April 25, 2005 (Reg.
No. 333-121944) and incorporated herein by reference.
|
3.2
|
|
|
Amended and Restated Bylaws of Accuride Corporation. Previously filed
as an exhibit to Form 8-K filed on December 22, 2005 and incorporated herein
by reference.
|
4.1
|
|
|
Specimen common stock certificate of registrant. Previously filed as
an exhibit to Amendment 2, filed March 25, 2005, to Form S-1
effective April 25, 2005 (Reg. No. 333-121944) and incorporated
herein by reference.
|
4.2
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|
|
Indenture, dated as of January 31, 2005, by and among the
Registrant, all of the Registrants direct and indirect Domestic Subsidiaries
existing on the Issuance Date and The Bank of New York Trust Company, N.A.,
with respect to $275.0 million aggregate principal amount of 8
1
¤
2
% Senior
Subordinated Notes due 2015. Previously filed as an exhibit to the
Form 8-K filed on February 4, 2005 and incorporated herein by
reference.
|
4.3
|
|
|
Amended and Restated Registration Rights Agreement dated
January 31, 2005 by and between the Registrant and each of the
Stockholders (as defined therein). Previously filed as an exhibit to the
Form 8-K filed on February 4, 2005 and incorporated herein by
reference.
|
38
4.4
|
|
|
Shareholder Rights Agreement dated January 31, 2005 by and
between the Registrant and the Stockholders (as defined therein). Previously
filed as an exhibit to the Form 8-K filed on February 4, 2005 and
incorporated herein by reference.
|
4.5
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|
|
Termination of Shareholder Rights Agreement, dated September 15,
2007. Previously filed as an exhibit to the Form 10-Q filed on November 2,
2007 and incorporated herein by reference.
|
4.6
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|
|
Registration Rights Agreement, dated January 31, 2005, by and
among Accuride Corporation, as issuer, the Guarantors named in
Schedule A thereto and Lehman Brothers Inc., Citigroup Global
Markets Inc. and UBS Securities LLC, as initial purchasers. Previously
filed as an exhibit to Amendment 2, filed March 25, 2005, to
Form S-1 effective April 25, 2005 (Reg. No. 333-121944) and
incorporated herein by reference.
|
4.7*
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|
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Form of Stockholders Agreement by and among Accuride Corporation,
certain employees and Hubcap Acquisition L.L.C. Previously filed as an
exhibit to the Form S-4 effective July 23, 1998 (Reg.
No. 333-50239) and incorporated herein by reference.
|
4.8*
|
|
|
Form of Amendment to Stockholders Agreement by and among Accuride
Corporation, certain employees and the Hubcap Acquisition L.L.C. Previously
filed as an exhibit to Amendment No. 1, filed September 22, 2005 to Form S-1
effective October 3, 2005 (Reg. No. 333-128327) and incorporated herein by
reference.
|
4.9
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|
|
Bond Guaranty Agreement dated as of March 1, 1999 by Bostrom
Seating, Inc. in favor of NBD Bank as Trustee. Previously filed as an
exhibit to Amendment No. 1 filed on February 23, 2005 to the
Form S-1 effective April 25, 2005 (Reg. No. 333-121944) and
incorporated herein by reference.
|
10.1*
|
|
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1998 Stock Purchase and Option Plan for Employees of Accuride
Corporation and Subsidiaries, as amended. Previously filed as an exhibit to
Amendment No. 2 filed on March 25, 2005 to the Form S-1
effective April 25, 2005 (Reg. No. 333-121944) and incorporated
herein by reference.
|
10.2*
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|
|
Form of Non-qualified Stock Option Agreement by and between Accuride
Corporation and certain employees. Previously filed as an exhibit to the
Form S-4 effective July 23, 1998 (Reg. No. 333-50239) and incorporated
herein by reference.
|
10.3*
|
|
|
2005 Incentive Award Plan (as Amended and Restated). Previously filed
as an exhibit to the Form 8-K filed on June 19, 2007 and incorporated herein
by reference.
|
10.4*
|
|
|
Accuride Corporation Employee Stock Purchase Plan. Previously filed
as an exhibit to Amendment 4, filed on April 21, 2005, to the
Form S-1 effective April 25, 2005 (Reg. No. 333-121944) and
incorporated herein by reference.
|
10.5*
|
|
|
First Amendment to the Accuride Corporation Employee Stock Purchase
Plan. Previously filed as an Exhibit to the Form 10-K filed on
March 7, 2006, and incorporated herein by reference.
|
10.6
|
|
|
Lease Agreement, dated November 1, 1988, by and between Kaiser
Aluminum & Chemical Corporation and The Bell Company regarding the
property in Cuyahoga Falls, Ohio, as amended and extended. Previously filed
as an exhibit to the Form S-4 effective July 23, 1998 (Reg.
No. 333-50239) and incorporated herein by reference.
|
10.7
|
|
|
First Amendment to Lease Agreement, dated September 30, 1999,
between AKW, L.P. (Accuride Erie) (as successor to Kaiser Aluminum and
Chemical Corporation) and Sarum Management, Inc. (as successor to The Bell
Company) regarding the property in Cuyahoga Falls, Ohio. Previously filed as
an exhibit to Amendment No. 1 filed on February 23, 2005 to the
Form S-1 effective April 25, 2005 (Reg. No. 333-121944) and
incorporated herein by reference.
|
10.8
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|
|
Second Amendment to Lease Agreement between AKW, L.P. (Accuride Erie)
(as successor to Kaiser Aluminum and Chemical Corporation) and Sarum
Management, Inc. (as successor to the Bell Company) regarding the property in
Cuyahoga Falls, Ohio. Previously filed as an Exhibit to the Form 10-K
filed on March 21, 2003 and incorporated herein by reference.
|
10.9
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|
|
Third Amendment to Lease Agreement between Accuride Erie L.P. and
Sarum Management, Inc. regarding the property in Cuyahoga Falls, Ohio.
Previously filed as an Exhibit to the Form 10-K filed on March 17,
2004 and incorporated herein by reference.
|
10.10
|
|
|
Lease Agreement, dated October 26, 1998, as amended, by and
between Accuride Corporation and Viking Properties, LLC, regarding the
Evansville, Indiana office space. Previously filed as an exhibit to Amendment
No. 1 filed on February 23, 2005 to the Form S-1 effective
April 25, 2005 (Reg. No. 333-121944) and incorporated herein by
reference.
|
10.11
|
|
|
Lease Agreement, dated March 31, 2005, between Accuride Erie L.P. and
Greater Erie Industrial Development Corporation regarding property in Erie,
Pennsylvania. Previously filed as an exhibit to the Form 10-K filed on March
7, 2006 and incorporated herein by reference.
|
10.12*
|
|
|
Accuride Executive Retirement Allowance Policy, dated
November 2003. Previously filed as an exhibit to the Form 10-K
filed on March 17, 2004 and incorporated herein by reference.
|
10.13
|
|
|
Security Agreement, dated July 26, 2006, by Accuride
Canada, Inc. to Citicorp USA, Inc. Previously filed as an exhibit
to the Form 10-Q filed on August 9, 2001 and incorporated herein by
reference.
|
39
10.14*
|
|
|
Form of Severance and Retention Agreement (Tier I executives).
Previously filed as an exhibit to the Form 8-K filed on February 27,
2008, and incorporated herein by reference.
|
10.15*
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|
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Form of Severance and Retention Agreement (Tier II executives).
Previously filed as an exhibit to the Form 8-K filed on February 27,
2008, and incorporated herein by reference.
|
10.16*
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|
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Form of Severance and Retention Agreement (Tier III executives).
Previously filed as an exhibit to the Form 8-K filed on February 27,
2008, and incorporated herein by reference.
|
10.17
|
|
|
Pledge of Shares Agreement, dated June 13, 2003, by and between
Accuride Corporation and Citicorp USA, Inc. Previously filed as an exhibit to
the Form 10-Q filed August 13, 2003 and incorporated herein by
reference.
|
10.18
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|
|
Lease Agreement, dated October 19, 1989, as amended between
Accuride Corporation and The Package Company, L.L.C. (as successor in
interest to Taylor Land & Co.), regarding the property in Taylor,
Michigan. Previously filed as an exhibit to Amendment No. 1 filed on
February 23, 2005 to the Form S-1 effective April 25, 2005
(Reg. No. 333-121944) and incorporated herein by reference.
|
10.19
|
|
|
Lease Agreement, dated March 1, 1999, by and between the
Industrial Development Board of the City of Piedmont and Bostrom
Seating, Inc. Previously filed as an exhibit to Amendment No. 1
filed on February 23, 2005 to the Form S-1 effective April 25,
2005 (Reg. No. 333-121944) and incorporated herein by reference.
|
10.20
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Remarketing Agent Agreement, dated March 1, 1999, among Bostrom
Seating, Inc., as User, the Industrial Development Board of the City of
Piedmont, as Issuer, and Merchant Capital, L.L.C., as Remarketing Agent.
Previously filed as an exhibit to Amendment No. 1 filed on
February 23, 2005 to the Form S-1 effective April 25, 2005
(Reg. No. 333-121944) and incorporated herein by reference.
|
10.21
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|
|
Amended and Restated Build to Suit Industrial Lease Agreement, dated
March 17, 2000, as amended, by and between Industrial Realty Partners,
LLC and Imperial Group, L.P. Previously filed as an exhibit to Amendment
No. 1 filed on February 23, 2005 to the Form S-1 effective
April 25, 2005 (Reg. No. 333-121944) and incorporated herein by
reference.
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10.22
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|
Lease Agreement, dated August 19, 2003, as amended, by and
between Sansome Pacific Properties, Inc. or its lawful assignee (as
successor in interest to Bristol Rail Associates, LLC) and Gunite
Corporation. Previously filed as an exhibit to Amendment No. 1 filed on
February 23, 2005 to the Form S-1 effective April 25, 2005
(Reg. No. 333-121944) and incorporated herein by reference.
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10.23
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|
Lease Agreement, dated August 13, 2002, by and between Fink
Management, LLC and Gunite Corporation. Previously filed as an exhibit to
Amendment No. 1 filed on February 23, 2005 to the Form S-1
effective April 25, 2005 (Reg. No. 333-121944) and incorporated
herein by reference.
|
10.24
|
|
|
Standard Industrial Commercial Single-Tenant Lease-Net, dated
July 16, 2003, by and between Napa/Livermore Properties, LLC and FABCO
Automotive Corporation. Previously filed as an exhibit to Amendment
No. 1 filed on February 23, 2005 to the Form S-1 effective
April 25, 2005 (Reg. No. 333-121944) and incorporated herein by
reference.
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10.25
|
|
|
Fourth Amended and Restated Credit Agreement, dated January 31,
2005, by and among the Registrant, Accuride Canada Inc., the banks,
financial institutions and other institutional lenders listed on the
signature pages thereof, Citibank, N.A., Citicorp USA, Inc., Citigroup
Global Markets Inc., Lehman Brothers Inc., Lehman Commercial
Paper Inc., and UBS Securities LLC. Previously filed as an Exhibit to
the Form 8-K filed on February 4, 2005 and incorporated herein by
reference.
|
10.26
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|
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First Amendment, dated November 28, 2007, to the Fourth Amended and
Restated Credit Agreement, dated January 31, 2005, by and among the
Registrant, Accuride Canada, Inc., the banks, financial institutions, and
other institutional lenders listed on the signature pages thereof, Citibank,
N.A., Citicorp USA, Inc., Citigroup Global Markets Inc., Lehman Brothers Inc,
Lehman Commercial Paper Inc., and UBS Securities LLC. Previously filed as an
exhibit to Form 8-K filed on November 29, 2007 and incorporated herein by
reference.
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10.27
|
|
|
Amended and Restated Guarantee and Collateral Agreement, dated
January 31, 2005, made by the Registrant and certain of its subsidiaries
in favor of Citicorp USA, Inc. as administrative agent. Previously filed
as an exhibit to the Form 8-K filed on February 4, 2005 and
incorporated herein by reference.
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10.28
|
|
|
Management Services Agreement, dated January 31, 2005, among
Accuride Corporation, Kohlberg Kravis Roberts & Co. L.P. and
Trimaran Fund Management L.L.C. Previously filed as an exhibit to Amendment
No. 1 filed on February 23, 2005 to the Form S-1 effective
April 25, 2005 (Reg. No. 333-121944) and incorporated herein by
reference.
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10.29*
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Form of Indemnification Agreement. Previously filed as an exhibit to
Amendment 4, filed on April 21, 2005, to the Form S-1
effective April 25, 2005 (Reg. No. 333-121944) and incorporated
herein by reference.
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10.30*
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|
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Form of Accuride Corporation Stock Option Agreement (Performance
Vesting) for use with 2005 Incentive Award Plan. Previously filed as an exhibit
to Amendment 4, filed on April 21, 2005, to the Form S-1
effective April 25, 2005 (Reg. No. 333-121944) and incorporated
herein by reference.
|
40
10.31*
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|
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Form of Accuride Corporation Stock Option Agreement (Time Vesting)
for use with 2005 Incentive Award Plan. Previously filed as an exhibit to
Amendment 4, filed on April 21, 2005, to the Form S-1
effective April 25, 2005 (Reg. No. 333-121944) and incorporated
herein by reference.
|
10.32*
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|
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Form of Accuride Corporation Directors Stock Option Agreement for use
with 2005 Incentive Award Plan. Previously filed as an exhibit to
Amendment 4, filed on April 21, 2005, to the Form S-1
effective April 25, 2005 (Reg. No. 333-121944) and incorporated
herein by reference.
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10.33
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|
|
Lease Agreement, dated as of February 12, 2007, by and between
Imperial Group, LP, and Northgate Investors, LLC. Previously filed as an
exhibit to the Form 8-K filed on February 13, 2007, and incorporated herein
by reference.
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10.34
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|
|
Commercial Lease, effective August 1, 2006, by and between Accuride
Corporation and RN Realty. Previously filed as an exhibit to the Form 8-K
filed on July 17, 2006, and incorporated herein by reference.
|
10.35*
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|
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Form of Restricted Stock Unit Award Agreement for use with 2005
Incentive Award Plan. Previously filed as an exhibit to the Form 8-K filed on
December 21, 2006, and incorporated herein by reference.
|
10.36*
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|
|
Form of Stock Appreciation Rights Award Agreement for use with 2005
Incentive Award Plan. Previously filed as an exhibit to the Form 8-K filed on
December 21, 2006, and incorporated herein by reference.
|
10.37*
|
|
|
Form of Accuride Non-employee Director Restricted Stock Unit Award
Agreement, for use with the 2005 Incentive Award Plan.
|
10.38*
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|
|
Accuride Corporation Directors Deferred Compensation Plan, as
amended and restated effective January 1, 2008. Previously filed as an
exhibit to the Form 8-K filed on October 29, 2007, and incorporated herein by
reference.
|
10.39*
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|
|
Employment Agreement by and
between Accuride Corporation and Terrence Keating, effective as of March 1,
2008.
Previously filed as an exhibit to the Form 8-K
filed on March 11, 2008, and incorporated herein by reference.
|
10.40
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|
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Commercial Lease Agreement, effective March 1, 2007, by and between
Imperial Group, LP, and BR Williams Trucking, Inc. Previously filed as an
exhibit to the Form 8-K filed on March 14, 2007, and incorporated herein by
reference.
|
14.1
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|
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Accuride Corporation Code of Conduct-2005. Previously filed as an
exhibit to Amendment No. 2 filed on March 25, 2005 to the
Form S-1 effective April 25, 2005 (Reg. No. 333-121944) and
incorporated herein by reference.
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21.1
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Subsidiaries of the Registrant.
|
23.1
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Consent of Deloitte & Touche LLP.
|
31.1
|
|
|
Section 302 Certification of John R. Murphy in connection with
the Annual Report of Form 10-K of Accuride Corporation for the fiscal
year ended December 31, 2007.
|
31.2
|
|
|
Section 302 Certification of David K. Armstrong in connection
with the Annual Report of Form 10-K of Accuride Corporation for the
fiscal year ended December 31, 2007.
|
32.1
|
|
|
Section 906 Certification of John R. Murphy in connection with
the Annual Report on Form 10-K of Accuride Corporation for the fiscal
year ended December 31, 2007.
|
32.2
|
|
|
Section 906 Certification of David K. Armstrong in connection
with the Annual Report on Form 10-K of Accuride Corporation for the
fiscal year ended December 31, 2007.
|
Filed herewith
Furnished herewith
*
Management
contract or compensatory agreement
41
SIGNATURES
Pursuant to
the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Dated:
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March 17, 2008
|
|
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ACCURIDE CORPORATION
|
|
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By:
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/s/ JOHN R. MURPHY
|
|
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John R. Murphy
President and Chief Executive
Officer
(Principal Executive Officer)
|
Pursuant to
the requirements of the Securities and Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
Signature
|
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Title
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Date
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|
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|
|
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/s/ DAVID K. ARMSTRONG
|
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Senior Vice President / Chief Financial Officer
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March 17, 2008
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David K. Armstrong
|
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(Principal Financial and Accounting Officer)
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/s/ TERRENCE J. KEATING
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Chairman
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March 17, 2008
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Terrence J. Keating
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/s/ MARK D. DALTON
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Director
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March 17, 2008
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Mark D. Dalton
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/s/ JOHN D. DURRETT, JR.
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Director
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March 17, 2008
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John D. Durrett, JR.
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/s/ DONALD T. JOHNSON, JR.
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Director
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March 17, 2008
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Donald T. Johnson, Jr.
