<PAGE>
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, 2000.
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)
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<S> <C>
Delaware 61-1109077
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
7140 Office Circle
Evansville, IN 47715
-------------- -----
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
Registrant's Telephone Number, Including Area Code: (812) 962-5000
Indicate by check mark whether the registrant: (1) has filed all 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 period 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
--- ---
As of November 3, 2000, 24,843 shares of Accuride Corporation common stock,
par value $.01 per share, were outstanding.
<PAGE>
ACCURIDE COPORATION
TABLE OF CONTENTS
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<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2000 (Unaudited) and 3
December 31, 1999
Consolidated Statements of Income for the Nine Months 4
Ended September 30, 2000 and 1999 (Unaudited)
Consolidated Statement of Stockholders' Equity (Deficiency) for the 5
Nine Months Ended September 30, 2000 (Unaudited)
Consolidated Statements of Cash Flows for the Nine Months Ended 6
September 30, 2000 and 1999 (Unaudited)
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and 11
Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACCURIDE CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
(UNAUDITED)
-----------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 25,522 $ 32,493
Customer receivables, net of allowance for doubtful accounts of $666 and $462 43,360 57,586
Other receivables 4,498 12,400
Inventories, net 47,851 41,143
Supplies 9,036 8,509
Income taxes receivable 1,042 2,957
Prepaid expenses 1,390 818
Deferred income taxes 4,657 -
--------- ---------
137,356 155,906
Total current assets
PROPERTY, PLANT AND EQUIPMENT, NET 234,696 212,693
OTHER ASSETS:
Goodwill, net of accumulated amortization of $37,906 and $34,775 128,396 131,527
Investment in affiliates 3,092 2,735
Deferred financing costs, net of accumulated amortization of $3,713 and $1,835 10,269 12,147
Other 10,990 10,764
--------- ---------
TOTAL $ 524,799 $ 525,772
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable $ 45,055 $ 41,598
Short term notes payable 7,500 7,500
Accrued payroll and compensation 6,323 11,556
Accrued interest payable 7,104 12,056
Deferred income taxes - 598
Accrued and other liabilities 11,177 9,613
--------- ---------
Total current liabilities 77,159 82,921
LONG-TERM DEBT, less current portion 439,419 453,061
DEFERRED INCOME TAXES 12,696 4,404
OTHER LIABILITIES 18,143 17,517
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, 24,843 and 24,874 shares issued and outstanding in 2000 and
1999 24,939 24,738
Treasury Stock, 80 and 10 shares at cost in 2000 and 1999 (471) (51)
Stock subscriptions receivable (885) (1,539)
Retained earnings (deficit) (46,201) (55,279)
--------- ---------
Total stockholders' equity (deficiency) (22,618) (32,131)
--------- ---------
TOTAL $ 524,799 $ 525,772
========= =========
</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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
NET SALES $ 104,403 $ 129,422 $ 384,727 $ 377,007
COST OF GOODS SOLD 87,214 100,720 308,216 290,987
--------- --------- --------- ---------
GROSS PROFIT 17,189 28,702 76,511 86,020
OPERATING:
Selling, general and administrative 6,435 7,608 24,750 21,782
--------- --------- --------- ---------
INCOME FROM OPERATIONS 10,754 21,094 51,761 64,238
OTHER INCOME (EXPENSE):
Interest income 596 174 1,448 404
Interest (expense) (10,842) (10,152) (31,497) (29,113)
Equity in earnings of affiliates 118 32 357 2,358
Other (expense), net (2,674) (681) (6,417) (1,605)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST (2,048) 10,467 15,652 36,282
INCOME TAX PROVISION (859) 4,396 6,574 15,239
MINORITY INTEREST - - - 91
--------- --------- --------- ---------
NET INCOME (LOSS) $ (1,189) $ 6,071 $ 9,078 $ 20,952
========= ========= ========= =========
</TABLE>
See notes to unaudited consolidated financial statements.
