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Executives

Gregory A. Risch – Vice President and Chief Financial Officer

Richard F. Dauch – President and Chief Executive Officer

Analysts

A. Rhem Wood – BB&T Capital Markets

Jimmy Baker – B. Riley & Co. LLC

Accuride Corporation (ACW) Q4 2012 Earnings Call March 7, 2013 9:00 AM ET

Operator

Welcome to the Accuride Corporation Fourth Quarter and Fiscal Year 2012 Earnings Conference Call. On today’s call, our Accuride’s President and CEO Mr. Rick Dauch and its Vice President and Chief Financial Officer, Mr. Greg Risch. My name is Laurine and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded, and will be available for replay later this morning. At the end of today’s call, I will get the instructions to access the replay.

I would now like to turn the call over to Accuride CFO, Greg Risch. Please go ahead sir.

Gregory A. Risch

Thank you, Laurine and thanks everybody for joining us this morning. As we turn to page two, I want to remind everyone that during this call, we’ll be making statements that could be considered forward-looking as defined in the Securities Act. We caution you that these statements are subject to risk in our business and we encourage you to read all of our SEC filings to understand what those risks are. Please turn to slide three.

During today’s call, Rick will provide an update regarding activities within the Company along with key highlights in our industry. I’ll then review our fourth quarter results and 2013 guidance with Rick providing some summary comments prior to opening up the line for questions.

With that, I’ll turn it over to our President and CEO, Rick Dauch.

Richard F. Dauch

Good morning everyone and thanks for joining our call. Our fourth quarter results were largely in line with our expectations given the relatively weak quarter-over-quarter and the industry conditions that we experience in Q4. Today Greg and I will walk you through our operational and financial performance for the quarter and full year 2012 followed by discussion of how we see 2013 shaping up.

I’m going to go to slide five, in spite of end market softness both Accuride Wheels and Brillion Iron Works were profitable during the fourth quarter; perhaps one of our most important confidence during the quarter is the renewal of our long-term steel and aluminum wheel agreements, which secures and expand a very important component of our business. All of our major CapEx projects are either complete or unscheduled to be completed, and on budget. The launch of our aluminum wheel capacity is now 100% complete, with the preproduction approval process complete at three of our major customers.

The consolidation of Gunite’s manufacturing footprint is also complete. We see machining operations in Elkhart, Indiana and Brillion, Wisconsin at the end of November, and those plants are basically empty all the old equipment has been scraped or sold off. 100% of our hub machining and assembly has now performed here at Rockford, where Greg and I are today, and we are in the final stages of launching our new hub machining line which arrived just about three or four weeks ago from Italy.

Our Imperial operations in Texas in Tennessee made considerable progress during Q4, we have installed an automated polishing cell in Texas and the consolidation of our Imperial Tennessee plans will be complete by March 31. We are down to a handful of presses in Texas remaining to be repaired which will be completed by the end of April.

Class 8 truck builds, these are the challenge out; Class 8 truck bills remain weak during the fourth quarter. We expect these weak production levels to continue to the first half of 2013. We expect near term industry conditions to remain challenging with Class 8 orders at or below fourth quarter ‘12 levels, and continued pricing pressure in the aftermarket on Gunite Drum business. We did take several one time charges during the fourth quarter that impacted the quarter as well as the full-year. Greg will cover these in more detail, but the largest of these was an impairment charge of $131.6 million in our Gunite business, which primarily reflects the loss of revenue that we’ve previously discussed. In addition we wrote down certain idle assets in our lead and steel wheel facility and at Brillion Iron Works

I’m on slide seven, in spite of the recent softness experienced by the commercial vehicle industry in North America, the production forecast for the next few years remains healthy, manufacturing continues to be resilient with the ISM hovering a near or above 50 for the past several months, and almost seven years the age of the fleet remains and in all time high going back over 25 years, and we’ve had lots of discussions in the last 45 days with major fleets here in North America confirming that number.

As a remainder when trucks pass the five year 500,000 mile mark maintenance costs begin to rise sharply, given the right freight environment drives fleet equipment purchases. Freight volumes have continued the trend of modest growth and are expected to accelerate 2013, so things are lining up for recovery later this year.

