Case Study: Options for a Middle-Market Bankruptcy & Restructuring

1. Case Study:Options for a Middle-Market Bankruptcy & Restructuring Presented by The Turnaround Management Association Southern California Chapter October 26th, 2010 Anderson School of Management

2. The Cast

3. Patrick – Kick off

4. Case Objectives: To illustrate the turnaround process • What a turnaround involves • Who influences the outcome of a turnaround • Highlight the different roles necessary to effect a turnaround including • Credit Risk Management • Operational Evaluation/Change Implementation a.k.a. turnaround consulting • Financial Advisory/Restructuring • Legal • Financing • Give you a basic sense of the what to expect should your company find itself in distress • Value of avoiding a bankruptcy by effective management

5. A Turnaround - in 3 Acts ACT I : Making Trouble (2004-2007) ACT II: Dealing with Trouble (2007-2009) ACT III: The Turnaround (TBD)

6. Making Trouble: 2004-2007 The Entrepreneur/CEO – • His company, Accuride was in business since 1986, • Went public in 2005. • Accuride summary: • Automotive industry supplier • Wheels, • Chassis & suspension components • Trucks, commercial vehicles • Sales tightly coupled to auto industry sales • And then they over-expanded and the market turned on them.

7. Rob – The CEO - Making Trouble

8. 2008 Revenue by End Market Heavy-Duty Truck (Class 8) Heavy Conventional Tandem-Axle Van Transit Bus Medium-Duty Truck (Class 5-7) Walk-In Van Medium Conventional School Bus 2008 Revenue by Product Line Recreational Vehicle Single-Axle Van Stake Truck Trailer Van Flat Bed Tanker Light Truck (Class 3-4) 8

9. Rob – Industry Overview

10. Expansion & Decline Income Statement Debt increased from $488MM to $698MM

11. Income Statement – Key Details2006 – a “good year” Cost improvement opportunities are buried here

12. Buried Opportunities • 23 separate manufacturing plants, each with its large fixed/indirect cost structure. 4,661,000 sq ft. • Common process types – foundry, forging, machining, stamping, tube bending, polishing, assembly. • Complex, somewhat top heavy people structure: • 3,500 total employees • 927 salaried • 1,650 unionized – 7 unions); had a lock-out in 2007. • Multiple (6 major brands); complex entity structure; multiple subsidiaries. No plant has more than 1 brand. • Environmental regulations & costs significant (foundries); these costs are buried in plant indirect costs. • Not prepared for any downturn in a cyclic industry. High fixed costs + high debt = vulnerability

13. Act II: 2007 – 2009 • Accuride hires: • Financial Advisory Firm • Turnaround Consultant • Lawyers • Restructuring plan • Actions Taken: Re-negotiate with Labor (including lockouts) 11/07 • Management Shakeups 12/07, 2/08, 9/08 • Restructuring Plan Announced 9/08 • Drawing on its credit facilities 10/08 • De-listed from NYSE 11/08 • Phase 2 of Restructuring Plan announced 12/08 • Restructure of Debt owed to Sun Capital 2/09 • Temporary Waiver Signed with Lenders Creditor Steering Committee Formed 7/09 • Second Waiver signed 8/09 • Debtors give Accuride until 9/30 to effect financial restructuring (9/25)

14. Jeff – Financial Restructuring

15. Historical and projected EBITDA. Results prior to 2005 are pro forma for the TTI acquisition. Company Projected Industry Cycle 2007-2013E Trough to Peak Avg. EBITDA: $125.7 million Industry Cycle 1996-1999 Cycle Avg. EBITDA: $146.4 million Industry Cycle 2000-2006 Cycle Avg. EBITDA: $148.0 million 15

16. Capacity utilization for large commercial vehicles currently remains very low, weighing on aftermarket component sales. • In addition, significant cannibalization of parts is occurring from idle vehicles. U.S. Heavy Truck Capacity Utilization 16

17. Financial summary of the Company’s projections. Consolidated Revenue and EBITDA 17

18. Who is Doing What? • Credit Risk Management: Bond Holders are seeing increased risk in the transaction and taking action • Unsecured Creditors – committee, negotiations. • Accuride Secures Debtor-in-Possession Financing • Convert debt into equity rights • Dilution of existing stockholders • 10/8 Debt restructuring completed, 10/9 Accuride files voluntary BK – “Pre-Pack”

19. Chris – Secured Lender’s Attorney

20. Act III: Pre-packaged BK • Accuride voluntarily files for Bankruptcy Protection and presents a plan • Raised $50MM in “DIP” Financing • Maturities extended to June 2013 • Covenants modified • Sr. Sub-Debt converted to 98% equity holders • Sr. Unsecured Notes get refi’ed to be convertible into 60% of common stock • Unsecured Trade Creditors to be paid in full • Current Shareholders will now own 2% of common stock, and receive warrants for 15% of Equity subject to the above dilution works out to 9%

21. John – Accuride Attorney for the Chapter 11 Filing

22. Summary of Drivers • Cash drives everything in business. • Low margins results in chronic lack of cash. • Fatal combination – Low margins + High leverage/debt + Un-proactive management = Chronic survival challenges, • Lack of cash leads to BK and/or a turnaround and restructuring, “Chapter 22, 33”, etc. • Once in BK, many others MUST become involved, diluting owners control and destroying investment principal. • Outside expertise = become crucial to survival and renewal. • Value of assets may be determined by others—often with antagonistic agendas. They are not friends of shareholders.

23. Paul – The Turnaround – Alternate “Ending”

24. Alternative Ending – The Turnaround • Focus on fixing main problems/opportunities – • VERY LOW gross margins – 14-15% in 2006 – “good year” – • Reporting buries almost all cost improvement opportunities • High fixed costs – multiple small plants; 200-300 people each. • Similar processes at separate plants; transportation costs are hidden. • Each of the 23 plants has high breakeven – below this it consumes cash • No product rationalization – drop, sell losers. • Significant unionization; potential uncooperative attitudes to improving productivity & thus margins. • Mexican plants do not appear to be helping profitability

25. Initial Turnaround Plan • Replace top & key managers with fresh, success-driven, proactive leaders – not necessarily from auto supplier industry. These will drive real success; “The guys who got you into trouble will not get you out of it.” • Develop, implement cash-focused reporting – replace P&L oriented, financial reporting to drive improvements. • Inventory – complex production, transportation, multiple warehouses = cost • Plant consolidation and/or greenfields to non-union states. • Leverage existing plants temporarily – they are well below capacity to bridge greenfields. • Get blunt with unions – help or close the plant. • Product rationalization - Drop money-losing products; raise prices where market strength good. • Cut per-plant fixed cost structure – buried in COGS, • Implement transportation management • Integrate brands, selling forces, to leverage production capabilities at larger, more efficient plants.

26. Patrick – It’s a Wrap!

27. Conclusions & Observations • Management focused on sales, not profitability. • Inattention to cost details – in COGS resulted in losing the company’s equity. • Excessive leverage/debt = inability to withstand downturns in a cyclic business. • Annual report reads like a list of problems, for which no solutions are proposed.