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/s/ WILLIAM M. LASKY
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Director
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March 17, 2008
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William M. Lasky
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|
|
|
|
|
|
|
|
/s/ CHARLES E. MITCHELL RENTSCHLER
|
|
Director
|
|
March 17, 2008
|
Charles E. Mitchell Rentschler
|
|
|
|
|
|
|
|
|
|
/s/ DONALD C. ROOF
|
|
Director
|
|
March 17, 2008
|
Donald C. Roof
|
|
|
|
|
42
ACCURIDE CORPORATION
INDEX TO FINANCIAL STATEMENTS
43
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and
Stockholders
Accuride Corporation
Evansville, Indiana
We
have audited the accompanying consolidated balance sheets of Accuride
Corporation and subsidiaries (the Company) as of December 31, 2007 and
2006, and the related consolidated statements of operations, stockholders
equity, and cash flows for each of the three years in the period ended December 31,
2007. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In
our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Accuride Corporation and
subsidiaries as of December 31, 2007 and 2006, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2007, in conformity with accounting principles generally
accepted in the United States of America.
As
discussed in Note 1 to the consolidated financial statements, effective January 1,
2007, the Company adopted Financial Accounting Standards Board Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
and effective January 1, 2006, the Company changed its method of
accounting for share-based payments as required by Statement of Financial
Accounting Standards No. 123(R),
Share-Based Payment,
and effective December 31, 2006,
the Company adopted Statement of Financial Accounting Standards No. 158,
Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans
.
We
have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the Companys internal control over
financial reporting as of December 31, 2007, based on the criteria
established in
Internal ControlIntegrated
Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated March 10, 2008 expressed an
unqualified opinion on the Companys internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
|
Indianapolis,
Indiana
|
March 10,
2008
|
44
ACCURIDE CORPORATION
CONSOLIDATED
BALANCE SHEETS
|
|
December 31,
|
|
(In thousands, except for per share data)
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
90,935
|
|
$
|
110,204
|
|
Customer receivables, net of allowance for doubtful accounts of
$1,461 and $2,127 in 2007 and 2006, respectively
|
|
81,719
|
|
132,482
|
|
Other receivables
|
|
5,476
|
|
10,183
|
|
Inventories
|
|
92,570
|
|
103,653
|
|
Supplies
|
|
20,540
|
|
22,124
|
|
Deferred income taxes
|
|
19,422
|
|
14,451
|
|
Prepaid expenses and other current assets
|
|
2,703
|
|
5,143
|
|
Total current assets
|
|
313,365
|
|
398,240
|
|
PROPERTY, PLANT AND EQUIPMENTNet
|
|
279,240
|
|
300,806
|
|
OTHER ASSETS:
|
|
|
|
|
|
Goodwill
|
|
378,804
|
|
389,513
|
|
Other intangible assets
|
|
128,870
|
|
135,644
|
|
Investment in affiliates
|
|
1,090
|
|
350
|
|
Deferred financing costs, net of accumulated amortization of $3,705
and $2,470 in 2007 and 2006, respectively
|
|
6,794
|
|
8,029
|
|
Pension benefit plan asset and other
|
|
5,471
|
|
605
|
|
TOTAL
|
|
$
|
1,113,634
|
|
$
|
1,233,187
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
Accounts payable
|
|
$
|
80,070
|
|
$
|
107,217
|
|
Accrued payroll and compensation
|
|
30,456
|
|
28,430
|
|
Accrued interest payable
|
|
11,105
|
|
11,406
|
|
Income taxes payable
|
|
|
|
4,135
|
|
Other postretirement benefit plan liability
|
|
3,443
|
|
3,424
|
|
Accrued and other liabilities
|
|
24,880
|
|
32,287
|
|
Total current liabilities
|
|
149,954
|
|
186,899
|
|
LONG-TERM DEBT
|
|
572,725
|
|
642,725
|
|
DEFERRED INCOME TAXES
|
|
34,644
|
|
39,945
|
|
LONG-TERM INCOME TAX PAYABLE
|
|
9,915
|
|
|
|
OTHER POSTRETIREMENT BENEFIT PLAN LIABILITY
|
|
58,519
|
|
81,158
|
|
PENSION BENEFIT PLAN LIABILITY
|
|
10,939
|
|
15,096
|
|
OTHER LIABILITIES
|
|
3,138
|
|
3,782
|
|
COMMITMENTS AND CONTINGENCIES (Note 17)
|
|
|
|
|
|
STOCKHOLDERS EQUITY:
|
|
|
|
|
|
Preferred stock, $0.01 par value; 5,000 shares authorized and
unissued
|
|
|
|
|
|
Common Stock, $0.01 par value; 100,000 shares authorized, 36,066 and
35,554 shares issued, and 35,362 and 34,850 shares outstanding in 2007 and
2006, respectively
|
|
354
|
|
349
|
|
Additional paid-in-capital
|
|
262,645
|
|
255,741
|
|
Treasury stock 76 shares at cost in 2007 and 2006
|
|
(751
|
)
|
(751
|
)
|
Accumulated other comprehensive loss
|
|
(9,105
|
)
|
(23,100
|
)
|
Retained earnings
|
|
20,657
|
|
31,343
|
|
Total stockholders equity
|
|
273,800
|
|
263,582
|
|
TOTAL
|
|
$
|
1,113,634
|
|
$
|
1,233,187
|
|
See notes to consolidated financial statements.
45
ACCURIDE CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
Year ended December 31,
|
|
(in thousands except per share data)
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
NET SALES
|
|
$
|
1,013,686
|
|
$
|
1,408,155
|
|
$
|
1,229,311
|
|
COST OF GOODS SOLD
|
|
927,192
|
|
1,211,258
|
|
1,028,175
|
|
GROSS PROFIT
|
|
86,494
|
|
196,897
|
|
201,136
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
56,898
|
|
53,458
|
|
51,601
|
|
INCOME FROM OPERATIONS
|
|
29,596
|
|
143,439
|
|
149,535
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
Interest income
|
|
1,952
|
|
1,976
|
|
556
|
|
Interest expense
|
|
(50,296
|
)
|
(52,886
|
)
|
(51,686
|
)
|
Loss on extinguishment of debt
|
|
|
|
|
|
(4,474
|
)
|
Refinancing costs
|
|
|
|
|
|
(15,513
|
)
|
Equity in earnings of affiliates
|
|
|
|
621
|
|
455
|
|
Other incomenet
|
|
6,978
|
|
602
|
|
565
|
|
INCOME (LOSS) BEFORE INCOME TAXES
|
|
(11,770
|
)
|
93,752
|
|
79,438
|
|
INCOME TAX PROVISION (BENEFIT)
|
|
(3,131
|
)
|
28,619
|
|
28,209
|
|
NET INCOME (LOSS)
|
|
$
|
(8,639
|
)
|
$
|
65,133
|
|
$
|
51,229
|
|
Weighted average common shares outstandingbasic
|
|
35,179
|
|
34,280
|
|
29,500
|
|
Basic income (loss) per share
|
|
$
|
(0.25
|
)
|
$
|
1.90
|
|
$
|
1.74
|
|
Weighted average common shares outstandingdiluted
|
|
35,249
|
|
34,668
|
|
30,075
|
|
Diluted income (loss) per share
|
|
$
|
(0.25
|
)
|
$
|
1.88
|
|
$
|
1.70
|
|
See notes to consolidated financial statements.
46
ACCURIDE CORPORATION
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY
(Dollars in thousands)
|
|
Comprehensive
Income (Loss)
|
|
Common
Stock and
Additional
Paid-in-
Capital
|
|
Treasury
Stock
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Retained
Earnings
(Deficiency)
|
|
Total
Stockholders
Equity
(Deficiency)
|
|
BALANCE at January 1, 2005
|
|
|
|
$
|
52,086
|
|
$
|
(735
|
)
|
$
|
(12,113
|
)
|
$
|
(85,019
|
)
|
$
|
(45,781
|
)
|
Net income
|
|
$
|
51,229
|
|
|
|
|
|
|
|
51,229
|
|
51,229
|
|
Issuance of common stock acquisition of TTI
|
|
|
|
92,000
|
|
|
|
|
|
|
|
92,000
|
|
Net proceeds from sales of stock
|
|
|
|
89,605
|
|
|
|
|
|
|
|
89,605
|
|
Exercise of stock options
|
|
|
|
2,416
|
|
(16
|
|
|
|
|
|
2,400
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair market value of cash flow hedges (net of tax)
|
|
(62
|
)
|
|
|
|
|
(62
|
)
|
|
|
(62
|
)
|
Minimum pension liability adjustment (net of tax)
|
|
(13,648
|
)
|
|
|
|
|
(13,648
|
)
|
|
|
(13,648
|
)
|
Comprehensive income
|
|
$
|
37,519
|
|
|
|
|
|
|
|
|
|
|
|
BALANCEDecember 31, 2005
|
|
|
|
236,107
|
|
(751
|
)
|
(25,823
|
)
|
(33,790
|
)
|
175,743
|
|
Net income
|
|
$
|
65,133
|
|
|
|
|
|
|
|
65,133
|
|
65,133
|
|
Costs related to sales of stock
|
|
|
|
(103
|
)
|
|
|
|
|
|
|
(103
|
)
|
Exercise of share-based awards
|
|
|
|
6,812
|
|
|
|
|
|
|
|
6,812
|
|
Stock compensation expense
|
|
|
|
1,500
|
|
|
|
|
|
|
|
1,500
|
|
Tax contingency settlement
|
|
|
|
11,774
|
|
|
|
|
|
|
|
11,774
|
|
Adoption of SFAS No. 158 (net of tax)
|
|
|
|
|
|
|
|
(20,542
|
)
|
|
|
(20,542
|
)
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair market value of cash flow hedges (net of tax)
|
|
(397
|
)
|
|
|
|
|
(397
|
)
|
|
|
(397
|
)
|
Minimum pension liability adjustment (net of tax)
|
|
23,662
|
|
|
|
|
|
23,662
|
|
|
|
23,662
|
|
Comprehensive income
|
|
$
|
88,398
|
|
|
|
|
|
|
|
|
|
|
|
BALANCEDecember 31, 2006
|
|
|
|
256,090
|
|
(751
|
)
|
(23,100
|
)
|
31,343
|
|
263,582
|
|
Net income (loss)
|
|
$
|
(8,639
|
)
|
|
|
|
|
|
|
(8,639
|
)
|
(8,639
|
)
|
Exercise of share-based awards
|
|
|
|
4,190
|
|
|
|
|
|
|
|
4,190
|
|
Stock compensation expense
|
|
|
|
2,719
|
|
|
|
|
|
|
|
2,719
|
|
Adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
(2,047
|
)
|
(2,047
|
)
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension liability adjustment (net of tax)
|
|
13,995
|
|
|
|
|
|
13,995
|
|
|
|
13,995
|
|
Comprehensive income
|
|
$
|
5,356
|
|
|
|
|
|
|
|
|
|
|
|
BALANCEDecember 31, 2007
|
|
|
|
$
|
262,999
|
|
$
|
(751
|
)
|
$
|
(9,105
|
)
|
$
|
20,657
|
|
$
|
273,800
|
|
See notes to consolidated financial statements.
47
ACCURIDE
CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
Year Ended December 31,
|
|
(In thousands)
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(8,639
|
)
|
$
|
65,133
|
|
$
|
51,229
|
|
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
Depreciation and asset impairment
|
|
55,912
|
|
61,497
|
|
40,358
|
|
Amortization deferred financing costs
|
|
1,235
|
|
1,366
|
|
3,237
|
|
Amortization and impairment other intangible assets
|
|
6,774
|
|
5,532
|
|
5,194
|
|
Loss on extinguishment of debt
|
|
|
|
|
|
4,474
|
|
Loss (gain) on disposal of assets
|
|
433
|
|
1,551
|
|
85
|
|
Deferred income taxes
|
|
(8,450
|
)
|
9,672
|
|
21,330
|
|
Equity in earnings of affiliates
|
|
|
|
(621
|
)
|
(455
|
)
|
Cash distribution from affiliate
|
|
|
|
|
|
1,000
|
|
Non-cash stock-based compensation
|
|
2,719
|
|
1,500
|
|
|
|
Changes in certain assets and liabilities, net of effects from
acquisition:
|
|
|
|
|
|
|
|
Receivables
|
|
55,470
|
|
1,069
|
|
(1,755
|
)
|
Inventories and supplies
|
|
12,667
|
|
10,637
|
|
(15,952
|
)
|
Prepaid expenses and other assets
|
|
11,142
|
|
3,119
|
|
(654
|
)
|
Accounts payable
|
|
(25,873
|
)
|
(9,997
|
)
|
(7,514
|
)
|
Accrued and other liabilities
|
|
(20,448
|
)
|
555
|
|
(8,662
|
)
|
Net cash provided by operating activities
|
|
82,942
|
|
151,013
|
|
91,915
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
(36,499
|
)
|
(42,189
|
)
|
(39,958
|
)
|
Acquisition costs - TTI
|
|
|
|
|
|
(8,327
|
)
|
Cash distribution from investment - Trimont
|
|
427
|
|
544
|
|
679
|
|
Proceeds from sale of property, plant and equipment
|
|
446
|
|
1,888
|
|
|
|
Other investments, net of cash acquired
|
|
(740
|
)
|
(1,038
|
)
|
|
|
Net cash used in investing activities
|
|
(36,366
|
)
|
(40,795
|
)
|
(47,606
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Payments on long-term debt
|
|
(70,000
|
)
|
(50,000
|
)
|
(971,731
|
)
|
Proceeds from issuance of long-term debt
|
|
|
|
|
|
825,000
|
|
Increase in revolving credit advance
|
|
5,000
|
|
25,000
|
|
|
|
Decrease in revolving credit advance
|
|
(5,000
|
)
|
(30,000
|
)
|
|
|
Deferred financing fees
|
|
|
|
|
|
(10,006
|
)
|
Payment of premium on notes extinguished
|
|
|
|
|
|
(2,928
|
)
|
Proceeds from issuance of shares
|
|
|
|
(103
|
)
|
89,605
|
|
Proceeds from employee stock option and stock purchase plans
|
|
3,006
|
|
4,535
|
|
2,323
|
|
Tax benefit from employee stock option exercises
|
|
1,149
|
|
2,139
|
|
|
|
Net cash used in financing activities
|
|
(65,845
|
)
|
(48,429
|
)
|
(67,737
|
)
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
(19,269
|
)
|
61,789
|
|
(23,428
|
)
|
CASH AND CASH EQUIVALENTSBeginning of year
|
|
110,204
|
|
48,415
|
|
71,843
|
|
CASH AND CASH EQUIVALENTSEnd of year
|
|
$
|
90,935
|
|
$
|
110,204
|
|
$
|
48,415
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
46,794
|
|
$
|
51,480
|
|
$
|
49,987
|
|
Cash paid for taxes
|
|
$
|
2,101
|
|
$
|
10,249
|
|
$
|
9,589
|
|
Cash paid for capital leases
|
|
$
|
214
|
|
$
|
233
|
|
$
|
179
|
|
Purchases of property, plant and equipment in accounts payable
|
|
$
|
8,221
|
|
$
|
9,495
|
|
$
|
7,300
|
|
See notes to consolidated financial statements.
48
ACCURIDE
CORPORATION
For
the years ended December 31, 2007, 2006, and 2005
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands, except share and per share data)
Note 1 - Summary of Significant Accounting
Policies
Basis
of Consolidation
The accompanying consolidated
financial statements include the accounts of Accuride Corporation (the
Company) and its wholly-owned subsidiaries, including Accuride
Canada, Inc. (Accuride Canada), Accuride Erie L.P. (Accuride Erie),
Accuride de Mexico, S.A. de C.V. (AdM), AOT, Inc. (AOT), and Transportation
Technologies Industries, Inc. (TTI). TTIs subsidiaries include Bostrom
Seating, Inc. (Bostrom), Brillion Iron Works, Inc. (Brillion), Fabco
Automotive Corporation (Fabco), Gunite Corporation (Gunite), and Imperial
Group, L.P. (Imperial). TTI was acquired on January 31, 2005. Accordingly,
2005 results represent 11 months of activity (see Note 2). All intercompany
transactions have been eliminated. Investments in affiliated companies in which
we have a controlling interest are accounted for using the equity method.
Business
of the Company
We are engaged primarily in the
design, manufacture and distribution of components for trucks, trailers and
certain military and construction vehicles. We sell our products primarily
within North America and Latin America to original equipment manufacturers and
to the aftermarket.
Managements
Estimates and Assumptions
The preparation of the
consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America 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.
Revenue
Recognition
Revenue from product sales is
recognized primarily upon shipment whereupon title passes and we have no
further obligations to the customer. Provisions for discounts and rebates to
customers, and returns and other adjustments are provided for in the same
period the related sales are recorded as a reduction of sales when the related
sales are recorded.
Cash
and Cash Equivalents
Cash and cash equivalents
include all highly liquid investments with original maturities of three months
or less at the time of acquisition. The
carrying value of these investments approximates fair value due to their short
maturity.
Inventories
Inventories
are stated at the lower of cost or market. Cost for substantially all
inventories, except AdM, is determined by the first-in, first-out method
(FIFO). Inventories at AdM are determined using average cost. We review inventory
on hand and write down excess and obsolete inventory based on our assessment of
future demand and historical experience.
Supplies
Supplies
primarily consist of spare parts and consumables used in the manufacturing
process. Supplies are stated at the lower of cost or market. Cost for
substantially all supplies is determined by a moving-average method. We perform
annual evaluations of supplies and provide an allowance for obsolete items
based on usage activity.
