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, 2001.
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
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ACCURIDE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 61-1109077
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(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 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 April 30, 2001, 24,796 shares of Accuride Corporation common stock, par
value $.01 per share, were outstanding.
ACCURIDE COPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2001 (Unaudited) and 3
December 31, 2000
Consolidated Statements of Income for the Three Months 4
Ended March 31, 2001 and 2000 (Unaudited)
Consolidated Statement of Stockholders' Equity (Deficiency) for the 5
Three Months Ended March 31, 2001 (Unaudited)
Consolidated Statements of Cash Flows for the Three Months Ended 6
March 31, 2001 and 2000 (Unaudited)
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and 9
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 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,
ASSETS 2001 2000
(UNAUDITED)
--------------------------------
CURRENT ASSETS:
Cash and cash equivalents $ 48,890 $ 38,516
Customer receivables, net of allowance for doubtful accounts of $779 and $806 40,383 31,059
Other receivables 2,212 4,325
Inventories, net 32,999 37,484
Supplies 8,166 8,545
Deferred income taxes 5,336 5,175
Income taxes receivable 1,254 599
Prepaid expenses and other current assets 1,009 941
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Total current assets 140,249 126,644
PROPERTY, PLANT AND EQUIPMENT, NET 233,485 237,410
OTHER ASSETS:
Goodwill, net of accumulated amortization of $39,993 and $38,949 126,309 127,353
Investment in affiliates 3,309 3,189
Deferred financing costs, net of accumulated amortization of $4,926 and $4,436 9,056 9,546
Pension benefit plan asset 9,686 9,678
Other 1,322 1,451
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TOTAL $ 523,416 $ 515,271
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable $ 31,997 $ 38,231
Short term notes payable 47,500 17,500
Accrued payroll and compensation 6,096 7,584
Accrued interest payable 6,886 11,830
Accrued and other liabilities 12,680 10,006
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Total current liabilities 105,159 85,151
LONG-TERM DEBT 431,413 431,386
OTHER POSTRETIREMENT BENEFIT PLAN LIABILITY 15,807 15,734
OTHER LIABILITIES 1,006 1,234
DEFERRED INCOME TAXES 6,721 10,966
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, 24,923 and 24,923 shares issued; 24,796 and 24,837 outstanding in 2001 and 2000 24,939 24,939
Treasury Stock, 127 shares and 86 shares at cost in 2001 and 2000 (735) (505)
Stock subscriptions receivable (672) (868)
Retained earnings (deficit) (59,960) (52,766)
Other comprehensive loss (262)
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Total stockholders' equity (deficiency) (36,690) (29,200)
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TOTAL $ 523,416 $ 515,271
============== ==============
See notes to unaudited consolidated financial statements.
3
ACCURIDE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-------------------------------
2001 2000
NET SALES $ 90,931 $ 143,368
COST OF GOODS SOLD 81,985 111,626
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GROSS PROFIT 8,946 31,742
OPERATING:
Selling, general and administrative 7,257 8,400
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INCOME FROM OPERATIONS 1,689 23,342
OTHER INCOME (EXPENSE):
Interest income 395 383
Interest (expense) (10,408) (10,558)
Equity in earnings of affiliates 120 126
Other (expense), net (3,015) (601)
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INCOME (LOSS) BEFORE INCOME TAXES (11,219) 12,692
INCOME TAX PROVISION (4,025) 5,331
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NET INCOME (LOSS) $ (7,194) $ 7,361
=========== ===========
See notes to unaudited consolidated financial statements.