As demonstrated in this graph on slide eight, 2012 saw significant reduction in build rates from the first half to the end of the year, as a remainder this is like same period of time when we were in the middle of fixing our core operations and installing our modern capable capacity, which is critical to our long-term turnaround to success of our business.

We expect 2013 to be a mere image of 2012 with more production levels extending to the first half of the year, and then picking up during the back half of the 2013, with our operations fixed we’re now poised in a much better shape to capitalize on the projected up turn in the industry. We think first quarter ‘13 is the trough, recent Class 8 truck orders leveled at greater than 22,000 a month are encouraging, but they have not yet translated into higher build rates at the OEMs.

Slide nine, the build forecast for Class 8, medium-duty and trailers project a healthy outlook for the next two to three years. The disparity between FTR and ACT for 2013 Class 8 builds still exists, but it has narrowed with ACT now at 264 and FTR at 240. We have budgeted our 2013 projections pace off the lower forecast at Class 8 builds of around 240,000.

We have some encouraging news in medium-duty builds, because as you see the benefit from the strength that we have seen during the development in the housing and construction markets. Trailer orders rebounded during fourth quarter ‘12 from a weak third quarter ‘12. This segment of the market is where we are seeing the widest forecast disparity with ACT at almost 260,000 trailers and FTR just on the 2010. Again, we are planning toward a conservative and of the range.

Slide 11, all of our critical capital projects are either complete or nearing completion. Again, the aluminum wheel capacity expansion is done, the new capacity that we have is installed has already allowing us to gain profitable share and will help us better service the market as it continues its gradual shift from steel to aluminum.

Those of you who were able to visit the Gunite Rockford facility in December saw our new drum machine lines, all of which are installed and running, and they’re running at the rate we purchase them at. We now machine 100% of our drums here at Rockford. The new hub machine line has been installed at Rockford and it’s in its final stages of launch, it’s in debug mode this week. We should have our first part be popped out by the end of next week. and then we have 150 part numbers to get peep out over the next 30 to 45 days. This new equipment has allowed us to significantly consolidate our operations and will help us win back business with higher quality, improved delivery, and more competitive costs. Imperial made significant progress during the quarter four, and are starting to turn the corner. We continue to negotiate with customers to address money losing products at our Tennessee and Texas facilities, and we will officially exit the lease in Tennessee 1 next month.

Critical pressure pairs 8 presses specifically in our Texas facility are nearing completion which is the final step in stabilizing Imperial operational capability. Brillion continues to perform well in the phase of end market softness, which really began during the second half of 2012, tied to the global construction market, and some of our industrial markets. As I said in the last quarter, Brillion lost over $140 million over 10 year period. And so we are pleased with the improvements at our Brillion team made in 2012 to return the business to profitability. They have managed to significantly reduce our breakeven point in their business, which is why they have continue to make money in spite of the market softness today we have experience.

We also continue to perform necessary and methodical work required to purify our data bases and map out key processes prior to implementing our new ERP system. This will be a major area of focus for us in 2013, it’s a multiyear project that we anticipate completing in 2014. The heavy capital intensive restructuring of Accuride is complete. Beginning in 2013, our CapEx will be approximately half of we have spend each of the last two years, and we’ll be back in the normalized rate, which we promise you at around 3.5% to 4%, if we need to go down a little lower because of the market we can do so because we got most of the, what I’ll call maintenance capital taking care of the last couple of years where we had kind of repair roofs and some of those kind of things.

Slide 12, we worked very hard in 2011 and 2012 to fix our business so that we can be much, be much more reliable supplier to our customers. We rebuild the technical staff in the areas of product, process, and quality engineering. We have realigned our sales team to allow them to spend more time with the customers focused on the value, service, and the fourth that we can provide with our improved operations, and that includes me. I’m spending much more time now on the field talking to customers that I am tracking down hard parts in our factories.

We’ve also upgraded our supply chain team and refocus our attention on managing the entire supply chain from suppliers through our plans, through distribution to our customers. We now have a capable, technically confident team across Accuride at the corporate level, at each one of the operation sites to take our overall business to the next level.

