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 June 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)
Delaware 61-1109077
- -------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7140 Office Circle
Evansville, IN 47715
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(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
--- ---
As of June 30, 2000, 24,833 shares of Accuride Corporation common stock, par
value $.01 per share, were outstanding.
ACCURIDE CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2000 (Unaudited) and 3
December 31, 1999
Consolidated Statements of Income for the Six Months 4
Ended June 30, 2000 and 1999 (Unaudited)
Consolidated Statement of Stockholders' Equity (Deficiency) for the 5
Six Months Ended June 30, 2000 (Unaudited)
Consolidated Statements of Cash Flows for the Six Months Ended 6
June 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
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACCURIDE CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
June 30, December 31,
ASSETS 2000 1999
(Unaudited)
---------- ------------
CURRENT ASSETS:
Cash and cash equivalents $ 47,307 $ 32,493
Customer receivables, net of allowance for doubtful
accounts of $597 and $462 56,031 57,586
Other receivables 4,300 12,400
Inventories, net 47,487 41,143
Supplies 8,960 8,509
Income taxes receivable 1,940 2,957
Prepaid expenses 1,499 818
--------- ---------
Total current assets 167,524 155,906
PROPERTY, PLANT AND EQUIPMENT, NET 223,565 212,693
OTHER ASSETS:
Goodwill, net of accumulated amortization
of $36,862 and $34,775 129,440 131,527
Investment in affiliates 2,974 2,735
Deferred financing costs, net of accumulated
amortization of $2,883 and $1,835 10,903 12,147
Other $ 9,780 $ 10,764
--------- ---------
TOTAL 544,186 525,772
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable $ 49,481 $ 41,598
Current portion of long-term debt 3,125 --
Short term notes payable 7,500 7,500
Accrued payroll and compensation 7,910 11,556
Accrued interest payable 11,868 12,056
Deferred income taxes 290 598
Accrued and other liabilities 9,302 9,613
--------- ---------
Total current liabilities 89,476 82,921
LONG-TERM DEBT, less current portion 447,641 453,061
DEFERRED INCOME TAXES 10,072 4,404
OTHER LIABILITIES 18,450 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, 24,833 and 24,874
shares issued and outstanding in 2000 and 1999 24,888 24,738
Treasury Stock, 80 and 10 shares at cost in 2000 and 1999 (471) (51)
Stock subscriptions receivable (858) (1,539)
Retained earnings (deficit) (45,012) (55,279)
--------- ---------
Total stockholders' equity (deficiency) (21,453) (32,131)
--------- ---------
TOTAL $ 544,186 $ 525,772
========= =========
See notes to unaudited consolidated financial statements.
3
ACCURIDE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ---------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
NET SALES $ 136,956 $ 136,052 $ 280,324 $ 247,585
COST OF GOODS SOLD 109,376 104,826 221,002 190,267
--------- --------- --------- ---------
GROSS PROFIT 27,580 31,226 59,322 57,318
OPERATING:
Selling, general and administrative 9,915 7,695 18,315 14,174
--------- --------- --------- ---------
INCOME FROM OPERATIONS 17,665 23,531 41,007 43,144
OTHER INCOME (EXPENSE):
Interest income 469 165 852 230
Interest (expense) (10,097) (10,005) (20,655) (18,961)
Equity in earnings of affiliates 113 11 239 2,326
Other (expense), net (3,142) (556) (3,743) (924)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 5,008 13,146 17,700 25,815
INCOME TAX PROVISION 2,102 5,522 7,433 10,843
MINORITY INTEREST -- 67 -- 91
--------- --------- --------- ---------
NET INCOME $ 2,906 $ 7,557 $ 10,267 $ 14,881
========= ========= ========= =========
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 Stockholders'
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 10,267 10,267
Proceeds from stock subscriptions receivable 701 701
Issuance of Management Shares 150 (150)
Redemption of shares -- (420) 130 -- (290)
------- -------- ------- -------- --------
BALANCE AT JUNE 30, 2000 $24,888 $ (471) $ (858) $(45,012) $(21,453)
======= ======== ======= ======== ========
See notes to unaudited consolidated financial statements.
