SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934.
For the Quarterly Period Ended September 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
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(Exact Name of Registrant as Specified in its Charter)
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Delaware 61-1109077
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2315 Adams Lane
Henderson, KY 42420
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number Including Area Code (502) 826-5000
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 |X| No |_|
There were 24,728 common shares outstanding as of September 30, 1998.
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ACCURIDE CORPORATION
Table of Contents
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1998 (unaudited)
and December 31, 1997 3
Consolidated Statements of Income for the Three Months
and Nine Months Ended September 30, 1998 and 1997 (Unaudited) 4
Consolidated Statement of Stockholders' Equity (Deficiency)
for the Nine Months Ended September 30, 1998 (Unaudited) 5
Consolidated Statements of Cash Flows for the Nine Months
Ended September 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 a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
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Item I. Financial Statements
ACCURIDE CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
September 30,
1998 December 31,
(Unaudited) 1997
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,385 $ 7,418
Customer receivables, net of allowance for doubtful accounts of $1,201 and $967 48,153 37,077
Other receivables 11,370 11,768
Inventories, net 32,999 29,107
Supplies 7,164 6,458
Prepaid expenses 5,352 143
Deferred income taxes 1,079 --
--------- ---------
Total current assets 114,502 91,971
PROPERTY, PLANT AND EQUIPMENT, NET 148,844 133,997
OTHER ASSETS:
Goodwill, net of accumulated amortization of $30,229 and $28,089 84,030 86,171
Investment in affiliates 25,575 24,765
Deferred financing costs 13,049
Deferred income taxes 1,504
Other 10,369 10,543
--------- ---------
TOTAL $ 397,873 $ 347,447
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable $ 22,677 $ 19,237
Current portion of long-term debt 1,350
Short term notes payable 3,911 16,040
Accrued payroll and compensation 7,458 8,015
Accrued interest payable 5,171
Deferred income taxes 1,481
Tooling deposit 4,268 5,261
Accrued and other liabilities 6,196 7,103
--------- ---------
Total current liabilities 51,031 57,137
LONG-TERM DEBT, less current portion 388,161
DEFERRED INCOME TAXES 16,123
OTHER LIABILITIES 11,660 13,253
MINORITY INTEREST 5,401 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, 24,728 and 24,000 shares issued and outstanding in 1998 and 1997 27,015 178,931
Stock subscriptions receivable (1,519)
Retained earnings (deficit) (83,876) 77,124
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Total stockholders' equity (deficiency) (58,380) 256,055
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TOTAL $ 397,873 $ 347,447
========= =========
</TABLE>
See notes to unaudited consolidated financial statements.
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ACCURIDE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
------------------------- -------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
NET SALES $ 93,955 $ 78,402 $ 285,537 $ 247,002
COST OF GOODS SOLD 74,308 60,607 222,508 201,728
--------- --------- --------- ---------
GROSS PROFIT 19,647 17,795 63,029 45,274
OPERATING:
Selling, general and administrative 7,214 5,421 18,366 14,904
Start-up costs 449 3,260
Management retention bonuses 247 1,927
Recapitalization professional fees -- -- 2,240 --
--------- --------- --------- ---------
INCOME FROM OPERATIONS 11,737 12,374 37,236 30,370
OTHER INCOME (EXPENSE):
Interest income 113 76 327 393
Interest (expense) (8,910) (9) (24,286) (24)
Equity in earnings (losses) of affiliates 2,362 1,901 1,817 3,022
Other (expense), net (2,006) 76 (2,297) (5)
Minority interest (127) -- (522) --
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 3,169 14,418 12,275 33,756
INCOME TAX PROVISION 2,065 4,686 5,892 12,421
--------- --------- --------- ---------
NET INCOME $ 1,104 $ 9,732 $ 6,383 $ 21,335
========= ========= ========= =========
</TABLE>
See notes to unaudited consolidated financial statements.
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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>
BALANCE AT DECEMBER 31, 1997 $ 178,931 $ 77,124 $ 256,055
Net income (Unaudited) 6,383 6,383
Issuance of shares (Unaudited) 108,000 108,000
Redemption of shares (Unaudited) (285,394) (167,383) (452,777)
Issuance of shares (Unaudited) 3,640 (1,519) 2,121
Increase in net deferred tax asset attributable
to tax basis of assets (Unaudited) 20,000 -- -- 20,000
Bonuses paid by a principal
stockholder (Unaudited) 1,838 -- -- 1,838
--------- -------- --------- ---------
BALANCE AT SEPTEMBER 30, 1998 (Unaudited) $ 27,015 $ (1,519) $ (83,876) $ (58,380)
========= ======== ========= =========
</TABLE>
See notes to unaudited consolidated financial statements.