Investment
in Affiliate
Included in Equity in earnings of
affiliates was our 50% interest in the earnings of AOT. AOT was a joint
venture between us and The Goodyear Tire & Rubber Company (Goodyear)
formed to provide sequenced wheel and tire assemblies for Navistar
International Transportation Corporation. Our investment in AOT at
December 31, 2005 totaled $3.2 million.
On October 31, 2006, AOT became a wholly-owned subsidiary as a result of
our purchase of Goodyears interest. As
of December 31, 2007, the investment on the consolidated balance sheet of $1.1
million represents the amount contributed to a technology company.
Property,
Plant and Equipment
Property, plant and equipment are recorded
at cost and are depreciated using the straight-line method over their expected
useful lives which are generally as follows:
Buildings
and improvements
|
15-30 years
|
Factory
machinery and equipment
|
10 years
|
Deferred
Financing Costs
Costs incurred in connection with
the Credit Agreement and issuance of senior
49
subordinated notes (see Note 6) have been deferred and are being
amortized over the life of the related debt using the effective interest
method.
Goodwill
Goodwill
consists of costs in excess of the net assets acquired in connection with the
Phelps Dodge Corporation (PDC) acquisition of us in March 1988, the
Accuride Erie acquisition in April 1999, the AdM acquisition in July 1999,
and the TTI acquisition in January 2005. Effective January 1, 2002, we
adopted Statement of Financial Accounting Standards (SFAS) No. 142,
Accounting for Goodwill and Other Intangible Assets.
Accordingly, we no longer amortize goodwill, but test for impairment at least
annually. The impairment test performed as of November 30, 2007 resulted in no
impairment.
Intangible
Assets
SFAS No. 141,
Business Combinations,
and SFAS
No. 142,
Goodwill and Other Intangible
Assets
, have been applied to the TTI transaction (See Note 2).
Accordingly, the tangible and identifiable intangible assets and liabilities
have been adjusted to fair values with the remainder of the purchase price
recorded as goodwill. Prior to the acquisition of TTI in January 2005, there
were no intangible assets. Indefinite lived intangibles assets (trade names)
are not amortized but are reviewed for impairment at least annually or more
frequently if impairment indicators arise.
The impairment test that was performed as of November 30, 2007 resulted
in an impairment loss in our Components segment of $1.1 million (see Note 4).
Long-Lived
Assets
We evaluate our long-lived assets to be
held and used and our identifiable intangible assets for impairment when events
or changes in economic circumstances indicate the carrying amount of such
assets may not be recoverable. Impairment is determined by comparison of the
carrying amount of the asset to the net undiscounted cash flows expected to be
generated by the related asset group. Long-lived assets to be disposed of are
carried at the lower of cost or fair value less the costs of disposal.
Pension
Plans
We have trusteed, non-contributory pension
plans covering certain U.S. and Canadian employees. For certain plans, the
benefits are based on career average salary and years of service and, for
other plans, a fixed amount for each year of service. Our net periodic pension
benefit costs are actuarially determined. Our funding policy provides that
payments to the pension trusts shall be at least equal to the minimum legal
funding requirements.
Postretirement
Benefits Other Than Pensions
We have
postretirement health care and life insurance benefit plans covering certain
U.S. non-bargained and Canadian employees. We account for these benefits on an
accrual basis and provide for the expected cost of such postretirement benefits
accrued during the years employees render the necessary service. Our
funding policy provides that payments to participants shall be at least equal
to our cash basis obligation.
Postemployment
Benefits Other Than Pensions
We have certain
post-employment benefit plans, which provide severance benefits, covering
certain U.S. and Canadian employees. We account for these benefits on an
accrual basis.
Income
Taxes
Deferred tax assets and liabilities are
computed based on differences between financial statement and income tax bases
of assets and liabilities using enacted income tax rates. Deferred income tax
expense or benefit is based on the change in deferred tax assets and
liabilities from period to period, subject to an ongoing assessment of
realization of deferred tax assets. Management judgment is required in
developing our provision for income taxes, including the determination of
deferred tax assets, liabilities and any valuation allowance recorded against
the deferred tax assets. We evaluate quarterly the realizability of our net
deferred tax assets by assessing the valuation allowance and adjusting the
amount of such allowance, if necessary. The factors used to assess the
likelihood of realization are our forecast of taxable income and the
availability of tax planning strategies that can be implemented to realize the
net deferred tax assets. Although realization of our net deferred tax assets is
not certain, we have concluded that we will more likely than not realize the
deferred tax assets, excluding certain state net operating losses for which we
have provided a valuation allowance.
In July 2006, the FASB issued FIN 48,
Accounting for Uncertainty in Income Taxes,
to
address the noncomparability in reporting tax assets and liabilities resulting
from a lack of specific guidance in SFAS No. 109,
Accounting for Income Taxes,
on the uncertainty in income
taxes recognized in an enterprise's financial statements
.
Specifically,
FIN 48 prescribes (a) a consistent recognition threshold and (b) a measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return, and provides related
guidance on derecognition, classification, interest and penalties, accounting
in interim periods, disclosure, and transition.
FIN 48 will apply to fiscal years beginning after December 15, 2006. The
impact of the adoption of FIN 48 on January 1, 2007, was to decrease retained
earnings by $2.1 million, increase goodwill by $0.7 million, decrease income
taxes payable by $6.1 million, decrease net deferred tax liabilities by $2.7
million, and increase non-current income taxes payable by $11.6 million.
50
Research
and Development Costs
Expenditures relating to the
development of new products and processes, including significant improvements
and refinements to existing products, are expensed as incurred. The amounts
expensed in the years ended December 31, 2007, 2006, and 2005 totaled
$7.3 million, $8.0 million and $7.2 million, respectively.
Foreign
Currency
The assets and liabilities of Accuride
Canada and AdM that are receivable or payable in cash are converted at current
exchange rates, and inventories and other non-monetary assets and liabilities
are converted at historical rates. Revenues and expenses are converted at
average rates in effect for the period. The functional currencies of Accuride
Canada and AdM have been determined to be the U.S. dollar. Accordingly, gains
and losses resulting from conversion of such amounts, as well as gains and
losses on foreign currency transactions, are included in operating results as
Other income (expense), net. We had aggregate foreign currency gains of $6.6
million, $0.1 million and $0.6 million for the years ended December 31, 2007,
2006, and 2005, respectively.
Concentrations
of Credit Risk
Financial instruments that
potentially subject us to significant concentrations of credit risk consist
principally of cash, cash equivalents, customer receivables, and derivative
financial instruments. We place our cash and cash equivalents and execute
derivatives with high quality financial institutions. Generally, we do not
require collateral or other security to support customer receivables.
Derivative
Financial Instruments
We use derivative
instruments to manage exposure to foreign currency, commodity prices, and
interest rate risks. We do not enter into derivative financial instruments for
trading or speculative purposes. The derivative instruments used by us include
interest rate and foreign exchange instruments. All derivative instruments are
recognized on the consolidated balance sheet at their estimated fair value. See
Note 13 for the carrying amounts and estimated fair values of these
instruments.
Interest Rate Instruments
We use interest
rate swap agreements as a means of fixing the interest rate on portions of our
floating-rate debt. At December 31, 2007, we had two interest rate swap
agreements outstanding. See Note 6 for
the details of the agreements. The
interest rate swap agreements are not designated as hedges for financial
reporting purposes and are carried in the consolidated financial statements at
fair value, with all realized and unrealized gains or losses reflected in
current period earnings as a component of interest expense. See Note 6 for the description of interest
rate instruments.
Foreign Exchange Instruments
We use
foreign currency forward contracts and options to limit foreign exchange risk
on anticipated but not yet committed transactions expected to be denominated in
Canadian dollars. As of December 31, 2005, we had foreign exchange instruments
with an immaterial value that were designated as cash flow hedges. Based on
historical experience and analysis performed by us, management expected that
these derivative instruments would be highly effective in offsetting the change
in the value of the anticipated transactions being hedged. As such, unrealized
gains or losses were deferred in Other Comprehensive Income (Loss) with only
realized gains or losses reflected in earnings as Cost of Goods Sold. These
instruments expired in the first quarter of 2006.
While we had no outstanding instruments at
December 31, 2007, we had $20.4 million of outstanding foreign currency
exchange instruments at December 31, 2006. Foreign currency forward contracts
are carried in the consolidated financial statements at fair value, with
unrealized gains or losses reflected in current period earnings as other income
or expense. The settlement amounts are also reported in the consolidated
financial statements as a component of other income or expense. As of December 31, 2007, there were no
derivatives designated as hedges for financial reporting purposes.
Commodity Price Instruments
We
periodically use commodity price swap contracts to limit exposure to changes in
certain raw material prices. Commodity price instruments, which do not meet the
normal purchase exception, are not designated as hedges for financial reporting
purposes and, accordingly, are carried in the financial statements at fair
value, with realized and unrealized gains and losses reflected in current
period earnings as a component of Cost of goods sold. The notional amount of
commodity price instruments at December 31, 2007 was $12.5 million. We had
no outstanding commodity price swaps at December 31, 2005 and 2006.
The pre-tax realized and unrealized gains
(losses) on our derivative financial instruments for the years ended December
31, 2007, 2006, and 2005 recognized in our consolidated statements of
operations are as follows:
|
|
Interest Rate Instruments
|
|
Foreign Exchange
Instruments
|
|
|
|
Realized
Gain (Loss)
|
|
Unrealized
Gain (Loss)
|
|
Realized
Gain (Loss)
|
|
Unrealized
Gain (Loss)
|
|
2005
|
|
$
|
(307
|
)
|
$
|
2,651
|
|
$
|
699
|
|
|
|
2006
|
|
2,536
|
|
(184
|
)
|
|
|
$
|
(283
|
)
|
2007
|
|
(2,644
|
)
|
2,322
|
|
2,698
|
|
283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
Earnings
Per Share
Earnings per share are calculated as net
income divided by the weighted average number of common shares outstanding
during the period. Diluted earnings per share are calculated by dividing net
income by this weighted-average number of common shares outstanding plus common
stock equivalents outstanding during the year. Employee stock options
outstanding to acquire 1,176,276 shares in 2007, 97,592 shares in 2006, and
40,195 shares in 2005 were not included in the computation of diluted earnings
per common share because the effect would be anti-dilutive.
|
|
December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(8,639
|
)
|
$
|
65,133
|
|
$
|
51,229
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
35,179
|
|
34,280
|
|
29,500
|
|
Effect of dilutive share-based awards
|
|
70
|
|
388
|
|
575
|
|
Dilutive weighted average shares
outstanding
|
|
35,249
|
|
34,668
|
|
30,075
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Based Compensation
As described in Note 10, we
maintain stock-based compensation plans which allow for the issuance of
incentive stock options, or ISOs, as defined in section 422 of the
Internal Revenue Code of 1986, as amended, or the Code, nonstatutory stock
options, restricted stock, restricted stock units, stock appreciation rights,
or SARs, deferred stock, dividend equivalent rights, performance awards and
stock payments, which we refer to collectively as Awards, to officers, our key
employees, and to members of the Board of Directors. We also maintain an
employee stock purchase plan that provides for the issuance of shares to all of
our eligible employees at a discounted price. Effective January 1, 2006, we
adopted SFAS No. 123(R), Share-Based Payment. Under the modified prospective
method of adoption, compensation expense related to share-based awards is
recognized beginning in 2006, but compensation expense in 2005 related to
share-based awards continues to be disclosed on a pro forma basis only. There
was no cumulative effect of adopting SFAS No. 123(R).
New Accounting
Pronouncements
SFAS No. 157
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
, to eliminate the diversity in
practice that exists due to the different definitions of fair value and the limited
guidance for applying those definitions in GAAP that are dispersed among the
many accounting pronouncements that require fair value measurements. SFAS No. 157 will apply to fiscal years
beginning after November 15, 2007. In
November 2007, the FASB provided a one year deferral for the
implementation of SFAS No. 157 for other nonfinancial assets and liabilities. Management
does not currently anticipate a material impact of SFAS No. 157 on the
consolidated financial statements.
SFAS No. 159
In February 2007, the FASB issued SFAS No. 159,
Establishing the Fair Value Option for Financial Assets and Liabilities
,
to permit all entities to choose to elect to measure eligible financial
instruments at fair value. SFAS No. 159
applies to fiscal years beginning after November 15, 2007, with early adoption
permitted for an entity that has also elected to apply the provisions of SFAS
No. 157,
Fair Value Measurements.
An
entity is prohibited from retrospectively applying SFAS No. 159, unless it
chooses early adoption. Management does not currently anticipate a material impact
of SFAS No. 159 on the consolidated financial statements.
SFAS No. 141(R)
In December 2007, the FASB issued SFAS No. 141(R), which
replaces SFAS No. 141. SFAS No. 141(R) requires the acquirer of a business to
recognize and measure the identifiable assets acquired, the liabilities
assumed, and any non-controlling interest in the acquiree at fair value. SFAS
No. 141(R) also requires transactions costs related to the business combination
to be expensed as incurred. SFAS No. 141(R) applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. Management
is currently evaluating the impact of SFAS No. 141(R) related to future
acquisitions, if any, on our consolidated financial statements.
SFAS No. 160
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial Statements
. SFAS No. 160 requires all entities to report
noncontrolling (minority) interests in subsidiaries as equity in the
consolidated financial statements. Its intention is to eliminate the diversity
in practice regarding the accounting for transactions between an entity and noncontrolling
interests. SFAS No. 160 will apply to fiscal years beginning on or after
December 15, 2008. Management is currently evaluating the impact of SFAS
No. 160 on the consolidated financial statements.
52
Note 2 - Acquisitions
On January 31, 2005, we completed our
acquisition of TTI. Accuride Corporation issued 7,964,238 shares of common
stock in exchange for the assets of TTI. The transaction was accounted for
using the purchase method of accounting in accordance with SFAS No. 141,
Business Combinations
, and accordingly,
the operating results of TTI have been included with those of the Company
subsequent to January 31, 2005. In connection with the merger, we
refinanced substantially all our debt (See Note 6).
On October 31, 2006, AOT became a
wholly-owned subsidiary as a result of our purchase of Goodyears interest for
$0.7 million, net of cash acquired.
Subsequent to the acquisition date, the results of operations are
included in our consolidated results of operations. Prior to October 31, 2006, this investment
was accounted for under the equity method and results of operations were
included within equity earnings of affiliates.
Note 3 - Inventories
The inventories at December 31, 2007 and
2006, on a FIFO basis except at AdM which values inventories using an average
cost basis, were as follows:
|
|
As of December 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
30,267
|
|
$
|
29,437
|
|
Work in process
|
|
28,193
|
|
39,796
|
|
Finished manufactured goods
|
|
34,110
|
|
34,420
|
|
Total inventories
|
|
$
|
92,570
|
|
$
|
103,653
|
|
Note 4 - Goodwill and Other Intangible
Assets
SFAS No. 141,
Business Combinations,
and SFAS No. 142,
Goodwill and Other Intangible Assets,
have
been applied to the acquisition of TTI, which occurred on January 31,
2005. Accordingly, the tangible and
identifiable intangible assets and liabilities were adjusted to fair values
with the remainder of the purchase price recorded as goodwill. Additionally, goodwill and indefinite lived
intangibles assets (trade names) are not amortized but are reviewed for
impairment at least annually or more frequently if impairment indicators
arise. Amortization expense in 2007 was
$5.7 million. We estimate that aggregate
amortization expense for 2008 will be $5.4 million with the following four
years at $4.7 million each year. The
summary of goodwill and other intangible assets is as follows:
|
|
Weighted
|
|
As of
December 31, 2007
|
|
As of
December 31, 2006
|
|
|
|
Average
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Useful
|
|
Gross
|
|
Amortization
|
|
Carrying
|
|
Gross
|
|
Accumulated
|
|
Carrying
|
|
|
|
Lives
|
|
Amount
|
|
&
Impairment
|
|
Amount
|
|
Amount
|
|
Amortization
|
|
Amount
|
|
Goodwill
|
|
|
|
$
|
378,804
|
|
|
|
$
|
378,804
|
|
$
|
389,513
|
|
|
|
$
|
389,513
|
|
Other intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-compete agreements
|
|
3.0
|
|
$
|
2,600
|
|
$
|
1,938
|
|
$
|
662
|
|
$
|
2,600
|
|
$
|
999
|
|
$
|
1,601
|
|
Trade names
|
|
|
|
38,080
|
|
1,100
|
|
36,980
|
|
38,080
|
|
|
|
38,080
|
|
Technology
|
|
14.7
|
|
33,540
|
|
6,690
|
|
26,850
|
|
33,540
|
|
4,395
|
|
29,145
|
|
Customer relationships
|
|
29.6
|
|
71,500
|
|
7,122
|
|
64,378
|
|
71,500
|
|
4,682
|
|
66,818
|
|
|
|
|
|
$
|
145,720
|
|
$
|
16,850
|
|
$
|
128,870
|
|
$
|
145,720
|
|
$
|
10,076
|
|
$
|
135,644
|
|
Indefinite lived intangibles assets (trade
names) are not amortized but are reviewed for impairment at least annually or
more frequently if impairment indicators arise.
The test that was performed for 2007 resulted in an impairment loss of
our Gunite trade name in our Components segment of $1.1 million, which was
recorded in Operating expenses and had an earnings per share impact of $0.02. The fair value of our trade names are based on
discounted cash flows on royalties from future revenues. The decrease in valuation was a result of
reduced demand in the commercial vehicle industry.