5
ACCURIDE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Six Months Ended
June 30,
-------- ---------
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 10,267 $ 14,881
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 13,373 11,120
Amortization 3,190 3,016
Losses on asset disposition 787 --
Deferred income taxes 5,360 6,284
Equity in earnings of affiliates (239) (2,326)
Minority Interest -- 91
Changes in certain assets and liabilities:
Receivables 9,655 (766)
Inventories and supplies (6,795) (937)
Prepaid expenses and other assets 1,516 (997)
Accounts payable 7,883 8,576
Accrued and other liabilities (3,212) 37
-------- ---------
Net cash provided by operating activities 41,785 38,979
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (25,032) (21,364)
Payment for purchase of AKW L.P. -- (70,591)
Net cash distribution from AKW L.P. -- 265
Other -- (18)
-------- ---------
Net cash used in investing activities (25,032) (91,708)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of short-term notes payable -- 4,589
Decrease in revolving line of credit -- (32,638)
Proceeds from issuance of long-term debt -- 100,000
Payments on long-term debt (2,350) --
Deferred financing costs -- (692)
Proceeds from stock subscriptions receivable 701 600
Redemption of shares (290) --
-------- ---------
Net cash (used in) provided by financing activities (1,939) 71,859
Increase in cash and cash equivalents 14,814 19,130
Cash and cash equivalents, beginning of period 32,493 3,471
-------- ---------
Cash and cash equivalents, end of period $ 47,307 $ 22,601
======== =========
See notes to unaudited consolidated financial statements.
6
ACCURIDE CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
AS OF JUNE 30, 2000 AND 1999 AND FOR THE SIX MONTHS ENDED JUNE 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 six months ended June 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:
Six months ended June 30,
2000 1999
Net Sales $ 280,324 $ 271,531
Net Income $ 10,267 $ 15,182
7
Note 3 - INVENTORIES - Inventories were as follows:
June 30, December 31,
2000 1999
Raw Materials $14,678 $ 6,451
Work in Process 12,405 12,106
Finished manufactured goods 18,095 20,225
LIFO adjustment 2,309 2,361
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Inventories, net $47,487 $41,143
======= =======
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 six months ended June
30, 2000 and 1999, the Company paid $19,740 and $16,331 for interest and $1,057
and $4,205 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" and Statement of Financial
Standards No. 138 ("SFAS 138"), "ACCOUNTING FOR CERTAIN DERIVATIVE AND CERTAIN
HEDGING ACTIVITIES." SFAS 133, as amended by SFAS 137 and SFAS 138, is effective
for the Company beginning January 1, 2001. The Statement establishes accounting
and reporting standards for derivative instruments and for hedging activities.
Management has not yet fully evaluated the effect of these new accounting
standards 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 and six months ended June 30, 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 JUNE 30, 2000
Net Sales:
Sales to unaffiliated customers-Domestic $123,988 $ 3,235 $ 7,386 $ 134,609
Sales to unaffiliated customers-Export 791 1,556 2,347
-------- ------- ------- ---------
Total $124,779 $ 3,235 $ 8,942 $ 136,956
======== ======= ======= =========
Long lived assets: $361,827 $95,663 $46,817 $(127,645) $ 376,662
THREE MONTHS ENDED JUNE 30, 1999
Net Sales:
Sales to unaffiliated customers-Domestic $123,061 $ 4,319 $ 5,806 $ 133,186
Sales to unaffiliated customers-Export 811 2,055 2,866
-------- ------- ------- ---------
Total $123,872 $ 4,319 $ 7,861 $ 136,052
======== ======= ======= =========
Long lived assets: $331,783 $97,483 $42,070 $(109,550) $361,786
SIX MONTHS ENDED JUNE 30, 2000
Net Sales:
Sales to unaffiliated customers-Domestic $255,195 $ 6,800 $14,063 $ 276,058
Sales to unaffiliated customers-Export 1,532 2,734 4,266
-------- ------- ------- ---------
Total $256,727 $ 6,800 $16,797 $ 280,324
