Accuride Corporation (ACW - $ NYSE)

Transcription

1 G.research, Inc. One Corporate Center Rye, NY Tel. (914) May 19, 2015 Accuride Corporation (ACW - $ NYSE) Source: Accuride Big Wheels Keep on Turnin Matthew T. Paige (914) Please Refer To Important Disclosures On The Last Page Of This Report-

2 G.research, Inc. One Corporate Center Rye, NY Tel. (914) Investment Summary Accuride Corporation, based in Evansville, Indiana, is a leading parts supplier to the North American Commercial Vehicle market. Accuride operates in three segments: Wheels, Gunite (wheel end assemblies), and Brillion Iron Works. We are initiating coverage of ACW with a Buy recommendation and calculate a 2016 PMV of $9 per share. We estimate ACW will earn $0.25 per share and generate $90 million of EBITDA on $750 million in revenues in We consider ACW to be attractive and recommend investors buy shares as two significant catalysts may surface $2.50/share in value, almost 75% of the current share price: Refinance ahead. ACW maintains $310 million of 9.5% debt due in We believe a refinancing will be immediately accretive to earnings by $ , potentially adding up to $1 per share in value. Exploring strategic options for Brillion Iron Works. Management has stated that it is exploring strategic options for the business; the proceeds from a sale could be used to fund international expansion. We believe Brillion is worth up to $2 per share. This essentially enables investors to buy an improving Wheel and Wheel-End assemblies business that we think is worth another $6 per share, for less than $1.50 per share. This makes ACW a compelling investment considering: Operational Improvements. Accuride has spent over $150 million over the past five years to increase on-time deliveries, as well as grow share and margins (Gunite margins increased from 5% in 2013 to 12.5% in 2014). Strong commercial vehicle environment. Just as in 2014, overall industry conditions lend themselves to a strong commercial vehicle market in 2015 and ACT predicts NA Class 8 production will reach 340,000 in 2016, +14.5%. Growth opportunity. International opportunities in Asia, Europe and South America, will contribute to reduced cyclicality. The first step is to introduce its aluminum wheels into Europe in 2016/2017. Valuation Attractive. Accuride is a catalyst rich company currently trading at less than 6.5x 2016P EBITDA and under 8.5x 2016P earnings. Our PMV for 2016 is $9 per share putting shares at >50% discount and providing a significant margin of safety. Accuride Corporation Earnings Model P Table 1-1- (in millio ns, excep t p er share) 2014A 2015E 2016P 2017P 2018P 2019P Sales $ 705 $ 750 $ 790 $ 825 $ 885 $ 950 EBITDA EPS $ 0.06 $ 0.25 $ 0.50 $ 0.60 $ 0.80 $ 1.05 CapEx Source: Company filings, Estimates INITIAL REPORT BUY Accuride Corporation (ACW-NYSE) May 19, 2015 Current Price: $ Week Range: $5.90- $3.54 Earnings Per Share (adj.): 2017P $ P E A 0.06 Price/Earnings Ratio: 2017P 6.6x 2016P E A NM Dividend: Yield: None Nil Capitalization (4/17/15): ($ millions) Common Stock (47.7 mil shares o/s) $189.4 Net Debt Pension/Other 72.9 Total Capitalization $606.4 Matthew T. Paige 2015

3 COMPANY HISTORY Accuride Corp. and its subsidiaries were incorporated in November 1986 in Henderson, KY by the management of Firestone Steel Products and Bain Capital with the intention to acquire the assets of Firestone Steel Products, a steel stamping operation, which was renamed Accuride Corporation. This entity was sold to Phelps Dodge Corp. in In 1998, Koldberg, Kravis and Roberts purchased Accuride, and moved its headquarters to Evansville a year later. In 2005, Accuride acquired Transportation Technologies Industries, which included Brillion Iron Works and Gunite Corporation; other businesses in the deal were later divested (2011). Accuride initially became public in 2005; however, in October 2009, after suffering from depressed truck production, ACW filed for Chapter 11 bankruptcy protection. Five months later, in March 2010, ACW exited bankruptcy with a new capital structure, though still a highly levered balance sheet. Accuride is listed on the NYSE in January 2011, where it is currently traded under the symbol, ACW. In February 2011, the company hired Rick Dauch (Executive Vice-President of Global Manufacturing with American Axle & Manufacturing) as CEO, where he began his turnaround plan for the company dubbed, Fix and Grow. Exhibit Segment Revenue Source: Company filings Exhibit Customer Mix SEGMENT OVERVIEW Accuride operates in three segments: Wheels, Gunite, and Brillion Iron Works. All of the $705 million in 2014 revenues was generated in North America, with $137 million coming from Canada and Mexico. As Exhibit 2 illustrates, ACW sales are