4
<PAGE>
ACCURIDE CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON
STOCK AND TOTAL
ADDITIONAL STOCK RETAINED STOCKHOLDERS'
PAID IN TREASURY SUBSCRIPTIONS EARNINGS EQUITY
CAPITAL STOCK RECEIVABLE (DEFICIT) (DEFICIENCY)
---------- -------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1999 $ 24,738 $ (51) $ (1,539) $ (55,279) $ (32,131)
Net income 9,078 9,078
Proceeds from stock subscriptions receivable 725 725
Issuance of Management Shares 201 (201)
Redemption of shares - (420) 130 - (290)
---------- -------- ---------- ---------- -----------
BALANCE AT SEPTEMBER 30, 2000 $ 24,939 $ (471) $ (885) $ (46,201) $ (22,618)
========== ======== ========== ========== ===========
</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>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 9,078 $ 20,952
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 19,649 17,331
Amortization 4,896 4,449
Losses on asset disposition 931 905
Gain on early retirement of debt (320) -
Deferred income taxes 3,037 8,173
Equity in earnings of affiliates (357) (2,358)
Minority Interest - 91
Changes in certain assets and liabilities:
Receivables 22,128 4,319
Inventories and supplies (7,235) (5,866)
Prepaid expenses and other assets 1,313 (1,883)
Accounts payable 3,457 11,267
Accrued and other liabilities (7,995) (4,546)
------------ ------------
Net cash provided by operating activities 48,582 52,834
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (42,583) (31,993)
Payment for purchase of AdM (7,300)
Payment for purchase of AKW L.P. - (70,591)
Net cash distribution from AKW L.P. - 253
Other - (18)
------------ ------------
Net cash used in investing activities (42,583) (109,649)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of short-term notes payable - 3,589
Decrease in revolving line of credit - (31,638)
Proceeds from issuance of long-term debt - 100,000
Payments on long-term debt (13,405) -
Deferred financing costs - (692)
Proceeds from stock subscriptions receivable 725 675
Redemption of shares (290) -
------------ ------------
Net cash (used in) provided by financing activities (12,970) 71,934
Increase (decrease) in cash and cash equivalents 15,119 (6,971)
Cash and cash equivalents, beginning of period 32,493 3,471
------------ ------------
Cash and cash equivalents, end of period $ 25,522 $ 18,590
============ ============
</TABLE>
See notes to unaudited consolidated financial statements.
6
<PAGE>
ACCURIDE CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
AS OF SEPTEMBER 30, 2000 AND 1999 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999
--------------------------------------------------------------------------------
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, 2000 are not
necessarily indicative of the results to be expected for the year ending
December 31, 2000. The unaudited consolidated financial statements and notes
thereto should be read in conjunction with the audited financial statements
and notes thereto disclosed in the Company's Annual Report on Form 10-K for
the year ended December 31, 1999.
MANAGEMENT'S ESTIMATES AND ASSUMPTIONS - The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Note 2 - AKW ACQUISITION - On April 1, 1999, the Company acquired Kaiser
Aluminum & Chemical Corporation's ("Kaiser") 50% interest in AKW, L.P.
("AKW"). Total consideration paid to Kaiser for the 50% interest was
approximately $70 million.
The following unaudited pro forma financial data illustrates the estimated
effects as if the acquisition of Kaiser's 50% interest in AKW had been
completed as of January 1, 1999, after including the impact of certain
adjustments, such as goodwill amortization, depreciation, interest expense,
the elimination of equity in earnings of affiliates arising from the Company's
50% interest in AKW owned prior to the acquisition, and the related income tax
effects:
<TABLE>
<CAPTION>
Nine months ended September 30,
2000 1999
---- ----
<S> <C> <C>
Net Sales $ 384,727 $ 400,953
Net Income $ 9,078 $ 21,253
</TABLE>
7
<PAGE>
Note 3 - INVENTORIES - Inventories were as follows:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
<S> <C> <C>
Raw Materials $ 8,899 $ 6,451
Work in Process 16,407 12,106
Finished manufactured goods 19,995 20,225
LIFO adjustment 2,550 2,361
-------- --------
Inventories, net $ 47,851 $ 41,143
======== ========
</TABLE>
Note 4 - LABOR RELATIONS - The Company's contract with the International
Union, Automobile, Aerospace, and Agriculture Implement Workers of America
("UAW") covering employees at the Henderson, Kentucky, 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,
Kentucky, facility on February 20, 1998. Effective as of March 31, 1998, the
Company began an indefinite lockout in order to provide security for plant
personnel and equipment. The UAW has rejected all of the Company's offers for
a new contract, and the parties have not been able to reach an agreement. The
Company is continuing to operate with its outside contractors and salaried
employees. 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 5 - SUPPLEMENTAL CASH FLOW DISCLOSURE - During the nine months ended
September 30, 2000 and 1999, the Company paid $34,489 and $30,492 for interest
and $1,622 and $6,851 for income taxes, respectively.