Slide 13, we did and have invested heavily in our operations over the past years to bring them up to best in class industry standards, while the heavy CapEx years are not behind us, these investments are critical for us to create the foundation from which we can now grow our core business.

Slide 14, the investments that we have made in our team and in our operations are beginning to bear fruit. On time delivery improved by 3 percentage points from first quarter to fourth quarter. Quality is measured by our customers PPM has improved by 10% during the same period, scrap is down almost 6% on a year-over-year basis with cost of poor execution down over 22%.

Cpk value is a measure of process capability and the ability to perform within specified limits, when we first got here in 2011 we couldn’t even measure what our Cpk values in some of our equipment, we didn’t have the people on the floor to do so. The number of key processes with a Cpk value of 1.33 or greater has increased by 35% during the year, if you run within your process, you get good parts out, your customers for then happy and not disappointed in your performance.

Wheel has run at 99.9% on-time delivery in the third and fourth quarter at a PPM level of less than 21 across six plants. Why we are installing brand new equipment in our aluminum business and re-launching the Camden operation. Gunite has run at 95% or higher on-time delivery in drums at less than 20 PPM for the last five months in a row, we are making huge strides in the basic manufacturing operations here.

Slide 15, as we discussed last quarter, when I arrived in Accuride in 2011, many of our plants were in pretty rough shaped. Our London Ontario plant, wheel plant was losing money and have been since 2007, but is now making money at the operating income level due to our recent commercial and labor agreements and focus on LEAN manufacturing.

Operations at Monterrey area have both been improved with the introduction of the LEAN manufacturing, capacity increases and improved quality of safety. Camden is now up to our standards, our new standards for Accuride operations and Henderson continue to be our flagship operation for the wheels business.

Gunite’s operations are now consolidated at Rockford as we’ve said, which is significantly improved facility compared to when we started this journey in 2011. For those of you who were here in December, it looks differently today on March 7 than it did on December 6, much better. Those of you who were able to visit our plant in fourth quarter ’11, and then again, in 2012, we’re able to witness first hand that change, and the next time, you come here, it’ll even be better.

We’ve got some work to do our launches, but we’re making a huge improvement there and we’ve got a little bit more work to do in 2013 on our casting line. As I indicated earlier, I’m very pleased with the progress of Brillion, we’ve taken that plant from a money-losing operation to a profitable operation in a very short period of time. We still have some work to do in the some of the operations at Brillion, but we are on the right path in that business. On a scale of zero to 10, zero been a non-LEAN plant, and 10 being world-class, I think we’re still only at a three or four at Brillion, so we have lots of upside opportunity to drive more cost out of that business.

Our Imperial facilities took important steps during the fourth quarter to get back on their feet operationally. We’re making significant progress down in Texas, and they have almost completed the press repairs required to bring the facility where it needs to operationally.

Slide 16, the operational improvements that we have made as a team over the past 18 to 24 months are helping us win new business. We’ve secured three year supply agreements for wheels with three of the largest truck OE, and two large trailer manufacturers here in North America.

We’ve also secured the opportunity to get up to $30 million of new aluminum wheel business annually at one of our truck OE customers. We’ve also realized several meaningful business wins at Gunite. These wins have come primarily in the aftermarket as we are focused on the values of Gunite products, which are made in the USA, cast and machine, competitively priced, have industry leading lead times of one or two weeks on our highest running part numbers, dependable quality, and now reliable delivery.

These business wins come one customer at a time of course, but everyone has an important step in rebuilding Gunite’s reputation in the industry. As I tell the team here we lost our reputation over four or five year period customer-by-customer, we’ve got to rebuild our customer reputation customer-by-customer over the next four to five years or faster.

Slide 30, go ahead Greg.

Gregory A. Risch

Thanks Rick, please turn to slide 18, as previously discussed we faced rapidly declining production in our industry beginning in the third quarter and continued through the fourth quarter. Year-over-year our sales from continuing operations for the period of $176.3 million were down a little over 27% and 18% down from Q3.

Our operating loss of $150.4 million was dramatically different than the prior year income of $9.5 million primarily due to the impairments in the other non-cash charges along with the overall decrease contribution from lower market demand. Our net loss of $156.5 million was unfavorably impacted by the impairments and other one-time non-cash charges close to $140 million. I’ll address the impairments and the other charges in an upcoming slide. Despite the reduced demand in all of our industries that we serve, our wheels and Brillion continue to deliver solid operational performance as Rick alluded to.

