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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(Mark one)
[x] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934.
For the quarterly period ended June 30, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the transition period from_____________to_____________.
Commission file number 333-50239
ACCURIDE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 61-1109077
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2315 Adams Lane
Henderson, KY 42420
(Address of Principal Executive Offices) (Zip Code)
(502) 826-5000
(Registrant's Telephone Number Including Area Code)
Indicate by check mark whether the registrant (1) has filed all
documents and reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter periods that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days: Yes __ No_X
As of July 24, 1998, there were 24,704 shares of the Registrant's
common stock outstanding.
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ACCURIDE CORPORATION
Table of Contents
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 1998 (unaudited) and
December 31, 1997 3
Consolidated Statements of Income for the Three Months
and Six Months Ended June 30, 1998 and 1997 (Unaudited) 4
Consolidated Statement of Stockholders' Equity (Deficiency)
for the Six Months Ended June 30, 1998 (Unaudited) 5
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1998 and 1997 (Unaudited) 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to be a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures
Index to Exhibits
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PART I. FINANCIAL INFORMATION
Item I. Financial Statements
ACCURIDE CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
June 30,
ASSETS 1998 December 31,
(Unaudited) 1997
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,098 $ 7,418
Customer receivables, net of allowance for doubtful accounts of $1,119 and $967 47,127 37,077
Other receivables 11,902 11,768
Inventories, net 30,418 29,107
Supplies 6,828 6,458
Prepaid expenses 3,459 143
Deferred income taxes 1,549
--------- ---------
Total current assets 107,381 91,971
PROPERTY, PLANT AND EQUIPMENT, NET 145,871 133,997
OTHER ASSETS:
Goodwill, net of accumulated amortization of $29,516 and $28,089 84,744 86,171
Investment in affiliates 23,813 24,765
Deferred financing costs 13,135
Deferred income taxes 1,748
Other 10,255 10,543
--------- ---------
TOTAL $ 386,947 $ 347,447
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable $ 23,203 $ 19,237
Current portion of long-term debt 1,350
Short term notes payable 3,800 16,040
Accrued payroll and compensation 7,351 8,015
Accrued interest payable 10,447
Deferred income taxes 1,481
Tooling deposit 5,132 5,261
Accrued and other liabilities 7,175 7,103
--------- ---------
Total current liabilities 58,458 57,137
LONG-TERM DEBT, less current portion 374,245
DEFERRED INCOME TAXES 16,123
OTHER LIABILITIES 11,263 13,253
MINORITY INTEREST 5,274 4,879
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY):
Preferred stock, $.01 par value; 5,000 shares authorized and unissued
Common stock and additional paid in capital, $.01 par value; 45,000 shares
authorized, 24,704 and 24,000 shares issued and outstanding in 1998 and 1997 25,200 178,931
Stock subscriptions receivable (2,511)
Retained earnings (deficit) (84,982) 77,124
--------- ---------
Total stockholders' equity (deficiency) (62,293) 256,055
--------- ---------
TOTAL $ 386,947 $ 347,447
--------- ---------
--------- ---------
</TABLE>
See notes to unaudited consolidated financial statements
3
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ACCURIDE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
NET SALES $ 97,675 $ 87,072 $ 191,583 $ 168,600
COST OF GOODS SOLD 74,447 68,707 148,199 141,121
--------- --------- --------- ---------
GROSS PROFIT 23,228 18,365 43,384 27,479
OPERATING:
Selling, general and administrative 5,713 4,717 11,153 9,483
Start-up costs 1,665 2,811
Management retention bonuses 870 1,680
Recapitalization professional fees 2,240
--------- --------- --------- ---------
INCOME FROM OPERATIONS 14,980 13,648 25,500 17,996
OTHER INCOME (EXPENSE):
Interest income 203 118 343 317
Interest (expense) (8,672) (8) (15,375) (15)
Equity in earnings (losses) of affiliates 2,155 1,073 (545) 1,121
Other (expense), net 95 (81) (421) (81)
Minority interest (482) (395)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 8,279 14,750 9,107 19,338
INCOME TAX PROVISION 3,477 5,900 3,829 7,735
--------- --------- --------- ---------
NET INCOME $ 4,802 $ 8,850 $ 5,278 $ 11,603
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See notes to unaudited consolidated financial statements.