53
The following presents the changes in the carrying amount of goodwill
for the year ended December 31, 2007:
|
|
Wheels
|
|
Components
|
|
Other
|
|
Total
|
|
Balance at December 31, 2006
|
|
$
|
123,199
|
|
$
|
254,219
|
|
$
|
12,095
|
|
$
|
389,513
|
|
Adoption of FIN 48 on January 1, 2007
|
|
|
|
731
|
|
|
|
731
|
|
Tax matters related to TTI Merger
|
|
|
|
(11,035
|
)
|
(405
|
)
|
(11,440
|
)
|
Balance at December 31, 2007
|
|
$
|
123,199
|
|
$
|
243,915
|
|
$
|
11,690
|
|
$
|
378,804
|
|
During 2007, goodwill was reduced by $4.1
million in accordance with EITF 93-7,
Uncertainties Related to
Income Taxes in a Purchase Business Combination
, due to settlements
of tax audits and amendments of previously filed returns. Also during 2007, we increased deferred tax
assets and reduced goodwill by $7.4 million for the correction of an immaterial
error related to the TTI Merger. We
considered both the qualitative and quantitative effects of this error on the
financial statements for the fiscal year ended December 31, 2007, as well
as the qualitative and quantitative effects of including the error correction
in previous periods and concluded that the effects on the financial statements
are not material.
Note 5 - Property, Plant and Equipment
Property, plant and equipment at December 31,
2007 and 2006 consist of the following:
|
|
2007
|
|
2006
|
|
Land and land improvements
|
|
$
|
12,760
|
|
$
|
12,572
|
|
Buildings
|
|
97,906
|
|
96,875
|
|
Machinery and equipment
|
|
579,263
|
|
556,196
|
|
|
|
689,929
|
|
665,643
|
|
Less: accumulated depreciation
|
|
410,689
|
|
364,837
|
|
Property, plant and equipment, net
|
|
$
|
279,240
|
|
$
|
300,806
|
|
During 2006, we changed our estimated lives
for certain light wheel assets related to a customer re-sourcing decision as
described in Note 17. The new depreciation period was selected to correspond
with the estimated date of re-sourcing. Due to the acceleration of
depreciation, operating income during 2006 and 2007 was reduced by $16.3
million and $12.8 million, respectively.
The impacts on earnings per share for 2006 and 2007 were $0.30 and
$0.24, respectively.
Depreciation expense for the years ended December 31,
2007, 2006 and 2005 was $55.9 million, $61.5 million and $40.4 million,
respectively. During 2006, we sold our Columbia, Tennessee property for net
proceeds of $1.9 million, resulting in a loss of $1.4 million. Also in 2006, we
recorded a $2.3 million impairment of tooling assets in our Piedmont, Alabama
facility as a result of a discontinuation of a certain product line.
Note 6 - Debt
Debt at December 31, 2007 and 2006
consists of the following:
|
|
2007
|
|
2006
|
|
Term B Facility
|
|
$
|
294,625
|
|
$
|
364,625
|
|
Senior subordinated notes
|
|
275,000
|
|
275,000
|
|
Industrial Revenue Bond
|
|
3,100
|
|
3,100
|
|
|
|
572,725
|
|
642,725
|
|
Less current maturities
|
|
|
|
|
|
Total
|
|
$
|
572,725
|
|
$
|
642,725
|
|
Bank
Borrowing
In connection with the TTI merger, we
entered into a Fourth Amended and Restated Credit Agreement consisting of (1) a
term credit facility (the Term B Loan Facility) in an aggregate principal
amount of $550.0 million that will mature on January 31, 2012, and (2) a
revolving credit facility (the Revolver) in an aggregate principal amount of
$125.0 million (comprised of a $95.0 million U.S. revolving credit
facility and the continuation of a $30.0 million Canadian revolving credit
facility) that will terminate on January 31, 2010. As of December 31,
2007, $294.6 million was outstanding under the Term B Loan Facility
and the Revolver was undrawn. The Term B Loan Facility requires quarterly
amortization payments of $1.4 million that commenced on March 31,
2005, with the balance paid on the maturity date. On March 31, 2005, we
prepaid $11.0 million of the Term B Loan Facility future amortization
payments without penalty along with the regularly scheduled payment of
$1.4 million. On April 26, 2005, we completed an initial public
offering of our common stock. Net proceeds from the initial public offering
were approximately $89.6 million in 2005.
54
The proceeds from the initial public offering were used to repay a
portion of the Term Loan B facility under our term credit facility. This
prepayment was not subject to a prepayment penalty.
The interest rates applicable to loans under
our senior credit facilities are, at the option of the Company or Accuride
Canada, Inc., as applicable, a base rate or Eurodollar rate plus, in each
case, an applicable margin which is subject to adjustment based on our leverage
ratio. The base rate is a fluctuating interest rate equal to the highest of (a) the
base rate reported by Citibank, N.A. (or, with respect to the Canadian
revolving credit facility, the reference rate of interest established or quoted
by Citibank Canada for determining interest rates on U.S. dollar denominated
commercial loans made by Citibank Canada in Canada), (b) a reserve
adjusted three-week moving average of offering rates for three-month
certificates of deposit plus one-half of one percent (0.5%) and (c) the
federal funds effective rate plus one-half of one percent (0.5%). At December 31,
2007 and 2006, the interest rates under our bank borrowings were 8.5% and 7.4%,
respectively. The obligations under our senior credit facilities are guaranteed
by all of our domestic subsidiaries. The loans under the credit facilities are
secured by, among other things, a lien on substantially all of our U.S.
properties and assets and of our domestic subsidiaries and a pledge of 65% of
the stock of our foreign subsidiaries. The loans under the Canadian revolving
facility are secured by substantially all of the properties and assets of
Accuride Canada, Inc.
During 2005, we incurred a loss on early
extinguishment of debt totaling $4.5 million. The loss includes cash fees of
$2.9 million associated with the note extinguishment and the non-cash write-off
of unamortized deferred financing costs of $1.2 million and unamortized bond
discount of $0.3 million.
On November 28, 2007, we entered into an
amendment to the Fourth Amended and Restated Credit Agreement, dated as of January 31,
2005. The amendment increased pricing and modified certain financial covenants
through 2008, including changes to the leverage, interest coverage and fixed
charge coverage ratios. We were in compliance with all such covenants at December 31,
2007.
Senior
Subordinated Notes
In connection with the TTI
merger, we issued $275.0 million aggregate principal amount of 8½% senior
subordinated notes due 2015 in a private placement transaction. That
transaction resulted in the repayment of our 9.25% senior subordinated notes
due 2008 issued pursuant to an indenture, dated as of January 21, 1998.
Interest on the senior subordinated notes is payable on February 1 and August 1
of each year, beginning on August 1, 2005. The notes mature on February 1,
2015 and may be redeemed, at our option, in whole or in part, at any time on or
before February 1, 2010 at a price equal to 100% of the principal amount,
plus an applicable make-whole premium, and accrued and unpaid interest and
special interest if any, to the date of redemption. On or after February 1,
2010, the senior subordinated notes are redeemable at certain specified prices.
In addition, on or before February 1, 2008, we may redeem up to 40% of the
aggregate principal amount of notes issued under the indenture with the
proceeds of certain equity offerings. The new senior subordinated notes are
general unsecured obligations (1) subordinated in right of payment to all
of our and the guarantors existing and future senior indebtedness, including
any borrowings under our new senior credit facilities; (2) equal in right
of payment with any of the Companys and the guarantors existing and future
senior subordinated indebtedness; (3) senior in right of payment to all of
the Companys and the guarantors existing and future subordinated indebtedness
and (4) structurally subordinated to all obligations of our subsidiaries
that do not guarantee the outstanding notes. On June 15, 2005, we
completed an exchange offer of these senior subordinated notes for
substantially identical notes registered under the Securities Act of 1933, as
amended. As of December 31, 2007, the aggregate principal amount of senior
subordinated notes outstanding was $275.0 million.
In connection with the refinancing of the
bank borrowing and issuance of senior subordinated notes in 2005, we incurred
total costs of $15.5 million. These costs include cash fees of $13.7 million
associated with these transactions, and the non-cash write-off of unamortized
debt issuance costs of $1.8 million.
Under the terms of our credit agreement,
there are certain restrictive covenants that limit the payment of cash
dividends and establish minimum financial ratios. Our new senior credit
facilities and the indenture governing our senior subordinated notes restrict
our ability to pay dividends. In addition, our new senior credit facilities
include other more restrictive covenants and prohibit us from prepaying our
other indebtedness, including our new senior subordinated notes, while
borrowings under our new senior credit facilities are outstanding. We were in
compliance with all such covenants at December 31, 2007.
Interest
Rate Instruments
As of December 31, 2007, we
had two interest rate swap agreements outstanding. The first was for $250 million and the terms
with the counterparty are to exchange, at specified intervals, the difference
between 4.43% from March 2007 through March 2008, and the variable
rate interest amounts calculated by reference to the notional principal
amount. The second agreement was
established in December 2007 and the terms with the counterparty are to
exchange, at specified intervals, the difference between 3.81% from March 2008
through March 2010, and the variable rate
55
interest amounts calculated by reference to the notional principal
amount. The notional principal amounts under the terms are $200 million from March 2008
through March 2009, $150 million from March 2009 through September 2009
and $125 million from September 2009 through March 2010.
Maturities of long-term debt based on minimum
scheduled payments as of December 31, 2007 are as follows:
2008
|
|
$
|
|
|
2009
|
|
|
|
2010
|
|
|
|
2011
|
|
|
|
2012
|
|
294,625
|
|
Thereafter
|
|
278,100
|
|
Total
|
|
$
|
572,725
|
|
Note 7 Supplemental Cash Flows Disclosure
For the purpose of preparing the consolidated
financial statements, we consider all highly liquid investments with maturities
of three months or less when purchased to be cash equivalents. During
2007, 2006, and 2005, we recorded non-cash pension liability adjustments, net
of tax, of $14.0 million, $23.7 million, and ($13.6 million), respectively, as
a component of Other Comprehensive Income. We also recorded a non-cash increase
in our pension benefit obligation of $20.5 million, net of tax, in 2006,
pursuant to the adoption of SFAS No. 158,
Employers
Accounting for Defined Benefit Pension and Other Postretirement Plans
.
Note 8 - Pension and Other Postretirement
Benefit Plans
We have funded noncontributory employee
defined benefit pension plans that cover substantially all U.S. and Canadian
employees (the plans). Employees covered under the U.S. salaried plan are
eligible to participate upon the completion of one year of service and benefits
are determined by their cash balance accounts, which are based on an allocation
they earn each year. Employees covered under the Canadian salaried plan are
eligible to participate upon the completion of two years of service and
benefits are based upon career average salary and years of service.
Employees covered under the hourly plans are generally eligible to participate
at the time of employment and benefits are generally based on a fixed amount
for each year of service. U.S. employees are vested in the plans after
five years of service; Canadian hourly employees are vested after
two years of service. We use a December 31 measurement date for all
of our plans.
In addition to providing pension benefits, we
also have certain unfunded health care and life insurance programs for U.S.
non-bargained and Canadian employees who meet certain eligibility requirements.
These benefits are provided through contracts with insurance companies and
health service providers. The coverage is provided on a non-contributory basis
for certain groups of employees and on a contributory basis for other groups.
Obligations and
Funded Status:
|
|
Pension Benefits
|
|
Other Benefits
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Change
in benefit obligation:
|
|
|
|
|
|
|
|
|
|
Benefit
obligationbeginning of year
|
|
$
|
178,788
|
|
$
|
169,590
|
|
$
|
84,582
|
|
$
|
87,022
|
|
Service cost
|
|
3,717
|
|
4,440
|
|
1,058
|
|
1,381
|
|
Interest cost
|
|
10,300
|
|
9,366
|
|
4,345
|
|
4,736
|
|
Actuarial losses
(gains)
|
|
(2,027
|
)
|
(1,579
|
)
|
(15,104
|
)
|
(5,681
|
)
|
Benefits paid
|
|
(9,261
|
)
|
(7,541
|
)
|
(3,341
|
)
|
(3,145
|
)
|
Foreign currency
exchange rate changes
|
|
13,367
|
|
|
|
1,713
|
|
|
|
Plan amendment
|
|
|
|
4,512
|
|
(11,213
|
)
|
|
|
Curtailment
|
|
(5,187
|
)
|
|
|
(702
|
)
|
(232
|
)
|
Special
termination benefits
|
|
6,863
|
|
|
|
|
|
|
|
Incurred retiree
drug subsidy reimbursements
|
|
|
|
|
|
154
|
|
133
|
|
Plan
participants contributions
|
|
|
|
|
|
470
|
|
368
|
|
Benefit
obligationend of year
|
|
196,560
|
|
178,788
|
|
61,962
|
|
84,582
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
benefit obligation
|
|
$
|
193,984
|
|
$
|
176,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in plan assets:
|
|
|
|
|
|
|
|
|
|
Fair value of
assetsbeginning of year
|
|
164,064
|
|
138,692
|
|
|
|
|
|
Actual return on
plan assets
|
|
6,247
|
|
16,381
|
|
|
|
|
|
Employer
contribution
|
|
15,987
|
|
16,532
|
|
2871
|
|
2,777
|
|
Plan
participants contribution
|
|
|
|
|
|
470
|
|
368
|
|
Benefits paid
|
|
(9,261
|
)
|
(7,541
|
)
|
(3,341
|
)
|
(3,145
|
)
|
Foreign currency
exchange rate changes
|
|
13,703
|
|
|
|
|
|
|
|
Fair
value of assetsend of year
|
|
190,740
|
|
164,064
|
|
|
|
|
|
Reconciliation
of funded status:
|
|
|
|
|
|
|
|
|
|
Unfunded status
|
|
$
|
(5,820
|
)
|
(14,724
|
)
|
$
|
(61,962
|
)
|
(84,582
|
)
|
Amounts
recognized in the statement of financial position:
|
|
|
|
|
|
|
|
|
|
Prepaid benefit
cost
|
|
$
|
5,119
|
|
$
|
372
|
|
|
|
|
|
Accrued benefit
liability
|
|
(10,939
|
)
|
(15,096
|
)
|
$
|
(61,962
|
)
|
$
|
(84,582
|
)
|
Accumulated other
comprehensive loss (income)
|
|
38,830
|
|
39,319
|
|
(24,982
|
)
|
579
|
|
Net
amount recognized
|
|
$
|
33,010
|
|
$
|
24,595
|
|
$
|
(86,944
|
)
|
$
|
(84,003
|
)
|
Amounts
expected to be recognized in AOCI in the following fiscal year:
|
|
|
|
|
|
|
|
|
|
Amortization of
net transition (asset)/obligation
|
|
$
|
16
|
|
|
|
$
|
|
|
|
|
Amortization of
prior service cost
|
|
408
|
|
|
|
(1,339
|
)
|
|
|
Amortization of
net (gain)/loss
|
|
1,846
|
|
|
|
(535
|
)
|
|
|
Total
amortization
|
|
$
|
2,270
|
|
|
|
$
|
(1,874
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56
Components of Net
Periodic Benefit Cost:
|
|
Pension Benefits
|
|
Other Benefits
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2007
|
|
2006
|
|
2005
|
|
Service cost-benefits earned during the
year
|
|
$
|
3,717
|
|
$
|
4,440
|
|
$
|
3,639
|
|
$
|
1,058
|
|
$
|
1,381
|
|
$
|
1,456
|
|
Interest cost on projected benefit
obligation
|
|
10,298
|
|
9,366
|
|
8,130
|
|
4,403
|
|
4,736
|
|
4,186
|
|
Expected return on plan assets
|
|
(13,930
|
)
|
(12,074
|
)
|
(10,701
|
)
|
|
|
|
|
|
|
Prior service cost (net)
|
|
469
|
|
906
|
|
512
|
|
(841
|
)
|
(705
|
)
|
(549
|
)
|
Other amortization (net)
|
|
1,847
|
|
2,431
|
|
1,315
|
|
137
|
|
538
|
|
287
|
|
Net amount charged to income
|
|
$
|
2,401
|
|
$
|
5,069
|
|
$
|
2,895
|
|
$
|
4,757
|
|
$
|
5,950
|
|
$
|
5,380
|
|
Curtailment charge (gain) and special
termination benefits
|
|
11,085
|
|
2,413
|
|
|
|
(739
|
)
|
79
|
|
|
|
Total benefits cost charged to income
|
|
$
|
13,486
|
|
$
|
7,482
|
|
$
|
2,895
|
|
$
|
4,018
|
|
$
|
6,029
|
|
$
|
5,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized in other comprehensive income
(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net transition (asset)
obligation
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
Prior service (credit) cost
|
|
|
|
|
|
|
|
11,213
|
|
|
|
|
|
Amortization of prior service (credit) cost
|
|
3,042
|
|
|
|
|
|
(773
|
)
|
|
|
|
|
Change in net actuarial (gain) loss
|
|
(2,634
|
)
|
|
|
|
|
15,121
|
|
|
|
|
|
Total recognized in other comprehensive
income (loss)
|
|
490
|
|
|
|
|
|
25,561
|
|
|
|
|
|
Total recognized in total benefits charged
to income and other comprehensive income (loss)
|
|
$
|
(12,996
|
)
|
|
|
|
|
$
|
21,543
|
|
|
|
|
|
During 2007 and 2006, we recorded pre-tax
curtailment charges and special termination benefits of $9.1 million and $2.5
million, respectively, as a result of a reduction of workforce in our London,
Ontario facility. During 2007, we
recorded pre-tax curtailment charges of $1.2 million and a $9.8 million
reduction of our benefit obligation as a result of an amendment to our
post-employment benefit plan at our Erie, Pennsylvania facility. In 2006, an
amendment to the pension benefit plan at our Canadian facility resulted in
adding $4.5 million to our benefit obligation.