Note 6 - NEW ACCOUNTING PRONOUNCEMENT - In June 1998, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities". In June 2000, the FASB issued SFAS No. 138, which amends certain
provisions of SFAS 133 to clarify four areas causing difficulties in
implementation. The amendment included expanding the normal purchase and sale
exemption for supply contracts, permitting the offsetting of certain
intercompany foreign currency derivatives and thus reducing the number of
third party derivatives, permitting hedge accounting for foreign-currency
denominated assets and liabilities, and redefining interest rate risk to
reduce sources of ineffectiveness. The Company has appointed a team to
implement SFAS 133 on a global basis. This team has been implementing an SFAS
133 compliant risk management policy, globally educating both financial and
non-financial personnel, inventorying derivatives and addressing various other
SFAS 133 related issues. The Company will adopt SFAS 133 and the corresponding
amendment under SFAS 138 on January 1, 2001. SFAS 133, as amended by SFAS 138,
is not expected to have a material impact on the Company's consolidated
comprehensive income, financial position or cash flows.
8
<PAGE>
Note 7 - SEGMENT REPORTING - The Company operates in one business segment -
the design, manufacture and distribution of wheels and rims for trucks,
trailers and other vehicles.
GEOGRAPHIC SEGMENTS - The Company's operations in the United States, Canada,
and Mexico, for the three and nine months ended September 30, 2000 and 1999,
respectively, are summarized below. Sales between geographic areas are made at
negotiated selling prices.
<TABLE>
<CAPTION>
United
States Canada Mexico Eliminations Combined
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED SEPTEMBER 30, 2000
Net Sales:
Sales to unaffiliated customers-Domestic $ 91,597 $ 2,610 $ 8,923 $ 103,130
Sales to unaffiliated customers-Export 399 874 1,273
--------------------------------- ---------
Total $ 91,996 $ 2,610 $ 9,797 $ 104,403
================================= =========
Long lived assets: $ 381,686 $ 95,536 $ 47,241 $(137,020) $ 387,443
-------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1999
Net Sales:
Sales to unaffiliated customers-Domestic $ 117,239 $ 3,299 $ 5,216 $ 125,754
Sales to unaffiliated customers-Export 925 2,743 3,668
--------------------------------- ---------
Total $ 118,164 $ 3,299 $ 7,959 $ 129,422
================================= =========
Long lived assets: $ 340,268 $ 96,530 $ 45,585 $(116,850) $ 365,533
-------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 2000
Net Sales:
Sales to unaffiliated customers-Domestic $ 346,659 $ 9,410 $ 22,980 $ 379,049
Sales to unaffiliated customers-Export 2,065 3,613 5,678
--------------------------------- ---------
Total $ 348,724 $ 9,410 $ 26,593 $ 384,727
================================= =========
Long lived assets: $ 381,686 $ 95,536 $ 47,241 $(137,020) $ 387,443
-------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1999
Net Sales:
Sales to unaffiliated customers-Domestic $ 341,423 $ 11,518 $ 15,541 $ 368,482
Sales to unaffiliated customers-Export 2,126 30 6,369 8,525
--------------------------------- ---------
Total $ 343,549 $ 11,548 $ 21,910 $ 377,007
================================= =========
Long lived assets: $ 340,268 $ 96,530 $ 45,585 $(116,850) $ 365,533
-------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
Sales to three customers exceeded 10% of total net sales for the three and nine
months ended September 30, as follows:
<TABLE>
<CAPTION>
Customer Customer Customer
One Two Three Total
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
THREE MONTHS ENDED SEPTEMBER 30, 2000
Sales dollars: $ 22,180 $ 14,295 $ 12,204 $ 48,679
Percentage of total sales: 21.2% 13.7% 11.7% 46.6%
---------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1999
Sales dollars: $ 19,098 $ 24,565 $ 16,226 $ 59,889
Percentage of total sales: 14.8% 19.0% 12.5% 46.3%
---------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 2000
