Industry ConditionsThe commercial vehicle industry segments Accuride supplies (North America Class 5-8 vehicles, U.S. Trailers, and the related aftermarket channels) continued their year-over-year improvement in the fourth quarter due to a historically high fleet age, healthy fleet profitability, and strong equipment replacement demand. Production rose across all segments during the fourth quarter, with Class 8 builds up 71.5 percent year-over-year, and the Class 5-7 and U.S. Trailer segment production increasing 24.4 percent and 45.2 percent, respectively. Overall, each commercial vehicle segment is expected to continue to increase production into 2012. The risks associated with supply constraints within the industry and the continued slow pace of economic expansion still remain, but they appear to be diminishing.
Fourth Quarter Business Segment Results
Accuride WheelsOur Wheels segment net sales were $106.2 million, up $30.8 million, or 40.8 percent, from the same period of 2010. Wheels Adjusted EBITDA was $29.8 million, an increase of $14.1 million, or 89.8 percent from the fourth quarter of 2010. The improvements were driven largely by increased sales of both steel and aluminum wheels to North American OEM and aftermarket customers. We continue to see strong demand for aluminum wheels being driven by the need for fleets to reduce fuel and maintenance costs, along with total vehicle weight. Increasing demand for aluminum wheels validates the aluminum wheel capacity investments Accuride made during 2011. The Company plans further aluminum wheel capacity investments in 2012-2013.
GuniteGunite segment net sales were $61.4 million, up $11.8 million, or 23.8 percent, from the fourth quarter of 2010 on higher industry volumes. Gunite’s Adjusted EBITDA was $1.2 million, compared to $0.7 million in the same period of 2010. Gunite’s new leadership team is having a positive impact on the operations, while preparing for the on-time arrival of new machining equipment. The operational improvements have helped Gunite recover from its earlier manufacturing constraint situation by improving the productivity of Gunite’s existing hub and drum machining operations. This output enabled the business to build an inventory bank of brake drums for the traditional spring truck maintenance season. Costs from customer-required on-site inspections stemming from Gunite’s earlier quality issue dampened earnings; however, Gunite is on track to satisfy all requirements for discontinuing the additional inspections in the first half of 2012.Brillion Iron WorksBrillion Iron Works’ fourth quarter net sales were $36.7 million, up $7.1 million, or 24.0 percent, from the same period in 2010, while Adjusted EBITDA declined slightly year-over-year to $1.9 million. In October, Brillion experienced a significant equipment failure that disrupted operations on a major casting line for 7-10 days and resulted in higher maintenance and overtime costs. However, the business is seeing the benefit of increased pricing as capacity remains tight in the North American casting industry. We are currently assessing strategic options for Brillion – which is non-core to Accuride’s wheel and wheel-end systems business – including its potential divestiture. ImperialAt $38.3 million in the fourth quarter, Imperial’s net sales increased 81.5 percent over the same period in 2010 due to higher customer build rates. Adjusted EBITDA for the business improved to $0.6 million in the fourth quarter from $0.2 million in the same period last year. Imperial completed the physical consolidation of certain assets from its Portland, Tennessee, and Chehalis, Washington, facilities into its Decatur, Texas plant by year-end. However, the Decatur facility experienced significant operating inefficiencies in adjusting to the higher production volumes and expanded product portfolio. The Imperial team is focused on achieving optimal output from its transferred equipment, and we expect Imperial’s profitability to improve significantly in early 2012. 2011 Liquidity and DebtAs of December 31, 2011, the Company had cash of $56.9 million and total debt of $323.1 million. This consisted of our $310.0 million senior secured notes, net of discount, and a $20.0 million draw on its ABL facility. In the fourth quarter of 2011, the Company had cash from operations of $33.6 million and capital spending of $15.4 million, resulting in free cash flow of $18.2 million. Total liquidity at the end of the quarter was $99.0 million. On February 7, 2012, the Company entered into an incremental commitment agreement in which lenders agreed to provide an additional $25.0 million in aggregate commitments under the Company’s asset-backed loan (ABL) credit agreement. Additionally, on February 10, 2012, Gunite Corporation, a wholly owned subsidiary of Accuride Corporation, entered into an agreement to lease $15.0 million in equipment. Outlook and Summary – 2012 A Year of Execution“With the restructuring efforts to fix the business that we initiated in 2011 setting the stage, 2012 becomes a year of execution for the Accuride team,” Dauch added. “Because the commercial vehicle market is projected to continue growing through 2014-2015, our work this year focuses on executing the plans that will enable us to capitalize on rising market demand. Our highest priorities are completing Gunite’s operational turnaround, successfully launching the additional aluminum wheel capacity, improving Imperial’s operating performance, and implementing common LEAN Manufacturing systems companywide. In addition, we will target additional cost reductions and working capital improvements by fully revamping our supply chain, which today represents more than half of our cost of goods sold.” Chief Financial Officer Greg Risch stated, “We are projecting 2012 net sales to be in the range of $1,000 to $1,025 million, and fully diluted earnings per share to be in the range of $0.07 to $0.15. We expect Adjusted EBITDA to be in the range of $100 to $105 million for the year. Our ‘Fix and Grow’ strategy is focused on serving the North American commercial vehicle market in a cost-effective manner, while creating sustainable improvements in quality and delivery.”
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