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 March 31, 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)
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)
Registrant's telephone number, including area code: (812) 962-5000
Indicate by check mark whether the registrant (1) has filed all reports required
to 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
--- ---
There were 24,834 common shares outstanding as of March 31, 2000.
ACCURIDE COPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2000 (Unaudited) and 3
December 31, 1999
Consolidated Statements of Income for the Three Months 4
Ended March 31, 2000 and 1999 (Unaudited)
Consolidated Statement of Stockholders' Equity (Deficiency) for the 5
Three Months Ended March 31, 2000 (Unaudited)
Consolidated Statements of Cash Flows for the Three Months Ended 6
March 31, 2000 and 1999 (Unaudited)
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and 10
Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACCURIDE CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31,
2000 1999
(UNAUDITED)
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 21,442 $ 32,493
Customer receivables, net of allowance for doubtful accounts of $526 and $462 69,848 57,586
Other receivables 10,528 12,400
Inventories, net 43,431 41,143
Supplies 9,078 8,509
Income taxes receivable 1,152 2,957
Prepaid expenses 1,484 818
-------------- --------------
Total current assets 156,963 155,906
PROPERTY, PLANT AND EQUIPMENT, NET 217,643 212,693
OTHER ASSETS:
Goodwill, net of accumulated amortization of $35,819 and $34,775 130,483 131,527
Investment in affiliates 2,861 2,735
Deferred financing costs, net of accumulated amortization of $2,334 and $1,835 11,648 12,147
Other 11,339 10,764
-------------- --------------
TOTAL $ 530,937 $ 525,772
============== =============-
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable $ 46,596 $ 41,598
Short term notes payable 7,500 7,500
Accrued payroll and compensation 7,126 11,556
Accrued interest payable 7,432 12,056
Deferred income taxes 1,209 598
Accrued and other liabilities 8,080 9,613
-------------- --------------
Total current liabilities 77,943 82,921
LONG-TERM DEBT, less current portion 453,089 453,061
DEFERRED INCOME TAXES 7,010 4,404
OTHER LIABILITIES 17,190 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, 24,834 and 24,874 shares issued and outstanding in 2000 and 1999 24,738 24,738
Treasury Stock, 50 and 10 shares at cost in 2000 and 1999 (282) (51)
Stock subscriptions receivable (833) (1,539)
Retained earnings (deficit) (47,918) (55,279)
-------------- --------------
Total stockholders' equity (deficiency) (24,295) (32,131)
-------------- --------------
TOTAL $ 530,937 $ 525,772
============== ==============
See notes to unaudited consolidated financial statements.
3
ACCURIDE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
---------- ----------
NET SALES $ 143,368 $ 111,533
COST OF GOODS SOLD 111,626 85,441
---------- ----------
GROSS PROFIT 31,742 26,092
OPERATING:
Selling, general and administrative 8,400 6,479
---------- ----------
INCOME FROM OPERATIONS 23,342 19,613
OTHER INCOME (EXPENSE):
Interest income 383 65
Interest (expense) (10,558) (8,956)
Equity in earnings of affiliates 126 2,315
Other (expense), net (601) (368)
---------- ----------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 12,692 12,669
INCOME TAX PROVISION
5,331 5,321
MINORITY INTEREST - 24
---------- ----------
NET INCOME $ 7,361 $ 7,324
========== ==========
See notes to unaudited consolidated financial statements.
4
ACCURIDE CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
COMMON
STOCK AND TOTAL
ADDITIONAL STOCK RETAINED STOCKHOLDER'S
PAID IN TREASURY SUBSCRIPTIONS EARNINGS EQUITY
CAPITAL STOCK RECEIVABLE (DEFICIT) (DEFICIENCY)
--------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 $ 24,738 $ (51) $ (1,539) $ (55,279) $ (32,131)
Net income 7,361 7,361
Proceeds from stock subscriptions receivable 653 653
Redemption of shares - (231) 53 - (178)
---------- --------- ----------- ---------- ----------
BALANCE AT MARCH 31, 2000 $ 24,738 $ (282) $ (833) $ (47,918) $ (24,295)
========== ========= =========== ========== ==========
See notes to unaudited consolidated financial statements.