Sales dollars: $ 75,323 $ 59,403 $ 49,118 $ 183,844
Percentage of total sales: 19.6% 15.4% 12.8% 47.8%
---------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1999
Sales dollars: $ 69,937 $ 61,271 $ 46,368 $ 177,576
Percentage of total sales: 18.6% 16.3% 12.3% 47.2%
---------------------------------------------------------------------------------------------------------------------
</TABLE>
Each geographic segment made sales to all three major customers in the three and
nine months ended September 30, 2000 and 1999.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the consolidated
financial statements and notes included in Item 1 of Part 1 of this report on
Form 10-Q. Except for the historical information contained herein, this report
on Form 10-Q contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from those
indicated by such forward-looking statements.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1999.
The following table sets forth certain income statement information of the
Company for the three months ended September 30, 2000 and September 30, 1999:
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
-------------------- --------------------
<S> <C> <C> <C> <C>
Net sales...................................... $104,403 100.0% $129,422 100.0%
Gross profit................................... 17,189 16.5% 28,702 22.2%
Operating expenses............................. 6,435 6.2% 7,608 5.9%
Income from operations......................... 10,754 10.3% 21,094 16.3%
Equity in earnings of affiliates............... 118 0.1% 32 0.0%
Other income (expense)......................... (12,920) (12.4)% (10,659) (8.2)%
Net income (loss).............................. (1,189) (1.1)% 6,071 4.7%
OTHER DATA:
Adjusted EBITDA................................ $ 18,191 17.3%(a) $ 28,276 21.8%(a)
</TABLE>
--------
(a) Represents Adjusted EBITDA less equity in earnings of affiliates as a
percent of sales.
NET SALES. Net sales decreased by $25.0 million, or 19.3%, for the three months
ended September 30, 2000 to $104.4 million, compared to $129.4 million for the
three months ended September 30, 1999. The decrease is primarily attributable to
the cyclical downturn of the entire medium and heavy commercial vehicle market.
The Company anticipates the demand for medium and heavy trucks to remain soft
the remainder of 2000 and throughout 2001 due to an excess of new and used
trucks currently in inventory, lower valuation of used trucks, higher driver
recruiting costs, high fuel prices, and other unfavorable general economic
conditions.
GROSS PROFIT. Gross profit decreased $11.5 million, or 40.1%, to $17.2 million
for the three months ended September 30, 2000 from $28.7 million for the three
months ended September 30, 1999. The principal cause for the decrease in gross
profit was the decrease in sales volume. In addition to the sales volume related
margin loss, gross profit decreased because of (1) lower production levels and
an inventory reduction at the AKW facility, resulting in a loss of overhead
absorption, (2) an unfavorable change in the Canadian/U.S. exchange rate, and
(3) operating inefficiencies and increased depreciation expense at the
Monterrey, Mexico, facility.
OPERATING EXPENSES. Operating expenses decreased $1.2 million, or 15.8%, to $6.4
million for the three months ended September 30, 2000 from $7.6 million for the
three months ended September 30, 1999. This decrease is the result of cost
containment efforts at the corporate level.
11
<PAGE>
OTHER INCOME (EXPENSE). Other expense increased $2.2 million, or 20.6%, to $12.9
million for the three-month period ended September 30, 2000 compared to $10.7
million for the three months ended September 30, 1999, due primarily to
fluctuations in foreign currency rates that had a negative impact on hedging
instruments resulting in unrealized losses. Interest expense increased $0.7
million over the prior year quarter due to higher market rates. The increase in
interest expense was partially offset by higher interest income.
