Accuride Corporation Reports Results for 2008
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EVANSVILLE, Ind. February 26, 2009: Accuride Corporation (OTCBB: AURD), a leading manufacturer and supplier of commercial vehicle components, today announced its fourth quarter and fiscal year 2008 results. Net sales in 2008 were $931.4 million, compared with $1,013.7 million in the prior year. The decrease in sales was the result of reduced demand from customers in the commercial vehicle industry. On a U.S. GAAP basis, the Company reported a net loss of $335.3 million, or ($9.44) per diluted share, which was impacted by $256.8 million in non-cash goodwill and other intangible impairment, $41.5 million of tax valuation charges, and $7.0 million of restructuring charges totaling $305.3 million or ($8.59) per diluted share, compared with a net loss of $8.6 million or ($0.25) per diluted share, in the prior year.
In the fourth quarter, net sales were $208.8 million compared to $222.5 million in the fourth quarter of 2007. On a U.S. GAAP basis, the Company reported a net loss of $125.8 million or ($3.51) per diluted share, compared with a net loss of $10.4 million or ($0.29) per diluted share, in the prior year. The results were impacted by $61.2 million in non-cash goodwill and other intangible impairment, $41.5 million of tax valuation charges, and $0.5 million of restructuring charges totaling $103.2 million or ($2.88) per diluted share.
“Our results were impacted by a difficult operating environment with demand weakening throughout the year as the macroeconomic environment worsened and freight remained at a low level,” said Bill Lasky, Accuride’s Chairman, President, and CEO. “In the fourth quarter, the industry environment declined further in November and December as OEM customers reduced build schedules and the aftermarket declined. However, due to cost savings from our restructuring initiatives, we were able to partially offset the decline. For example, gross profit margins in our Wheels segment improved year-over-year despite lower volumes.”
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Fourth Quarter Operating Results |
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| Three Months Ended December 31, | ||||||||||||||||||
| 2008 | 2007 | |||||||||||||||||
| Net sales: | ||||||||||||||||||
| Wheels | $ | 86,091 | 41.3 | % | $ | 100,697 | 45.3 | % | ||||||||||
| Components | 111,970 | 53.6 | % | 110,883 | 49.8 | % | ||||||||||||
| Other | 10,732 | 5.1 | % | 10,963 | 4.9 | % | ||||||||||||
| Total net sales | $ | 208,793 | 100.0 | % | $ | 222,543 | 100.0 | % | ||||||||||
| Gross profit: | ||||||||||||||||||
| Wheels | 17,183 | 20.0 | % | 19,452 | 19.3 | % | ||||||||||||
| Components | (9,664 |
) |
|
(8.6 | ) | % | (1,370 |
) |
|
(1.2 | ) | % | ||||||
| Other | 2,920 | 27.2 | % | 2,947 | 26.9 | % | ||||||||||||
| Corporate | (346 |
) |
|
— | % | (396 |
) |
|
— | % | ||||||||
| Total gross profit | 10,093 | 4.8 | % | 20,633 | 9.3 | % | ||||||||||||
| Income (loss) from operations | (68,708 | ) | (32.9 | ) | % | 6,699 | 3.0 | % | ||||||||||
| Net loss | $ | (125,775 | ) | (60.2 | ) | % | $ | (10,428 | ) | (4.7 | ) | % | ||||||
| Diluted loss per share | $ | (3.51 | ) | $ | (0.29 | ) | ||||||||||||
Net sales of $208.8 million in the fourth quarter of 2008 were down 6.2 percent compared to the prior year quarter. Wheels’ net sales declined 14.5 percent due primarily to reduced demand for Class 5-7 vehicles and trailers. Components’ net sales increased 1.0 percent during the fourth quarter, largely driven by increases in wheel-end component sales and raw material surcharge recovery.
Gross profit declined to $10.1 million, or 4.8 percent of sales, from $20.6 million, or 9.3 percent of sales, in fourth quarter of 2007. Gross profit in the Wheels segment decreased due to extended plant shutdowns and unabsorbed overhead related to lower industry demand partially offset by over $10.0 million in savings related to restructuring and other cost reduction initiatives, as well as foreign exchange. Gross profit in 2007 for the Wheels segment benefited from $5.7 million in insurance proceeds and other items related to the reduction in the employee workforce. Gross profit in the Components segment also declined versus the prior year, due to lower industry demand partially offset by approximately $2.1 million in benefits from restructuring initiatives. Gross profit in the Components segment in the fourth quarter of 2008 was also impacted by a $3.1 million loss related to a sale of assets.