4
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ACCURIDE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Common
Stock and
Additional Stock Retained
Paid in Subscriptions Earnings
Capital Receivable (Deficit) Total
---------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997 $ 178,931 $ 77,124 $ 256,055
Net income (Unaudited) 5,278 5,278
Issuance of shares (Unaudited) 108,000 108,000
Redemption of shares (Unaudited) (286,931) (167,384) (454,315)
Issuance of shares (Unaudited) 3,520 $ (2,511) 1,009
Increase in net deferred tax asset attributable
to tax basis of assets (Unaudited) 20,000 20,000
Bonuses payable by a principal
stockholder (Unaudited) 1,680 1,680
--------- ---------- ---------- ---------
BALANCE AT JUNE 30, 1998 (Unaudited) $ 25,200 $ (2,511) $ (84,982) $(62,293)
--------- ---------- ---------- ---------
--------- ---------- ---------- ---------
</TABLE>
See notes to unaudited consolidated financial statements.
5
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ACCURIDE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,278 $ 11,603
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation 9,947 8,921
Amortization 2,217 1,428
Bonuses payable by a principal stockholder 1,680 213
Deferred income taxes (901) (711)
Equity in (earnings) losses of affiliated companies 545 (1,121)
Minority interest 395
Changes in certain assets and liabilities:
Receivables (10,184) (14,762)
Inventories and supplies (1,681) 3,232
Prepaid expenses and other assets (3,028) (1,514)
Accounts payable 3,966 1,466
Accrued and other liabilities 7,736 6,773
--------- ----------
Net cash provided by operating activities 15,970 15,528
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (21,675) (4,338)
Capitalized interest (146)
Investment in AKW L.P. (20,849)
Net cash distribution (from) to AKW L.P. 407 (437)
--------- ----------
Net cash used in investing activities (21,414) (25,624)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of short term notes payable 3,000
Principal payments on short-term notes payable (1,340)
Net increase in revolving line of credit 27,750
Proceeds from issuance of long-term debt 333,918
Deferred financing fees (13,898)
Issuance of shares 109,009
Redemption of shares (454,315)
Net cash from Phelps Dodge Corporation 24,056
--------- ----------
Net cash provided by financing activities 4,124 24,056
--------- ----------
Increase (decrease) in cash and cash equivalents (1,320) 13,960
Cash and cash equivalents, beginning of period 7,418 6,311
--------- ----------
Cash and cash equivalents, end of period $ 6,098 $ 20,271
--------- ----------
--------- ----------
</TABLE>
See notes to unaudited consolidated financial statements.
6
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ACCURIDE CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA) FOR THE SIX MONTHS ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
Note 1 - Basis of Presentation - The accompanying unaudited consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles, except that the unaudited consolidated financial
statements do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
However, in the opinion of Accuride Corporation (the "Company"), all adjustments
(consisting of normal recurring accruals) considered necessary to present fairly
the consolidated financial statements have been included.
The results of operations for the six months ended June 30, 1998 are not
necessarily indicative of the results to be expected for the year ending
December 31, 1998. The unaudited consolidated financial statements and notes
thereto should be read in conjunction with the audited financial statements and
notes thereto for the year ended December 31, 1997.
Note 2 - Inventories - Inventories were as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
<S> <C> <C>
Raw materials $ 4,373 $ 3,882
Work in Process 5,933 5,438
Finished manufactured goods 20,119 18,992
LIFO adjustment 931 1,742
Other (938) (947)
-------- --------
Inventories, net $ 30,418 $ 29,107
-------- --------
-------- --------
</TABLE>
Note 3 - Start-Up Costs - Costs associated with start-up activities are charged
to expense as incurred. During the six months ended June 30, 1998, the Company
incurred approximately $2,811 related to preparation of the new Tennessee light
truck wheels facility expected to be operational in August 1998.
Note 4 - Recapitalization of Accuride Corporation - The Company entered into a
stock subscription and redemption agreement dated November 17, 1997 (the
"Agreement") with Phelps Dodge Corporation ("PDC") and Hubcap Acquisition L.L.C.
("Hubcap Acquisition"), which is a Delaware limited liability company formed at
the direction of KKR 1996 Fund L.P., a Delaware limited partnership affiliated
with Kohlberg Kravis Roberts & Co., L. P.
Pursuant to the Agreement, effective January 21, 1998, Hubcap Acquisition
acquired approximately 90% of the common stock of the Company for an aggregate
redemption price of $468,000 which was adjusted for changes in working capital
and the difference between actual and projected capital expenditures, in each
case through December 31, 1997. The adjustment resulted in a reduction to the
redemption price of $468 million and that the reduction was used to reduce
borrowings under the $140 million senior secured revolving line of credit
expiring 2004 with a variable interest rate (the "Revolver"). In connection with
the recapitalization, Hubcap Acquisition made an equity investment in the
Company of $108,000, and the Company issued $200,000 of 9.25% senior
subordinated notes at 99.48% due 2008 and obtained $164,750 in bank borrowings,
including $135,000 of borrowings under senior secured term loans due 2005 and
2006 with variable interest
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rates and $29,750 of borrowings under the Revolver.