ADJUSTED EBITDA. Adjusted EBITDA decreased $10.1 million, or 35.7%, to $18.2
million for the three months ended September 30, 2000 from $28.3 million for the
three months ended September 30, 1999 due to the lower gross profit as described
above. In determining Adjusted EBITDA for the three months ended September 30,
2000 and September 30, 1999, income from operations has been adjusted by (1)
depreciation and amortization (except for amortization of deferred financing
costs), and (2) equity in earnings of affiliates.
NET INCOME (LOSS). Net income (loss) decreased 119.7% to ($1.2) million for the
three months ended September 30, 2000 from $6.1 million for the three months
ended September 30, 1999 due to lower pretax earnings, as described above.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1999.
The following table sets forth certain income statement information of the
Company for the nine months ended September 30, 2000 and September 30, 1999:
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
-------------------- --------------------
<S> <C> <C> <C> <C>
Net sales...................................... $384,727 100.0% $377,007 100.0%
Gross profit................................... 76,511 19.9% (b) 86,020 22.8%
Operating expenses............................. 24,750 6.4% 21,782 5.8%
Income from operations......................... 51,761 13.5% 64,238 17.0%
Equity in earnings of affiliates............... 357 0.1% 2,358 0.6%
Other income (expense)......................... (36,466) (9.5%) (30,314) (8.0%)
Net income..................................... 9,078 2.4% 20,952 5.6%
OTHER DATA:
Adjusted EBITDA................................ $ 80,898 20.9% (a) $ 86,924 22.4% (a)
</TABLE>
--------
(a) Represents Adjusted EBITDA less equity in earnings of affiliates as a
percent of sales.
(b) Includes a one-time restructuring adjustment for AdM of $3.3 million.
NET SALES. Net sales increased $7.7 million, or 2.0%, for the nine months ended
September 30, 2000 to $384.7 million, compared to $377.0 million for the nine
months ended September 30, 1999. The increase in net sales is due to including
total sales from AKW with the consolidated sales of the Company effective April
1, 1999, the date of the acquisition of Kaiser's 50% interest in AKW (the "AKW
Acquisition"). Prior to the AKW Acquisition, AKW's sales were accounted for on
the equity method and not included in the consolidated net sales. Including the
$23.9 million in sales at AKW during the first quarter of 1999, net sales would
have decreased by $16.2 million, or 4.3% for the nine months ended September 30,
2000 to $384.7 million, compared to $400.9 million for the nine months ended
September 30, 1999. This decrease in sales is attributable to the cyclical
downturn of the entire medium and heavy commercial vehicle market. The Company
anticipates the demand for medium and heavy trucks to remain soft the remainder
of 2000 and throughout 2001 due to an excess of new and used trucks currently in
inventory, lower valuation of used trucks, higher driver recruiting costs, high
fuel prices, and other unfavorable general economic conditions.
12
<PAGE>
GROSS PROFIT. Gross profit decreased $9.5 million, or 11.1%, to $76.5 million
for the nine months ended September 30, 2000 from $86.0 million for the nine
months ended September 30, 1999. The $9.5 million decrease in gross profit was
primarily the result of lower gross profit at AdM. The decrease in gross profit
at AdM was due principally to high start-up production costs and a one-time
restructuring adjustment associated with the transition to the new facility in
Monterrey, Mexico. This one-time restructuring adjustment is included in the
$3.3 million EBITDA adjustment as discussed below. Gross profit as a percent of
sales decreased from 22.8% for the nine months ended September 30, 1999, to
19.9% for the nine months ended September 30, 2000. This decrease was primarily
due to lower gross profit at AdM as discussed above. Gross profit as a percent
of sales excluding AdM, decreased from 22.8% for the nine months ended September
30, 1999, to 22.6% for the nine months ended September 30, 2000. Other items
contributing to the decrease in gross profit include (1) sales volume related
margin loss, (2) an unfavorable change in the Canadian/U.S. exchange rate, and
(3) lower production levels and an inventory reduction at the AKW facility,
resulting in a loss of overhead absorption. These decreases were partially
offset by the inclusion of gross profit at AKW in the first quarter of 2000.