concentrated among the largest Commercial Vehicle OEMs in North America, making North American commercial vehicle production the most significant driver of future sales. Source: Company filings Wheels ($402 million in 2014 sales, 57% of total) Exhibit 3 Aluminum Wheel Through its Wheels segment, ACW supplies aluminum and steel wheels to commercial vehicle (medium and heavy) manufacturers, commercial trailer manufacturers and the military, as well as steel wheels for light trucks to General Motors. Aluminum wheels accounted for 45% of Wheel revenue in Moving forward, management sees opportunities to grow this segment into new markets, namely South America, Europe and Asia. The main competitors to ACW are Alcoa Inc. (aluminum wheels) and Maxion Wheels (steel wheels). About $280 million, or 70%, of segment revenue is driven by OE customers, with the remaining 30% ($120 million) sold through the aftermarket channels. Accuride commands a mid-30% market share in the overall market (OE and Source: Accuride aftermarket). We expect wheels will continue to be a focal point when OEMs work to achieve weight savings by substituting aluminum for heavier metals, as well as light-weighting technologies (such as the Accu-Lite Steel wheels which can save eight pounds per wheel when compared to previous generations of Extra Service Wheels). Light weighting not only reduces fuel consumption and allows for the increased weight of emissions-reducing equipment (such as through SCR), but increases the weight capacity of the tractor and trailer combinations; all of which increases the profitability of fleets. -2-

4 Gunite ($171 million in 2014 sales, 24% of total) The Gunite segment produces wheel-end products for medium and heavy duty vehicle manufacturers, as well as the aftermarket. These products include: brake drums, disc wheel hubs, spoke wheels, disc brake rotors and automatic slack adjusters. Because Gunite s revenues are significantly weighted towards the aftermarket (75%), we expect this segment to generate stable margins through the OE cycle, with growth underpinned by an ever-increasing average fleet age. Gunite currently has a market share in the mid-20% range, but holds very little share in the OE channel; the company currently sells directly to just one OEM (Volvo/ Mack). Webb Wheel Products and KIC Holdings are major competitors in the OE channel; other major competitors to Gunite include Meritor Inc. and Consolidated Metco Inc. Like the Wheels segment, Gunite has introduced a number of new products focused on light-weighting. Exhibit 4 Source: Accuride Gunite Slack Adjuster Brillion Iron Works ($132 million of 2014 sales, 19% of total) Brillion produces ductile and gray iron castings for transmission and engine-related components (flywheels, transmission and engine housings and brackets), as well as industrial products (construction, agriculture equipment manufacturing, oil and gas markets). This segment has faced a number of demand-side headwinds due to current market conditions (agriculture, construction and mining equipment). Despite this, ACW expect to grow sales in The Brillion Foundry (located in Brillion, WI) is one of the largest of its kind in North America. Brillion competes with ten to twelve foundries in the Midwestern and Southern parts of the US, and Mexico. ACW continues to invest in Brillion, as management has decided to purchase a new Casting Molding Line to replace one that has been worn out and operating under very low lead times. The new line should be operational in Q or Q1 of 2016, providing a needed boost to the struggling business by allowing for a higher uptime which will reduce the cost per unit, as well as lower maintenance costs. This year, CapEx for Brillion is expected to be ~$6 million (4.5% of sales vs overall 4%), before returning to its historical norm of $4-5 million. Further, 2014 results were impacted by $4.7 million of accelerated depreciation for the obsolete equipment which will not repeat. Brillion s customer base is dependent upon the global agriculture and construction machinery markets and includes a wide range of industrial customers including Caterpillar, Meritor, and Eaton. Exhibit 5 Source: Accuride Foundry Operations INDUSTRY MOMENTUM IS WIND IN THE SAILS An elevated Class 8 truck age is likely to benefit ACW, as replacement demand will continue to be a tailwind for production demand. North American Commercial Vehicle production is slated to increase in 2015 driven by growing freight tonnage, an aged fleet and improved fleet profitability vs an already robust environment. The average age of the fleet has increased to a record high in North America; this pressure will continue to drive a replacement demand cycle in the Class 8 