Costs of $21,257 incurred in connection with the recapitalization have been
reflected as deferred financing costs ($13,898), as a component of the cost of
the Redemption ($5,119) or as expense ($2,240). The Company is amortizing the
deferred financing costs over the life of the related debt using the interest
method.
Pursuant to the Agreement, certain pension and postretirement benefit
liabilities ($1,966), net of applicable deferred taxes, have been assumed by PDC
and accordingly have been offset against the cost of the redemption.
Concurrent with the redemption, the Company recorded a $20,000 deferred tax
asset net of a $40,000 valuation allowance related to the increase in the tax
basis of assets with a corresponding credit to "Additional paid in capital."
Note 5 - Stock Split - Effective January 21, 1998, the Company declared a
240-for-1 stock split. All per share information has been restated to give
effect to the stock split.
Note 6 - Authorized Shares - Effective January 21, 1998, the Company increased
its authorized shares of common stock to 45,000 shares and authorized 5,000
shares of preferred stock each with a par value of one cent ($.01) per share.
All per share information has been restated to give effect to the increase in
authorized shares.
Note 7 - 1998 Stock Purchase and Option Plan - Effective January 21, 1998, the
Company adopted the 1998 Stock Purchase and Option Plan for key employees of
Accuride Corporation and subsidiaries (the "1998 Plan").
The 1998 Plan provides for the issuance of shares of authorized but unissued or
reacquired shares of common stock subject to adjustment to reflect certain
events such as stock dividends, stock splits, recapitalizations, mergers or
reorganizations of or by the Company. The 1998 Plan is intended to assist the
Company in attracting and retaining employees of outstanding ability and to
promote the identification of their interests with those of the stockholders of
the Company. The 1998 Plan permits the issuance of common stock (the "1998 Plan
Purchase Stock") and the grant of non-qualified stock options (the "1998 Plan
Options") to purchase shares of common stock (the issuance of 1998 Plan Purchase
Stock and the grant of the 1998 Plan Options pursuant to the 1998 Plan being a
"1998 Plan Grant"). Unless sooner terminated by the Company's Board of
Directors, the 1998 Plan will expire ten years after adoption. Such termination
will not affect the validity of any 1998 Plan Grant outstanding on the date of
the termination.
Pursuant to the 1998 Plan, 2,598 shares of common stock of the Company are
reserved for issuance under such plan as of June 30, 1998.
At June 30, 1998, the Company has issued 700 shares of 1998 Plan Purchase Stock
totaling $3,520 under the terms of stock subscription agreements with various
management personnel of the Company. The unpaid principal balance under the
stock subscription agreements has been recorded as a reduction of stockholders'
equity. In addition 1,350 shares have been granted as 1998 Plan Options at an
exercise price of five thousand dollars per share. At June 30, 1998, all 1998
Plan Options were unexercised. Certain options vest in equal installments over a
five year period from the date of the grant. Other options vest after
approximately eight years and vest at an accelerated rate if the Company meets
certain performance objectives.
Note 8 - Labor Relations - The Company's current contract with the United Auto
Workers Union ("UAW") covering employees at the Henderson Facility expired in
February 1998 and the Company was not able to negotiate a mutually acceptable
agreement with the UAW. Therefore, a strike occurred at the Henderson Facility
on February 20, 1998. The Company is continuing to operate with its salaried
employees and contractors. On March 31, 1998, the members of the UAW rejected
the Company's final offer for a new
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contract. Effective as of March 31, 1998, the Company began an indefinite
lockout, which was prompted by continuing reports to management that some
individuals planned to re-enter the plant and harass employees and damage
equipment and machinery. On May 1, 1998, the Company delivered to the UAW a
revised offer and informed the UAW that the Company's final offer would be
replaced by such revised offer if the final offer was not ratified by the UAW by
May 15, 1998. The revised offer provides less benefits than the final offer and
eliminates a portion of the proposed first year wage increase. The UAW did not
conduct a second vote on the final offer. Therefore, on May 15, 1998, the
Company's revised offer replaced the Company's final offer. Currently, there is,
and the Company believes that there will be, no supply disruption to the
Company's customer base; however, there can be no assurance to that effect. A
supply disruption to the Company's customer base could have a material adverse
effect on the Company.
Note 9 - AKW L.P. Wheel Replacement Campaign - On April 17, 1998, the Company's
50% owned limited partnership joint venture, AKW L.P. ("AKW") determined that it
would replace approximately 47,800 wheels due to a potential safety hazard and
submitted notice to the National Highway Safety Administration ("NHSA"). These
wheels were produced during the period April 23, 1997 through February 28, 1998.
Subsequent to submitting notice to the NHSA, AKW management determined its
estimated total liability to replace all such wheels was approximately $6,800
and accordingly, the Company has reflected its portion of the recall expense
($3,400) as a reduction in "Equity in earnings of affiliates" in the statement
of income for the six months ended June 30, 1998.