4
ACCURIDE CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
COMMON
STOCK AND ACCUMULATED TOTAL
ADDITIONAL STOCK OTHER RETAINED STOCKHOLDERS'
COMPREHENSIVE PAID IN TREASURY SUBSCRIPTIONS COMPREHENSIVE EARNINGS EQUITY
INCOME CAPITAL STOCK RECEIVABLE INCOME (LOSS) (DEFICIT) (DEFICIENCY)
--------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000 $ 24,939 $ (505) $ (868) $(52,766) $ (29,200)
Net income (Loss) (7,194) (7,194) (7,194)
Proceeds from stock subscriptions
receivable 196 196
Issuance of Management Shares -- --
Redemption of shares -- (230) -- (230)
Other Comprehensive Income (Loss):
Cumulative Change in Accounting
(Net of tax) (189) (189) (189)
Realization of Deferred Amounts
(Net of tax) (73) (73) (73)
Comprehensive Income (Loss) $ (7,456)
=========
BALANCE AT MARCH 31, 2001 $ 24,939 $ (735) $ (672) $ (262) $(59,960) $ (36,690)
========= ======== ========== =========== ======== =========
See notes to unaudited consolidated financial statements.
5
ACCURIDE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------------------
2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ (7,194) $ 7,361
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation
6,143 6,825
Amortization 1,561 1,571
Losses on asset disposition 4 372
Deferred income taxes (4,406) 3,217
Equity in earnings of affiliates
(120) (126)
Changes in certain assets and liabilities:
Receivables (7,211) (10,390)
Inventories and supplies 4,864 (2,857)
Prepaid expenses and other assets (448) 564
Accounts payable (6,234) 4,998
Accrued and other liabilities (4,329) (10,914)
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Net cash (used in) provided by operating activities (17,370) 621
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (2,222) (12,147)
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Net cash used in investing activities (2,222) (12,147)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in revolving credit advance 30,000 --
Proceeds from stock subscriptions receivable 196 653
Redemption of shares (230) (178)
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Net cash provided by financing activities 29,966 475
Increase (decrease) in cash and cash equivalents 10,374 (11,051)
Cash and cash equivalents, beginning of period 38,516 32,493
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Cash and cash equivalents, end of period $ 48,890 $ 21,442
======== ========
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, 2001 AND DECEMBER 31, 2000 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2000
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Note 1 - BASIS OF PRESENTATION - The accompanying unaudited consolidated
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America, except that the unaudited
consolidated financial statements do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. However, in the opinion of
Accuride Corporation (the "Company" or "Accuride"), 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, 2001 are not
necessarily indicative of the results to be expected for the year ending
December 31, 2001. 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, 2000.
MANAGEMENT'S ESTIMATES AND ASSUMPTIONS - The preparation of financial statements
in conformity with accounting principals generally accepted in the United States
of America 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 - ACCOUNTING CHANGE - Effective January 1, 2001, Accuride adopted SFAS
133, which establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. All derivatives, whether designated in
hedging relationships or not, are required to be recorded on the balance sheet
at fair value. If the derivative is designated as a fair value hedge, the
changes in fair value of the derivative and of the hedged item attributable to
the hedged risk are recognized in earnings. If the derivative is designated as a
cash flow hedge, the effective portions of changes in the fair value of the
derivative are recorded in other comprehensive income (OCI) and are recognized
in the income statement when the hedged item affects earnings. Ineffective
portions of changes in the fair value of cash flow hedges are recognized in
earnings.
The adoption of SFAS 133 resulted in a net pre-tax reduction to OCI of $300
($189 after tax). The reduction in OCI was attributable to a net unrealized loss
on cash flow hedges. During the three month period ended March 31, 2001, $73 was
reclassified into earnings as the related derivative instruments matured. The
remaining $262 in OCI will be reclassified into earnings as realized during the
next nine months.
The Company uses derivative instruments, which are not designated as hedging
instruments, to manage exposures to foreign currency, commodity prices, and
interest rate risks. The Company's objectives for holding derivatives are to
minimize the risks using the most effective methods to eliminate or reduce the
impacts of these exposures.