5
ACCURIDE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
------------------------
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 7,361 $ 7,324
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation 6,825 5,155
Amortization 1,571 1,243
Losses on asset disposition 372 --
Deferred income taxes 3,217 1,257
Equity in earnings of affiliates (126) (2,315)
Minority interest -- 24
Changes in certain assets and liabilities:
Receivables (10,390) (14,392)
Inventories and supplies (2,857) 626
Prepaid expenses and other assets 564 1,243
Accounts payable 4,998 11,175
Accrued and other liabilities (10,914) (6,508)
---------- ----------
Net cash provided by operating activities 621 4,832
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (12,147) (8,327)
Net cash distribution from AKW L.P. -- 265
Other -- (7)
---------- ----------
Net cash used in investing activities (12,147) (8,069)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of short-term notes payable -- 1,300
Net increase in revolving line of credit -- 36,362
Proceeds from stock subscriptions receivable 653 558
Redemption of shares (178) --
---------- ----------
Net cash provided by financing activities 475 38,220
Increase (decrease) in cash and cash equivalents (11,051) 34,983
Cash and cash equivalents, beginning of period 32,493 3,471
---------- ----------
Cash and cash equivalents, end of period $ 21,442 $ 38,454
========== ==========
See notes to unaudited consolidated financial statements.
6
ACCURIDE CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) AS OF MARCH 31, 2000 AND 1999 AND FOR
THE THREE MONTHS ENDED MARCH 31, 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 three months ended March 31, 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 - ACQUISITION
AKW ACQUISITION - On April 1, 1999, the Company acquired Kaiser Aluminum &
Chemical Corporation's ("Kaiser") 50% interest in AKW, L.P. ("AKW"), pursuant to
the terms of a purchase agreement by and among the Company, Kaiser and Accuride
Ventures, Inc., a wholly owned subsidiary of the Company. 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 the beginning of the periods presented, 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.
Three months ended March 31,
2000 1999
---- ----
Net Sales $ 143,368 $ 135,479
Net Income $ 7,361 $ 7,625
The 1999 pro forma results are not necessarily indicative of the actual results
if the transactions had been in effect for the entire period presented. In
addition, the 1999 pro forma results are not intended to be a projection of
future results and do not reflect, among other things, any synergies that might
have been achieved from combined operations.
7
Note 3 - INVENTORIES - Inventories were as follows:
March 31, December 31,
2000 1999
------------------ -----------------
Raw materials $ 7,998 $ 6,451
Work in process 17,280 12,106
Finished manufactured goods 15,842 20,225
LIFO adjustment 2,311 2,361
------------------ -----------------
Inventories, net $ 43,431 $ 41,143
================== =================
Note 4 - LABOR RELATIONS - The Company's prior contract with the International
Union, Automobile, Aerospace, and Agriculture Implement Workers of America
("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, 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 three months ended March
31, 2000 and 1999, the Company paid $14,655 and $9,087 for interest and $309 and
$2,033 for income taxes, respectively.
Note 6 - NEW ACCOUNTING PRONOUNCEMENT - Statement of Financial Standards No. 133
("SFAS 133"), "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES,"
was issued in June 1998 and was amended by Statement of Financial Standards No.
137 ("SFAS 137"), "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
- - DEFERRAL OF THE EFFECTIVE DATE OF SFAS 133." SFAS 133, as amended by SFAS 137,
is effective for all fiscal quarters of all fiscal years beginning after June
15, 2000. The Statement establishes accounting and reporting standards for
derivative instruments and for hedging activities. Management has not yet fully
evaluated the effect of the new standard on the financial statements.
8
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 has operations in the United States, Canada,
and Mexico, for the three months ended March 31, 2000 and 1999, respectively,
which are summarized below. Sales between geographic areas are made at
negotiated selling prices.