Market. While a shortage of drivers has been a reason for the fleet operators to delay purchasing on new trucks, it also means businesses need to provide incentives to recruit and retain the best drivers, including the newest and nicest vehicles. We anticipate both large and small fleets will continue to upgrade trucks in order to retain and attract drivers to grow their businesses. Also, lower diesel prices have meant fleet operators have more cash that can be used for upgrading fleets. We believe these tailwinds will provide for positive growth in the CV production schedule over the next two years, supported by ACT forecasts. Table 2 Class 8 Production Schedule E 2016P 2017P 2018P North American Class 8 255, , , , , , , ,328 North American Class , , , , , , , ,700 U.S. Trailers 209, , , , , , , ,480 Source: ACT Publications and Estimates -3-

5 Additionally, freight tonnage is at all-time highs. As measured by American Trucking Associations (ATA) s Freight Tonnage Index, March tonnage was (100 represents tonnage in 2000), up slightly from in February and 5% higher than year over year. Freight tonnage closely follows the overall growth of the economy as measured by GDP (predicted to grow 3.1% in 2015 by the IMF), and as such, expect steady, albeit slow, growth moving forward in the US. Accuride supplies the leading OEMs in North America, which mean sales should closely resemble industry trends. But, because ACW supplies a vast majority of Navistar s wheel end products, any change in NAV s share would impact Accuride greater than any other OEM. Recently, Navistar has struggled to retain market share, falling from 21.4% in 2011 to 14% in Management is seeking ~1% of share gain (per category) each year, and has set a (lofty) target of reaching 20-25% in Regardless of what share NAV can achieve, recovery is an opportunity for ACW. Exhibit 6 ATA Freight Tonnage Overall, Accuride is less bullish on NA Class 8 production than ACT, predicting 310,000 to 330,000 trucks for 2015, with CEO Dauch commenting following Q results that he is seeing a build of 320,000 (+/- 5,000 units). Capacity constraints (tires and castings) make the lower production a high quality problem. The company believes that during the down-turn in the cycle, although OEs did not lose capacity, suppliers were actively cutting capacity, which may temper the growth the industry is experiencing. We do not foresee these supply side issues impacting demand, however, we anticipate rather than losing production, production will be simply pushed into =100 Source: American Trucking Associations Exhibit NA Class 8 Sales In addition, an increasing industry focus on fuel economy (driven by both regulations and cost conscious fleet operators) supports product innovation which could drive margins and share higher. The Federal Highway Administration has Source: Ward s, Company filings and Estimates previously estimated annual fuel savings of $ per pound of weight savings. In both the Wheels and Gunite segment, Accuride has introduced lightweighting products such as the Accu-Light brand, which are in demand throughout trucks and trailers in order to increase fuel economy, reduce emissions and maximize payload. Weight savings in other areas help to offset the weight gains that come when adding fuel efficiency and emission reduction content to the engine/ transmission/ exhaust. Regulations are driving these trends currently in Europe, and as North American regulations strengthen, domestic markets will see similar developments. -4-

6 DEBT REFINANCE A CATALYST ACW carries significant leverage (3.8x 2015E EBITDA) at a high cost as a result of significant capital expenditures over the past five years, as well as low profitability and poor operating performance. Moving forward, Accuride sees a more appropriate leverage ratio in the 2-3x EBITDA range. ACW s debt (due 2019) is currently callable at $104.75, however we believe (based upon management s recent comments) that it will wait until the 2 nd call date, (August 1, 2015) when the call premium will fall to $ , before taking any refinancing action. Management has noted similar transactions have been done for %, and if ACW receives similar terms, it would result in annual interest cost savings of $6.2 - $9.3 million and add $ to EPS. We are assuming an interest rate slightly less than what has been discussed by management because we do not believe that ACW would undertake the refinance process (and its associated costs) to save just 100 bps. Interest cost savings would provide an immediate boost to earnings. We feel it is highly likely that this refinance will occur in August 2015, presenting a near-term catalyst to bridge the gap between our PMV and the current market price. BRILLION