======== ======= ======= =========
Long lived assets: $361,827 $95,663 $46,817 $(127,645) $ 376,662
SIX MONTHS ENDED JUNE 30, 1999
Net Sales:
Sales to unaffiliated customers-Domestic $224,184 $ 8,219 $10,325 $ 242,728
Sales to unaffiliated customers-Export 1,201 30 3,626 4,857
-------- ------- ------- ---------
Total $225,385 $ 8,249 $13,951 $ 247,585
======== ======= ======= =========
Long lived assets: $331,783 $97,483 $42,070 $(109,550) $ 361,786
9
Sales to three customers exceeded 10% of total net sales for the three and six
months ended June 30, as follows:
Customer Customer Customer
One Two Three Total
-------- -------- -------- ---------
THREE MONTHS ENDED JUNE 30, 2000
Sales dollars: $ 28,007 $ 20,879 $ 16,362 $ 65,248
Percentage of total sales: 20.4% 15.2% 11.9% 47.6%
THREE MONTHS ENDED JUNE 30, 1999
Sales dollars: $ 23,045 $ 23,780 $ 18,432 $ 65,257
Percentage of total sales: 16.9% 17.5% 13.5% 47.9%
SIX MONTHS ENDED JUNE 30, 2000
Sales dollars: $ 52,436 $ 46,927 $ 36,969 $ 136,332
Percentage of total sales: 18.7% 16.7% 13.2% 48.6%
SIX MONTHS ENDED JUNE 30, 1999
Sales dollars: $ 50,839 $ 36,706 $ 30,142 $ 117,687
Percentage of total sales: 20.5% 14.8% 12.2% 47.5%
Each geographic segment made sales to all three major customers in the three and
six months ended June 30, 2000 and 1999.
10
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 JUNE 30, 2000 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1999.
The following table sets forth certain income statement information of the
Company for the three months ended June 30, 2000 and June 30, 1999:
June 30, 2000 June 30, 1999
------------- -------------
Net sales .............................. $ 136,956 100.0% $ 136,052 100.0%
Gross profit ........................... 27,580 20.1%(b) 31,226 23.0%
Operating expenses ..................... 9,915 7.2% 7,695 5.7%
Income from operations ................. 17,665 12.9% 23,531 17.3%
Equity in earnings of affiliates ....... 113 0.1% 11 0.0%
Other income (expense) ................. (12,770) (9.3%) (10,396) (7.6%)
Net income ............................. 2,906 2.1% 7,557 5.6%
OTHER DATA:
Adjusted EBITDA ........................ $ 31,371 22.8%(a) $ 30,792 22.6%(a)
- -------------------
(a) Represents Adjusted EBITDA less equity in earnings of affiliates as a
percent of sales.
(b) Includes one time restructuring adjustment for AdM of $3.3 million.
NET SALES. Net sales increased by $0.9 million, or 0.7%, for the three months
ended June 30, 2000 to $137.0 million, compared to $136.1 million for the three
months ended June 30, 1999. The increase is the result of increased sales volume
at the Erie, Pennsylvania, and Monterrey, Mexico, facilities and increased light
truck wheel orders, offset by softer sales to heavy truck OEM's. The Company
anticipates heavy truck market demand to soften in the second half of this year.
An excess of new and used trucks currently in inventory, lower valuation of used
trucks, significant fuel price increases, rising interest rates, and higher
driver recruiting costs will all contribute to lower sales for class 8 trucks.
GROSS PROFIT. Gross profit decreased $3.6 million, or 11.5%, to $27.6 million
for the three months ended June 30, 2000 from $31.2 million for the three
months ended June 30, 1999. The $3.6 million decrease in gross profit was
primarily due to lower gross profit 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 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. The
Company anticipates that these transition issues will be resolved in the
second half of 2000. Gross profit as a percentage of sales decreased 2.9%, to
20.1% for the three months ended June 30, 2000 from 23.0% for the three
months ended June 30, 1999. As explained above, AdM was the principal cause
for the deterioration in gross profit as a percentage of sales. Excluding
AdM, gross profit as a percentage of sales showed improvement due to an
increase in light wheel and aluminum wheel sales offset by an increase in
aluminum prices and an unfavorable change in the Canadian/U.S. exchange rate.