Note 10 - Related Party Transactions - PDC, a principal stockholder of the
Company, entered into retention agreements with certain executive management
personnel to compensate individuals for service over a six month period from the
date of the redemption. Such costs which will be paid by PDC are being charged
to expense by the Company over the terms of the retention agreements with a
corresponding credit to "Additional paid in capital."
Note 11 - Supplemental Cash Flow Disclosure - During the six months ended June
30, 1998, the Company paid $4,566 and $6,312 for interest and income taxes,
respectively. Non-cash transactions that resulted from the redemption in 1998
included the issuance of common stock and the related stock subscriptions
receivable of $2,511 and the increase in stockholders' equity and the net
deferred tax asset in the amount of $20,000 from the increase in the tax basis
of assets.
Note 12 - New Accounting Pronouncement - Statement of Financial Standards No.
133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities," was issued in June 1998 and is effective for all fiscal quarters of
all fiscal years beginning after June 15, 1999. This statement establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial condition and measure those
instruments at fair value. If certain conditions are met, a derivative may be
specifically designated as a fair value hedge, a cash flow hedge, or a hedge of
foreign currency exposure. The accounting for changes in the fair value of a
derivative (that is, gains and losses) depends on the intended use of the
derivative and the resulting designation. Management has not yet quantified the
effect of the new standard on the financial statements.
Note 13 - Subsequent Event - On July 9, 1998 ADM finalized a $32.5 million
credit facility with Citibank Mexico, S.A., Grupo Financiero Citibank. The
credit facility is comprised of a $25 million term loan facility and a $7.5
million working capital facility. The Company made initial borrowings of
$13,900 and $3,800 from the term loan facility and revolving credit facility,
respectively, which amounts were used to refinance ADM's existing
indebtedness. The term loan facility is due on July 8, 2003, requires
quarterly payments beginning September 30, 2001 and pays interest equal to
LIBOR plus a margin of 2.5% to 4.25%. The working capital facility is a
one-year renewable facility, requires payment in full upon final maturity and
bears interest equal to LIBOR plus a margin of 1.5% to 3.0%.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Three Months Ended June 30, 1998 Compared to the Three Months Ended June 30,
1997.
Net Sales. Net sales increased by $10.6 million, or 12.2%, for the three months
ended June 30, 1998 to $97.7 million, compared to $87.1 million for the three
months ended June 30, 1997. The increase in net sales is primarily due to
increased steel sales volume, which corresponds to an overall increase in
industry volume. Net sales for the three months ended June 30, 1998 reflect
sales of Accuride de Mexico ("ADM") which was formed in November 1997, but do
not reflect sales of aluminum wheels which, prior to the formation of the AKW,
L.P. joint venture ("AKW") in May 1997, were reflected in the Company's net
sales and gross profit amounts through the former buy and resell agreement
between the Company and Kaiser Aluminum & Chemical Corporation ("Kaiser"), which
expired in April, 1997. Excluding $5.2 million in net sales of aluminum products
through such buy and resell agreement for the month of April 1997, net sales
increased by $15.9 million, or 19.3% to $97.7 million for the three months ended
June 30, 1998 compared to $81.9 million for the three months ended June 30,
1997.
Gross Profit. Gross profit increased by $4.8 million, or 26.1%, to $23.2
million for the three months ended June 30, 1998 from $18.4 million for the
three months ended June 30, 1997. Gross profit as a percentage of net sales
increased to 23.8% for the three months ended June 30, 1998 from 21.1% for
the three months ended June 30, 1997. The three months ended June 30, 1998
included sales from ADM, which experienced higher margins for the quarter
than the Henderson and London facilities. The three months ended June 30,
1998 also included a charge of $0.5 million related to the strike at the
Henderson, Kentucky facility. The three months ended June 30, 1997 included
one month of aluminum sales under the buy and resell arrangement, which had
significantly lower margins than steel wheel sales. Excluding $0.5 million
relating to the strike and the $0.4 million in gross profit relating to sales
of aluminum products through the buy and resell agreement for the month of
April 1997, gross profit increased by $5.7 million, or 31.7%, to $23.7
million for the three months ended June 30, 1998 from $18.0 million for the
three months ended June 30, 1997. Excluding sales and gross profit relating
to the aluminum products and the cost related to the strike, gross profit as
a percentage of net sales increased to 24.3% for the three months ended June
30, 1998 from 22.0% for the three months ended June 30, 1997. The increase
was due to continuing productivity improvements at the Henderson and London
facilities.