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ACCURIDE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Nine Months Ended
September 30,
----------------------
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,383 $ 21,335
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation 14,776 13,206
Amortization 3,390 2,143
Loss on disposal of assets 361
Bonuses payable by a previous principal stockholder 1,838
Deferred income taxes (187) (670)
Equity in earnings of affiliated companies (1,817) (3,022)
Minority interest 522
Changes in certain assets and liabilities:
Receivables (10,678) (12,323)
Inventories and supplies (4,598) 1,026
Prepaid expenses and other assets (5,035) (1,332)
Accounts payable 2,708 (2,906)
Accrued and other liabilities 1,853 8,812
--------- ---------
Net cash provided by operating activities 9,155 26,630
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (29,444) (9,891)
Capitalized interest (179)
Investment in AKW L.P. (20,849)
Net cash distribution from AKW L.P. 1,007 276
--------- ---------
Net cash used in investing activities (28,616) (30,464)
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 41,749
Proceeds from issuance of long-term debt 333,918
Deferred financing fees (14,243)
Issuance of shares 110,121
Redemption of shares (452,777)
Net cash from Phelps Dodge Corporation -- 10,954
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Net cash provided by financing activities 20,428 10,954
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Increase in cash and cash equivalents 967 7,120
Cash and cash equivalents, beginning of period 7,418 6,311
--------- ---------
Cash and cash equivalents, end of period $ 8,385 $ 13,431
========= =========
</TABLE>
See notes to unaudited consolidated financial statements.
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ACCURIDE CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
FOR THE NINE MONTHS ENDED SEPTEMBER 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 nine months ended September 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:
September 30, December 31,
1998 1997
------------- ------------
Raw materials $ 3,442 $ 3,882
Work in Process 7,234 5,438
Finished manufactured goods 22,416 18,992
LIFO adjustment 815 1,742
Other (908) (947)
-------- --------
Inventories, net $ 32,999 $ 29,107
======== ========
Note 3 - Start-Up Costs - Costs associated with start-up activities are charged
to expense as incurred. During the nine months ended September 30, 1998 the
Company incurred approximately $3,260 related to preparation of the new
Tennessee light truck wheels facility which started operations 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 a net
redemption price of $450,030 ($468,000 purchase price less a $17,970 adjustment
for changes in working capital and the difference between actual and projected
capital expenditures). 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 rates and
$29,750 of borrowings under a $140,000 senior secured revolving line of credit
expiring 2004 with a variable interest rate.
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Costs of $21,742 incurred in connection with the recapitalization have been
reflected (i) $14,243 as deferred financing costs , (ii) $5,259 as a component
of the cost of the redemption and (iii) $2,240 as a current year expense. The
Company is amortizing the deferred financing costs over the life of the related
debt using the interest method.
Pursuant to the Agreement, $2,512 of certain pension, postretirement benefit
liabilities and other liabilities were 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 $40,000 valuation allowance related to the increase in the tax
basis of assets with a corresponding credit to "Additional paid in capital."
Subsequent to the recapitalization, effective September 30, 1998, PDC sold its
remaining interest in the Company to RSTW Partners III, L.P.
Note 5 - Stock Split - Effective January 21, 1998, the Company declared a
240-for-1 stock split. All per share information has been restated to give
effect to the stock split.
Note 6 - Authorized Shares - Effective January 21, 1998, the Company increased
its authorized shares of common stock to 45,000 shares and authorized 5,000
shares of preferred stock each with a par value of one cent ($.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, 2,667 shares of common stock of the Company are
reserved for issuance under such plan.
At September 30, 1998, the Company has issued 728 shares of common stock under
the 1998 Plan Purchase Stock totaling $3,640 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, 1,378 shares have
been granted as 1998 Plan Options at an exercise price of five thousand dollars
per share. At September 30, 1998, all 1998 Plan Options were unexercised. Time
options vest in equal installments over a five year period from the date of the
grant. Performance options vest after approximately eight years or vest at an
accelerated rate if the Company meets certain performance objectives.