11
OPERATING EXPENSES. Operating expenses increased $2.2 million, or 28.6%, to $9.9
million for the three months ended June 30, 2000 from $7.7 million for the three
months ended June 30, 1999. This increase is the result of expenses attributable
to aborted merger and acquisition costs. These one time non-operating costs are
included in the $2.7 million EBITDA adjustment as discussed below. Of the $2.7
million EBITDA adjustment, $0.5 million was incurred during the three month
period ended March 31, 2000 while $2.2 million was incurred during the three
month period ended June 30, 2000. Excluding the $2.2 million of aborted merger
and acquisition costs incurred during the three month period ended June 30,
2000, operating expenses remained constant for both periods.
OTHER INCOME (EXPENSE). Other expense increased by $2.4 million, or 23.1%, to
$12.8 million for the three month period ended June 30, 2000 compared to $10.4
million for the three months ended June 30, 1999, due primarily to fluctuations
in foreign currency rates that had a negative impact on hedging instruments and
resulted in unrealized losses. Interest expense remained constant.
ADJUSTED EBITDA. Adjusted EBITDA increased by $0.6 million, or 1.9%, to $31.4
million for the three months ended June 30, 2000 from $30.8 million for the
three months ended June 30, 1999. In determining Adjusted EBITDA for the three
months ended June 30, 2000, income from operations has been adjusted by (i)
depreciation and amortization (except for amortization of deferred financing
costs), (ii) equity in earnings of affiliates, (iii) $2.7 million of aborted
merger and acquisition costs, and (iv) a $3.3 million adjustment for
restructuring costs related to operations at the Monterrey, Mexico, facility .
In determining Adjusted EBITDA for the three months ended June 30, 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 decreased 61.8% to $2.9 million for the three months
ended June 30, 2000 from $7.6 million for the three months ended June 30, 1999
due to lower pretax earnings, as described above.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999.
The following table sets forth certain income statement information of the
Company for the six months ended June 30, 2000 and June 30, 1999:
June 30, 2000 June 30, 1999
------------- -------------
Net sales .............................. $ 280,324 100.0% $ 247,585 100.0%
Gross profit ........................... 59,322 21.2%(b) 57,318 23.2%
Operating expenses ..................... 18,315 6.5% 14,174 5.7%
Income from operations ................. 41,007 14.6% 43,144 17.4%
Equity in earnings of affiliates ....... 239 0.1% 2,326 0.9%
Other Income (expense) ................. (23,546) (8.4%) (19,655) (8.0%)
Net income ............................. 10,267 3.7% 14,881 6.0%
OTHER DATA:
Adjusted EBITDA ........................ $ 62,708 22.3%(a) $ 58,648 22.7%(a)
- -------------------
(a) Represents Adjusted EBITDA less equity in earnings of affiliates as a
percent of sales.
(b) Includes one time restructuring adjustment for AdM of $3.3 million.
12
NET SALES. Net sales increased by $32.7 million, or 13.2%, for the six months
ended June 30, 2000 to $280.3 million, compared to $247.6 million for the six
months ended June 30, 1999. The increase in net sales is primarily 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 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 $3.2 million, or 1.3%, for the six
months ended June 30, 2000 to $250.8 million, compared to $247.6 million for the
six months ended June 30, 1999. The increase is the result of increased sales
volume at the AKW and AdM facilities and increased light truck wheel orders,
offset by softer sales to heavy truck OEM's. The Company anticipates heavy truck
market demand to soften in the second half of 2000. An excess of new and used
trucks currently in inventory, lower valuation of used trucks, significant fuel
price increases, rising interest rates, and higher driver recruiting costs will
all contribute to lower sales for class 8 trucks.