OPERATING EXPENSES. Operating expenses increased by $3.0 million, or 13.8%, to
$24.8 million for the nine months ended September 30, 2000 from $21.8 million
for the nine months ended September 30, 1999. This increase is due to (1) the
inclusion of AKW's selling, general and administrative expenses and research and
development costs which have been accounted for on a consolidated basis since
the AKW acquisition on April 1, 1999, and (2) expenses attributable to aborted
merger and acquisition costs which are included in the $2.7 million EBITDA
adjustment as discussed below.
OTHER INCOME (EXPENSE). Interest expense increased by $2.4 million, or 8.3%, to
$31.5 million for the nine-month period ended September 30, 2000 compared to
$29.1 million for the nine months ended September 30, 1999, due to the interest
costs related to the new debt incurred for the AKW Acquisition on April 1, 1999
and higher market rates. Unrealized losses related to foreign currency rate
changes increased $5.3 million to $6.8 million for the nine-month period ended
September 30, 2000 compared to $1.5 million for the nine months ended September
30, 1999. These expenses were offset by an increase in interest income of $1.0
million due to a higher cash balance in 2000. Equity in earnings of affiliates
decreased by $2.0 million to $0.4 million for the nine months ended September
30, 2000 from $2.4 million for the nine months ended September 30, 1999. The
decrease was due to the AKW Acquisition and the resultant change in accounting
to begin consolidating the results of AKW effective April 1, 1999.
ADJUSTED EBITDA. Adjusted EBITDA decreased by $6.0 million, or 6.9%, to $80.9
million for the nine months ended September 30, 2000 from $86.9 million for the
nine months ended September 30, 1999 due to the lower gross margin as described
above. In determining Adjusted EBITDA for the nine months ended September 30,
2000, income from operations has been adjusted by (1) depreciation and
amortization (except for amortization of deferred financing costs), (2) equity
in earnings of affiliates, (3) $2.7 million of aborted merger and acquisition
costs, and (4) a $3.3 million adjustment for restructuring costs related to
operations at the Monterrey, Mexico, facility. In determining Adjusted EBITDA
for the nine months ended September 30, 1999, income from operations has been
adjusted by (1) depreciation and amortization (except for amortization of
deferred financing costs), and (2) equity in earnings of affiliates.
NET INCOME. Net income decreased 56.7% to $9.1 million for the nine months ended
September 30, 2000 from $21.0 million for the nine months ended September 30,
1999 due to lower pretax earnings, as described above.
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<PAGE>
CHANGES IN FINANCIAL CONDITION
At September 30, 2000, the Company's total assets amounted to $524.8 million, as
compared to $525.8 million at December 31, 1999. The $1.0 million or 0.2%
decrease in total assets during the nine months ended September 30, 2000 was
primarily the result of an increase in net property, plant and equipment of
$22.0 million and an increase in inventory and supplies of $7.2 million, offset
by a decrease of $22.1 million in net receivables and a $7.0 million decrease in
cash. The increase in net property, plant and equipment was primarily due to
investments in the Company's expansion project in Erie, Pennsylvania. Inventory
increased due to implementing an aluminum tolling program coupled with an
inventory build related to the capital expansion in Erie, Pennsylvania and
surplus purchases of steel at the Monterrey, Mexico, facility due to raw steel
commitments. Net receivables decreased due to lower sales volumes, the receipt
of several large business tax refunds, and the elimination of the aluminum scrap
receivable via implementing the tolling program.
At September 30, 2000, the Company's total liabilities amounted to $547.4
million, as compared to $557.9 million at December 31, 1999. Total liabilities
decreased primarily as a result of a $13.8 million reduction in long term debt.
The Company paid down $2.4 million on its senior secured A, B, and C term loans
due on January 21, 2002, $9.4 million on its AdM term loan, and the Company
repurchased $2.0 million of its $200.0 million principal amount of 9.25% Senior
Subordinated Notes due 2008.
CAPITAL RESOURCES AND LIQUIDITY
The Company's primary sources of liquidity are cash flow from operations and
borrowing under the Company's working capital facility ("Revolver"). The
Company's primary uses of cash are funding working capital, capital expenditures
under the Company's expansion plans and debt service.