The Company had an operating loss of $68.7 million in the fourth quarter of 2008 compared to operating income of $6.7 million in the prior year period. Operating expenses in the fourth quarter 2008 included $64.8 million in non-cash goodwill and other intangible impairment and $4.3 million in one-time research and development expenses recognized in the current year. Excluding these charges, the Company experienced a decrease in operating expenses in the quarter totaling $3.2 million related to on-going expense and salary reduction initiatives.
The Company reported a net loss of $125.8 million, or ($3.51) per diluted share, during the fourth quarter of 2008 including non-cash goodwill and other intangible impairment, tax valuation charges and restructuring charges totaling $103.2 million, or ($2.88) per diluted share. This compares to a net loss of $10.4 million, or ($0.29) per diluted share, in the prior year.
Restructuring Initiatives
In response to the extended downturn in the commercial vehicle market, the Company announced a phased restructuring plan on September 22, 2008, to reduce its fixed costs and increase efficiencies.
The first phase of the restructuring included an 18 percent reduction in the salaried workforce, a 9 percent reduction in the hourly workforce, the consolidation of warehouse facilities and the creation of an aftermarket division. The Phase I restructuring initiatives yielded approximately $4.8 million in costs savings in the fourth quarter of 2008 and are expected to generate $22 million to $25 million in cost savings in 2009.
On December 15, 2008, the Company announced a second phase of restructuring initiatives which included the consolidation of the Company’s aluminum wheel facilities and the redeployment of equipment in its component businesses. The Company incurred a restructuring charge of $0.9 million in the fourth quarter of 2008, of which $0.6 million will impact cash in 2009. In 2009, the Company expects to incur $1.3 million in additional expenses, $8.3 million in accelerated depreciation and $10.0 million in capital expenditures related to this phase of restructuring. It is expected that Phase II restructuring will save the Company an estimated $3 million to $5 million in 2009 and generate annual cost savings of $12 million to $15 million in 2010.
Combined, the Phase I and Phase II restructuring initiatives are expected to generate approximately $25 million to $30 million in cost savings in 2009.
Goodwill and Other Intangible Impairment
Under SFAS No. 142, we are required to assess goodwill and any indefinite-lived intangible assets for impairment annually, or more frequently if circumstances indicate impairment may have occurred. Due to the significant decline in our stock price resulting from overall economic and industry conditions, we determined that an indicator of impairment existed as of June 30, 2008, and performed a step one analysis. The results indicated that impairments existed in our Components and Other reporting segments. We calculated the fair value of the affected reporting units using a combination of market and income approaches, involving use of quoted market prices, market multiples, and discounted cash flow projections. We calculated the fair value of the affected trade names using a relief from royalty method. In the third quarter, we recorded goodwill and other intangible asset impairment charges of $193.1 million and $19.1 million, respectively.
Our annual impairment test was performed as of November 30, 2008, which also indicated impairment and resulted in recognizing additional goodwill and other intangible asset impairment charges of $57.4 million and $7.4 million, respectively. Such charges are non-cash and do not affect our liquidity, tangible equity or debt covenant ratios.