Operating Expenses. Operating expenses increased by $3.5 million, or 74.5%, to
$8.2 million for the three months ended June 30, 1998 from $4.7 million for the
three months ended June 30, 1997. This increase was primarily due to start-up
costs of $1.7 million relating to the new Tennessee light wheel facility,
management retention bonuses of $0.9 million recorded in conjunction with the
redemption which will be paid by PDC (see Note 10), and selling, general and
administrative expenses of ADM of $0.9 million. Excluding the expenses recorded
for start-up costs and management retention bonuses for the three months ended
June 30, 1998, operating expenses as a percentage of net sales increased to 5.8%
for the three months ended June 30, 1998 from 5.4% for the three months ended
June 30, 1997 primarily due to stand alone costs associated with operating as a
separate company since the acquistiion by Hubcap Aquisition.
Other Income (Expense). Interest expense increased to $8.6 million for the three
months ended June 30, 1998 due to the recapitalization (see Note 4) of the
Company on January 21, 1998. Equity in earnings (losses) of affiliates increased
by approximately $1.1 million to $2.2 million for the three months ended June
30, 1998 from $1.1million for the three months ended June 30, 1997. The increase
was due to the formation of the AKW joint venture beginning in May 1997 which
contributed $2.1 million of earnings in the second quarter of 1998 as compared
to $1.0 million in May and June of 1997. Minority interest of $0.5 million for
the three months ended June 30, 1998 relates to ADM.
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Adjusted EBITDA. Adjusted EBITDA increased by $5.1 million, or 25.5%, to $25.1
million for the three months ended June 30, 1998 from $20.0 million for the
three months ended June 30, 1997 due to higher steel product sales volume. In
determining Adjusted EBITDA for the three months ended June 30, 1998, income
from operations has been increased by depreciation and amortization, equity in
earnings (losses) of affiliates and (i) an estimated $0.5 million of costs
incurred in connection with the strike in 1998 at the Company's facility in
Henderson, Kentucky and (ii) $0.9 million of management retention bonuses to be
paid by PDC in 1998. In determining Adjusted EBITDA for the three months ended
June 30, 1997, income from operations has been increased by depreciation and
amortization and equity in earnings (losses) of affiliates.
Net Income. Net income decreased $4.0 million, or 45.2%, to $4.8 million for the
three months ended June 30, 1998 from $8.9 million for the three months ended
June 30, 1997 due to lower pretax earnings and a higher effective tax rate.
Six Months Ended June 30, 1998 Compared to the Six Months Ended June 30, 1997.
Net Sales. Net sales increased by $23.0 million, or 13.6%, for the six months
ended June 30, 1998 to $191.6 million, compared to $168.6 million for the six
months ended June 30, 1997. The increase in net sales is primarily due to
increased steel sales volume, which corresponded to an overall increase in
industry volume. Net sales for the six months ended June 30, 1998 reflect sales
of ADM, but do not reflect sales of aluminum wheels which, prior to the
formation of the AKW joint venture, were reflected in the Company's net sales
and gross profit amounts through the former buy and resell agreement between the
Company. Excluding $19.1 million in net sales of aluminum products through the
buy and resell agreement for the four month period ended April 30, 1997, net
sales increased by $42.1 million, or 28.2% to $191.6 million for the six months
ended June 30, 1998 compared to $149.5 million for the six months ended June 30,
1997.
Gross Profit. Gross profit increased by $15.9 million, or 57.8%, to $43.4
million for the six months ended June 30, 1998 from $27.5 million for the six
months ended June 30, 1997. Gross profit as a percentage of net sales increased
to 22.6% for the six months ended June 30, 1998 from 16.3% for the six months
ended June 30, 1997. Production costs were higher for the first six months of
1997 due to estimated incremental strike costs of $7.1 million at the London,
Ontario facility, partially offset by estimated incremental strike costs of $3.0
million at the Henderson, Kentucky facility for the first six months of 1998.
Additionally, the first six months of 1997 included aluminum sales under the buy
and resell arrangement, which had significantly lower margins than steel wheel
sales. Excluding strike costs in 1997 and 1998 and $1.1 million in gross profit
relating to sales of aluminum products through the buy and resell agreement with
Kaiser for the first four months of 1997, gross profit increased by $12.9
million, or 38.6%, to $46.4 million for the six months ended June 30, 1998 from
$33.5 million for the six months ended June 30, 1997. Excluding sales and gross
profit relating to aluminum products, gross profit as a percentage of net sales
increased to 24.2% for the six months ended June 30, 1998 from 22.4% for the six
months ended June 30, 1997. The increase was due to continuing productivity
improvements at the Henderson and London facilities.