Note 8 - Labor Relations -The Company's prior contract with the 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,
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1998. The Company is continuing to operate with its salaried employees and
contractors. On March 31, 1998, the Company began an indefinite lock-out. On
September 19, 1998 the members of the UAW rejected the Company's revised final
offer for a new contract. 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.
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 wheels was approximately $6,800 and
accordingly, the Company has reflected its portion of the expense ($3,400) as a
reduction in "Equity in earnings of affiliates" in the statement of income for
the nine months ended September 30, 1998.
Note 10 - Related Party Transactions - PDC, a previous 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 have been 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 nine months ended
September 30, 1998, the Company paid $17,921 and $6,486 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 $1,539 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 fully evaluated
the effect of the new standard on the financial statements.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Three Months Ended September 30, 1998 Compared to the Three Months Ended
September 30, 1997.
Net Sales. Net sales increased by $15.6 million, or 19.8%, for the three months
ended September 30, 1998 to $94.0 million, compared to $78.4 million for the
three months ended September 30, 1997. The increase in net sales is primarily
due to increased industry volume and sales of Accuride de Mexico ("ADM") which
was formed in November 1997.
Gross Profit. Gross profit increased by $1.8 million, or 10.4%, to $19.6 million
for the three months ended September 30, 1998 from $17.8 million for the three
months ended September 30, 1997. Gross profit as a percentage of net sales
decreased to 20.9% for the three months ended September 30, 1998 from 22.7% for
the three months ended September 30, 1997. The decrease in gross profit as a
percentage of sales is primarily due to the cost associated with the strike at
the Henderson facility of $0.6 million and the impact of a restructuring cost
associated with the London, Ontario facility.
Operating Expenses. Operating expenses increased by $2.5 million, or 45.9%, to
$7.9 million for the three months ended September 30, 1998 from $5.4 million for
the three months ended September 30, 1997. This increase was primarily due to
stand alone costs associated with operating as a separate company since the
acquisition by Hubcap Acquisition, start-up costs of $0.4 million relating to
the new Tennessee light truck wheels facility, management retention bonuses of
$0.2 million recorded in conjunction with the redemption paid by PDC, a previous
principal stockholder (See Note 10), and selling, general and administrative
expenses of ADM of $0.6 million. Excluding the expenses recorded for start-up
costs and management retention bonuses for the three months ended September 30,
1998, operating expenses as a percentage of net sales increased to 7.7% for the
three months ended September 30, 1998 from 6.9% for the three months ended
September 30, 1997 primarily due to stand alone costs associated with operating
as a separate company since the acquisition by Hubcap Acquisition.
Other Income (Expense). Interest expense increased to $8.9 million for the three
months ended September 30, 1998 compared to $9 thousand for the three months
ended September 30, 1997, due to the debt incurred related to the
recapitalization (see Note 4) of the Company on January 21, 1998. Equity in
earnings (losses) of affiliates increased by approximately $0.5 million to $2.4
million for the three months ended September 30, 1998 from $1.9 million for the
three months ended September 30, 1997. The increase was due to the increased
equity earnings from the AKW joint venture which contributed $2.3 million of
earnings in the third quarter of 1998 as compared to $1.7 million in the third
quarter of 1997. Other expenses increased by $2.0 million due to a $1.3 million
loss on a forward exchange contract and a foreign currency loss incurred at ADM,
partially offset by a foreign currency gain at Accuride Canada, Inc.
Adjusted EBITDA. Adjusted EBITDA increased by $1.5 million, or 8.0%, to $20.8
million for the three months ended September 30, 1998 from $19.3 million for the
three months ended September 30, 1997 due to higher steel product sales volume.
In determining Adjusted EBITDA for the three months ended September 30, 1998,
income from operations has been increased by depreciation and amortization
(except for amortization of debt issue cost), equity in earnings of affiliates
and (i) $0.2 million of management retention bonuses paid by PDC, a previous
principal stockholder in July 1998, (ii) an estimated $1.1 million restructuring
cost at the London, Ontario facility, and (iii) an estimated cost of $0.6
million incurred in connection with the strike at the Company's facility in
Henderson, Kentucky. In determining Adjusted EBITDA for the three months ended
September 30, 1997, income from operations has been increased by depreciation
and amortization and equity in earnings (losses) of affiliates.