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Twelve Month Operating Results |
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| Twelve Months Ended December 31, | |||||||||||||||||
| 2008 | 2007 | ||||||||||||||||
| Net sales: | |||||||||||||||||
| Wheels | $ | 391,433 | 42.1 | % | $ | 477,115 | 47.1 | % | |||||||||
| Components | 492,025 | 52.8 | % | 491,324 | 48.5 | % | |||||||||||
| Other | 47,951 | 5.1 | % | 45,247 | 4.4 | % | |||||||||||
| Total net sales | $ | 931,409 | 100.0 | % | $ | 1,013,686 | 100.0 | % | |||||||||
| Gross profit: | |||||||||||||||||
| Wheels | 65,018 | 16.6 | % | 69,555 | 14.6 | % | |||||||||||
| Components | (18,728 |
) |
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(3.8 | ) | % | 7,108 | 1.4 | % | ||||||||
| Other | 13,226 | 27.6 | % | 11,676 | 25.8 | % | |||||||||||
| Corporate | (3,916 |
) |
|
— | % | (1,845 | ) | — | % | ||||||||
| Total gross profit | 55,600 | 6.0 | % | 86,494 | 8.5 | % | |||||||||||
| Income (loss) from operations | (276,643 | ) | (29.7 | ) | % | 29,596 | 2.9 | % | |||||||||
| Net loss | $ | (335,320 |
) |
|
(36.0 | ) | % | $ | (8,639 |
) |
(0.9 | ) | % | ||||
| Diluted income (loss) per share | $ | (9.44 |
) |
|
$ | (0.25 | ) | ||||||||||
For the twelve-month period ended December 31, 2008, net sales declined by 8.1 percent to $931.4 million. Net sales for the Wheels segment decreased by 18.0 percent due to a reduction in demand for heavy- and medium-duty wheels and light steel wheels. The prior year period included $40.1 million in additional light steel wheel sales to Ford and GM and $10.6 million of revenue related to a resolution of a commercial dispute with a customer. Net sales in the Components and Other segments increased by 0.1 percent and 6.0 percent, respectively, due to market share gains and pricing related to the recovery of increases in raw material costs.
Gross profit for 2008 declined to $55.6 million, or 6.0 percent of sales, from $86.5 million, or 8.5 percent of sales, in the prior year. Gross profit in 2008 was impacted by $7.4 million in costs related to the recently announced restructuring initiatives. Gross profit in the Wheels segment declined compared to the prior year due primarily to inefficiencies related to lower industry demand which was partially offset by restructuring and other operating improvements. Included in 2007 results in our Wheels segment are additional severance and other charges of $16.7 million primarily related to a reduction-in-force in our Canadian facility, accelerated depreciation of $12.8 million, and recognition of a gain of $3.8 million from an insurance settlement. Gross profit in the Components segment declined compared to the prior year due to manufacturing inefficiencies and lower industry demand which was partially offset by operating improvements and price increases related to raw material recovery. Included in 2008 and 2007 in our Components segment were $7.7 million and $2.1 million, respectively, of costs related to a labor disruption at our Rockford, Illinois, facility.
The Company had an operating loss of $276.6 million in 2008 compared to operating income of $29.6 million in the prior year. Operating expenses in 2008 included $277.0 million in non-cash goodwill and other intangible impairment, $5.0 million in restructuring charges and $4.3 million in one-time research and development expenses recognized in the current year. Excluding these charges, the Company experienced a decrease in operating expenses totaling $9.9 million related to ongoing expense and salary reduction initiatives.
The Company reported a net loss of $335.3 million, or ($9.44) per diluted share, in 2008 including non-cash goodwill and other intangible impairment, tax valuation charges and restructuring charges totaling $305.3 million, or ($8.59) per diluted share. This compares to a net loss of $8.6 million, or ($0.25) per diluted share, in the prior year.
Liquidity and Debt
Adjusted EBITDA was $15.0 million, or 7.2 percent of sales, for the fourth quarter of 2008, compared to Adjusted EBITDA of $17.7 million, or 7.9 percent of sales, for the same quarter of 2007. Adjusted EBITDA was $73.3 million, or 7.9 percent of sales, for 2008, compared to Adjusted EBITDA of $108.9 million, or 10.7 percent of sales, in 2007. The purpose and reconciliation of Adjusted EBITDA for the Company to the most directly comparable GAAP measure is set forth in the accompanying schedules.
As of December 31, 2008, the Company had cash of $123.7 million and total debt of $651.2 million resulting in net debt of $527.5 million. For the fourth quarter of 2008, cash from operating activities was $17.7 million and capital expenditures totaled $4.8 million, resulting in free cash flow of $12.9 million, compared to free cash flow of $44.7 million in the fourth quarter of 2007. Free cash flow was negatively impacted in the fourth quarter due to delayed payments on receivables from customers and tax refunds and accelerated payables to vendors. For the fiscal year ended December 31, 2008, free cash flow was a negative $38.9 million compared to free cash flow of $46.4 million in 2007.