A NON-CORE BUSINESS WORTH UP TO $2 PER SHARE As Accuride positions itself to be a wheel-end supplier, it does not appear that the Brillion segment is core to ACW due to higher capex requirements and a different customer base than the other two segments. This presents a strategic option, as first described by management in a press release issued July 26, 2012 and repeated on the most recent earnings conference call. We feel the divestiture of this business makes sense for the company because: Table 3 (in millions, except per share data) Source: Company filings and Estimates Estimated Refinancing Savings Current Post- Refinance Interest Rate 9.5% 7.5% 6.5% 2016P EBIT $ 53.9 $ 53.9 $ Interst Expense Taxes Net Income $ 18.4 $ 23.0 $ 25.3 EPS $ 0.39 $ 0.48 $ 0.53 Accretion per share $ 0.10 $ 0.15 Brillion s operating margins are materially lower than the other two segments (3.4% in 2014 compared to Wheels 10.4% and 9.8% at Gunite). The low performance of this segment currently masks the progress that has been made by the company since reemerging from bankruptcy; its divestiture could raise the profile of ACW s turnaround story and draw more interested investors. Ex- Brillion, management would be free to focus on profitably growing the sale of wheel-end products (which ACW defines as core), without being dragged down by Brillion s high capital requirements. Management has described M&A in this space as active, with the Waupaca Foundry (a group of six North American foundries which produce gray and ductile iron castings) being sold twice in the past three years, most recently (Aug. 2014) to Hitachi Metals from KPS Capital Partners (Private Equity) for $1.3 billion, representing ~5.6x EBITDA. The Waupaca Foundry is more technologically advanced and has higher margins, so we feel a similar multiple would represent the peak of what an informed industrial buyer would pay. Assuming a 5x multiple, the sale of Brillion would generate $73 million to be used for debt pay-down or international expansion, representing $1.53 per share in A one-half a turn in each direction would add (subtract) ~$7 million based on our current assumptions for the business or $0.15 per share. Further, management noted on its 2015 first quarter earnings call that there are 3-4 strategic buyers currently looking for a foundry business in North America. We anticipate management will look to improve the economics of the business, as well as potentially wait for end market improvements (construction and agriculture equipment) before moving forward with a sale, as it may not be in the best interests of the company to sell in an earnings trough. Alternatively, ACW has the potential to sell Brillion and use the proceeds to pay down debt into its targeted 2-3x leverage range and, because of the reduced leverage, refinance at a lower rate than currently possible. Likewise, although the discussion of strategic options -5-

7 for this business have been around since 2012, management in both the 2013 and 2014 annual reports, stated that they had expected Brillion s end markets to begin to improve in 2015 (though short term macro headwinds were discussed in Q1 2015). We feel the sale of this business is in the cards as part of the overall strategy of Fix and Grow and view Brillion s possible sale as addition by subtraction. Timing of the sale will depend highly on end market strength, but we view the divestiture as potential 2016/ 2017 event. Table 4 Brillion Valuation (in millions, except per share) Brillion Iron Works 2014A 2015E 2016P 2017P 2018P 2019P Revenue $ 132 $ 132 $ 145 $ 158 $ 174 $ 191 EBITDA Valuation Multiple 5.0x 5.0x 5.0x 5.0x 5.0x 5.0x Segment Value $ 45 $ 53 $ 64 $ 73 $ 84 $ 95 Per ACW Share $ 0.95 $ 1.12 $ 1.35 $ 1.53 $ 1.76 $ 2.00 Source: Company filings, Estimates FIX AND GROW SCORECARD The Gunite segment had struggled in recent history due to a lack of investment, as aging equipment including tooling led to unreliable lead times for customers. After his arrival in 2011, from Acument Global Technologies (where he was President & CEO), CEO Rick Dauch set out to solve these problems and launched a $150 million Fix and Grow program. Of this, $55 million was allocated to double aluminum wheel capacity, $35 million to restructure and upgrade Gunite, $21 million for physical repairs, $12 million related to IT upgrades and an ERP (Enterprise Resource Planning) system as well as $2 million for R&D. These changes, following its 2010 bankruptcy have worked to ease fears from customers, positioning the company to better compete for market share. A past critique from customers was unreliability of deliveries, a focus point of recent improvements. Now, on-time delivery is greater than 98% at Wheels and Gunite, and 