Actuarial
Assumptions:
Assumptions used to determine benefit
obligations as of December 31 were as follows:
|
|
Pension Benefits
|
|
Other Benefits
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Average discount rate
|
|
6.04
|
%
|
5.55
|
%
|
6.36
|
%
|
5.80
|
%
|
Rate of increase in future compensation
levels
|
|
3.50
|
%
|
3.50
|
%
|
3.50
|
%
|
3.50
|
%
|
Assumptions used to determine net periodic
benefit cost for the years ended December 31 were as follows:
57
|
|
Pension Benefits
|
|
Other Benefits
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Average discount rate
|
|
5.58
|
%
|
5.42
|
%
|
5.85
|
%
|
5.64
|
%
|
Rate of increase in future compensation
levels
|
|
3.50
|
%
|
3.50
|
%
|
3.50
|
%
|
3.50
|
%
|
Expected long-term rate of return on assets
|
|
8.00
|
%
|
8.38
|
%
|
N/A
|
|
N/A
|
|
The expected long-term rate of return on assets
is determined primarily by looking at past performance. In addition, management
considers the long-term performance characteristics of the asset mix.
Assumed health care cost trend rates at December 31
were as follows:
|
|
2007
|
|
2006
|
|
Health care cost trend rate assumed for
next year
|
|
10.00
|
%
|
11.00
|
%
|
Rate to which the cost trend rate is
assumed to decline
|
|
5.00
|
%
|
5.00
|
%
|
Year that the rate reaches the ultimate
trend rate
|
|
2013
|
|
2012
|
|
The health care cost trend rate assumption
has a significant effect on the amounts reported. A one-percentage point change
in assumed health care cost trend rates would have the following effects on
2007:
|
|
1-Percentage-
Point Increase
|
|
1-Percentage-
Point Decrease
|
|
Effect on total of service and interest
cost
|
|
$
|
1,137
|
|
$
|
(1,154
|
)
|
Effect on postretirement benefit obligation
|
|
$
|
7,784
|
|
$
|
(6,527
|
)
|
Plan Assets:
Our pension plan weighted-average asset
allocations at December 31, 2007 and 2006 were as follows:
|
|
2007
|
|
2006
|
|
Equity securities
|
|
64
|
%
|
63
|
%
|
Debt securities
|
|
33
|
%
|
31
|
%
|
Other
|
|
3
|
%
|
6
|
%
|
Total
|
|
100
|
%
|
100
|
%
|
Our investment objectives are (1) to
maintain the purchasing power of the current assets and all future
contributions; (2) to maximize return within reasonable and prudent levels
of risk; (3) to maintain an appropriate asset allocation policy that is
compatible with the actuarial assumptions, while still having the potential to
produce positive real returns; and (4) to control costs of administering
the plan and managing the investments.
Our desired investment result is a long-term
rate of return on assets that is at least a 5% real rate of return, or 5% over
inflation as measured by the Consumer Price Index for the U.S. plans. The
target rate of return for the plans have been based upon the assumption that
future real returns will approximate the long-term rates of return experienced
for each asset class in our investment policy statement. Our investment
guidelines are based upon an investment horizon of greater than
five years, so that interim fluctuations should be viewed with appropriate
perspective. Similarly, the Plans strategic asset allocation is based on this
long-term perspective.
We believe that the plans risk and liquidity
posture are, in large part, a function of asset class mix. Our investment
committee has reviewed the long-term performance characteristics of various
asset classes, focusing on balancing the risks and rewards of market behavior.
Based on this and the plans time horizon, risk tolerances, performance
expectations and asset class preferences, the following strategic asset
allocation was derived:
|
|
Lower
Limit
|
|
Strategic
Allocation
|
|
Upper
Limit
|
|
Domestic Large Capitalization Equities:
|
|
|
|
|
|
|
|
Value
|
|
10
|
%
|
15
|
%
|
20
|
%
|
Growth
|
|
10
|
%
|
15
|
%
|
20
|
%
|
Index-Passive
|
|
15
|
%
|
20
|
%
|
25
|
%
|
Domestic Aggressive Growth Equities:
|
|
|
|
|
|
|
|
International Equities
|
|
5
|
%
|
10
|
%
|
15
|
%
|
Large-Mid Cap
|
|
5
|
%
|
10
|
%
|
15
|
%
|
Fixed Income:
|
|
|
|
|
|
|
|
Domestic
|
|
25
|
%
|
30
|
%
|
35
|
%
|
58
The allocation of the fund is reviewed periodically.
Should any of the strategic allocations extend beyond the suggested lower or
upper limits, a portfolio rebalance may be appropriate.
While we use the same methodologies to manage
the Canadian plans, the primary objective is to achieve a minimum rate of
return of Consumer Price Index plus 3 over 4-year moving periods, and to obtain
total fund rates of return that are in the top third over 4-year moving periods
when compared to a representative sample of Canadian pension funds with similar
asset mix characteristics. The asset mix for the Canadian pension fund is
targeted as follows:
|
|
Minimum
|
|
Maximum
|
|
Total Equities
|
|
40
|
%
|
65
|
%
|
Foreign Equities
|
|
0
|
%
|
50
|
%
|
Bonds and Mortgages
|
|
25
|
%
|
50
|
%
|
Short-Term
|
|
0
|
%
|
15
|
%
|
Cash
Flows
We expect to contribute approximately $15.9
million to our pension plans and $3.4 million to our other postretirement
benefit plan in 2008. Pension and postretirement benefits (which include
expected future service) are expected to be paid out of the respective plans as
follows:
|
|
Pension Benefits
|
|
Other Benefits
|
|
2008
|
|
$
|
9,931
|
|
$
|
3,605
|
|
2009
|
|
$
|
10,509
|
|
$
|
3,962
|
|
2010
|
|
$
|
10,279
|
|
$
|
4,199
|
|
2011
|
|
$
|
10,467
|
|
$
|
4,440
|
|
2012
|
|
$
|
12,035
|
|
$
|
4,619
|
|
2013 2017 (in total)
|
|
$
|
69,394
|
|
$
|
25,826
|
|
Other
Plans
We also provide a 401(k) savings plan
and a profit sharing plan for substantially all U.S. salaried employees. Select
employees may also participate in the Accuride Executive Retirement Allowance
Policy and a supplemental savings plan.
Expenses recognized in 2007, 2006, and 2005 were $1.0 million, $1.1
million, and $1.6 million, respectively.
Note 9 Income Taxes
The income tax provisions for the years
ended December 31 are as follows:
|
|
2007
|
|
2006
|
|
2005
|
|
Current:
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(2,274
|
)
|
$
|
5,693
|
|
$
|
2,092
|
|
State
|
|
665
|
|
1,597
|
|
2,271
|
|
Foreign
|
|
6,928
|
|
11,657
|
|
2,516
|
|
|
|
5,319
|
|
18,947
|
|
6,879
|
|
Deferred:
|
|
|
|
|
|
|
|
Federal
|
|
(4,635
|
)
|
12,358
|
|
16,422
|
|
State
|
|
(303
|
)
|
2,948
|
|
1,391
|
|
Foreign
|
|
(3,240
|
)
|
(4,131
|
)
|
4,340
|
|
Valuation allowance
|
|
(272
|
)
|
(1,503
|
)
|
(823
|
)
|
|
|
(8,450)
|
|
9,672
|
|
21,330
|
|
Total
|
|
$
|
(3,131
|
)
|
$
|
28,619
|
|
$
|
28,209
|
|
The foreign component of pretax earnings
before eliminations in 2007, 2006 and 2005 was approximately $17,752, $27,737,
and $22,930 respectively.
A reconciliation of the U.S. statutory tax
rate to our effective tax rate (benefit) for the years ended December 31,
is as follows:
59
|
|
2007
|
|
2006
|
|
2005
|
|
Statutory tax rate
|
|
(35.0
|
)%
|
35.0
|
%
|
35.0
|
%
|
State and local income taxes
|
|
(4.1
|
)
|
1.70
|
|
3.5
|
|
Incremental foreign tax (benefit)
|
|
(21.5
|
)
|
(3.2
|
)
|
(1.5
|
)
|
Change in valuation allowance
|
|
(2.3
|
)
|
(0.2
|
)
|
(1.0
|
)
|
Adjustment of prior year income tax
accruals
|
|
|
|
(1.4
|
)
|
|
|
Foreign subsidiary dividend
|
|
12.4
|
|
|
|
|
|
Change in liability for unrecognized tax
benefit
|
|
20.6
|
|
|
|
|
|
Other itemsnet
|
|
3.2
|
|
(1.4
|
)
|
(0.5
|
)
|
Effective tax rate
|
|
(26.7
|
)%
|
30.5
|
%
|
35.5
|
%
|
Deferred income tax assets and liabilities comprised the following at December 31:
|
|
2007
|
|
2006
|
|
Deferred tax assets:
|
|
|
|
|
|
Postretirement and postemployment benefits
|
|
$
|
23,244
|
|
$
|
31,650
|
|
Accrued liabilities, reserves and other
|
|
8,569
|
|
7,244
|
|
Debt transaction and refinancing costs
|
|
6,573
|
|
7,263
|
|
Inventories
|
|
3,285
|
|
3,382
|
|
Accrued compensation and benefits
|
|
5,805
|
|
6,020
|
|
Workers compensation
|
|
2,829
|
|
2,975
|
|
Pension benefit
|
|
1,749
|
|
|
|
State income taxes
|
|
60
|
|
95
|
|
Tax credits
|
|
8,409
|
|
120
|
|
Indirect effect of unrecognized tax
benefits
|
|
2,688
|
|
|
|
Loss carryforwards
|
|
8,217
|
|
7,851
|
|
Valuation allowance
|
|
(5,702
|
)
|
(6,039
|
)
|
Total deferred tax assets
|
|
65,726
|
|
60,561
|
|
Deferred tax liabilities:
|
|
|
|
|
|
Asset basis and depreciation
|
|
15,598
|
|
18,910
|
|
Unrealized foreign exchange gain
|
|
3,442
|
|
1,742
|
|
Pension costs
|
|
|
|
1,463
|
|
Intangible assets
|
|
61,829
|
|
62,600
|
|
Other
|
|
79
|
|
1,340
|
|
Total deferred tax liabilities
|
|
80,948
|
|
86,055
|
|
Net deferred tax asset (liability)
|
|
(15,222
|
)
|
(25,494
|
)
|
Current deferred tax asset
|
|
19,422
|
|
14,451
|
|
Long-term deferred income tax asset
(liability)net
|
|
$
|
(34,644
|
)
|
$
|
(39,945
|
)
|
Our net operating losses, available in
various tax jurisdictions at December 31, 2007, will expire beginning
2012 through 2027. In the current year,
we have recorded deferred tax assets for additional foreign and state tax
credits incurred through 2007, which will expire beginning 2016 through 2021.
No net operating loss carryforwards or foreign tax credits will expire in 2008.
Realization of deferred tax assets is dependent upon taxable income within the
carryforward periods available under the applicable tax laws. Although
realization of deferred tax assets in excess of deferred tax liabilities is not
certain, management has concluded that it is more likely than not we will
realize the full benefit of deferred tax assets, except for valuation allowances
related to certain state loss and state tax credit carryforwards.
During 2006, we determined that an additional
$30.3 million in tax basis of assets involved in the 1998 recapitalization
should be recognized based on the settlement between the taxing authority and
the former shareholder. As a result, we recorded a $7.3 million increase in
deferred tax assets and a $4.5 million decrease in tax contingency reserves.
The amount recorded, totaling $11.8 million was recognized in additional
paid-in-capital.
During 2007, the valuation allowances related
to state net operating loss carry forwards were reduced by $0.3 million, net.
This net $0.3 million reduction included an increase of $0.4 million due to
changes in managements estimate of future earnings and a reduction of $0.7
million for an adjustment in 2007 to reflect differences in the 2006 tax
provision accrual to the tax return.
During 2006, valuation allowances related to state net operating loss
carry forwards and credits were reduced by $1.5 million, net. This $1.5 million net reduction included an
increase of $0.3 million due to changes in managements estimate of future
earnings, a $1.3 million reduction due to a law change regarding a state tax
credit resulting
60
in the company removing the deferred tax asset and the related 100%
valuation allowance for the credit, and a reduction of $0.5 million for an
adjustment in 2006 to reflect differences in the 2005 tax provision accrual to
the tax return.
During 2007, the company completed a tax
restructuring of its Mexican operations. This restructuring included the
sale of all manufacturing assets and inventory by AdM to the US parent and a
distribution of cash from AdM to the US Parent. As a result, the company
recorded a taxable dividend to the US parent of $31.0 million, which creates a
corresponding FTC of $8.3 million.
During 2007, there were income tax law
changes in the following jurisdictions in which we are taxable; Canada, Mexico,
and Michigan. These tax law changes had
an insignificant effect on our financial statements and on our effective tax
rate.
No provision has been made for U.S. income
taxes related to undistributed earnings of our foreign subsidiaries that we
intend to permanently reinvest. At December 31, 2007, Accuride Canada had
$28.0 million of cumulative retained earnings and AdM had $6.0 million of
cumulative retained earnings.
On January 1, 2007, we adopted FIN 48,
Accounting for
Uncertainty in Income Taxes
. The impact of the
adoption of FIN 48 on January 1, 2007, was to decrease retained earnings
by $2.1 million, increase goodwill by $0.7 million, decrease income taxes
payable by $6.1 million, decrease net deferred tax liabilities by $2.7 million,
and increase non-current income taxes payable by $11.6 million. A reconciliation of the beginning and ending
amount of unrecognized tax benefits is as follows:
Balance at January 1, 2007
|
|
$
|
11,566
|
|
Additions based on tax positions related to
the current year
|
|
709
|
|
Additions for tax positions of prior years
|
|
3,412
|
|
Reductions for tax positions of prior years
|
|
|
|
Reductions due to lapse of statute of
limitations
|
|
(1,279
|
)
|
Settlements with taxing authorities
|
|
(1,358
|
)
|
Balance at December 31, 2007
|
|
$
|
13,050
|
|
The total amount of unrecognized tax benefits that would, if
recognized, affect the effective income tax rate was approximately $6.9 million
as of December 31, 2007. Also
included in the balance of unrecognized tax benefits is $2.7 million of tax
benefits that, if recognized, would affect other tax accounts and $1.0 million
of tax benefits that, if recognized, would be a decrease to goodwill.
We also recognize accrued interest expense and penalties related to the
unrecognized tax benefits as additional tax expense, which is consistent with
prior periods. The total amount of accrued interest and penalties was
approximately $2.3 million and $1.6 million, respectively, as of December 31,
2007. The total amount of accrued
interest and penalties was $0.4 million and $1.4 million respectively, as of December 31,
2006. A decrease in interest of $0.2
million and a decrease in penalties of $0.4 million was recognized in 2007.
As of December 31, 2007, we were open to examination in the U.S.
federal tax jurisdiction for the 2004-2006 tax years, in Canada for the years
of 1999-2006, and in Mexico for the years of 2001-2006. We are currently under
audit in the U.S. federal tax jurisdiction for the 2005 tax year. We were also open to examination in various
state and local jurisdictions for the 2003-2006 tax years, none of which were
individually material. We believe that our accrual for tax liabilities is
adequate for all open audit years. This assessment relies on estimates and
assumptions and may involve a series of complex judgments about future events.
It is reasonably possible that U.S. federal,
state and local, and non-U.S. tax examinations will be settled during the next
twelve months. If any of these tax audit settlements do occur within the
next twelve months, we would make any necessary adjustments to the accrual for
uncertain tax benefits. Until formal resolutions are reached with the tax
authorities, the determination of a possible audit settlement range for the
impact on uncertain tax benefits is not practicable. On the basis of
present information, it is our opinion that any assessments resulting from the
current audits will not have a material effect on our consolidated financial
statements. The company believes that it
is reasonably possible that an increase of up to $0.7 million in unrecognized
benefits may be necessary within the coming year. In addition, the
company believes that it is reasonably possible that approximately $1.0 million
of its currently remaining unrecognized tax positions, each of which are individually
insignificant, may be recognized by the end of 2008 as a result of a lapse of
the statute of limitations.
61
Note 10 Stock-Based Compensation Plans
2005 Incentive
Plan
In connection
with the initial public offering in April 2005, we adopted the Accuride
Corporation 2005 Incentive Award Plan, which we refer to as the Incentive Plan.
The Incentive Plan will terminate on the earlier of ten years after it was
approved by our stockholders or when our Board of Directors terminates the
Incentive Plan. The Incentive Plan provides for the grant of incentive stock
options, or ISOs, as defined in section 422 of the Internal Revenue Code
of 1986, as amended, or the Code, nonstatutory stock options, restricted stock,
restricted stock units, stock appreciation rights, or SARs, deferred stock,
dividend equivalent rights, performance awards and stock payments, which we
refer to collectively as Awards, to our employees, consultants and directors.
The 2005 Incentive Award Plan authorized the issuance of a maximum of 1,633,988
shares of common stock for grants or exercises of Awards. On June 14,
2007, the 2005 Incentive Award Plan was amended to increase the number of
shares available for common stock grants to 3,633,988.