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Net Income. Net income decreased $8.6 million, or 88.7%, to $1.1 million for the
three months ended September 30, 1998 from $9.7 million for the three months
ended September 30, 1997 due to lower pretax earnings, as described above, and a
higher effective tax rate. A decrease in the forecasted 1998 pretax earnings
increased the year to date effective tax rate and significantly increased the
quarterly effective tax rate.
Nine Months Ended September 30, 1998 Compared to the Nine Months Ended September
30, 1997.
Net Sales. Net sales increased by $38.5 million, or 15.6%, for the nine months
ended September 30, 1998 to $285.5 million, compared to $247.0 million for the
nine months ended September 30, 1997. The increase in net sales is primarily due
to increased industry volume and sales of ADM which was formed in November 1997.
Sales of aluminum wheels prior to the formation of the AKW joint venture 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. Earnings from the AKW joint venture are currently
reflected in other income as equity earnings. 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 $57.6 million, or
25.3%, to $285.5 million for the nine months ended September 30, 1998 compared
to $227.9 million for the nine months ended September 30, 1997.
Gross Profit. Gross profit increased by $17.7 million, or 39.2%, to $63.0
million for the nine months ended September 30, 1998 from $45.3 million for the
nine months ended September 30, 1997. Gross profit as a percentage of net sales
increased to 22.1% for the nine months ended September 30, 1998 from 18.3% for
the nine months ended September 30, 1997. Production costs were higher for the
first nine 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 $3.6 million at the Henderson, Kentucky facility in
the first nine months of 1998. Additionally, the first nine months of 1997
included aluminum sales under the buy and resell agreement, 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 for the first four months of 1997,
gross profit increased by $15.3 million, or 29.8%, to $66.6 million for the nine
months ended September 30, 1998 from $51.3 million for the nine months ended
September 30, 1997. Excluding sales and gross profit relating to aluminum
products, gross profit as a percentage of net sales increased to 22.1% for the
nine months ended September 30, 1998 from 19.4% for the nine months ended
September 30, 1997. The increase was due to continuing productivity improvements
at the Henderson and London facilities.
Operating Expenses. Operating expenses increased by $10.9 million, or 73.1%, to
$25.8 million for the nine months ended September 30, 1998 from $14.9 million
for the nine months ended September 30, 1997. This increase was primarily due to
start-up costs of $3.3 million relating to the new Tennessee light truck wheels
facility, management retention bonuses of $1.9 million recorded in conjunction
with the redemption paid by PDC, a previous principal stockholder (See Note 10),
professional fees related to the recapitalization of $2.2 million and selling,
general and administrative expenses of ADM of $2.4 million. Excluding the
expenses recorded for start-up costs, management retention bonuses and
recapitalization professional fees for the nine months ended September 30, 1998,
operating expenses as a percentage of net sales increased to 6.4% for the nine
months ended September 30, 1998 from 6.0% for the nine months ended September
30, 1997 primarily due to stand alone costs associated with operating as a
separate company since the acquisition by Hubcap Acquisition.
Other Income (Expense). Interest expense increased to $24.3 million for the nine
months ended September 30, 1998 compared to $24 thousand for the nine months
ended September 30, 1997 due to the debt incurred related to the
recapitalization (See Note 4) of the Company on January 21, 1998. Equity in
earnings (losses) of affiliates decreased by approximately $1.2 million to $1.8
million for the nine months ended September 30, 1998 from $3.0 million for the
nine months ended September 30, 1997. The decrease was
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primarily due to the effect of a product recall campaign implemented at AKW (See
Note 9). Excluding the $3.4 million related to the recall, equity in earnings of
affiliates increased $2.2 million for the nine months ended September 30, 1998
to $5.2 million from $3.0 million for the nine months ended September 30, 1997
due to increased equity earnings related to the AKW joint venture beginning in
May 1997, which contributed $4.9 million (excluding the $3.4 million recall) of
earnings for the nine months ended September 30,1998 compared to earnings of
$2.8 million for the five month period ended September 30, 1997. Other expenses
increased by $2.3 million due to the $1.2 million loss on a forward exchange
contract and foreign currency losses incurred at ADM, partially offset by
foreign currency gains at Accuride Canada, Inc. Minority interest of $0.5
million for the nine months ended September 30, 1998 relates to ADM.
Adjusted EBITDA. Adjusted EBITDA increased by $12.4 million, or 22.2%, to $68.2
million for the nine months ended September 30, 1998 from $55.8 million for the
nine months ended September 30, 1997 due to higher steel product sales volume.