As of September 30, 2000, the Company had cash and cash equivalents of $25.5
million compared to $32.5 million at December 31, 1999. The Company's operating
activities for the nine months ended September 30, 2000 provided $48.6 million
of cash compared to $52.8 million of cash for the nine months ended September
30, 1999. The Company's financing activities used $13.0 million during the nine
months ended September 30, 2000. Cash flow from financing activities provided
$71.9 million for the nine months ended September 30, 1999. The Company's
investing activities for the nine months ended September 30, 2000 used $42.6
million compared to $109.6 million for the nine months ended September 30, 1999.
During the nine-month period ended September 30, 2000, the Company repurchased
70 shares of the Company's common stock from former management employees for
approximately $0.4 million.
The Company incurred capital expenditures in the year ended December 31, 1999 of
$46 million. The Company expects its capital expenditures to be approximately
$50 million in the year 2000. It is anticipated that these expenditures will
fund (1) approximately $2 million for technology advancement projects; (2)
investments in productivity and capacity expansion improvements in 2000 of
approximately $36 million; (3) maintenance of business expenditures of
approximately $10 million; and (4) quality improvements of approximately $2
million. Capital expenditures for the remainder of 2000 will focus on completing
the on-going capacity expansion project at the Erie, Pennsylvania, facility. The
Company anticipates its 2001 capital spending to be below the 2000 spending
level.
Management believes that cash flow from operations and availability under the
Revolver will provide adequate funds for the Company's foreseeable working
capital needs for 2000, 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
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<PAGE>
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.
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 releases 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:
- the decrease in general market demand for the Company's products due
to high inventory levels of heavy and medium trucks and other general
economic conditions could be greater than the Company anticipates;
- 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 limitations on the Company's
ability to dispose of assets;
- the Company's ability to service its indebtedness is dependent upon
operating cash flow;
- loss of a major customer could have material adverse
effect on the Company's business;
- original equipment manufacturers' demands for price reduction may adversely
affect profitability;
- interruption in supply of steel or aluminum could reduce the Company's
ability to obtain favorable sourcing of such raw materials;
- unanticipated additional material operating costs at AdM could adversely
effect AdM's 2000 earnings and impair the Company's ability to compete in
the Latin American market;
- the Company may encounter increased competition in the future from
existing competitors or new competitors;
- 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;
- labor strike may disrupt the Company's supply to its customer base;
- the 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; and
- interests of the principal stockholder of the Company may conflict
with the interests of the holders of securities of the Company.
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<PAGE>
For further information, refer to the business description and additional risk
factors sections included in the Company's Form 10-K for the year ended
December 31, 1999, as filed with the SEC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company, in the normal course of doing business, is exposed to the risks
associated with changes in foreign exchange rates, interest rates and raw
material prices. The Company selectively uses derivative financial instruments
to manage these risks. The Company uses foreign exchange contracts to hedge
foreign currency commitments. Specifically, these foreign exchange contracts
offset foreign currency denominated purchase commitments to suppliers,
accounts receivable from, and future committed sales to, customers, and
operating expenses. Management believes the use of foreign currency financial
instruments reduces the risks that arise from doing business in international
markets. At September 30, 2000, the Company had open foreign exchange forward
contracts and options of $160.4 million. Foreign exchange forward contract
maturities are from one to fourteen months, and option contracts mature in two
months.
The Company's hedging activities provide only limited protection against
currency risks. Factors that could impact the effectiveness of the Company's
hedging programs include accuracy of sales estimates, volatility of currency
markets and the cost and availability of hedging instruments. The
counterparties to the foreign exchange contracts are financial institutions
with investment grade credit ratings. The Company monitors its foreign
currency cash flow transactions and executes contracts to hedge its foreign
exchange exposures. The use of forward contracts and options protects the
Company's cash flows against unfavorable movements in exchange rates, to the
extent of the amount under contract. A 10% adverse change in currency exchange
rates for the Company's foreign currency derivatives held at September 30,
2000, would have an impact of approximately $15.6 million on the fair value of
such instruments. This quantification of exposure to the market risk
associated with foreign exchange financial instruments does not take into
account the offsetting impact of changes in the fair value of the Company's
foreign denominated assets, liabilities and firm commitments.