Gunite operations are improving yet face a tough commercial environment. The Imperial business continues to make steady progress as they are preparing for the exit of the Tennessee 1 facility and complete the significant and necessary repairs to their presses.

On the next slide I’ll address the impairment and other non-cash charges in the period. As you can read in our previously filed documents we have an annual process to access potential impairments of goodwill, other intangible assets, and our property, plant and equipment. Specifically our quarter three filings noted an impairment indicator that was identified shortly prior to performing our annual impairment test as of November 30. The results of this two step process were recognized in the fourth quarter. The most significant drivers in the first three lines of impairments shown here on this slide were the market share losses previously announced for Gunite combined with the price of our common stock as of the November 30 test date, which is just over $3 at the time.

You could say that this is the non-cash technical accounting impact of those market conditions as of the test date. The PP&E write-offs related to idle equipment in our Wheels segment of $4.7 million and obsolete equipment in Brillion of 3.2 million relates to hub machining assets. The corresponding tax benefit was related to certain of the impaired intangible assets. It is key to understand that the recently discussed projections for Gunite are still on track, meaning that we still expect that this business will generate 10% to 12% adjusted EBITDA margins, once certain cost initiatives are complete as indicated previously by Q1 of 2014. Again these non-cash charges have no effect on our liquidity or our debt covenants.

Next slide, for the year, our sales from continuing operations are very close to our results in 2011. Our operating loss of $143.3 million was much different than 2011, primarily again due to the impairments and other charges.

In addition, certain other actions taken in the 2012 results, included closing down Gunite’s operations in Elkhart and Brillion and certain severance charges related to reducing our salaried workforce overall. Our net loss of $178 million was similarly impacted by those one-time charges.

As Rick said, our heavy lifting in regards to capital deployment on the shop floor will be mostly completed here in the first quarter of 2013, and we’re looking forward to some wind in our sails from the market that’s expected to pick up sometime during 2013 after experiencing some significant lows during Q4 of ’12, and the first quarter that we are in right now. I’ll address segment results here in just a moment.

Next slide; slide 21 shows revenue for the quarter fell below last year’s results, just like our third quarter as the market demand was soft, again, revenue of $176.3 million was just over 27% below Q4 of 2011. Remember that the impact of the significant and continuous drop in demand during the third quarter this year created operational inefficiencies as it was difficult to take cost out in a rapid manner. That situation was little better in the fourth quarter, although not ideal.

The graphs on the lower half of the slide should remind you that just over half of the revenue comes from the big OEM truck producers, an additional piece of that added to this slide was to show the breakout of the revenue in the U.S. and specifically how significant it is for us at 85%.

Now let’s move to the next slide and review the results for our four business segments.

Slide 22 shows the trends for both our Wheels and Gunite businesses. Clearly, our Wheels business represents the largest segment in regards to revenue. Sales in Q4 of just over $86 million represented nearly 49% of the total Company’s revenue.

Typically, we see wheels representing a little less than that as a percentage, but this part of the Group saw less declines as a percentage than our other business. Year-over-year, margins were impacted by the unfavorable timing of increased material costs and reduced pricing, primarily due to favorable material cost experienced during 2011, that resulted in reduced customer pricing in 2012. So it’s a bit of a lag [first pull] [ph].

Gunite experienced a tough quarter since they were in the middle of the new equipment launches which requires a little extra costs related to training and qualifying the new lines while experiencing significant decreases in demand for both OEM and aftermarket, particularly brake drums. Revenue of $36.5 million was just over 40% lower than the prior year.

Gunite’s net sales represented approximately 21% of our total sales, clearly the loss of standard position with certain OEMs has intensified our internal efforts that we have previously discussed to get this business to 10% to 12% adjusted EBITDA rate.

Now let’s move to the next slide, let’s talk about Brillion and Imperial. We see the Brillion business continues a significant turnaround in regards to profitability as Rick alluded to despite the drop in demand from the markets that they serve in the back half of the year.