Subsequent Events
On February 4, 2009, the Company announced the completion of an amendment to its senior credit facility and a strategic partnership with an affiliate of Sun Capital Securities Group, LLC (Sun Capital). The amendment adjusts certain financial covenants under the Company’s credit agreement from the fourth quarter of 2008 through 2010, including leverage, interest coverage and fixed charge coverage ratios, and extends the maturity date of the revolving credit facility until January 31, 2011.
Sun Capital, which currently holds approximately $70 million principal amount of the loans outstanding under Accuride’s term facility, agreed to modify these loans to become last out as to payment to the other loans outstanding under the term facility. Sun Capital also agreed to modify certain voting provisions and other rights as a holder of these last-out loans. The Company will accrue interest on a payment-in-kind (PIK) basis on these last-out loans until December 31, 2009, after which time the interest payment will continue to accrue on a PIK basis until the Company’s liquidity position, defined as cash plus revolver availability, exceeds $50 million. The ability to accrue interest on a PIK basis on these last-out loans will result in over $8 million in enhanced liquidity to the Company in 2009.
In exchange for Sun Capital’s agreement to the modification to its loans under the term facility, the Company has agreed to issue warrants to Sun Capital exercisable for 25 percent of the fully-diluted common stock of the Company, expand the Company’s board of directors to 12 members and grant Sun Capital the right to elect five directors and nominate one independent director, and require supermajority board approval for certain corporate actions as long as Sun Capital maintains at least a 10 percent ownership in the Company’s common stock. Sun Capital is also expected to provide customary strategic, business, and operational support to the Company. Sun Capital currently owns approximately 9.9 percent of the Company’s common stock.
Industry Overview
The Company continues to be negatively impacted by weakness within the commercial vehicle market. Our three major end markets (North America Class 5-8 vehicles, U.S. Trailers, and the related aftermarket channels) have all suffered year-over-year losses mainly due to a soft economy and a recessionary freight environment.
During the fourth quarter, in what is traditionally the strongest quarter for net orders, all three commercial vehicle segments experienced major order intake declines. Class 8 net orders decreased 25 percent from the previous quarter and Class 5-7 and U.S. Trailer decreased 8% and 34 percent, respectively. Year over year, Class 8, Class 5-7, and U.S. Trailer markets had total net order declines of 51 percent, 50 percent, and 62 percent respectively.
Due to anemic order intake, backlogs within the Class 5-8 markets as well as the trailer market are currently at historical lows. With backlogs failing to increase, OEMs have continued to reduce their build plans with very little notice to suppliers.
For 2009, industry experts agree that the commercial vehicle industry will remain at very low levels through at least the first half of 2009 as the general economy and freight environment remain weak. However, forecasts for second half of the year differ due to conflicting views on the timing and magnitude of the economic recovery.
Company Outlook
“At Accuride, we’re prepared to face what may be one of the lowest truck build years in recent history and, for that reason, at this time, we will not provide guidance for 2009,” added Lasky. “Although the downturn took a toll on our 2008 results, we have not been complacent. Rather, we proactively reduced fixed costs while streamlining our operations and gaining efficiencies which in total are expected to provide between $25 million and $30 million in cost savings in the coming year. However, we aren’t totally playing defense. We continue to introduce new products and pursue a greater share of the aftermarket business.”
“Finally, improving our financial flexibility has been a critical element for successfully executing all of our improvement programs. To that end, we recently completed an amendment to our credit facility that should provide ample liquidity through the downturn in the industry. While we have further work ahead to improve our overall cost position, the majority of the structural changes to our product mix and asset base are likely behind us. Our aim is to emerge from the current downturn a stronger, more efficient competitor with ample capacity to profitably serve our customers’ peak demand levels.”
The Company will conduct a conference call to review its fourth quarter results on Thursday, February 26, 2009, at 10:00 a.m. Central Time. The phone number to access the conference call is (866) 953-6854 in the United States, or (617) 399-3478 internationally, access code 44837472. The conference call will be accompanied by a slide presentation, which can be accessed through the investor relations section of the Company’s web site. A replay will be available beginning February 26, 2009, at 1:00 p.m. Central Time, continuing to March 5, 2009, by calling (888) 286-8010 in the United States, or (617) 801-6888 internationally, access code 98190597. The financial results for the three-month and twelve-month period ended December 31, 2008, will also be archived at ACCURIDECORP.