7
Note 3 - INVENTORIES - Inventories were as follows:
March 31, December 31,
2001 2000
Raw Materials $ 4,543 $ 7,650
Work in Process 11,616 11,163
Finished manufactured goods 15,991 17,731
LIFO adjustment 849 940
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Inventories, net $32,999 $37,484
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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 three months ended March
31, 2001 and 2000, the Company paid $14,835 and $14,655 for interest and $883
and $309 for income taxes, respectively.
Note 6 - SUBSEQUENT EVENTS- On May 1, 2001, Accuride announced plans to
restructure its single light wheel production. As a result, Accuride will be
closing its Columbia, Tennessee, facility and will be consolidating the
production of light wheels, currently produced in Columbia, into its other
facilities. It is anticipated that any impact to the financial statements will
be assessed and recorded in the second quarter of 2001. Consolidation of the
operations should be completed by the third quarter of 2002.
8
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. Accuride's actual results may differ materially from those
indicated by such forward-looking statements.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 2000.
The following table sets forth certain income statement information of Accuride
for the three months ended March 31, 2001 and March 31, 2000:
MARCH 31, 2001 MARCH 31, 2000
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Net sales ...................................... $ 90,931 100.0% $ 143,368 100.0%
Gross profit ................................... 8,946 9.8% 31,742 22.1%
Operating expenses ............................. 7,257 8.0% 8,400 5.9%
Income from operations ......................... 1,689 1.9% 23,342 16.3%
Equity in earnings of affiliates ............... 120 0.1% 126 0.1%
Other income (expense) ......................... (13,028) (14.3%) (10,776) (7.5%)
Net income (loss) .............................. (7,194) (7.9%) 7,361 5.1%
OTHER DATA:
Adjusted EBITDA ................................ $ 9,989 10.9%(a) $ 31,339 21.8%(a)
- --------
(a) Represents Adjusted EBITDA less equity in earnings of affiliates as a
percent of sales.
NET SALES. Net sales decreased by $52.5 million, or 36.6%, for the three months
ended March 31, 2001 to $90.9 million, compared to $143.4 million for the three
months ended March 31, 2000. The decrease is due to the cyclical downturn of the
entire Heavy/Medium commercial vehicle market. The cyclicality of this market is
affected by a number of economic factors including inventory levels, interest
rates, industrial production, fuel prices, driver shortages, and general
economic demand for consumer goods. During the three months ended March 31,
2001, the severe industry downturn caused most of our OEM customers to
significantly cutback production levels. This reduction, coupled with continued
softness in the aftermarket, negatively affected Accurides' sales volume. We
anticipate the demand for Heavy/Medium Trucks to continue to be soft throughout
the first half of 2001 with gradual improvement beginning in the latter part of
this year.
GROSS PROFIT. Gross profit decreased $22.8 million, or 71.9%, to $8.9 million
for the three months ended March 31, 2001 from $31.7 million for the three
months ended March 31, 2000. The principal cause for the decrease in gross
profit was the decrease in sales volume. In addition to the decrease in sales
volume, gross profit was affected by unfavorable cost issues relating to the
production of wheels including higher natural gas prices and lower steel scrap
prices. These unfavorable variances were partially offset by productivity and
cost reduction improvements at our Monterrey, Mexico, facility and favorable
material resourcing efforts at our Henderson, Kentucky, facility. Gross profit
as a percentage of net sales decreased to 9.8% for the three months ended March
31, 2001 from 22.1% for the three months ended March 31, 2000. The decrease in
gross profit as a percentage of sales is due to lower margins resulting from
loss of volume and resulting per unit cost increases.
9
OPERATING EXPENSES. Operating expenses decreased $1.1 million, or 13.1%, to $7.3
million for the three months ended March 31, 2001 from $8.4 million for the
three months ended March 31, 2000. This decrease is the result of cost
containment efforts at the corporate level.
OTHER INCOME (EXPENSE). Other expense increased $2.2 million, or 20.4%, to $13.0
million for the three-month period ended March 31, 2001 compared to $10.8
million for the three months ended March 31, 2000, due primarily to fluctuations
in foreign currency rates that had a negative impact on derivative instruments
resulting in realized and unrealized losses.