Clearly, the increase in earnings in the phase of lower revenue represents a great story. Brillion’s revenue of $25.8 million represents approximately 15% of the consolidated revenue this quarter, which is little lower than we saw in the first nine months of the year.

Brillion’s challenge during the third and fourth quarters was to adjust their cost structure to the rapid decline in demand. We think that they performed very well despite the market conditions.

Imperial’s revenue of $27.7 million fell nearly 29% year-over-year. I’ll remind you that in the first quarter of 2012, we experienced year-over-year sales growth of 60%. Again, we’ve seen a significant improvement in the operational execution from Imperial, specifically in Texas. But the short lead times in the uncertain demand creates some inefficiencies in the fourth quarter. We also like the progress we made on the Tennessee I facility closure, and the press repairs, which are mostly in Texas. While strategically located close to our customers, the multiple locations creates a higher than desired fixed cost environment, which adds to the primary reason to eliminate the Tennessee I facility.

That said, as the industry comes back late in 2013, Imperial should see improvements in their profitability.

Next slide; in regards to trade working capital, these top two graphs on slide 24 breakout the three components of our trade working capital, trade receivables, inventory and payables. Total trade working capital dollars fell on the quarter due to the decreasing revenue and the seasonal shutdowns at the end of the year which strolls down our receivables.

We are particularly pleased with our supply chain operations’ ability to reduce inventory despite the lower and highly uncertain order patterns during the quarter. The slide points out that not only did we reduce working capital to a four year low in regards to absolute dollars it was also at a four year low as a percentage of sales. This is particularly helpful in finishing the year with better than guided free cash flow, which we see as we flip to the next page.

Slide 25, shows our free cash flow for the quarter of $6.5 million despite $15 million in capital expenditures. Positive cash flow from operations just over $21 million was lower than last year primarily due to the lower revenue demand in the most current quarter. The capital spending pace has slowed significantly in quarter one 2013, will represent the close of the most significant heavy lifting in regards to the fixed portion of our operations.

Next slide, moving with free cash flow in the period our liquidity dropped from just under $80 million to $64 million. We have adequate liquidity to face the reduced demand in our markets. The initiatives on the bottom half of this slide are an example of the current activities related to liquidity. I’ll remind you that this slightly exceeded our expectations on liquidity primarily due to excellent working capital management and delaying the timing of certain payments related to capital into 2013.

Again without going back to the prior slide our lean manufacturing strategies are driving results. Looking forward to spending the remainder of the day with Rick and the team here in Rockford for our lean review. Definitely good things are happening.

Let’s turn to slide 18 to address our 2013 guidance. Using the build data at the top of the page along with the current expectation from our aftermarket customers and our industrial customers that Brillion serves were announcing our guidance shown here on the slide. Without turning back to slide eight, I’ll remind you that this guidance is depended on the truck production demand that improves throughout the year, as both ACT and FTR have forecasted, overall we expect net sales to be in the range of $800 million to $850 million, given the challenges with the reduced truck production year-over-year. Adjusted EBITDA is projected to be in the range of $65 million to $75 million.

You can see the various components of our free cash flow on the slide, which are ultimately pointing to neutral cash position for the year, with the variables being capital spending and working capital as Rick alluded to, we can adjust up or down depending on what the market needs.

Now I’ll turn the call back over to Rick for few comments on the longer term outlook prior to taking your questions.

Richard F. Dauch

Now we’re on slide 30, so we started this journey when I arrived in February of 2011, in April that year we gave our Board and our customers a rough draft of our strategic vision which we shared with investors in July of last year. Our goals remained unchanged which just are to create the premier global wheel and company.

Step one; we started at the bottom of the pyramid, with people. We’ve replaced the majority of the leadership team, and now I have confident business unit and functional department leaders, capable plant mangers or staffs a very strong VP of Quality lean manufacturing, and experienced manufacturing and product engineers throughout the organization.

Step two; we spend a lot of time with into our customers both the OE customers truck and trailer, small manufacturers and lot of our aftermarket customers, and that has driven a lot of our decisions up where we need to invest in our core businesses. Our wheels business is right on track, and we see high mark to mark customers and we’re earning back our reputation with out customers at Gunite. We’re also quietly working on new exciting product technology that we will roll out in 2013 in both our wheels and our Gunite businesses stay tuned.