GROSS PROFIT. Gross profit increased by $2.0 million, or 3.5%, to $59.3
million for the six months ended June 30, 2000 from $57.3 million for the six
months ended June 30, 1999. The $2.0 million increase in gross profit was
primarily due to (1) the inclusion of gross profit at AKW in the first
quarter of 2000, (2) improved gross profit at AKW in the second quarter of
2000 compared to the second quarter of 1999 due to increased sales, (3)
continued cost savings at the Henderson, Kentucky, facility, offset by (4)
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. The Company anticipates that
these transition issues will be resolved in the second half of 2000. Gross
profit as a percentage of sales decreased 2.0%, to 21.2% for the six months
ended June 30, 2000 from 23.2% for the six months ended June 30, 1999. As
explained above, AdM was the principal cause for the deterioration in gross
profit as a percentage of sales. Excluding AdM, gross profit as a percentage
of sales showed improvement due to an increase in light wheel and aluminum
wheel sales offset by an increase in aluminum prices and an unfavorable change
in the Canadian/U.S. exchange rate.
OPERATING EXPENSES. Operating expenses increased by $4.1 million, or 28.9%, to
$18.3 million for the six months ended June 30, 2000 from $14.2 million for the
six months ended June 30, 1999. This increase was due to (1) an increase in
selling, general and administrative expense and research and development costs
associated with AKW, and (2) expenses attributable to aborted merger and
acquisition costs which are included in the $2.7 million EBITDA adjustment as
discussed below. On a pro forma basis adjusting for the AKW acquisition on April
1, 1999, and excluding the one time non-operating costs associated with aborted
merger and acquisition activities, operating expenses increased by $0.2 million,
or 1.3%, to $15.6 million for the six months ended June 30, 2000 from $15.4
million for the six months ended June 30, 1999.
OTHER INCOME (EXPENSE). Interest expense increased by $1.7 million, or 8.9%, to
$20.7 million for the six month period ended June 30, 2000 compared to $19.0
million for the six months ended June 30,1999, due primarily to the interest
costs related to the new debt incurred for the AKW Acquisition on April 1, 1999.
Realized and unrealized losses related to foreign currency rate changes
increased $2.9 million to $3.8 million for the six month period ended June 30,
2000 compared to $0.9 million for the six months ended June 30, 1999. These
expenses were offset by an increase in interest income of $0.7 million for the
first six months of 2000 due to higher cash balances. Equity in earnings of
affiliates decreased by $2.1 million to $0.2 million for the six months ended
June 30, 2000 from $2.3 million for the six months ended June 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.
13
ADJUSTED EBITDA. Adjusted EBITDA increased by $4.1 million, or 7.0%, to $62.7
million for the six months ended June 30, 2000 from $58.6 million for the six
months ended June 30, 1999 due to the inclusion of 100% of AKW's earnings offset
by the lower gross profit at AdM . In determining Adjusted EBITDA for the six
months ended June 30, 2000, income from operations has been adjusted by (i)
depreciation and amortization (except for amortization of deferred financing
costs), (ii) equity in earnings of affiliates, (iii) $2.7 million of aborted
merger and acquisition costs, and (iv) a $3.3 million adjustment for
restructuring costs related to operations at the Monterrey, Mexico, facility. In
determining Adjusted EBITDA for the six months ended June 30, 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 decreased 30.9% to $10.3 million for the six months ended
June 30, 2000 from $14.9 million for the six months ended June 30, 1999 due to
lower pretax earnings, as described above.
CHANGES IN FINANCIAL CONDITION
At June 30, 2000, the Company's total assets amounted to $544.2 million, as
compared to $525.8 million at December 31, 1999. The $18.4 million or 3.5%
increase in total assets during the six months ended June 30, 2000 was primarily
the result of an increase in net property, plant and equipment of $10.9 million,
an increase in cash and cash equivalents of $14.8 million, an increase in
inventory of $6.9 million, a $0.6 million increase in prepaid expenses, and an
increase in investment of affiliates of $0.3 million, offset by a decrease of
$9.7 million in net receivables, a $2.1 million decrease in goodwill, a $1.0
million decrease in income taxes receivable, a $1.2 million decrease in deferred
financing costs, and a $1.1 million decrease in other assets. The increase in
net property, plant and equipment was primarily due to investments in the
Company's expansion project in Erie, Pennsylvania. Cash and cash equivalents
increased as a result of changes in working capital. Inventory increased due to
implementing an aluminum tolling program coupled with an inventory build related
to the capital expansion in Erie, Pennsylvania and an advance purchase of steel
at favorable terms at the Henderson, Kentucky, facility. Prepaid expenses
increased due to the timing of payments. Net receivables decreased due to new
distributor payment terms and an overall improvement in the collection cycle,
the receipt of several large business tax refunds, and the elimination of the
aluminum scrap receivable via implementing the tolling program. Income taxes
receivable decreased due to the receipt of a federal income tax refund.