ADJUSTED EBITDA. Adjusted EBITDA decreased $21.3 million, or 68.1%, to $10.0
million for the three months ended March 31, 2001 from $31.3 million for the
three months ended March 31, 2000 due to the lower gross profit as described
above. In determining Adjusted EBITDA for the three months ended March 31, 2001,
income from operations has been increased by (1) depreciation and amortization
(except for amortization of deferred financing costs), (2) equity in earnings of
affiliates, and (3) $1.0 million of costs related to a reduction in the employee
workforce. In determining Adjusted EBITDA for the three months ended March 31,
2000, income from operations has been increased 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 $14.6 million to ($7.2) million
for the three months ended March 31, 2001 from $7.4 million for the three months
ended March 31, 2000 due to lower pretax earnings, as described above.
CHANGES IN FINANCIAL CONDITION
At March 31, 2001, Accuride's total assets amounted to $523.4 million, as
compared to $515.3 million at December 31, 2000. The $8.1 million or 1.6%
increase in total assets during the three months ended March 31, 2001 was
primarily the result of an increase in cash of $10.4 million, an increase in net
receivables of $7.2 million, offset by a $4.5 million decrease in inventories, a
$3.9 million decrease in net property, plant and equipment and a $1.0 million
decrease in goodwill. Cash increased primarily as a result of borrowings under
the revolving credit facility ("Revolver") and changes in working capital. Net
receivables increased due to higher sales in the month of March 2001 compared to
December 2000. Inventories decreased at our Erie, Pennsylvania, facility in
response to the downturn and at our Monterrey, Mexico, facility due to
continuous improvement efforts. Net property, plant and equipment and goodwill
decreased as the result of normal depreciation and amortization expense.
At March 31, 2001, Accuride's total liabilities amounted to $560.1 million, as
compared to $544.5 million at December 31, 2000. The $15.6 million or 2.9%
increase in total liabilities was primarily a result of the $30.0 million
borrowed under the Revolver and a $2.7 million increase in accrued and other
liabilities offset by a $6.2 million decrease in trade payables, a $4.9 million
decrease in accrued interest payable, a $4.2 million decrease in deferred income
taxes, and a $1.5 decrease in accrued payroll and compensation. Accrued and
other liabilities increased primarily as a result of fluctuations in the market
price of aluminum and the Canadian dollar affecting the value of our derivative
instruments. The decrease in trade payables is consistent with the decrease in
inventory and capital spending. The deferred income tax liability decreased due
to current net operating losses that we will be able to utilize in future years
to offset taxable income. Accrued payroll and compensation decreased as 2000
management bonuses and employee profit sharing were paid in the first quarter of
2001. The decrease in accrued interest is a result of the timing of interest
payments.
10
CAPITAL RESOURCES AND LIQUIDITY
Accuride's primary sources of liquidity during the first quarter of 2001 were
cash reserves and borrowings under the Revolver. Primary uses of cash were
funding operating shortfalls, seasonal working capital needs, capital
expenditures and debt service.
As of March 31, 2001, Accuride had cash and cash equivalents of $48.9 million
compared to $38.5 million at December 31, 2000. Accuride's operating activities
for the three months ended March 31, 2001 used $17.4 million of cash compared to
$0.6 million of cash generated for the three months ended March 31, 2000.
Financing activities provided $30.0 million during the three months ended March
31, 2001. Cash flow from financing activities provided $0.5 million for the
three months ended March 31, 2000. Investing activities for the three months
ended March 31, 2001 used $2.2 million compared to $12.1 million for the three
months ended March 31, 2000.
During the three-month period ended March 31, 2001, Accuride repurchased 40
shares of Accuride's common stock from a former management employee for
approximately $0.2 million.