United
States Canada Mexico Eliminations Combined
- ----------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 2000
Net Sales:
Sales to unaffiliated customers-Domestic $ 131,208 $ 3,565 $ 6,676 $ 141,449
Sales to unaffiliated customers-Export 741 1,178 1,919
----------------------------------------- --------------
Total $ 131,949 $ 3,565 $ 7,854 $ 143,368
========================================= ==============
Long lived assets: $ 357,552 $ 96,614 $ 47,454 $ (127,646) $ 373,974
- ----------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 1999
Net Sales:
Sales to unaffiliated customers-Domestic $ 101,123 $ 3,900 $ 4,519 $ 109,542
Sales to unaffiliated customers-Export 390 30 1,571 1,991
----------------------------------------- --------------
Total $ 101,513 $ 3,930 $ 6,090 $ 111,533
========================================= ==============
Long lived assets: $ 174,298 $ 97,449 $ 38,444 $ (13,787) $ 296,404
- ----------------------------------------------------------------------------------------------------------------------------
Sales to three customers exceeded 10% of total net sales for the three months
ended March 31, as follows:
Customer Customer Customer
One Two Three Total
- --------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 2000
Sales dollars: $ 26,032 $ 24,450 $ 20,604 $ 71,086
Percentage of total sales: 18.2% 17.1% 14.4% 49.7%
--------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 1999
Sales dollars: $ 12,926 $ 27,794 $ 11,710 $ 52,430
Percentage of total sales: 11.6% 24.9% 10.5% 47.0%
- ---------------------------------------------------------------------------------------------------
Each geographic segment made sales to all three major customers in the first
quarter of 2000 and 1999.
9
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 MARCH 31, 2000 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1999.
The following table sets forth certain income statement information of the
Company for the three months ended March 31, 2000 and March 31, 1999:
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
Net sales................................................. $143,368 100.0% $111,533 100.0%
Gross profit.............................................. 31,742 22.1% 26,092 23.4%
Operating expenses........................................ 8,400 5.9% 6,479 5.8%
Income from operations.................................... 23,342 16.3% 19,613 17.6%
Equity in earnings of affiliates.......................... 126 0.1% 2,315 2.1%
Other Income (expense).................................... (10,776) (7.5%) (9,259) (8.3%)
Net income................................................ 7,361 5.1% 7,324 6.6%
OTHER DATA:
EBITDA.................................................... 31,339 21.8%(a) $27,856 22.9%(a)
- --------------
(a) Represents EBITDA less adjusted equity in earnings of affiliates as a
percent of sales.
NET SALES. Net sales increased by $31.9 million, or 28.6%, for the three months
ended March 31, 2000 to $143.4 million, compared to $111.5 million for the three
months ended March 31, 1999. The increase in net sales is primarily due to
including total sales from AKW L.P. ("AKW"), the Company's wholly owned
subsidiary, with the consolidated sales of the Company effective April 1, 1999,
the date of the acquisition of Kaiser Aluminum and Chemical Corporation's 50%
interest in AKW (the "AKW Acquisition"). Prior to the AKW Acquisition, AKW sales
were accounted for on the equity method and not included in the consolidated net
sales. Excluding the $29.5 million in sales at AKW during the first quarter of
2000, net sales would have increased by $2.4 million, or 2.2%, for the three
months ended March 31, 2000 to $113.9, compared to $111.5 million for the three
months ended March 31, 1999. Due to general economic conditions, the Company
anticipates market demand to soften in the second half of the year.
GROSS PROFIT. Gross profit increased by $5.6 million, or 21.5%, to $31.7 million
for the three months ended March 31, 2000 from $26.1 million for the three
months ended March 31, 1999. The $5.6 million increase in gross profit was
primarily due to $7.8 million gross profit at AKW, which has been accounted for
on a consolidated basis effective with the AKW Acquisition on April 1, 1999,
offset by lower gross profits at Accuride de Mexico, S.A. de C.V. ("AdM"), a
wholly owned subsidiary of the Company. The decrease in gross profit at AdM was
due principally to higher than anticipated operating costs associated with the
transition to the new facility in Monterrey, Mexico. The Company anticipates
that these transition issues will be resolved in the second half of 2000. Gross
profit as a percentage of sales decreased 1.3%, to 22.1% for the three months
ended March 31, 2000 from 23.4% for the three months ended March 31, 1999. The
primary reasons for this decrease include (1) an increase in the cost of
10
aluminum, (2) AdM transition costs relating to the new facility as discussed
above, (3) unfavorable change in the Canadian/U.S. exchange rate, and (4) a
shift in product mix at our Columbia, Tennessee, facility involving a lower
margin product.