At June 30, 2000, the Company's total liabilities amounted to $565.6 million, as
compared to $557.9 million at December 31, 1999. The $7.7 million or 1.4%
increase in total liabilities was primarily due to a $7.9 million increase in
accounts payable, a $5.7 million increase in deferred income taxes payable, a
$0.1 million net change in other liabilities, offset by a $2.3 million decrease
in debt, and a $3.7 million decrease in accrued payroll and compensation. The
increase in accounts payable is related to the expansion project in Erie,
Pennsylvania, along with the advance purchase of steel at the Henderson,
Kentucky, facility. Long term debt decreased as the Company prepaid principal
installments on its senior secured A, B, and C term loans due on or before
January 21, 2002. Accrued payroll and compensation decreased as 1999 management
bonuses and employee profit sharing were paid in 2000.
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.
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As of June 30, 2000, the Company had cash and cash equivalents of $47.3 million
compared to $32.5 million at December 31, 1999. The Company's operating
activities for the six months ended June 30, 2000 provided $41.8 million
compared to $39.0 million for the six months ended June 30, 1999. The Company's
financing activities used $1.9 million during the six months ended June 30,
2000. Cash flow from financing activities provided $71.9 million for the six
months ended June 30, 1999. The Company's investing activities for the six
months ended June 30, 2000 used $25.0 million compared to $91.7 million for the
six months ended June 30, 1999.
During the six month period ended June 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 (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. Capital expenditures in the second half of 2000 will focus on
completing the capacity expansion project which is currently underway at the
Erie, Pennsylvania facility.
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.
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 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
15
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;
- - 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;
- - 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;
- - 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
June 30, 2000, the Company had open foreign exchange forward contracts and
options of $192.6 million. Foreign exchange forward contract maturities were
from one to seventeen months, and option contract maturities were from two to
five 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 June 30, 2000, would have an impact of
approximately $18.3 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.
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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 June 30, 2000:
(Dollars in Thousands) Fair
2000 2001 2002 2003 2004 Thereafter Total Value
---- ---- ---- ---- ---- ---------- ----- -----
Long-term Debt:
Fixed $200,000 $200,000 $168,000
Avg. Rate 9.25% 9.25%
Variable $0 $6,250 $12,500 $5,475 $2,350 $221,900 $248,475 $248,475
Avg. Rate 8.38% 8.38% 8.31% 8.21% 8.21% 8.23%
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 June 30, 2000, an interest rate swap of $98.0 million was outstanding. On
average during the six months ended June 30, 2000, the Company paid 5.75% as a
fixed rate and received 6.1891% 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 June 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 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 June 30, 2000, the Company had open commodity price swaps of $35.5 million.
These commodity price swaps had maturities from one to eighteen months. A 10%
adverse change in commodity prices would have an impact of approximately $3.6
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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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 June 30, 2000, the Company issued 29 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 $150,413. During such period, the
Company also issued options to purchase 75 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. In addition, the Company
repurchased 30 shares of the Company's common stock from former management
employees for approximately $0.2 million
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:
Exhibit No Description
---------- -----------
27.1 Financial Data Schedule
b. Form 8-K:
No reports on Form 8-K have been filed during the six month period ended
June 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
- ------------------------------- Dated: August 10, 2000
William P. Greubel
President and Chief Executive Officer
- ------------------------------- Dated: August 10, 2000
John R. Murphy
Executive Vice President - Finance and Chief Financial Officer
Principal Accounting Officer
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