In determining Adjusted EBITDA for the nine months ended September 30, 1998,
income from operations has been increased by depreciation and amortization
(except for amortization of debt issue cost), equity in earnings of affiliates
and (i) an estimated $3.6 million of costs incurred in connection with the
strike in 1998 at the Company's facility in Henderson, Kentucky, (ii) $1.9
million of management retention bonuses paid by PDC, a previous principal
stockholder, in 1998, (iii) $2.24 million of recapitalization professional fees,
(iv) $3.4 million representing the impact of the AKW wheel recall campaign
implemented in 1998 and (v) $1.1 million of estimated restructuring costs at the
London, Ontario facility. In determining Adjusted EBITDA for the nine months
ended September 30, 1997, income from operations has been increased by
depreciation and amortization, equity in earnings (losses) of affiliates and
$7.1 million representing the estimated impact of the strike at the London,
Ontario facility in the first quarter of 1997.
Net Income. Net income decreased by $14.9 million, or 70.1%, to $6.4 million for
the nine months ended September 30, 1998 from $21.3 million for the nine months
ended September 30, 1997, due to lower pretax earnings, as described above, and
a higher effective tax rate.
Changes in Financial Condition
At September 30, 1998, the Company's total assets amounted to $397.9 million, as
compared to $347.4 million at December 31, 1997. The $50.5 million or 14.5%
increase in total assets during the nine months ended September 30, 1998 was
primarily the result of a $14.2 million increase relating to debt issuance
costs, an increase in deferred tax assets of $2.6 million, an increase in net
property plant and equipment of $14.8 million, an increase of $5.2 million in
prepaid expenses, and a $11.1 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 nine months
ended September 30, 1998.
At September 30, 1998, the Company's total liabilities amounted to $450.9
million, as compared to $86.5 million at December 31, 1997. The $364.4 million
or 421.1% increase in total liabilities was primarily due to the $389.5 million
increase in long-term debt and related $5.2 million increase in accrued
interest. The increase in liabilities was partially offset by a $16.1 million
decrease in the deferred income tax liability and a $12.1 million decrease in
short-term notes payable. 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 $16.1 million decrease in the
deferred income tax liability was primarily due to the step-up in tax basis of
certain assets. The decrease in the short-term notes payable reflects the
repayment of indebtedness by ADM.
12
<PAGE>
Capital Resources and Liquidity
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.
The Company expects its capital expenditures (excluding capital expenditures by
ADM of approximately $19.6 million) to increase to approximately $28.7 million
in 1998. It is anticipated that these expenditures will fund (i) approximately
$15.0 million to develop the Tennessee Facility; (ii) investments in
productivity improvements in 1998 to its steel wheel business, which the Company
estimates will require an investment of approximately $6.9 million during 1998
and (iii) maintenance expenditures of approximately $6.8 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 Tennessee Facility in 1999.
In addition, the Company anticipates that ADM will require capital expenditures
of approximately $19.6 million in 1998 to construct and equip the Monterrey
Facility. The Monterrey Facility 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 $10.9 million was spent as of September 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 will provide adequate funds for the Company'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.
At September 30, 1998, the Company's stockholders' equity (deficiency) amounted
to $(58.4) million, 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 $452.8 million, which was partially offset by $110.1 million
increase in common stock and additional paid-in capital, net of the related
stock subscriptions receivable.
Year 2000 Compliance
In 1997, a comprehensive project plan to address the Year 2000 issue as it
relates to the Company's operation was developed and implemented. The scope of
the plan includes seven phases including Awareness, Identification, Impact
Analysis, Risk Evaluation, Remediation, Testing and Contingency Planning. A
project team that consists of key members of the technology staff,
representatives of functional business units and senior management was
developed. Additionally, the duties of the Business Systems Team Leader were
realigned to serve primarily as the Year 2000 project manager.
An assessment of the impact of the Year 2000 issue on the Company's computer
systems has recently been completed. From the assessment, the Company has
identified and prioritized those systems deemed to be mission critical or those
that have a significant impact on normal operations.
13
<PAGE>
The Company relies on third party vendors and service providers for certain data
processing capabilities. Formal communications with these providers were
initiated in 1997 to assess the Year 2000 readiness of their products and
services. Responses indicate that the significant providers currently have
compliant versions available or are well into the renovation and testing phases
with completion scheduled for late 1998. However, the Company can give no
guarantee that the systems of these service providers and vendors on which the
Company's systems rely will be timely Year 2000 compliant.