Employee Stock
Purchase Plan
During 2005, we adopted the Accuride Corporation
Employee Stock Purchase Plan, or ESPP, which is designed to allow our eligible
employees and the eligible employees of our participating subsidiaries to
purchase shares of common stock, at quarterly intervals, with their accumulated
payroll deductions. Under the Accuride ESPP, we have reserved 653,595 shares as
available to issue to all of our eligible employees as determined by the Board
of Directors. The ESPP has quarterly offering periods, however payroll
deductions for participants are accumulated during the quarterly offering
periods. Effective January 2006, the ESPP allows for shares to be
purchased at a price per share equal to 95% of the fair market value per share
on the purchase dates. During 2006 and 2007, 78,296 and 45,294 shares were
purchased under the ESPP. Funds to purchase an additional 15,260 shares were
accumulated during the fourth quarter of 2007 and those shares were issued in
early 2008.
Effective January 1, 2006, we adopted SFAS No. 123(R),
Share-Based Payment
. Under the modified prospective method of
adoption, compensation expense related to stock options is recognized beginning
in 2006. Compensation expense in 2005
related to stock options continues to be disclosed on a pro forma basis
only. This statement applies to all
awards granted after the effective date and to modifications, repurchases, or
cancellations of existing awards.
Additionally, under the modified prospective method of adoption, we
recognize compensation expense for the portion of outstanding awards on the
adoption date for which the requisite service period has not yet been rendered
based on the grant-date fair value of those awards calculated under SFAS No. 123
and 148 for pro forma disclosures. SFAS No. 123(R) requires that
forfeitures be estimated over the vesting period of an award, rather than be
recognized as a reduction of compensation expense at the time of the actual
forfeiture. Prior to January 1, 2006, we applied APB Opinion No. 25,
Accounting for Stock Issued to Employees
,
and related interpretations in accounting for the plans; accordingly, since the
grant price of the stock options was at least 100% of the fair value at the
date of the grant, no compensation expense was recognized by us in connection
with the option grants. Also, as the employee stock purchase plan was
considered noncompensatory, no expense related to this plan was recognized.
Compensation expense for 2005 related to stock options continues to be
disclosed on a pro forma basis only. Had compensation cost for the plans been
determined based on the fair value at the grant dates for awards under the plan
consistent with the fair value method of SFAS No. 123, the effect on our
net income would have been the following:
|
|
Year Ended
December 31, 2005
|
|
|
|
|
|
Net income as reported
|
|
$
|
51,229
|
|
Add: Total stock-based employee compensation expense determined under
the intrinsic value based method, net of related tax effects
|
|
|
|
Deduct: Total stock-based employee compensation expense determined
under the fair value based method, net of related tax effects
|
|
(619
|
)
|
Pro forma net income
|
|
$
|
50,610
|
|
Earnings per shareas reported:
|
|
|
|
Basic
|
|
$
|
1.74
|
|
Diluted
|
|
$
|
1.70
|
|
Earnings per sharepro forma:
|
|
|
|
Basic
|
|
$
|
1.72
|
|
Diluted
|
|
$
|
1.68
|
|
The weighted average fair value of options granted
in 2005 was $4.59. The fair value of the 2005 options was estimated using the
Black-Scholes option pricing model with the following assumptions: dividend yield equaling 0%, risk free
interest rates ranging from 4.41% to 4.62%, expected volatilities averaging
39.5%, and expected lives of 7 years. The 2005 pro forma adjustment also
includes the impact of the Employee Stock Purchase Plan. The pro forma amounts
are not
62
representative
of the effects on reported net income for future years.
Performance Options
We award performance options to officers and other
key employees under the 2005 Plan. Under
these awards, a number of options to acquire shares will vest based upon the
attainment of the applicable targets established under our incentive compensation
plan approved by the Compensation Committee.
Certain outstanding performance options are applicable to performance
measurement periods in future fiscal years.
Performance options generally vest over four years and have 10-year
contractual terms. A summary of
performance option activity during the year ended December 31, 2007 is
presented below:
|
|
Number
of
Options
|
|
Weighted
Average
Exercise Price
|
|
Weighted
Average
Remaining
Actual Term
|
|
Aggregate
Intrinsic
Value
|
|
Performance options outstanding at December 31, 2006
|
|
368,680
|
|
$
|
9.34
|
|
|
|
|
|
Exercised
|
|
(60,495
|
)
|
$
|
9.00
|
|
|
|
$
|
552
|
|
Forfeited
|
|
(13,937
|
)
|
$
|
11.78
|
|
|
|
|
|
Performance options outstanding at December 31, 2007
|
|
294,248
|
|
$
|
9.29
|
|
7.3
years
|
|
|
|
Performance options vested or expected to vest
|
|
273,000
|
|
$
|
9.29
|
|
7.3
years
|
|
|
|
Performance options exercisable at December 31, 2007
|
|
98,890
|
|
$
|
9.00
|
|
7.4
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There
is no intrinsic value on performance options outstanding due to the closing
price on December 31, 2007 being lower than the strike price of the
options.
Service Options
-
We
grant options to officers, other key employees, and members of our Board of
Directors under the 2005 Plan as consideration for service. Options granted generally vest annually over
a three and one-half year period and have 10-year contractual terms. A summary of service option activity during
the year ended December 31, 2007 is presented below:
|
|
Number
of
Options
|
|
Weighted
Average
Exercise Price
|
|
Weighted
Average
Remaining
Actual Term
|
|
Aggregate
Intrinsic
Value
|
|
Service options outstanding at December 31, 2006
|
|
928,093
|
|
$
|
7.36
|
|
|
|
|
|
Granted
|
|
15,260
|
|
$
|
7.47
|
|
|
|
|
|
Exercised
|
|
(395,934
|
)
|
$
|
5.24
|
|
|
|
$
|
3,485
|
|
Forfeited
|
|
(50,682
|
)
|
$
|
9.41
|
|
|
|
|
|
Service options outstanding at December 31, 2007
|
|
496,737
|
|
$
|
8.84
|
|
6.0
years
|
|
$
|
363
|
|
Service options vested or expected to vest
|
|
462,000
|
|
$
|
8.84
|
|
6.0
years
|
|
$
|
363
|
|
Service options exercisable at December 31, 2007
|
|
328,522
|
|
$
|
8.17
|
|
6.0
years
|
|
$
|
357
|
|
Restricted Stock Units
-
We grant restricted stock units (RSUs) to officers
and other key employees under the 2005 Plan as consideration for service. RSUs granted generally vest over a three and
one-half year period. A summary of RSU
activity under the 2005 Incentive Award Plan during the year ended December 31,
2007 is presented below:
|
|
Number
of
Options
|
|
Weighted
Average
Grant-date
Fair Value
|
|
Weighted
Average
Remaining
Vesting Period
|
|
RSUs unvested at December 31, 2006
|
|
157,624
|
|
$
|
11.34
|
|
|
|
Granted
|
|
159,272
|
|
$
|
15.00
|
|
|
|
Vested
|
|
(46,982
|
)
|
$
|
12.44
|
|
|
|
Forfeited
|
|
(32,314
|
)
|
$
|
13.13
|
|
|
|
RSUs unvested at December 31, 2007
|
|
237,600
|
|
$
|
13.33
|
|
1.8
years
|
|
RSUs expected to vest
|
|
203,032
|
|
$
|
13.33
|
|
1.8
years
|
|
The
awards granted during 2006 and 2007 vest in installments of 10%, 20%, 30%, and
40% over a four-year-period beginning in the year of each grant.
63
Stock Appreciation Rights
-
We grant stock appreciation rights (SARs) to
officers, other key employees, and members of our Board of Directors under the
2005 Plan as consideration for service.
SARs granted generally cliff vest at the end of a three and one-half
year period and have 10-year contractual terms.
Our
SARs
are also applicable to performance measurement periods in fiscal years
with a performance-acceleration clause that could
allow for 25% vesting on December 31 of each of the four years if certain
performance targets (that are normally established at the beginning of each
year) are met. A summary of SAR activity under the 2005 Incentive Award Plan
during the year ended December 31, 2007 is presented below:
|
|
Number
of
Options
|
|
Weighted
Average
Exercise Price
|
|
Weighted
Average
Remaining
Actual Term
|
|
Aggregate
Intrinsic
Value
|
|
SARs outstanding at December 31, 2006
|
|
453,716
|
|
$
|
11.34
|
|
|
|
|
|
Granted
|
|
367,688
|
|
$
|
14.99
|
|
|
|
|
|
Exercised
|
|
|
|
$
|
|
|
|
|
|
|
Forfeited
|
|
(91,929
|
)
|
$
|
12.86
|
|
|
|
|
|
SARs outstanding at December 31, 2007
|
|
729,475
|
|
$
|
12.99
|
|
9.5
years
|
|
|
|
SARs vested or expected to vest
|
|
693,832
|
|
$
|
12.28
|
|
9.0
years
|
|
|
|
SARs exercisable at December 31, 2007
|
|
|
|
|
|
|
|
|
|
Included
in the 2007 grants are 88,296 SARs, less forfeitures, that
are applicable to performance measurement
periods in future fiscal years and will be measured at fair value when the
performance targets are established in future fiscal years. The remaining 29,432 SARs, less forfeitures,
will vest on December 31,
2010, since performance targets established for 2007 were not achieved. There is no intrinsic value on the SARs
outstanding due to the closing price on December 31, 2007 being lower than
the strike price of the SARs.
In determining the estimated fair value of
our share-based awards as of the grant date, we used the Black-Scholes
option-pricing model with the assumptions illustrated in the table below.
|
|
For The Years Ended December 31,
|
|
|
|
2007
|
|
2006
|
|
Expected Dividend Yield
|
|
0.0
|
%
|
0.0
|
%
|
Expected Volatility in Stock Price
|
|
41.6
|
%
|
43.6
|
%
|
Risk-Free Interest Rate
|
|
5.1
|
%
|
5.0
|
%
|
Expected Life of Stock Awards
|
|
6.3
years
|
|
7.0
years
|
|
Weighted-Average Fair Value at Grant Date
|
|
$
|
7.39
|
|
$
|
6.08
|
|
|
|
|
|
|
|
|
|
The expected volatility is based upon volatility of
comparable industry Company common stock that has been traded for a period
commensurate with the expected life. The expected term of options granted is
derived from historical exercise and termination patterns, and represents the
period of time that options granted are expected to be outstanding. The
risk-free rate used is based on the published U.S. Treasury yield curve in
effect at the time of grant for instruments with a similar life. The dividend
yield is based upon the most recently declared quarterly dividend as of the
grant date.
Compensation expense recorded during 2007 and 2006
was $2.7 million and $1.5 million, respectively. Compensation expense for unvested instruments
of approximately $5.8 million will be recognized over a weighted period of 1.1
years. The tax benefit recognized during 2007 and 2006 was approximately $1.3
million and $2.1 million, respectively.
Note 11 Commitments
We
lease certain plant, office space, and equipment for varying periods.
Management expects that in the normal course of business, expiring leases will
be renewed or replaced by other leases. Purchase commitments related to fixed
assets at December 31, 2007 totaled $7.0 million. Rent expense for the
years ended December 31, 2007, 2006, and 2005 was $6.5 million, $6.8
million and $9.2 million, respectively. Future minimum lease payments for all
non-cancelable operating leases having a remaining term in excess of one year
at December 31, 2007, are as follows:
64
2008
|
|
$
|
6,266
|
|
2009
|
|
5,292
|
|
2010
|
|
3,824
|
|
2011
|
|
2,879
|
|
2012
|
|
2,789
|
|
Thereafter
|
|
5,356
|
|
Total
|
|
$
|
26,406
|
|
Note 12 Segment Reporting
During
2007, as a part of our continual monitoring of the long-term economic
characteristics, products and production processes, class of customer, and
distribution methods of our operating segments, we determined our seven
operating segments aggregate into three reportable segments: Wheels, Components, and Other. Accordingly, we have revised the prior period
information to conform to the current period segment presentation. All of our segments design, manufacture and
market products to the commercial vehicle industry. The Wheels segments products consist of
wheels for heavy- and medium-duty trucks and commercial trailers. The Components segments products consist of
truck body and chassis parts, wheel-end components and assemblies, and
seats. The Other segments products
primarily consist of other commercial vehicle components, including steerable
drive axles and gearboxes. We believe
this segmentation is appropriate based upon managements operating decisions
and performance assessment. The accounting policies of the reportable segments
are the same as described in Note 1, Significant Accounting Policies.
|
|
2007
|
|
2006
|
|
2005
|
|
Net sales:
|
|
|
|
|
|
|
|
Wheels
|
|
$
|
477,115
|
|
$
|
678,499
|
|
$
|
619,985
|
|
Components
|
|
491,324
|
|
681,371
|
|
570,119
|
|
Other
|
|
45,247
|
|
48,285
|
|
39,207
|
|
Consolidated total
|
|
$
|
1,013,686
|
|
$
|
1,408,155
|
|
$
|
1,229,311
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
Wheels
|
|
$
|
60,078
|
|
$
|
106,128
|
|
$
|
117,784
|
|
Components
|
|
(2,583
|
)
|
65,548
|
|
59,186
|
|
Other
|
|
7,527
|
|
8,123
|
|
3,519
|
|
Corporate
|
|
(35,426
|
)
|
(36,360
|
)
|
(30,954
|
)
|
Consolidated total
|
|
$
|
29,596
|
|
$
|
143,439
|
|
$
|
149,535
|
|
|
|
|
|
|
|
|
|
Total assets:
|
|
|
|
|
|
|
|
Wheels
|
|
$
|
188,288
|
|
$
|
226,357
|
|
|
|
Components
|
|
578,158
|
|
623,156
|
|
|
|
Other
|
|
45,466
|
|
48,655
|
|
|
|
Corporate
|
|
301,722
|
|
335,019
|
|
|
|
Consolidated total
|
|
$
|
1,113,634
|
|
$
|
1,233,187
|
|
|
|
Geographic
Segments
Our operations in the United States, Canada, and
Mexico are summarized below.
For Year Ended Dec. 31, 2007
|
|
United
States
|
|
Canada
|
|
Mexico
|
|
Eliminations
|
|
Combined
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
Sales to unaffiliated customersdomestic
|
|
$
|
812,748
|
|
$
|
12,748
|
|
$
|
48,664
|
|
$
|
|
|
$
|
874,160
|
|
Sales to unaffiliated customersexport
|
|
130,894
|
|
|
|
8,632
|
|
|
|
139,526
|
|
Total
|
|
$
|
943,642
|
|
$
|
12,748
|
|
$
|
57,296
|
|
$
|
|
|
$
|
1,013,686
|
|
Long-lived assets
|
|
$
|
851,416
|
|
$
|
66,520
|
|
$
|
10,509
|
|
$
|
(128,176
|
)
|
$
|
800,269
|
|
For Year Ended Dec. 31, 2006
|
|
United
States
|
|
Canada
|
|
Mexico
|
|
Eliminations
|
|
Combined
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
Sales to unaffiliated customersdomestic
|
|
$
|
1,140,182
|
|
$
|
15,973
|
|
$
|
48,218
|
|
$
|
|
|
$
|
1,204,373
|
|
Sales to unaffiliated customersexport
|
|
192,785
|
|
|
|
10,997
|
|
|
|
203,782
|
|
Total
|
|
$
|
1,332,967
|
|
$
|
15,973
|
|
$
|
59,215
|
|
$
|
|
|
$
|
1,408,155
|
|
Long-lived assets
|
|
$
|
884,501
|
|
$
|
82,611
|
|
$
|
28,038
|
|
$
|
(160,203
|
)
|
$
|
834,947
|
|
65
For Year Ended Dec. 31, 2005
|
|
United
States
|
|
Canada
|
|
Mexico
|
|
Eliminations
|
|
Combined
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
Sales to unaffiliated customersdomestic
|
|
$
|
1,000,549
|
|
$
|
14,902
|
|
$
|
41,811
|
|
$
|
|
|
$
|
1,057,262
|
|
Sales to unaffiliated customersexport
|
|
164,795
|
|
|
|
7,254
|
|
|
|
172,049
|
|
Total
|
|
$
|
1,165,344
|
|
$
|
14,902
|
|
$
|
49,065
|
|
$
|
|
|
$
|
1,229,311
|
|
Each geographic segment made sales to each of the
three major customers in 2007 that each exceed 10% of total net sales for
the years ended December 31. Sales to those customers are as follows:
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
Amount
|
|
% of
Sales
|
|
Amount
|
|
% of
Sales
|
|
Amount
|
|
% of
Sales
|
|
Customer one
|
|
$
|
168,416
|
|
16.6
|
%
|
$
|
253,457
|
|
18.0
|
%
|
$
|
213,001
|
|
17.3
|
%
|
Customer two
|
|
167,327
|
|
16.5
|
%
|
250,460
|
|
17.8
|
%
|
184,953
|
|
15.0
|
%
|
Customer three
|
|
136,578
|
|
13.5
|
%
|
221,733
|
|
15.7
|
%
|
143,500
|
|
11.7
|
%
|
|
|
$
|
472,321
|
|
46.6
|
%
|
$
|
725,650
|
|
51.5
|
%
|
$
|
541,454
|
|
44.0
|
%
|
Sales by product grouping for the years ended December 31
are as follows:
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
Amount
|
|
% of
Sales
|
|
Amount
|
|
% of
Sales
|
|
Amount
|
|
% of
Sales
|
|
Wheels
|
|
$
|
477,115
|
|
47.1
|
%
|
$
|
678,499
|
|
48.2
|
%
|
$
|
619,985
|
|
50.4
|
%
|
Wheel-end components and assemblies
|
|
199,235
|
|
19.7
|
%
|
290,662
|
|
20.6
|
%
|
259,923
|
|
21.1
|
%
|
Truck body and chassis parts
|
|
137,002
|
|
13.5
|
%
|
197,902
|
|
14.1
|
%
|
146,904
|
|
12.0
|
%
|
Seating assemblies
|
|
52,087
|
|
5.1
|
%
|
77,974
|
|
5.5
|
%
|
70,842
|
|
5.8
|
%
|
Other components
|
|
148,247
|
|
14.6
|
%
|
163,118
|
|
11.6
|
%
|
131,657
|
|
10.7
|
%
|
|
|
$
|
1,013,686
|
|
100.0
|
%
|
$
|
1,408,155
|
|
100.0
|
%
|
$
|
1,229,311
|
|
100.0
|
%
|
Note 13 Financial Instruments
We have determined the estimated fair value amounts
of financial instruments using available market information and appropriate
valuation methodologies. However, considerable judgment is required in
interpreting market data to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts
that we could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have an effect on the estimated
fair value amounts.