Operating Expenses. Operating expenses increased by $8.4 million, or 88.4%, to
$17.9 million for the six months ended June 30, 1998 from $9.5 million for the
six months ended June 30, 1997. This increase was primarily due to start-up
costs of $2.8 million relating to the new Tennessee light wheel facility,
management retention bonuses of $1.7 recorded in conjunction with the redemption
which will be paid by PDC (see Note 10), professional fees related to the
recapitalization of $2.2 million and selling, general and administrative
expenses of ADM of $1.8 million. Excluding the expenses recorded for start-up
costs, management retention bonuses and recapitalization professional fees for
the six months ended June 30, 1998, operating expenses as a percentage of net
sales increased to 5.8% for the six months ended June 30, 1998 from 5.6% for the
six months ended June 30, 1997 primarily due to stand alone costs associated
with operating as a separate company since the acquisition by Hubcap
Acquisition.
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Other Income (Expense). Interest expense increased to $15.3 million for the six
months ended June 30, 1998 due to the recapitalization (see Note 4) of the
Company on January 21, 1998. Equity in earnings (losses) of affiliates decreased
by approximately $1.7 million to $(0.5) million for the six months ended June
30, 1998 from $1.1 million for the six months ended June 30, 1997. The decrease
was primarily due to the effect of a product recall implemented at AKW (see Note
9). Excluding the $3.4 million related to such AKW recall, equity in earnings of
affiliates increased $1.7 million for the six months ended June 30, 1998 to $2.9
million from $1.1 million for the six months ended June 30, 1997 due to the
formation of the AKW joint venture, which contributed $2.6 million (excluding
the $3.4 million related to the AKW recall) of earnings in the six months ending
June 30,1998 as compared to earnings of $0.9 million in May and June of 1997.
Minority interest of $0.4 million for the six months ended June 30, 1998 relates
to ADM.
Adjusted EBITDA. Adjusted EBITDA increased by $10.8 million, or 29.5%, to $47.4
million for the six months ended June 30, 1998 from $36.6 million for the six
months ended June 30, 1997 due to higher steel product sales volume. In
determining Adjusted EBITDA for the six months ended June 30, 1998, income from
operations has been increased by depreciation and amortization, equity in
earnings (losses) of affiliates and (i) an estimated $3.0 million of costs
incurred in connection with the strike in 1998 at the Company's facility in
Henderson, Kentucky, (ii) $1.7 million of management retention bonuses to be
paid by PDC in 1998, (iii) $2.24 million of recapitalization professional fees
and (iv) $3.4 million representing the impact of the AKW wheel recall campaign
implemented in 1998. In determining Adjusted EBITDA for the six months ended
June 30, 1997, income from operations has been increased by depreciation and
amortization, equity in earnings (losses) of affiliates and $7.1 million
representing the impact of the strike at the London, Ontario facility in the
first quarter of 1997.
Net Income. Net income decreased $6.3 million, or 54.3%, to $5.3 million for the
six months ended June 30, 1998 from $11.6 million for the six months ended June
30, 1997, due to lower pretax earnings and a higher effective tax rate.
Liquidity and Capital Resources
The Company's primary sources of liquidity are cash flow from operations and
borrowings under the revolving line of credit. The Company's primary uses of
cash are funding working capital, capital expenditures and the Company's
expansion plans and to service debt.
At June 30, 1998, the Company's total assets amounted to $386.9 million, as
compared to $347.4 million at December 31, 1997. The $39.5 million or 11.4%
increase in total assets during the six months ended June 30, 1998 was primarily
the result of a $13.1 million increase relating to debt issuance costs, an
increase in deferred tax assets of $3.3 million, an increase in net property
plant and equipment of $11.9 million, an increase of $3.3 million in prepaid
expenses, and a $10.1 million increase in customer receivables. The increase in
debt issuance costs was a result of the recapitalization. The increase in
deferred tax assets was due to the step-up in tax basis of certain assets. The
increase in net property, plant and equipment was primarily due to investments
in the Columbia, Tennessee facility and ADM. The increase in prepaid expenses
was primarily due to an increase in prepaid income taxes. The increase in
customer receivables reflected increased sales volume from U.S. customers, as
well as the acceleration of production and sales from ADM during the six months
ended June 30, 1998.
At June 30, 1998, the Company's total liabilities amounted to $444.0 million, as
compared to $86.5 million at December 31, 1997. The $357.5 million or 413.2%
increase in total liabilities was primarily due to the $361.7 million increase
in long-term debt and related $10.4 million increase in accrued interest, a $1.7
million increase in short-term notes payable and a $4.0 million increase in
accounts payable. The increase in liabilities was partially offset by a $16.1
million decrease in the deferred income tax liability. The increase in long-term
debt occurred pursuant to the recapitalization. The increase in accrued interest
is attributable to the debt incurred due to the recapitalization. The increase
in short-term notes payable reflects additional
12
<PAGE>
borrowings by ADM offset by repayments of indebtedness by Accuride Canada, Inc.,
the Company's wholly owned subsidiary. The $4.0 million increase in payables was
due to the timing of vendor payments. The $16.1 million decrease in the deferred
income tax liability was primarily due to the step-up in tax basis of certain
assets.