The Company uses long-term debt as a primary source of capital in its
business. The following table presents the principal cash repayments and
related weighted average interest rates by maturity date for its long-term
fixed-rate debt and other types of long-term debt at September 30, 2000:
<TABLE>
<CAPTION>
(Dollars in Fair
Thousands) 2000 2001 2002 2003 2004 Thereafter Total Value
---- ---- ---- ---- ---- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term Debt:
Fixed $198,000 $198,000 $167,310
Avg. Rate 9.25% 9.25%
Variable $0 $0 $12,500 $5,475 $2,350 $221,900 $242,225 $242,225
Avg. Rate 8.19% 8.32% 8.50% 8.50% 8.48%
</TABLE>
The Company has used an interest rate swap to alter interest rate exposures
between fixed and floating rates on a portion of the Company's long-term debt.
As of September 30, 2000, an interest rate swap of $98.0 million was
outstanding. On average during the nine months ended September 30, 2000, the
Company paid 5.75% as a fixed rate and received 6.3417% on the interest rate
swap. Under the terms of the interest rate swap, the Company agrees with the
counterparty to exchange, at specified intervals, the difference between the
fixed rate and floating rate interest amounts calculated by reference to the
agreed principal amount. The interest rate swap matures in January 2001. The
Company also used an interest rate cap to set a ceiling on the maximum
floating interest rate the Company would incur on a portion of the Company's
long-term debt. As of September 30, 2000, an interest rate cap of $34.3
million was outstanding. Under the terms of the interest rate cap, the Company
is entitled to receive from the
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<PAGE>
counterparty on a quarterly basis the amount, if any, by which the three-month
Eurodollar interest rate exceeds 7.5%. The interest rate cap matures in
January 2001. The Company is exposed to credit related losses in the event of
nonperformance by the counterparty to the interest rate swap and interest rate
cap, although no such losses are expected as the counterparty is a financial
institution having an investment grade credit rating.
The Company relies upon the supply of certain raw materials in its production
processes and has entered into firm purchase commitments for steel and
aluminum. The exposures associated with these commitments are primarily
managed through the terms of its supply and procurement contracts.
Additionally, the Company uses commodity price swaps to hedge against changes
in certain commodity prices. At September 30, 2000, the Company had open
commodity price swaps of $29.0 million. These commodity price swaps had
maturities from one to fifteen months. A 10% adverse change in commodity
prices would have an impact of approximately $2.9 million on the fair value of
these contracts. The Company is exposed to credit related losses in the event
of nonperformance by the counterparty to the commodity price swaps and option
contracts, although no such losses are expected as the counterparty is a
financial institution having an investment grade credit rating.
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<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Neither the Company nor any of its subsidiaries is a party to any
material legal proceeding. However, the Company from time to time is
involved in ordinary routine litigation incidental to its business.
Item 2. Changes in Securities
During the thirteen weeks ended September 30, 2000, the Company issued
9.55 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
$50,138. During such period, the Company also issued options to
purchase 19.325 shares of Common Stock to such members of management,
which options vest over a 3- to 8-year period and must be exercised
within a 10-year period. The exercise price of such options was $5,250
per share. None of these securities were registered under the
Securities Act of 1933, as amended.
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 6. Exhibits and Reports on Form 8-K
a. Exhibits:
<TABLE>
<CAPTION>
Exhibit No Description
---------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
b. Form 8-K:
No reports on Form 8-K have been filed during the nine-month period
ended September 30, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities 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
<TABLE>
<S> <C>
/s/ William P. Greubel Dated: November 3, 2000
------------------------------- ----------------
William P. Greubel
President and Chief Executive Officer
/s/ John R. Murphy Dated: November 3, 2000
------------------------------- ----------------
John R. Murphy
Executive Vice President - Finance and Chief Financial Officer
Principal Accounting Officer
</TABLE>
19