94% at Brillion. Operationally, many of these improvements were directed at Gunite which enabled the segment to grow EBITDA margins from just under 5% in 2013 to over 12.5% in 2014.The company is actively working to assure customers that sourcing issues are unlikely to persist, and Accuride anticipates gaining share as the industry continues to grow by being able to provide parts quickly when competitors stumble. This strategy appears to be working. When announcing 1Q 2015 results, management discussed a new business wins within the Gunite (and Wheels) segment. Further, management has noted that it has successfully passed a number of customer audits, and are working to convert those Request-for-Quotes into purchase orders (a process that typically takes 6-9 months). GROWTH IS ON THE RADAR: NEXT STEPS Overall, Accuride plans to grow revenues by $50-75 million annually (3-5% organically above market in 2015). In laying out this goal, management intends to achieve this level by securing new (and building on existing) long-term agreements with both truck and trailer OEMs, converting fleets and finally, expanding their aftermarket outreach through numerous channels. Exhibit 8 Source: Alcoa, Inc. Projected Aluminum Weight Savings -6-

8 Though Ford s 2015 F150 has been grabbing the headlines for its use of aluminum in a mass produced vehicle, it is far from a new idea in vehicle weight savings. Aloca (a competitor in the wheel space) believes that aluminum wheels can save 36 pounds over a heavier metal. The Accu-Lite Aluminum wheel from ACW can save 36 pounds (2-12 pounds per wheel) and still maintain the same maximum payload as the comparable steel wheel. This is not to say, however, that steel wheels will disappear or the growth of aluminum will occur overnight. There is a significant space for steel wheels in the global commercial vehicle market. Steel wheels bring the benefit of being stronger and less susceptible to cracks- characteristics which have made them the historical choice for commercial and vocational usage. While the aluminum wheel has begun to gain favor, it still only represents ~10% of the wheel market in Europe and is non-existent in Asia and South America. INTERNATIONAL GROWTH International expansion could not come at a better time for the company. A potential ramp in sales internationally would augment revenue attributable to the flattening cycle in NA in 2016 and 2017, diversifying the company away from being dependent on the cyclicality of the North American trucking industry. We view this expansion as a key part of ACW s growth plan in developing its capability to withstand a North American production downturn (though we do not foresee any significant swings in the near term). Currently, management is planning to initially introduce Wheels to new markets and backfill into the Gunite segment, though would jump at the opportunity to acquire a wheel-end asset should one arise. International expansion seems like it is a natural fit. Many of the same OEMs that dominate Class 5-8 production in North America also hold a large market share across Western Europe, South America and Asia. Further, Europe has adopted more stringent emissions regulations, including commercial vehicles, than are currently in place in the United States. It seems likely that Accuride, once the production capabilities are present, would be able to be rapidly designed in. In the longer term, the company feels it would make sense to build a greenfield facility in Europe to produce aluminum wheels (ACW feels there is already enough steel wheel capacity on the continent). However, Accuride has also said it can quickly move excess wheel capacity currently in London, Ontario to a location internationally. Specifically, ACW has stated it would cost $25-30 million to move this excess capacity (750, ,000 wheels). Management has projected this would be able to drive $45-59 million in revenues. Assuming current margins for the segment, this would generate almost $10.5 million in EBITDA at the mid-point, making the cost as little as 2.4x expected EBITDA. ACW is currently investigating the potential cost of taxes and duties for moving this capacity, and a potential transition is likely to take months to complete. We view Europe as the likely first place for international expansion as the business environment more closely resembles the US. Exhibit W. Europe Class 8 Sales Source: Company filings and Estimates Additionally, Maxion holds near monopoly status in steel wheels within South America (a market without aluminum wheels), and the company believes OEs would welcome a challenger to that position, opening the door for steel wheel production expansion (greenfield) into that market. Longer term, China