The Company expects its capital expenditures (excluding capital expenditures by
ADM) to increase to approximately $31.9 million in 1998. It is anticipated that
these expenditures will fund (i) approximately $14.2 million to develop the
Columbia, Tennessee facility; (ii) investments in productivity improvements in
1998 to its steel wheel business, which the Company estimates will require an
investment of approximately $7.7 million during 1998 and (iii) maintenance
expenditures of approximately $10.0 million in 1998. Investments in productivity
improvements are expected to be focused on additional automation, shop floor and
engineering systems, and improved coating capabilities. If there is sufficient
demand, the Company is contemplating expanding the capacity of the Columbia,
Tennessee facility in 1999.
In addition, the Company anticipates that ADM will require capital expenditures
of approximately $19.0 million in 1998 to construct and equip the Monterrey
facility for ADM, which is expected to be operational in mid-1999 at an
approximate cost for land and building of $9.2 million. Total project cost
through 1999 is expected to be approximately $29.0 million, of which
approximately $6.1 million was spent as of June 30, 1998. The Company finalized
a $32.5 million credit facility for ADM on July 9, 1998. This is comprised of a
term loan of $25.0 million and a working capital facility of $7.5 million.
Management believes that cash flow from operations and availability under the
revolving line of credit and ADM's credit facility will provide adequate funds
for the Company's and ADM's foreseeable working capital needs, planned capital
expenditures and debt service obligations. Any future acquisitions, joint
ventures or other similar transactions will likely require additional capital,
and there can be no assurance that any such capital will be available to the
Company on acceptable terms or at all. The Company's ability to fund its working
capital needs, planned capital expenditures and scheduled debt payments, to
implement its expansion plans, to refinance indebtedness and to comply with all
of the financial covenants under its debt agreements, depends on its future
operating performance and cash flow, which in turn, are subject to prevailing
economic conditions and to financial, business and other factors, some of which
are beyond the Company's control. The amount available to be drawn under the
Revolver as of June 30, 1998 was $112.2 million.
At June 30, 1998, the Company's stockholders' equity (deficiency) amounted to
$(62.3) million, as compared to $256.1 million at December 31, 1997. The
decrease in stockholders' equity (deficiency) was primarily due to the cost of
the redemption of $454.3 million, which was partially offset by $109.0 million
increase in common stock and additional paid-in capital, net of the related
stock subscriptions receivable.
Year 2000 Compliance
The Company utilizes a significant number of computer programs and operating
systems across its entire organization, including applications used in sales,
shipping, financial business systems and various administrative functions. To
the extent that the Company's software applications contain source code that is
unable to appropriately interpret the upcoming calendar year 2000 and beyond,
some level of modification or replacement of such applications will be
necessary. The Company is working to identify its applications that are not
"Year 2000" compliant and plans to modify or replace such applications, as
necessary. The Company currently expects identified Year 2000 impacted systems
to be corrected before the end of 1999. The Company also has begun to address
whether significant customers and suppliers may have Year 2000 compliance issues
that will affect their interaction with the Company. Given information known at
this time about the Company's systems that are non-compliant, coupled with the
Company's ongoing, normal course of business efforts to upgrade or replace
critical systems, as necessary, management does not expect Year
13
<PAGE>
2000 compliance costs to have any material adverse impact on the Company. No
assurance can be given, however, that all of the Company's systems, and those of
significant customers and suppliers, will be Year 2000 compliant or the failure
to achieve substantial Year 2000 compliance will not have a material adverse
effect on the Company.
During the first six months of 1998, the Company incurred approximately $0.4
million of costs for company-owned systems and applications related to Year 2000
remediation. A large majority of these costs are currently believed to be
incremental costs that will not recur in the year 2000 or thereafter. Year
2000 remediation costs were approximately $1.4 million in 1997.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for certain forward-looking statements. The factors discussed below, among
others, could cause actual results to differ materially from those contained in
forward-looking statements made in this report, including, without limitation,
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations," in the Company's related press release and in oral statements made
by authorized officers of the Company. When used in this report, any press
release or oral statements, the words "estimate," "project," "anticipate,"
"expect," "intend," "believe" and similar expressions are intended to identify
forward-looking statements. All of these forward-looking statements are based on
estimates and assumptions made by management of the Company, which, although
believed to be reasonable, are inherently uncertain. Therefore, undue reliance
should not be placed upon such estimates and statements. No assurance can be
given that any of such statements or estimates will be realized and actual
results will differ from those contemplated by such forward-looking statements.