Step three; we will continue to invest non core assets at the right fair price, and at the right. We want to put these assets in the hands of owners who will invest in and treat the assets appropriately, but only on terms that makes sense for Accuride.

Step four; we’re implementing our lean manufacturing systems across the organization, and we’re moving in the right direction with the goal of bringing all our facilities up to the same high standards that we’ve already achieved in Henderson and Erie. I’ve had the opportunity there is two other companies American Axle and with AccuMed we have a very detailed plan that we work with, and we’re making progress at every single of our sites, everyday and every week and every month some places have a long way to go, but we will get there in the next couple of years.

And finally, step five; once we’ve fixed our core North American businesses we will start growing the company globally on a select basis.

Taking you to slide 31, taking a look at the strategic choices we’ve made over the past years, you can see the progress that we’ve made in our efforts that focus on our core products in our market segments. We have divested businesses that are outside of our core, and then invested in the core businesses. We will continue this focus approach to strengthening our core operations and getting out of businesses that are not related to what we do best.

Slide 32, in summary 2012 was the year of operational progress and transition for Accuride. We restored our core North American operations and competitive positions including, consolidating our heavy-duty steel wheel capacity in the Henderson and Monterrey, expanding in both our aluminum wheel capacity and our footprint.

Consolidating Gunite’s manufacturing operations that significantly upgrade this capabilities while reducing our overall cost structure. The consolidation of Imperial which we will be completed during the June second quarter of ’13, and returning Brillion to profitability in spite of market softness in the back half of the year.

In addition we secured important renewals or extends of our key wheel agreements which provide the stability, we need to grow our core North American businesses. We do face some near term industry headwinds, but are looking forward to the markets we cover in the second half of ’13, with continued growth for the next several years. We have adequate liquidity to execute our plan, which is focused on Accuride’s long-term growth. We will likely choose to divest non-core assets at the right time and place, and we believe there are selective opportunities to grow our core wheel business on the global basis. We’re focused on making the right decisions for the long-term success of Accuride Corporation.

At this time Greg and I’ll take your questions.

Question-and-Answer Session

Operator

Thank you, we will now begin the question-and-answer session. (Operator Instructions) And our first question comes from Rhem Wood from BB&T Capital Markets. Please go ahead.

A. Rhem Wood – BB&T Capital Markets

Hi good morning guys.

Richard F. Dauch

Good morning Rhem.

Gregory A. Risch

Good morning Rhem.

A. Rhem Wood – BB&T Capital Markets

Okay so firstly, let me start with, let’s talk about Gunite you still believe, that you can get to the 10% to 12% EBITDA margins in the first quarter, and I guess you are going to do that more through some cost rolling off rather than volumes, I guess you expect that to be kind of weaker in the first half, and then on Imperial, I didn’t hear you say specifically, but I heard you previously say that you expect that to get to be profitable by the second quarter, is that right?

Richard F. Dauch

Yeah. Let me be clear, I’ll step back and do Gunite first, Gunite we’re guiding to those ranges for the first quarter of 2014. If you go back to some of our previous slides specifically the ones that we had filed and shown when you guys were in Rockford back on December 5 we somewhat had a cadence of some of those projects that would occur throughout the year of 2013, and that we’ll be at that full run rate by the time we got to this time next year.

And I think your question on Imperial was, are they going to get back to profitability starting in Q2, I think the key there is that we talked about just a few minutes ago was exiting the Portland I facility that lease, and getting the press repairs out of the way, so that we can run much more efficiently and consistently so that we can get scrap the cost down and labour stabilize, so yeah, I think that’s exactly what we’re expecting.

A. Rhem Wood – BB&T Capital Markets

Okay. And then it seems to me that you guys feel a little bit better about industry volumes especially in the second half and that’s kind of moving up, I mean I heard you say that you’re building the business around at 240 number, but previously I think you mentioned that you could get - the business was - you’re gauging it to operate a breakeven around 180 to 200 maybe 200 to 210, but anyways you’re feeling better about the environment at this point. Right?