OPERATING EXPENSES. Operating expenses increased by $1.9 million, or 29.2%, to
$8.4 million for the three months ended March 31, 2000 from $6.5 million for the
three months ended March 31, 1999. This increase was due to an increase in
selling, general and administrative expense and research and development costs
associated with AKW, which has been accounted for on a consolidated basis
effective with the AKW Acquisition on April 1, 1999.
OTHER INCOME (EXPENSE). Interest expense increased by $1.6 million, or 17.8%, to
$10.6 million for the three month period ended March 31, 2000 compared to $9.0
million for the three months ended March 31,1999, due primarily to the new debt
incurred for the AKW Acquisition on April 1, 1999. Equity in earnings of
affiliates decreased by $2.2 million to $0.1 million for the three months ended
March 31, 2000 from $2.3 million for the three months ended March 31, 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. Net other
expenses decreased by $0.1 million for the three months ended March 31, 2000 to
$0.2 million from $0.3 million incurred for the three months ended March 31,
1999 primarily due to an increase in interest income.
EBITDA. EBITDA increased by $3.4 million, or 12.2%, to $31.3 million for the
three months ended March 31, 2000 from $27.9 million for the three months ended
March 31, 1999 due to the inclusion of 100% of AKW's earnings offset by lower
gross profit at AdM and higher operating costs. In determining EBITDA for the
three months ended March 31, 2000, and 1999, income from operations has been
adjusted by (i) depreciation and amortization (except for amortization of
deferred financing costs) and (ii) equity in earnings of affiliates.
NET INCOME. Net income increased 1.4% to $7.4 million for the three months ended
March 31, 2000 from $7.3 million for the three months ended March 31, 1999 due
to higher pretax earnings, as described above.
CHANGES IN FINANCIAL CONDITION
At March 31, 2000, the Company's total assets amounted to $530.9 million, as
compared to $525.8 million at December 31, 1999. The $5.1 million or 1.0%
increase in total assets during the three months ended March 31, 2000 was
primarily the result of an increase in net property, plant and equipment of $5.0
million, an increase in net receivables of $10.4 million, an increase in
inventory of $2.3 million, offset by a decrease of $11.1 million in cash and
cash equivalents and a $1.0 million decrease in goodwill. Cash decreased as a
result of capital spending and changes in working capital. Inventory increased
due to higher production volumes. The increase in net property, plant and
equipment was primarily due to investments in the Company's expansion project in
Erie, Pennsylvania. Net receivables increased due to higher sales in the month
of March 2000 compared to December 1999.
At March 31, 2000, the Company's total liabilities amounted to $555.2 million,
as compared to $557.9 million at December 31, 1999. The $2.7 million or 0.5%
decrease in total liabilities was primarily due to a $4.4 million decrease in
accrued payroll and compensation, a $4.6 million decrease in accrued interest
payable, a $1.5 million decrease in accrued and other liabilities, offset by a
$5.0 million increase in accounts payable and a $3.2 million increase in
deferred income taxes payable. Accrued payroll and compensation decreased as
1999 management bonuses and employee profit sharing were paid in the first
quarter of 2000. The decrease in accrued interest was primarily due to timing of
interest payments.Accounts payable increased due to the higher production
volumes.
11
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 March 31, 2000, the Company had cash and short-term investments of $21.4
million compared to $32.5 million at December 31, 1999. The Company's operating
activities provided $0.6 million and the financing activities provided $0.5
million. The Company's investing activities for the three months ended March 31,
2000 used $12.1 million compared to $8.1 million for the three months ended
March 31, 1999.