Additionally, the Company has implemented a plan to manage the potential risk
posed by the impact of the Year 2000 issue on its major customers and suppliers.
Formal communications have been initiated, and the assessment is moving forward
on schedule.
Current Status. The project team estimates that the Company's Year 2000
readiness project is approximately 70% complete. The following table provides a
summary of the current status of the seven phases involved and a projected
timetable for completion.
Project Phase % Completed Completion Comments
- ------------- ----------- ---------- --------
Awareness 100% Completed
Inventory 100% Completed
Impact Analysis 100% Completed
Risk Evaluation 90% Nov. 30, 1998 Suppliers & service providers
are being evaluated.
Remediation 95% July 31, 1999 All critical systems are
completed.
Testing 80% June 30, 1999 Involves ongoing testing of
critical systems
Contingency Plan 5% Sept. 30, 1999
Overall Completion Estimate 70%
Costs. The Company has thus far primarily used and expects to continue to use
internal resources to implement its readiness plan and to upgrade or replace and
test systems affected by the Year 2000 issue. During the first nine months of
1998, the Company incurred approximately $0.7 million of direct and indirect
costs for company-owned systems and applications related to Year 2000
remediation. A majority of these costs are currently believed to be incremental
expenses that will not recur in the Year 2000 or thereafter. Year 2000
remediation costs were approximately $1.4 million in 1997. The Company estimates
that its additional costs for Year 2000 remediation and testing of its computer
systems through the end of 1999 will not exceed $1.1 million.
The costs and the timetable in which the Company plans to complete the Year 2000
readiness activities are based on management's estimates, which were derived
using numerous assumptions of future events including the continued availability
of certain resources, third party readiness plans and other factors. The Company
can make no guarantee that these estimates will be achieved, and actual results
could differ from such plans.
Risk Assessment. 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 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.
14
<PAGE>
Contingency Plan. Realizing that some disruption may occur despite its efforts,
the Company is in the process of developing contingency plans for each critical
system in the event that one or more of those systems fail. While this is an
ongoing process, the Company expects to have the contingency plan substantially
documented by September 30, 1999.
Factors Affecting Future Results
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:
o 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;
o the Company's ability to service its indebtedness is dependent upon
operating cash flow of its subsidiaries and joint ventures;
o loss of a major customer could have material adverse effect on the
Company's business;
o original equipment manufacturers' demands for price reduction may
adversely affect profitability;
o cyclical nature of industry could cause fluctuations in demand for
Company's products;
o labor strike may disrupt the Company's supply to its customer base;
o interruption in supply of steel or aluminum could reduce Company's ability
to obtain favorable sourcing of such raw materials;
o Company's competitors could reduce market for the Company's product;
o 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;
o Company may have difficulty in achieving growth strategies and there is no
assurance that such strategies will be successful or will improve
operating results;
o continued service of key management personnel is not guaranteed;
o interests of the principal stockholder of the Company may conflict with
the interests of the holders of securities of the Company; and
o no assurance that the Company's computer software and operating systems,
or those of its customers or suppliers, will be Year 2000 compliant.
The foregoing review of the factors 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 thirteen weeks ended September 30, 1998, the Company issued
approximately 28 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 $140,000. During such period, the Company also issued
options to purchase approximately 28 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 did not
involve a public offering within the meaning of Section 4(2) of the
Securities Act.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submissions of Matters to a Vote of Security Holders
On August 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/ William P. Greubel
----------------------------------------------------
William P. Greubel
President and Chief Executive Officer
/s/ John R. Murphy
----------------------------------------------------
John R. Murphy
Vice President - Finance and Chief Financial Officer
Dated: November 13, 1998
17
<TABLE> <S> <C>
<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>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
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<RECEIVABLES> 49,354
<ALLOWANCES> 1,201
<INVENTORY> 32,999
<CURRENT-ASSETS> 114,502
<PP&E> 308,954
<DEPRECIATION> 160,110
<TOTAL-ASSETS> 397,873
<CURRENT-LIABILITIES> 51,031
<BONDS> 393,422
0
0
<COMMON> 27,015
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<SALES> 285,537
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<INTEREST-EXPENSE> 24,286
<INCOME-PRETAX> 12,275
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