The carrying amounts of cash and cash equivalents,
trade receivables, and accounts payable approximate fair value because of the
relatively short maturity of these instruments. The carrying amounts and
related estimated fair values for our remaining financial instruments are as
follows:
|
|
2007
|
|
2006
|
|
|
|
Carrying
Amount
|
|
Estimated
Fair Value
|
|
Carrying
Amount
|
|
Estimated
Fair Value
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Aluminum Forward Contracts
|
|
$
|
452
|
|
$
|
452
|
|
$
|
|
|
$
|
|
|
Interest Rate Swap Contracts
|
|
$
|
145
|
|
$
|
145
|
|
$
|
2,468
|
|
$
|
2,468
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Foreign Exchange Forward Contracts
|
|
$
|
|
|
$
|
|
|
$
|
283
|
|
$
|
283
|
|
Total Debt
|
|
$
|
572,725
|
|
$
|
504,346
|
|
$
|
642,725
|
|
$
|
636,762
|
|
Fair values relating to derivative financial
instruments reflect the estimated amounts that we would receive or pay to
terminate the contracts at the reporting date based on quoted market prices of
comparable contracts as of December 31. The fair value of our long-term
debt has been determined on the basis of the specific securities issued and
outstanding. All of our long-term debt is at variable rates at December 31,
2007 and 2006 except for the senior subordinated notes, which have a fixed
interest rate of 8.50% (see Note 6).
66
Note 14 Related Transactions
In connection with the TTI merger, we entered into a
management services agreement with KKR and Trimaran Fund Management L.L.C., or
TFM, pursuant to which we retained KKR and TFM to provide management,
consulting and financial services to Accuride of the type customarily performed
by investment companies to our portfolio companies. In exchange for such
services, we agreed to pay an annual fee in the amount equal to $665,000 to KKR
and $335,000 to TFM. In addition, we agreed to reimburse KKR and TFM, and their
respective affiliates, for all reasonable out-of-pocket expenses incurred in
connection with such retention, including travel expenses and expenses of legal
counsel. During 2007, we terminated the management services agreement with
respect to both KKR and TFM when each party no longer had the right to appoint
one or more members to our Board of Directors pursuant to the terms of the
Shareholder Rights Agreement that we entered in connection with the TTI
merger. During 2007, payments related to
these agreements totaled $0.3 million for KKR.
There were no payments to TFM due to the termination of the agreement at
the beginning of the year.
Note 15 Quarterly Data (unaudited)
The following table sets forth certain quarterly
income statement information for the years ended December 31, 2007 and
2006:
|
|
2007
|
|
|
|
Q1
|
|
Q2
|
|
Q3
|
|
Q4
|
|
Total
|
|
|
|
(Dollars in thousands, except per share data)
|
|
Net sales
|
|
$
|
325,430
|
|
$
|
245,133
|
|
$
|
220,580
|
|
$
|
222,543
|
|
$
|
1,013,686
|
|
Gross profit(1)
|
|
24,116
|
|
28,454
|
|
13,291
|
|
20,633
|
|
86,494
|
|
Operating expenses
|
|
15,051
|
|
14,223
|
|
13,690
|
|
13,934
|
|
56,898
|
|
Income (loss) from operations
|
|
9,065
|
|
14,231
|
|
(399
|
)
|
6,699
|
|
29,596
|
|
Other income (expense) (2)
|
|
(11,945
|
)
|
(8,050
|
)
|
(9,091
|
)
|
(12,280
|
)
|
(41,366
|
)
|
Net income (loss)
|
|
(1,884
|
)
|
4,893
|
|
(1,220
|
)
|
(10,428
|
)
|
(8,639
|
)
|
Basic income (loss) per share
|
|
$
|
(0.05
|
)
|
$
|
0.14
|
|
$
|
(0.03
|
)
|
$
|
(0.29
|
)
|
$
|
(0.25
|
)
|
Diluted income (loss) per share
|
|
$
|
(0.05
|
)
|
$
|
0.14
|
|
$
|
(0.03
|
)
|
$
|
(0.29
|
)
|
$
|
(0.25
|
)
|
|
|
2006
|
|
|
|
Q1
|
|
Q2
|
|
Q3
|
|
Q4
|
|
Total
|
|
|
|
(Dollars in thousands, except per share data)
|
|
Net sales
|
|
$
|
359,925
|
|
$
|
361,733
|
|
$
|
341,610
|
|
$
|
344,887
|
|
$
|
1,408,155
|
|
Gross profit(1)
|
|
56,014
|
|
53,120
|
|
41,903
|
|
45,860
|
|
196,897
|
|
Operating expenses
|
|
13,689
|
|
13,087
|
|
12,636
|
|
14,046
|
|
53,458
|
|
Income from operations
|
|
42,325
|
|
40,033
|
|
29,267
|
|
31,814
|
|
143,439
|
|
Equity earnings of affiliates
|
|
215
|
|
176
|
|
137
|
|
93
|
|
621
|
|
Other income (expense) (2)
|
|
(11,028
|
)
|
(11,885
|
)
|
(14,451
|
)
|
(12,944
|
)
|
(50,308
|
)
|
Net income
|
|
20,035
|
|
18,343
|
|
12,435
|
|
14,320
|
|
65,133
|
|
Basic income per share
|
|
$
|
0.59
|
|
$
|
0.54
|
|
$
|
0.36
|
|
$
|
0.41
|
|
$
|
1.90
|
|
Diluted income per share
|
|
$
|
0.58
|
|
$
|
0.53
|
|
$
|
0.36
|
|
$
|
0.41
|
|
$
|
1.88
|
|
(1)
Impacting gross
profit in 2007 were increases in revenue of $10.6 million as a result of a 2006
resolution of a commercial dispute with a customer, accelerated depreciation
expense of certain Wheel assets of $12.8 million, severance and other benefit
charges of $15.5 million at our London, Ontario facility, and other non-cash
post-employment benefit curtailment charges of $1.2 million in the third
quarter of 2007 at our Erie, Pennsylvania facility. Impacting gross profit in
2006 were increases in revenue of $10.4 million as a result of a resolution of
a commercial dispute with a customer, accelerated depreciation expense of
certain light wheel assets of $6.1 million and $10.2 million, in the third and
fourth quarters, respectively, losses of $1.4 million from a sale of property
in Columbia, Tennessee, in the second quarter, an impairment of tooling assets
in our Piedmont, Alabama, facility of $2.3 million in the second quarter, and
non-cash pension curtailment charges of $2.5 million in the fourth quarter.
(2)
Included in
other expense are interest income, interest expense, and other income
(expense), net. During the fourth
quarter of 2007, we incurred fees of $1.6 million related to the amendment to
our credit agreement (see Note 6).
Note 16 Valuation and Qualifying Accounts
The following table summarizes the changes in our
valuation and qualifying accounts:
67
|
|
Balance at
Beginning of
Period
|
|
Additions due to
Acquisition
|
|
Charges (credits)
to Cost and
Expenses
|
|
Recoveries
|
|
Write-Offs
|
|
Balance at
end of
Period
|
|
Reserves in Accounts Receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005(1)
|
|
515
|
|
1,275
|
|
569
|
|
23
|
|
(505
|
)
|
1,877
|
|
December 31, 2006(1)
|
|
1,877
|
|
104
|
|
1,084
|
|
4
|
|
(942
|
)
|
2,127
|
|
December 31, 2007
|
|
2,127
|
|
|
|
(62
|
)
|
(436
|
)
|
(168
|
)
|
1,461
|
|
(1) Additions due to acquisitions of TTI and AOT in 2005 and 2006,
respectively.
Note 17 - Contingencies
We are from time to time involved in various legal
proceedings of a character normally incident 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.
Our operations are subject to federal, state and
local environmental laws, rules and regulations. Pursuant to our
Recapitalization on January 21, 1998, we were indemnified by PDC with
respect to certain environmental liabilities at our Henderson and London
facilities, subject to certain limitations. Pursuant to the AKW acquisition
agreement on April 1, 1999, in which Accuride purchased Kaiser Aluminum
and Chemical Corporations (Kaiser) 50% interest in AKW, we have been
indemnified by Kaiser with respect to certain environmental liabilities
relating to the facilities leased by AKW (the Erie Lease). On February 12,
2002, Kaiser filed a voluntary petition in the United States Bankruptcy Court
for the District of Delaware for reorganization under Chapter 11 of the United
States Bankruptcy Code, which could limit our ability to pursue indemnification
claims, if necessary, from Kaiser. Management does not believe that the outcome
of any environmental proceedings will have a material adverse effect on the
consolidated financial condition or results of our operations.
As of December 31, 2007, we had an
environmental reserve of approximately $2.6 million, related primarily to
TTIs foundry operations. This reserve is based on current cost estimates and
does not reduce estimated expenditures to net present value, but does take into
account the benefit of a contractual indemnity given to us by a prior owner of
our wheel-end subsidiary. The failure for the indemnitor to fulfill its
obligations could result in future costs that may be material. Any cash
expenditures required by us or our subsidiaries to comply with applicable
environmental laws and/or to pay for any remediation efforts will not be
reduced or otherwise affected by the existence of the environmental reserve. We
currently anticipate spending approximately $0.2 million per year in 2008
through 2011 for monitoring the various environmental sites associated with the
environmental reserve, including attorney and consultant costs for strategic
planning and negotiations with regulators and other potentially responsible
parties, and payment of remedial investigation costs. Based on all of the
information presently available to us, we believe that our environmental
reserves will be adequate to cover the future costs related to the sites
associated with the environmental reserves, and that any additional costs will
not have a material adverse effect on our financial condition, results of
operations or cash flows. However, the discovery of additional sites, the
modification of existing or promulgation of new laws or regulations, 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 such a material adverse effect.
The final Iron and Steel Foundry National Emission
Standard for Hazardous Air Pollutants, or NESHAP, was developed pursuant to Section 112(d) of
the Clean Air Act and requires all major sources of hazardous air pollutants to
install controls representative of maximum achievable control technology. We
are evaluating the applicability of the Iron and Steel Foundry NESHAP to our
foundry operations. If applicable, compliance with the Iron and Steel Foundry
NESHAP may result in future significant capital costs, which we currently
expect to be approximately $6 million in total during the period 2008
through 2009.
Pursuant to the Recapitalization of the Company on January 21,
1998, we were indemnified by Phelps Dodge Corporation with respect to certain
environmental liabilities at our Henderson and London facilities, subject to
certain limitations. At the Erie,
Pennsylvania, facility, we have obtained an environmental insurance policy to
provide coverage with respect to certain environmental liabilities. Management does not believe that the outcome
of any environmental proceedings will have a material adverse effect on our
consolidated financial condition or results of operations.
During the fourth quarter of 2006, we resolved a
commercial dispute with Ford Motor Company. As a result of the
resolution, we recognized $10.4 million of revenue in 2006 and $10.6 million in
2007. In addition, cash flow increased by $10.0 million in 2006 and $11.0
million in 2007. Ford re-sourced its Accuride business to another supplier
during 2007. In 2007, total sales to
Ford were less than 5% of total revenues. See Note 5 for a discussion of
accelerated depreciation associated with the light wheel assets as a result of
the expected reduction in product sales to Ford.
68
As of December 31, 2007, we had approximately
3,500 employees, of which 927 were salaried employees with the remainder paid
hourly. Unions represent approximately 1,650 of our employees, or 47% of the
total.
There is one contract expiring on August 31, 2008 for our Fabco
facility in California. We do not anticipate that the outcome of these
negotiations will have a material adverse effect on our operating performance
or costs. Our contract with the UAW at our Rockford, Illinois, facility expired
in November 2007. We were not able
to negotiate a mutually acceptable agreement with the UAW, and as a result on November 18,
2007, we began an indefinite lock-out in order to protect the supply of
products to our customers as well as provide security for facility personnel
and equipment. On March 9, 2008,
the workers represented by the UAW voted to approve a new contract. Although we expect the UAW workers to return
to work in the near future, we continue to operate the facility with salaried
employees and outside contractors. While
we did not experience a supply disruption to our customers during the lockout,
there is no guarantee that the lock-out and the reinstatement of the unionized
workforce will not have a material adverse affect on pre-tax earnings in 2008.
On January 19, 2007, the Public Works
Superintendent of the City of Portland, Tennessee issued a cease and desist
order to the Companys Imperial Group, alleging Imperial Groups Portland,
Tennessee facility was discharging wastewater into the City of Portlands
wastewater treatment system that contained nickel in excess of permit
limits. We fully cooperated with the
City of Portland to address the alleged wastewater discharge issue, negotiated
a settlement, and paid for damages and penalties totaling approximately $0.3
million.
Note 18 Product Warranties
The Company provides product warranties in
conjunction with certain product sales. Generally, sales are accompanied by a
1- to 5-year standard warranty. These warranties cover factors such as non-conformance
to specifications and defects in material and workmanship.