Richard F. Dauch

Well I will say that what we have been operating at a pretty low environment right, and so we’re trying to size the business to handle that, and I think as I was talking about guidance a few moments ago, I think what I am saying is that if you look at the FTR and ACT forecast, we’re guiding towards the lower-end of that range, but you can’t clearly see from I think it was back on slide eight, that the year is definitely starting out softer, and that is it’s going gain some momentum as we go, and so our guidance is in line with that.

We can’t say that we know more than FTR and ACT necessarily we’re basically just saying that it’s going start slow, and take up from there. Do I feel a little better today than I did a few months ago? I think the order rate that I’ve been seeing the last couple of months I do like, and I think we’re on our way; we just have to remember that the truck guys had over built in 2012, and so we got to work that inventory down and then we’ll start backup on the production side.

A. Rhem Wood – BB&T Capital Markets

Okay good, and then can you talk a little bit about where your sales focus now and kind of pulling through product and maybe going to the fleets, are you - now that you [ended] [ph], are you finding that to be successful, and have you had some more material wins doing that?

Richard F. Dauch

We have nothing to announce today, Rhem, but we are spending quite a few - a lot of time on the road. I’d say I’m spending more time with customers now than I am with the factories and the operations. I’ll give you a couple examples, in the last few weeks, we were down in Atlanta; we met with three very large companies, both which have fleets of over 20,000 Class 8 trucks. They had never seen me before in the last two years. They took us through their detailed plans for the next three years, and we took them to our detailed plans of what we achieved here at Accuride, where we put in the aluminum capacity, where we think we can save them weight with our GOLD drums, how we can package together the steel, aluminum and the Gunite business together and we’re starting to get some receptive inquiries now.

We had one large fleet come over to us. I can’t announce that yet, but it could be a significant order and it’s going to be specified for Accuride aluminum wheels and Gunite brake drums and right now, for some of those trucks that they purchased, without talking to us, they would have purchased our competitors’ products.

A. Rhem Wood – BB&T Capital Markets

Okay.

Richard F. Dauch

And so we’re really going out, talk to the fleets. We’ll identify the largest fleets in the country. we’ve also identified some of the smaller fleets that have never seen an Accuride salesperson in the last four or five years. So did I answer the question?

A. Rhem Wood – BB&T Capital Markets

Yeah, great. Thanks, I’ll get back in the queue, I appreciate the time.

Richard F. Dauch

Thanks.

Gregory A. Risch

Thanks, Rhem.

Operator

Thank you. (Operator Instructions) And our next question comes from Jimmy Baker from B. Riley. Please go ahead.

Jimmy Baker – B. Riley & Co. LLC

Hi, good morning Rick, good morning, Greg.

Gregory A. Risch

Hey, Jimmy.

Richard F. Dauch

Hey, good morning, Jimmy. How are you?

Jimmy Baker – B. Riley & Co. LLC

Great, how are you guys?

Richard F. Dauch

We’re at Rockford.

Jimmy Baker – B. Riley & Co. LLC

Well, I’ve got a couple of questions on Rockford, but I want to start at Imperial. so I’m hoping maybe, you could talk about how volume-sensitive that business is, and in other words, I’m kind of asking if aren’t able to get more favorable pricing, can you instead get acceptable performance out of that business on lower volume, lower sales?

Richard F. Dauch

That’s very good question. I think we’re pretty close to at least as one of the OEMs of locking something up on improved commercial terms, that will take a business that’s money losing to profitability, so that’s pretty good. I was on the phone late last night with those guys.

we are having initial discussions with the larger customer there about what that means for us in terms of where we have some underwater parts. I think it is somewhat of a volume-sensitive - that business was trending in the first half the year towards 156 sales this year. it’s down more like around 110, 115. so it’s tough, but I can tell you even on the lower volumes in Texas last month we had a break-even EBITDA mark, right. Is that great? No. Is that better than losing basically almost $700,000 a month? Yeah, a big improvement, right.