Cash flow from financing activities during the three months ended March 31, 2000
was $0.5 million compared to $38.2 million for the three months ended March 31,
1999.
The Company incurred capital expenditures in 1999 of $46 million. The Company
expects its capital expenditures to be approximately $50 million in 2000. It is
anticipated that these expenditures will fund (i) approximately $2 million for
technology advancement projects; (ii) investments in productivity and capacity
expansion improvements in 2000 of approximately $36 million; (iii) maintenance
of business expenditures of approximately $10 million; and (iv) quality
improvements of approximately $2 million. Future investments in productivity
improvements are expected to be focused on capacity expansion, additional
automation, shop floor and engineering systems and improved coating
capabilities.
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 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.
YEAR 2000 COMPLIANCE
As of May 10, 2000 we had not experienced any Year 2000-related disruption in
the operation of our systems. Although most Year 2000 problems should have
become evident on January 1, 2000, additional Year 2000-related problems may
become evident only after that date.
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
12
identifies the following important factors which could cause the Company's
financial results to differ materially from any such results which might be
projected, forecast, estimated or budgeted by the Company in forward-looking
statements:
- -- significant indebtedness of the Company may have important consequences,
including, but not limited to, impairment of the Company's ability to
obtain additional financing, reduction of funds available for operations
and business opportunities or limitation on the Company's ability to
dispose of assets;
- -- the Company's ability to service its indebtedness is dependent upon
operating cash flow of its subsidiaries;
- -- 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;
- -- cyclical nature of industry could cause fluctuation in demand for Company's
products;
- -- interruption in supply of steel or aluminum could reduce Company's ability
to obtain favorable sourcing of such raw materials;
- -- the Company's competitors could reduce the market share of the Company's
product;
- -- potential liability of the Company for environmental matters and the costs
of compliance with certain governmental regulations could have a material
adverse effect on the Company's financial condition and may adversely
affect the Company's ability to sell or rent such property or to borrow
using such property as collateral;
- -- 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;
- -- 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.
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
March 31, 2000, the Company had open foreign exchange forward contracts and
options with a notional amount of $164.9 million. Foreign exchange forward
contract maturities were from one to fifteen months, and option contract
maturities were from two to eight 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 counterparty
to the foreign exchange contracts is a financial institution with an investment
grade credit rating. 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
13
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 March 31, 2000, would have an
impact of approximately $14.9 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 March 31, 2000:
(Dollars in Fair
Thousands) 2000 2001 2002 2003 2004 Thereafter Total Value
---- ---- ---- ---- ---- ---------- ----- -----
Long-term Debt:
Fixed $200,000 $200,000 $173,000
Avg. Rate 9.25% 9.25%
Variable $0 $9,375 $14,850 $5,475 $2,350 $221,900 $253,950 $253,950
Avg. Rate 7.97% 7.98% 8.00% 8.04% 8.04% 8.03%
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 March 31, 2000, $98.0 million notional amount of interest rate swap was
outstanding. On average during the three months ended March 31, 2000, the
Company paid 5.75% as a fixed rate and received 6.1426% 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 notional 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 March 31, 2000, $34.3 million notional amount of interest
rate cap was outstanding. Under the terms of the interest rate cap, the Company
is entitled to receive from the 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 March 31, 2000, the Company had open commodity price swaps with a notional
amount of $39.7 million. These commodity price swaps had maturities from one to
twenty-one months. A 10% adverse change in commodity prices would have an impact
of approximately $4.0 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.
14
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 6. Exhibits and Reports on Form 8-K
a. Exhibits:
EXHIBIT NO DESCRIPTION
---------- -----------
27.1 Financial Data Schedule
b. Form 8-K:
No reports on Form 8-K have been filed during the three month period ended March
31, 2000.
15
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
Dated: May 10, 2000
- ------------------------------ ------------
William P. Greubel
President and Chief Executive Officer
Dated: May 10, 2000
- ------------------------------ ------------
John R. Murphy
Executive Vice President--Finance and
Chief Financial Officer
Principal Accounting Officer
16