Accordingly, the Company hereby identifies the following important factors which
could cause the Company's financial results to differ materially from any such
results which might be projected, forecast, estimated or budgeted by the Company
in forward-looking statements:
* significant indebtedness of the Company may have important consequences,
including, but not limited to, impairment of the Company's ability to obtain
additional financing, reduction of funds available for operations and
business opportunities or limitation on the Company's ability to dispose of
assets;
* Company's ability to service its indebtedness is dependent upon operating
cash flow of its subsidiaries and joint ventures;
* loss of major customer could have material adverse effect on the Company's
business;
* original equipment manufacturers' demands for price reduction may
adversely affect profitability;
* cyclical nature of industry could cause fluctuations in demand for
Company's products;
* labor strike may disrupt the Company's supply to its customer base;
* interruption in supply of steel or aluminum could reduce Company's ability
to obtain favorable sourcing of such raw materials;
* Company's competitors could reduce market for the Company's product;
* potential liability of the Company for environmental matters and the costs
of compliance with certain governmental regulations could have a material
adverse effect on the Company's financial condition and may adversely affect the
Company's ability to sell or rent such property or to borrow using such property
as collateral;
* Company may have difficulty in achieving growth strategies and there is no
assurance that such strategies will be successful or will improve operating
results;
* continued service of key management personnel is not guaranteed;
* interests of the principal stockholder of the Company may conflict with
the interests of the holders of securities of the Company; and
* no assurance that the Company's computer software and operating systems,
or those of its customers or suppliers, will be Year 2000 compliant.
14
<PAGE>
The foregoing review of the factors pursuant to the Private Litigation
Securities Reform Act of 1995 should not be construed as exhaustive or as any
admission regarding the adequacy of disclosures made by the Company prior to
this filing. For further information, refer to the "Risk Factors" section
included in the Company's Amendment No. 2 to Form S-4 filed with the Securities
and Exchange Commission on July 17, 1998.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable
15
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not involved in any pending legal proceedings other than
non-material legal proceedings occurring in the ordinary course of
business.
Item 2. Changes in Securities
During the twenty-three weeks ended June 30, 1998, the Company issued
approximately 700 shares of the Company's common stock, par value $.01
per share ("Common Stock") to certain members of management for
aggregate consideration in cash and secured promissory notes of
approximately $3.5 million. During such period, the Company also issued
options to purchase approximately 1,350 shares of Common Stock to such
members of management. The exercise price of such options was $5,000
per share. None of these securities were registered under the
Securities Act.
Such issuances of Common Stock and options to purchase
Common Stock were made pursuant to the 1998 Stock Purchase and Option
Plan for Employees of Accuride Corporation and Subsidiaries. In each of
the above instances, exemption from registration under the Securities
Act was based upon the grounds that the issuance of such securities
either (i) did not involve a public offering within the meaning of
Section 4(2) of the Securities Act or (ii) was offered and sold
pursuant to a compensatory benefit plan within the meaning of Rule 701
of the Securities Act.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submissions of Matters to a Vote of Security Holders
On January 21, 1998, February 16, 1998, and May 1, 1998 action was
taken by written consent of Hubcap Acquisition L.L.C., a shareholder
holding approximately 87% of the Common Stock of the Company, approving
grants to employees of purchase stock and stock options pursuant to the
1998 Stock Purchase and Option Plan for Employees of Accuride
Corporation and Subsidiaries.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibit 27.1 - Financial Data Schedule
b) No Form 8-K reports were filed during the quarter
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
and Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ACCURIDE CORPORATION
/s/ John R. Murphy
John R. Murphy
Vice President - Finance and Chief Financial Officer
Dated: August 14, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF ACCURIDE CORPORATION AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> JUN-30-1998 DEC-31-1997
<CASH> 6,098 7,418
<SECURITIES> 0 0
<RECEIVABLES> 48,246 38,044
<ALLOWANCES> 1,119 967
<INVENTORY> 30,418 29,107
<CURRENT-ASSETS> 107,381 91,971
<PP&E> 305,530 285,898
<DEPRECIATION> 159,659 151,901
<TOTAL-ASSETS> 386,947 347,447
<CURRENT-LIABILITIES> 58,458 57,137
<BONDS> 379,395 0
0 0
0 0
<COMMON> 25,200 178,931
<OTHER-SE> 87,493 77,124
<TOTAL-LIABILITY-AND-EQUITY> 386,947 347,447
<SALES> 191,583 332,966
<TOTAL-REVENUES> 191,583 332,966
<CGS> 148,199 266,972
<TOTAL-COSTS> 17,884 21,316
<OTHER-EXPENSES> 421 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 15,375 145
<INCOME-PRETAX> 9,107 49,995
<INCOME-TAX> 3,829 22,150
<INCOME-CONTINUING> 5,278 27,837
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,278 27,837
<EPS-PRIMARY> 213 1,160
<EPS-DILUTED> 213 1,160
</TABLE>