Accuride incurred capital expenditures in the year ended December 31, 2000 of
$51.7 million. Capital expenditures are expected to range from $20 to $25
million in the year 2001. Capital expenditures in 2000 were unusually high as a
result of significant capacity expansion projects that were underway. These
projects were substantially complete by the end of 2000. Management has
evaluated the Company's capital plan in light of the industry downturn and
believes that the 2001 capital expenditures will be sufficient to properly
maintain machinery and equipment and also provide quality improvements and
increased productivity. It is anticipated that these expenditures will fund (1)
maintenance of business expenditures of approximately $7 million; (2) carryover
project spending of approximately $4 million to complete our aluminum forging
and machining capacity expansion and the completion of our new assembly process
for light wheels; (3) quality and cost reduction improvements of approximately
$4 million; and (4) capital costs of approximately $8 to $9 million associated
with the relocation and installation of light wheel production equipment
previously located in Columbia, Tennessee.
Management believes that cash liquidity and availability under the Revolver will
provide adequate funds for Accuride's foreseeable working capital needs, planned
capital expenditures and debt service obligations for the next twelve months.
Accuride's ability to fund working capital needs, planned capital expenditures,
scheduled debt payments, 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 our control.
Accuride's credit documents contain financial and operating covenants that limit
the discretion of management with respect to certain business matters. These
covenants place significant restrictions on, among other things, the ability to
incur additional debt, to create liens, to make certain payments and investments
and to sell or otherwise dispose of assets and merge or consolidate with other
entities. Accuride is also required to meet certain financial ratios and tests
including a leverage ratio, an interest coverage ratio, and a fixed coverage
charge ratio. Failure to comply with the obligations contained in the debt
agreements could result in an event of default, and possibly the acceleration of
the related debt and the acceleration of debt under other instruments that may
contain cross-acceleration or cross-default provisions. Although Accuride is
currently in compliance with its financial covenants and ratios, a continuation
of negative sales trends will necessitate an amendment to our debt agreements.
Accuride has commenced negotiations with the administrative agent for its lender
group to address all potential compliance and covenant issues related to the
debt agreements and anticipates that modifications will be
11
implemented during the second quarter of 2001. While Accuride views its
relationship with its lender group to be strong, there can be no assurance that
these negotiations will be successful.
SUBSEQUENT EVENTS
On May 1, 2001, Accuride announced plans to restructure its single light wheel
production. As a result, Accuride will be closing its Columbia, Tennessee,
facility and will be consolidating the production of light wheels, currently
produced in Columbia, into its other facilities. It is anticipated that any
impact to the financial statements will be assessed and recorded in the second
quarter of 2001. Consolidation of the operations should be completed by the
third quarter of 2002.
FACTORS AFFECTING FUTURE RESULTS
In this report, Accuride has made various statements regarding current
expectations or forecasts of future events. These statements are
"forward-looking statements" within the meaning of that term in Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Forward-looking statements are also made from time-to-time in press
releases and in oral statements made by Accuride's officers. Forward-looking
statements are identified by the words "estimate," "project," "anticipate,"
"will continue," "will likely result," "expect," "intend," "believe," "plan,"
"predict" and similar expressions. Forward looking statements also include
statements regarding the market demand for Heavy/Medium Trucks, Accuride's
foreseeable working capital needs for the next twelve months, the availability
of additional capital to Accuride, ability to timely modify debt covenants,
continuation of operational improvements and sources of supply of raw materials,
the lack of future supply disruption as a result of labor issues, and
improvement in demand for our products and the expansion of our markets. Such
forward-looking statements are based on assumptions and estimates, which
although believed to be reasonable, may turn out to be incorrect. Therefore,
undue reliance should not be placed upon these estimates and statements.