Estimated standard warranty costs are recorded in
the period in which the related product sales occur. The warranty liability
recorded at each balance sheet date in other current liabilities reflects the
estimated number of months of warranty coverage outstanding for products
delivered times the average of historical monthly warranty payments, as well as
additional amounts for certain major warranty issues that exceed a normal
claims level. The following table summarizes product warranty activity recorded
for the years ended December 31, 2007, 2006, and 2005:
|
|
2007
|
|
2006
|
|
2005
|
|
Balancebeginning of year
|
|
$
|
1,976
|
|
$
|
1,374
|
|
$
|
25
|
|
Additions due to TTI acquisition
|
|
|
|
|
|
891
|
|
Provision for new warranties
|
|
1,796
|
|
1,203
|
|
2,207
|
|
Payments
|
|
(1,412
|
)
|
(601
|
)
|
(1,749
|
)
|
Balanceend of year
|
|
$
|
2,360
|
|
$
|
1,976
|
|
$
|
1,374
|
|
69
Note 19Guarantor and Non-guarantor Financial
Statements
Our 8½% Senior Subordinated Notes due 2015 are fully
and unconditionally guaranteed, on a joint and several basis, by substantially
all of our 100% owned domestic subsidiaries (Guarantor Subsidiaries). The
non-guarantor subsidiaries are our foreign subsidiaries. The following
condensed financial information illustrates the composition of the combined
Guarantor Subsidiaries:
CONDENSED
CONSOLIDATING BALANCE SHEETS
|
|
December 31, 2007
|
|
(in thousands)
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
85,940
|
|
$
|
(2,474
|
)
|
$
|
7,469
|
|
|
|
$
|
90,935
|
|
Accounts receivable, net
|
|
23,485
|
|
194,935
|
|
8,222
|
|
$
|
(139,447
|
)
|
87,195
|
|
Inventories and supplies
|
|
23,819
|
|
76,865
|
|
13,436
|
|
(1,010
|
)
|
113,110
|
|
Other current assets
|
|
6,952
|
|
11,836
|
|
3,337
|
|
|
|
22,125
|
|
Total current assets
|
|
140,196
|
|
281,162
|
|
32,464
|
|
(140,457
|
)
|
313,365
|
|
Property, plant, and equipment, net
|
|
42,020
|
|
185,948
|
|
51,272
|
|
|
|
279,240
|
|
Goodwill
|
|
66,973
|
|
303,790
|
|
8,041
|
|
|
|
378,804
|
|
Intangible assets, net
|
|
587
|
|
128,283
|
|
|
|
|
|
128,870
|
|
Investment in affiliates
|
|
613,448
|
|
|
|
|
|
(612,358
|
)
|
1,090
|
|
Deferred tax assets
|
|
26,011
|
|
14,134
|
|
13,316
|
|
(53,461
|
)
|
|
|
Other non-current assets
|
|
6,862
|
|
265
|
|
5,138
|
|
|
|
12,265
|
|
TOTAL
|
|
$
|
896,097
|
|
$
|
913,582
|
|
$
|
110,231
|
|
$
|
(806,276
|
)
|
$
|
1,113,634
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
8,843
|
|
$
|
61,478
|
|
$
|
9,749
|
|
|
|
80,070
|
|
Accrued payroll and compensation
|
|
7,442
|
|
14,227
|
|
8,787
|
|
|
|
30,456
|
|
Accrued interest payable
|
|
11,066
|
|
10
|
|
29
|
|
|
|
11,105
|
|
Accrued and other liabilities
|
|
1,367
|
|
239,177
|
|
11,344
|
|
(223,565
|
)
|
28,323
|
|
Total current liabilities
|
|
28,718
|
|
314,892
|
|
29,909
|
|
(223,565
|
)
|
149,954
|
|
Long term debt, net
|
|
569,625
|
|
3,100
|
|
|
|
|
|
572,725
|
|
Deferred and long-term income taxes
|
|
12,790
|
|
67,991
|
|
17,239
|
|
(53,461
|
)
|
44,559
|
|
Other non-current liabilities
|
|
11,164
|
|
50,950
|
|
10,482
|
|
|
|
72,596
|
|
Stockholders equity
|
|
273,800
|
|
476,649
|
|
52,601
|
|
$
|
(529,250
|
)
|
273,800
|
|
TOTAL
|
|
$
|
896,097
|
|
$
|
913,582
|
|
$
|
110,231
|
|
$
|
(806,276
|
)
|
$
|
1,113,634
|
|
|
|
December 31, 2006
|
|
(in thousands)
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
84,855
|
|
$
|
(4,502
|
)
|
$
|
29,851
|
|
|
|
$
|
110,204
|
|
Accounts receivable, net
|
|
316,159
|
|
212,591
|
|
13,861
|
|
$
|
(399,946
|
)
|
142,665
|
|
Inventories and supplies
|
|
15,961
|
|
81,935
|
|
28,932
|
|
(1,051
|
)
|
125,777
|
|
Other current assets
|
|
8,161
|
|
10,249
|
|
1,184
|
|
|
|
19,594
|
|
Total current assets
|
|
425,136
|
|
300,273
|
|
73,828
|
|
(400,997
|
)
|
398,240
|
|
Property, plant, and equipment, net
|
|
30,725
|
|
186,136
|
|
83,945
|
|
|
|
300,806
|
|
Goodwill
|
|
66,973
|
|
314,499
|
|
8,041
|
|
|
|
389,513
|
|
Intangible assets, net
|
|
1,379
|
|
134,265
|
|
|
|
|
|
135,644
|
|
Investment in affiliates
|
|
528,839
|
|
|
|
|
|
(528,489
|
)
|
350
|
|
Deferred tax assets
|
|
20,804
|
|
19,710
|
|
17,278
|
|
(57,792
|
)
|
|
|
Other non-current assets
|
|
8,066
|
|
112
|
|
456
|
|
|
|
8,634
|
|
TOTAL
|
|
$
|
1,081,922
|
|
$
|
954,995
|
|
$
|
183,548
|
|
$
|
(987,278
|
)
|
$
|
1,233,187
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
9,552
|
|
$
|
81,469
|
|
$
|
16,196
|
|
|
|
107,217
|
|
Accrued payroll and compensation
|
|
8,852
|
|
15,120
|
|
4,458
|
|
|
|
28,430
|
|
Accrued interest payable
|
|
4,706
|
|
22
|
|
6,678
|
|
|
|
11,406
|
|
Accrued and other liabilities
|
|
139,562
|
|
264,455
|
|
35,775
|
|
(399,946
|
)
|
39,846
|
|
Total current liabilities
|
|
162,672
|
|
361,066
|
|
63,107
|
|
(399,946
|
)
|
186,899
|
|
Long term debt, net
|
|
639,625
|
|
3,100
|
|
|
|
|
|
642,725
|
|
Deferred income taxes
|
|
290
|
|
76,342
|
|
21,105
|
|
(57,792
|
)
|
39,945
|
|
Other non-current liabilities
|
|
15,753
|
|
71,552
|
|
12,731
|
|
|
|
100,036
|
|
Stockholders equity
|
|
263,582
|
|
442,935
|
|
86,605
|
|
$
|
(529,540
|
)
|
263,582
|
|
TOTAL
|
|
$
|
1,081,922
|
|
$
|
954,995
|
|
$
|
183,548
|
|
$
|
(987,278
|
)
|
$
|
1,233,187
|
|
70
CONDENSED
CONSOLIDATING STATEMENTS OF OPERATIONS
|
|
Year ended December 31, 2007
|
|
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
|
|
Net sales
|
|
$
|
297,338
|
|
$
|
673,975
|
|
$
|
250,582
|
|
$
|
(208,209
|
)
|
$
|
1,013,686
|
|
Cost of goods sold
|
|
265,137
|
|
641,526
|
|
228,738
|
|
(208,209
|
)
|
927,192
|
|
Gross profit
|
|
32,201
|
|
32,449
|
|
21,844
|
|
|
|
86,494
|
|
Operating expenses
|
|
41,977
|
|
14,015
|
|
906
|
|
|
|
56,898
|
|
Income from operations
|
|
(9,776
|
)
|
18,434
|
|
20,938
|
|
|
|
29,596
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
Interest (expense), net
|
|
(43,927
|
)
|
(138
|
)
|
(4,279
|
)
|
|
|
(48,344
|
)
|
Equity in earnings of affiliates
|
|
32,787
|
|
|
|
|
|
(32,787
|
)
|
|
|
Other income (expense), net
|
|
5,458
|
|
441
|
|
1,079
|
|
|
|
6,978
|
|
Income (loss) before income taxes
|
|
(15,458
|
)
|
18,737
|
|
17,738
|
|
(32,787
|
)
|
(11,770
|
)
|
Income tax provision (benefit)
|
|
(6,819
|
)
|
|
|
3,688
|
|
|
|
(3,131
|
)
|
Net income (loss)
|
|
$
|
(8,639
|
)
|
$
|
18,737
|
|
$
|
14,050
|
|
$
|
(32,787
|
)
|
$
|
(8,639
|
)
|
|
|
Year ended December 31, 2006
|
|
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
|
|
Net sales
|
|
$
|
461,983
|
|
$
|
914,586
|
|
$
|
361,219
|
|
$
|
(329,633
|
)
|
$
|
1,408,155
|
|
Cost of goods sold
|
|
406,263
|
|
807,654
|
|
326,974
|
|
(329,633
|
)
|
1,211,258
|
|
Gross profit
|
|
55,720
|
|
106,932
|
|
34,245
|
|
|
|
196,897
|
|
Operating expenses
|
|
41,785
|
|
10,929
|
|
744
|
|
|
|
53,458
|
|
Income from operations
|
|
13,935
|
|
96,003
|
|
33,501
|
|
|
|
143,439
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
Interest (expense), net
|
|
(46,143
|
)
|
(101
|
)
|
(4,666
|
)
|
|
|
(50,910
|
)
|
Equity in earnings of affiliates
|
|
118,104
|
|
|
|
|
|
(117,483
|
)
|
621
|
|
Other income (expense), net
|
|
1,156
|
|
546
|
|
(1,100
|
)
|
|
|
602
|
|
Income (loss) before income taxes
|
|
87,052
|
|
96,448
|
|
27,735
|
|
(117,483
|
)
|
93,752
|
|
Income tax provision
|
|
21,919
|
|
|
|
6,700
|
|
|
|
28,619
|
|
Net income
|
|
$
|
65,133
|
|
$
|
96,448
|
|
$
|
21,035
|
|
$
|
(117,483
|
)
|
$
|
65,133
|
|
|
|
Year ended December 31, 2005
|
|
|
|
Parent
|
|
Guarantor
Subsidiaries
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
|
|
Net sales
|
|
$
|
426,820
|
|
$
|
776,062
|
|
$
|
313,574
|
|
$
|
(287,145
|
)
|
$
|
1,229,311
|
|
Cost of goods sold
|
|
351,223
|
|
678,966
|
|
285,131
|
|
(287,145
|
)
|
1,028,175
|
|
Gross profit
|
|
75,597
|
|
97,096
|
|
28,443
|
|
|
|
201,136
|
|
Operating expenses
|
|
36,243
|
|
14,500
|
|
858
|
|
|
|
51,601
|
|
Income from operations
|
|
39,354
|
|
82,596
|
|
27,585
|
|
|
|
149,535
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
Interest (expense), net
|
|
(46,866
|
)
|
31
|
|
(4,295
|
)
|
|
|
(51,130
|
)
|
Loss on extinguishment of debt
|
|
(4,474
|
)
|
|
|
|
|
|
|
(4,474
|
)
|
Refinancing costs
|
|
(15,513
|
)
|
|
|
|
|
|
|
(15,513
|
)
|
Equity in earnings of affiliates
|
|
99,155
|
|
|
|
|
|
(98,700
|
)
|
455
|
|
Other income (expense), net
|
|
926
|
|
|
|
(361
|
)
|
|
|
565
|
|
Income before income taxes
|
|
72,582
|
|
82,627
|
|
22,929
|
|
(98,700
|
)
|
79,438
|
|
Income tax provision
|
|
21,353
|
|
|
|
6,856
|
|
|
|
28,209
|
|
Net income
|
|
$
|
51,229
|
|
$
|
82,627
|
|
$
|
16,073
|
|
$
|
(98,700
|
)
|
$
|
51,229
|
|
71
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
|
|
Year ended December 31, 2007
|
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES
:
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(8,639
|
)
|
$
|
18,737
|
|
$
|
14,050
|
|
$
|
(32,787
|
)
|
$
|
(8,639
|
)
|
Adjustments to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and impairment
|
|
5,827
|
|
29,348
|
|
20,737
|
|
|
|
55,912
|
|
Amortization deferred financing costs
|
|
1,209
|
|
|
|
26
|
|
|
|
1,235
|
|
Amortization and impairment other intangible assets
|
|
787
|
|
5,987
|
|
|
|
|
|
6,774
|
|
Loss (gain) on disposal of assets
|
|
200
|
|
128
|
|
105
|
|
|
|
433
|
|
Deferred income taxes
|
|
(5,210
|
)
|
|
|
(3,240
|
)
|
|
|
(8,450
|
)
|
Equity in earnings of affiliates
|
|
(32,787
|
)
|
|
|
|
|
32,787
|
|
|
|
Non-cash stock-based compensation
|
|
2,719
|
|
|
|
|
|
|
|
2,719
|
|
Change in other operating items
|
|
61,527
|
|
(23,311
|
)
|
(5,258
|
)
|
|
|
32,958
|
|
Net cash provided by operating activities
|
|
25,633
|
|
30,889
|
|
26,420
|
|
|
|
82,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant, and equipment
|
|
(4,933
|
)
|
(29,734
|
)
|
(1,832
|
)
|
|
|
(36,499
|
)
|
Proceeds from sale of property, plant, and equipment
|
|
|
|
446
|
|
|
|
|
|
446
|
|
Other investments, net of cash acquired
|
|
(740
|
)
|
|
|
|
|
|
|
(740
|
)
|
Cash distribution from investment Trimont
|
|
|
|
427
|
|
|
|
|
|
427
|
|
Net cash used by investing activities
|
|
(5,673
|
)
|
(28,861
|
)
|
(1,832
|
)
|
|
|
(36,366
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Net payments on long-term and revolving debt
|
|
(70,000
|
)
|
|
|
|
|
|
|
(70,000
|
)
|
Redemption of capital investment
|
|
46,970
|
|
|
|
(46,970
|
)
|
|
|
|
|
Proceeds from employee stock option and stock purchase plans
|
|
3,006
|
|
|
|
|
|
|
|
3,006
|
|
Tax benefit from employee stock option exercises
|
|
1,149
|
|
|
|
|
|
|
|
1,149
|
|
Net cash used by financing activities
|
|
(18,875
|
)
|
|
|
(46,970
|
)
|
|
|
(65,845
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
1,085
|
|
2,028
|
|
(22,382
|
)
|
|
|
(19,269
|
)
|
Cash and cash equivalents, beginning of year
|
|
84,855
|
|
(4,502
|
)
|
29,851
|
|
|
|
110,204
|
|
Cash and cash equivalents, end of year
|
|
$
|
85,940
|
|
$
|
(2,474
|
)
|
$
|
7,469
|
|
$
|
|
|
$
|
90,935
|
|
72
|
|
Year ended December 31, 2006
|
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
65,133
|
|
$
|
96,448
|
|
$
|
21,035
|
|
$
|
(117,483
|
)
|
$
|
65,133
|
|
Adjustments to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and impairment
|
|
6,105
|
|
28,415
|
|
26,977
|
|
|
|
61,497
|
|
Amortization deferred financing costs
|
|
1,207
|
|
|
|
159
|
|
|
|
1,366
|
|
Amortization other intangible assets
|
|
793
|
|
4,739
|
|
|
|
|
|
5,532
|
|
Loss (gain) on disposal of assets
|
|
1,459
|
|
134
|
|
(42
|
)
|
|
|
1,551
|
|
Deferred income taxes
|
|
14,641
|
|
|
|
(4,969
|
)
|
|
|
9,672
|
|
Equity in earnings of affiliates
|
|
(118,104
|
)
|
|
|
|
|
117,483
|
|
(621
|
)
|
Non-cash stock-based compensation
|
|
1,500
|
|
|
|
|
|
|
|
1,500
|
|
Change in other operating items
|
|
147,780
|
|
(106,944
|
)
|
(35,453
|
)
|
|
|
5,383
|
|
Net cash provided by operating activities
|
|
120,514
|
|
22,792
|
|
7,707
|
|
|
|
151,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant, and equipment
|
|
(4,275
|
)
|
(29,079
|
)
|
(8,835
|
)
|
|
|
(42,189
|
)
|
Proceeds from sale of property, plant, and equipment
|
|
1,888
|
|
|
|
|
|
|
|
1,888
|
|
Other investments, net of cash acquired
|
|
(1,038
|
)
|
|
|
|
|
|
|
(1,038
|
)
|
Cash distribution from investment Trimont
|
|
|
|
544
|
|
|
|
|
|
544
|
|
Net cash used by investing activities
|
|
(3,425
|
)
|
(28,535
|
)
|
(8,835
|
)
|
|
|
(40,795
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Net payments on long-term and revolving debt
|
|
(50,000
|
)
|
|
|
(5,000
|
)
|
|
|
(55,000
|
)
|
Proceeds from employee stock option and stock purchase plans
|
|
4,535
|
|
|
|
|
|
|
|
4,535
|
|
Tax benefit from employee stock option exercises
|
|
2,139
|
|
|
|
|
|
|
|
2,139
|
|
Payments of costs to issue of shares
|
|
(103
|
)
|
|
|
|
|
|
|
(103
|
)
|
Net cash used by financing activities
|
|
(43,429
|
)
|
|
|
(5,000
|
)
|
|
|
(48,429
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
73,660
|
|
(5,743
|
)
|
(6,128
|
)
|
|
|
61,789
|
|
Cash and cash equivalents, beginning of year
|
|
11,195
|
|
1,241
|
|
35,979
|
|
|
|
48,415
|
|
Cash and cash equivalents, end of year
|
|
$
|
84,855
|
|
$
|
(4,502
|
)
|
$
|
29,851
|
|
$
|
|
|
$
|
110,204
|
|
73
|
|
Year ended December 31, 2005
|
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
51,229
|
|
$
|
82,627
|
|
$
|
16,073
|
|
$
|
(98,700
|
)
|
$
|
51,229
|
|
Adjustments to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and impairment
|
|
5,824
|
|
22,458
|
|
12,076
|
|
|
|
40,358
|
|
Amortization deferred financing costs
|
|
2,482
|
|
|
|
755
|
|
|
|
3,237
|
|
Amortization other intangible assets
|
|
41
|
|
5,153
|
|
|
|
|
|
5,194
|
|
Loss on extinguishment of debt
|
|
4,474
|
|
|
|
|
|
|
|
4,474
|
|
Loss (gain) on disposal of assets
|
|
276
|
|
|
|
(191
|
)
|
|
|
85
|
|
Deferred income taxes
|
|
17,834
|
|
5,857
|
|
(2,361
|
)
|
|
|
21,330
|
|
Equity in earnings of affiliates
|
|
(99,155
|
)
|
|
|
|
|
98,700
|
|
(455
|
)
|
Cash distribution from affiliate
|
|
1,000
|
|
|
|
|
|
|
|
1,000
|
|
Change in other operating items
|
|
43,486
|
|
(86,103
|
)
|
8,080
|
|
|
|
(34,537
|
)
|
Net cash provided by operating activities
|
|
27,491
|
|
29,992
|
|
34,432
|
|
|
|
91,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant, and equipment
|
|
(4,446
|
)
|
(29,220
|
)
|
(6,292
|
)
|
|
|
(39,958
|
)
|
Acquisition costs - TTI
|
|
(8,327
|
)
|
|
|
|
|
|
|
(8,327
|
)
|
Cash distribution from investment Trimont
|
|
|
|
679
|
|
|
|
|
|
679
|
|
Net cash used by investing activities
|
|
(12,773
|
)
|
(28,541
|
)
|
(6,292
|
)
|
|
|
(47,606
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt
|
|
(951,731
|
)
|
|
|
(20,000
|
)
|
|
|
(971,731
|
)
|
Proceeds from issuance of long-term debt
|
|
825,000
|
|
|
|
|
|
|
|
825,000
|
|
Proceeds from issuance of shares, net
|
|
89,605
|
|
|
|
|
|
|
|
89,605
|
|
Deferred financing fees
|
|
(10,006
|
)
|
|
|
|
|
|
|
(10,006
|
)
|
Payment of premium on notes extinguished
|
|
(2,928
|
)
|
|
|
|
|
|
|
(2,928
|
)
|
Proceeds from employee stock option and stock purchase plans
|
|
2,323
|
|
|
|
|
|
|
|
2,323
|
|
Net cash used by financing activities
|
|
(47,737
|
)
|
|
|
(20,000
|
)
|
|
|
(67,737
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
(33,019
|
)
|
1,451
|
|
8,140
|
|
|
|
(23,428
|
)
|
Cash and cash equivalents, beginning of year
|
|
44,214
|
|
(210
|
)
|
27,839
|
|
|
|
71,843
|
|
Cash and cash equivalents, end of year
|
|
$
|
11,195
|
|
$
|
1,241
|
|
$
|
35,979
|
|
$
|
|
|
$
|
48,415
|
|
74
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