and India present large market opportunities for ACW, however, the physical infrastructure will need to improve. In discussions with management, it appears an acquisition or partnership would be the best course of action for expansion into India or China. As economic conditions are a key driver of commercial vehicle production, we have yet to see a recovery in Europe similar to what we have experienced in the US. The average age of >15 Tonne vehicles in Europe continues to increase above historical highs to, 7.7 years (the US Class 8 average age also remains elevated at 6.3 years, compared to a pre-recession peak of six years). We believe that there is an impending replacement cycle as Western European economies slowly recover. Further, Class 5-7 (medium duty) truck sales closely mimic trends in -7-

9 the overall economy (housing starts and GDP), and would be expected to increase production as the ECB works to revive the economy through its monetary stimulus program. Besides commercial vehicles, ACW s products can also be found on commercial trailers. In fact, Accuride sells the exact same products, with the same economics, to all classes of commercial vehicles as well as trailers. Trailers typically lead sales of trucks, though follow a similar cycle of the truck market. The average age is at all-time highs (eleven years vs pre-recession high of nine in the US, and ten years vs eight pre-recession in Western Europe) which should drive replacement demand with trailers similar to that of trucks. REVENUE AND EARNINGS PROJECTIONS Accuride has stated they project 2015 sales to be in the range of $ million. Our 2015 estimates fall near the midpoint of the company s estimated range, and we forecast a growth rate of 6.4% to $750 million in 2015, growing to $800 million in 2016 and $835 million in Beyond this year, we see commercial vehicle production continuing to grow, driven by (a decelerating) replacement demand, flattening revenue within North America. Though we see international expansion beginning to add revenue in as soon as 18 months. Further, capacity constraints that ACW refers to would push production into 2016, further extending the cycle. We are projecting sales to grow at a 5 year CAGR of 6.1% from Accuride is also guiding adjusted EBITDA to be in the range of $85-95 million, compared to our estimate of $90 million of adjusted EBITDA in 2015, growing to $100 million in 2016 and $110 million in Further, we anticipate Accuride to be able to drive the bottom line through a series of cost cutting initiatives in all segments, though most notably in the Gunite and Brillion segments. An impending debt re-financing is poised to add another $ of EPS beginning as early as Q4 of this year (though we model that more conservatively impacting 2016 results). We estimate that ACW will earn $0.25 per share in 2015, growing to $0.50 and $0.65 per share in 2016 and 2017, respectively. Table 5 Sales and Earnings Summary (in millions, except per share) 2014A 2015E 2016P 2017P 2018P 2019P Sales $ 705 $ 750 $ 790 $ 825 $ 885 $ 950 EBITDA EPS $ 0.06 $ 0.25 $ 0.50 $ 0.60 $ 0.80 $ 1.05 Source: Company filings, Estimates INVESTMENT RECOMMENDATION Overall, we believe that Rick Dauch and his team are in the late innings of a post-bankruptcy organization overhaul, and are poised for growth. Investors can currently pay less than 6.5x 2016P EBITDA for a commercial vehicle supplier. Accuride currently trades at a 50% discount to our 2016 PMV of $9 per share; with an impending debt refinance, and the future sale of the Brillion segment as potential catalysts, we recommend investors Buy shares. -8-

10 Table 6 Accuride Corporation Private Market Value Calculation (in millions, except per share data) 2014A 2015E 2016P 2017P 2018P 2019P Wheels Revenue $ 402 $ 443 $ 454 $ 456 $ 479 $ 503 EBITDA Valuation Multiple 7.0x 7.0x 7.0x 6.5x 6.5x 6.5x Segment Value Gunite Revenue $ 171 $ 174 $ 191 $ 210 $ 232 $ 255 EBITDA Valuation Multiple 7.0x 7.0x 7.0x 6.5x 6.0x 5.5x Segment Value Brillion Iron Works Revenue $ 132 $ 132 $ 145 $ 158 $ 174 $ 191 EBITDA Valuation Multiple 5.0x 5.0x 5.0x 5.0x 5.0x 5.0x Segment Value Corporate/ Other Revenue $ - $ - $ - $ - $ - $ - EBITDA (31) (36) (36) (36) (36) (36) Valuation Multiple 4.0x 4.0x 4.0x 4.0x 4.0x 4.0x Segment Value (125) (144) (144) (144) (144) (144) Total Enterprise Value $ 612 $ 703 $ 764 $ 754 $ 837 $ 920 Plus: Cash/(Net Debt) (293) (289) (265) (235) (195) (130) Less: Minority Interest " Underfunded Pension (73) (73) (73) (73) (73) (73) Net Option Payments (b) - (2) (4) (4) (7) (11) Equity Private Market Value (PMV) $ 246 $ 338 $ 422 $ 442 $ 562 $ 706 Shares Outstanding (a) PMV / SHARE $ 5 $ 7 $ 9 $ 9 $ 12 $ 15 % Discount To PMV 22.8% 44.0% 55.2% 57.1% 66.3% 73.2% Source: Company filings, Estimates -9-