Tennessee plant, we get the last three presses in Tennessee I, we’ll cease operations next Friday, we’ll then have two weeks to disassemble them and then move them over to Tennessee II, that plant is being expanded as we speak, under pretty tough weather conditions the last 60 days, no excuse I told them. we have bank (inaudible) in place now that cover that for three or four weeks, we’re very comfortable with that, and we’ll be back up and operating by mid-April. and then we eliminate the lease at Tennessee II; that lease cost us close to $70,000 a month, if you add in the utility cost and the maintenance costs of the building, you’re talking about a million and $1.2 million savings on an annualized basis that goes to the bottom line for us to get back to profitability. so I’m confident right now. If volume stay where we’re at, we’ll be able to become a positive EBITDA business in Imperial again, in mid to high single digits, and then if we get some commercial relief and we get some volume we can get that business back to where we thought we could get it originally from somewhere between 8% to 12% on a run rate basis in more normal conditions.

Jimmy Baker – B. Riley & Co. LLC

Okay, that’s really helpful. And then just giving it where – so far into first quarter here I’m hoping maybe you can provide us with just some color on your business trends on a sequential basis. it seems production is relatively flat sequentially, but maybe you can speak to aftermarket demand, any benefit from the harsher winter, Brillion demand, and are you seeing some improved stability in margins, particularly at Gunite?

Gregory A. Risch

Yeah. I’d tell, just go and look backwards. Brillion is still at a weak market conditions with the off-road and the construction business. So I’d say that business is trending still more towards fourth quarter run rates, somewhere on a monthly basis as $10 million to $12 million sales. The good news is we’re positive EBITDA in that business. and so we’ve really taken the break-even at that business down significantly.

So we don’t see a lot of up tick right now in the forecast for that segment, we’ll see how it plays out here in the second half of the year. Imperial’s tag directly to Class 8 truck builds basically in Daimler and PACCAR and you see the build rates like we do, same as the wheels business, volumes are pretty weak right now. We’re seeing some production cuts at one OE and we’re seeing some pickup in another OE right now.

So it’s kind of maybe that’s a market swing, market share shift swing. And in Gunite aftermarket, we haven’t seen the big pickup in the aftermarket, because of the rough winter. maybe that will happen here in the spring selling season. We did see a pickup last week. There has been some pricing pressure; we met one of our competitors’ prices here in North America. And I was talking to guys last night, their drums there and builds were going from about 5,000 a day to 7,500 this week. So we did see a pickup just in the last three or four days, but nothing in January and February too much.

Jimmy Baker – B. Riley & Co. LLC

Okay. And I just have one more back out into the queue. I’m just wondering if you’re anticipating any unusual impact from metals pricing and related to your customer contracts and the ability to pass through on the wheels business here in 2013 or if it’s fair for us to kind of model this in a margin run rate going forward at current levels and then delivering that 25% to 30% incrementals as the cycle picks up.

Richard F. Dauch

Obviously, the major, I do think that we’d be hearing a little bit in the first quarter, because we have had some commitments on steel volumes in the fourth quarter, and those volumes got so weak, that we had to carry on some pricing from fourth quarter ‘12 and the first quarter ‘13. I think we’re just about out of that, that steel pricings will see more normalized market prices here in the back half of March. so that’s little bit a headwind, we had the first two months, other than I think we’re pretty normal, so…

Jimmy Baker – B. Riley & Co. LLC

All right. Thanks a lot, Rick. I’ll pass it on.

Richard F. Dauch

Yes. Thanks.

Gregory A. Risch

Thanks, Jimmy.

Operator

Thank you. and I’m showing no further questions at this time.

Richard F. Dauch

That’s great. most of the guys are probably listen to Navistar conference right now with Troy Clarke being announced as the new CEO and congratulations to Troy. He is a great man, and I worked with him when he is over at General Motors, when I was supplier there, so wish him the best of luck. So thanks for your interest in our company, and we look forward to seeing you on the road or here at one of our plants. have a good day. Bye.

Operator

Thank you. And thank you, ladies and gentlemen, I would like to remind you that a replay of today’s call will be available beginning today after 10:30 a.m. Central Time, and concluding at 11:59 p.m. Central on March 14, 2013. you can access the replay by calling 888-843-7419 in the United States or 630-652-3042 internationally, and using access code 34324637. this concludes today’s Accuride Earnings Call. Thank you again for participating. You may now disconnect.

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