11 Other Companies Mentioned Alcoa (AA - NYSE) Caterpillar (CAT - " ) CNH Industrial (CNHI - " ) Daimler AG (DAI - DE ) Eaton (ETN - NYSE) Ford (F - " ) General Motors (GM - " ) KKR & Co (KKR - " ) Meritor (MTOR - " ) Navistar (NAV - " ) PACCAR (PCAR - NASDAQ) Volkswagen (VOW3 - DE ) Volvo (VOLVB - Stockholm) I, Matthew Paige, the Research Analyst who prepared this report, hereby certify that the views expressed in this report accurately reflect the analyst s personal views about the subject companies and their securities. The Research Analyst has not been, is not and will not be receiving direct or indirect compensation for expressing the specific recommendation or view in this report. Matthew Paige (914) Important Disclosures ONE CORPORATE CENTER RYE, NY GABELLI & COMPANY TEL (914) FAX (914) is the marketing name for the registered broker dealer G.research Inc., which was formerly known as, Inc. Gabelli & Company ("we" or "us") attempts to provide timely, value-added insights into companies or industry dynamics for institutional investors. Our research reports generally contain a recommendation of "buy," "hold," "sell" or "non-rated. We do not undertake to "upgrade" or "downgrade" ratings after publishing a report. We currently have reports on 582 companies, of which 45%, 37%, 4% and 15% have a recommendation of buy, hold, sell or non-rated, respectively. The percentage of companies so rated for which we provided investment banking services within the past 12 months is 0%, 0%, 0% and less than 1%. Ratings Analysts ratings are largely (but not always) determined by our private market value, or PMV methodology. Our basic goal is to understand in absolute terms what a rational, strategic buyer would pay for an asset in an open, arms-length transaction. At the same time, analysts also look for underlying catalysts that could encourage those private market values to surface. A Buy rated stock is one that in our view is trading at a meaningful discount to our estimated PMV. We could expect a more modest private market value to increase at an accelerated pace, the discount of the public stock price to PMV to narrow through the emergence of a catalyst, or some combination of the two to occur. A Hold is a stock that may be trading at or near our estimated private market value. We may not anticipate a large increase in the PMV, or see some other factors at work. A Sell is a stock that may be trading at or above our estimated PMV. There may be little upside to the value, or limited opportunity to realize the value. Economic or sector risk could also be increasing. We prepared this report as a matter of general information. We do not intend for this report to be a complete description of any security or company and it is not an offer or solicitation to buy or sell any security. All facts and statistics are from sources we believe to be reliable, but we do not guarantee their accuracy. We do not undertake to advise you of changes in our opinion or information. Unless otherwise noted, all stock prices reflect the closing price on the business day immediately prior to the date of this report. We do not use "price targets" predicting future stock performance. We do refer to "private market value" or PMV, which is the price that we believe an informed buyer would pay to acquire 100% of a company. There is no assurance that there are any willing buyers of a company at this price and we do not intend to suggest that any acquisition is likely. Additional information is available on request. As of April 30, 2015, our affiliates beneficially own on behalf of their investment advisory clients or otherwise approximately 12.55% of Navistar and less than 1% of Accuride, Alcoa, Caterpillar, CNH Industrial, Daimler AG, Eaton, Ford, General Motors, KKR & CO., Meritor, PACCAR, Volkswagen and Volvo. One of our affiliates serves as an investment adviser to Navistar or an affiliated entity and has received compensation within the past 12 months for these noninvestment banking securities-related services. Because the portfolio managers at our affiliates make individual investment decisions with respect to the client accounts they manage, these accounts may have transactions inconsistent with the recommendations in this report. These portfolio managers may know the substance of our research reports prior to their publication as a result of joint participation in research meetings or otherwise. No part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. In addition, the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in this report. The analyst, who wrote this report, or members of his household, owns no shares of the above mentioned companies. -10-