Accuride cannot assure you that any of these statements or estimates will be
realized and actual results may differ from those contemplated in these
"forward-looking statements." Accuride undertakes no obligation to publicly
update any forward-looking statements, whether as a result of new information,
future events, or otherwise. You are advised to consult further disclosures
Accuride may make on related subjects in its filings with the SEC. Accuride
cannot assure you that its expectations, beliefs, or projections will result or
be achieved or accomplished. In addition to other factors discussed in this
report, some of the important factors that could cause actual results to differ
materially from those discussed in the forward-looking statements include the
following:
o Accuride's credit documents contain significant financial and operating
covenants that limit the discretion of management with respect to certain
business matters. Accuride must also meet certain financial ratios and
tests. Failure to comply with the obligations contained in the debt
agreements could result in an event of default, and possibly the
acceleration of the related debt and the acceleration of debt under other
instruments evidencing debt that may contain cross-acceleration or
cross-default provisions. Although Accuride is currently in compliance with
its financial covenants, a continuation of negative sales trends will
necessitate an amendment to its debt agreements. Accuride has commenced
negotiations with the administrative agent for its lender group to address
all potential compliance and covenant issues related to the debt agreements
and anticipates that modifications will be implemented during the second
quarter of 2001. While Accuride views its relationship with its lender to
be strong, no assurance can be given that these negotiations will be
successful;
o the decrease in general market demand for Accuride's products due to high
inventory levels of heavy and medium trucks and other general economic
conditions could be greater than we anticipate;
o Accuride's significant indebtedness may have important consequences,
including, but not limited to, impairment of Accuride's ability to obtain
additional financing, reduction of funds available for operations and
business opportunities or limitations on our ability to dispose of assets;
12
o Accuride's ability to service its indebtedness is dependent upon operating
cash flow;
o the loss of a major customer could have a material adverse effect on our
business;
o the demands of original equipment manufacturers for price reductions may
adversely affect profitability;
o an interruption in supply of steel or aluminum could reduce our ability to
obtain favorable sourcing of such raw materials;
o Accuride may encounter increased competition in the future from existing
competitors or new competitors;
o Accuride may be subject to liability under certain environmental laws and
the cost of compliance with these regulations could have a material adverse
effect on Accuride's financial condition and may adversely affect
Accuride's ability to sell or rent such property or to borrow using such
property as collateral;
o a labor strike may disrupt Accuride's supply to its customer base;
o the continued service of key management personnel is not guaranteed; and
o the interests of the principal stockholder of Accuride 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, 2000, as filed with the SEC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Accuride, in the normal course of doing business, is exposed to the risks
associated with changes in foreign exchange rates, raw material prices, and
interest rates. Accuride uses derivative instruments to manage these exposures.
The objectives for holding derivatives are to minimize the risks using the most
effective methods to eliminate or reduce the impacts of these exposures.
FOREIGN CURRENCY RISK
Certain forecasted transactions, assets, and liabilities are exposed to foreign
currency risk. Accuride monitors its foreign currency exposures to maximize the
overall effectiveness of its foreign currency derivatives. The principal
currency of exposure is the Canadian dollar. Forward foreign exchange contracts
not designated as hedging instruments under SFAS 133 are used to offset the
impact of the variability in exchange rates on our operations, cash flows,
assets and liabilities. At March 31, 2001, Accuride had open foreign exchange
forward contracts of $106.1 million. Foreign exchange forward contract
maturities are from one to twenty-one months. Management believes the use of
foreign currency financial instruments reduces the risks that arise from doing
business in international markets.
Accuride's foreign currency derivative contracts provide only limited protection
against currency risks. Factors that could impact the effectiveness of
Accuride's currency risk managment 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 use of forward contracts
protects Accuride'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 foreign currency derivatives held at March 31, 2001,
would have an impact of approximately $10.6 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 Accuride's foreign denominated assets,
liabilities and firm commitments.
13
RAW MATERIAL PRICE RISK
Accuride relies upon the supply of certain raw materials in our production
processes and we have entered into firm purchase commitments for steel and
aluminum. The exposures associated with these commitments are primarily managed
through the terms of the sales, supply, and procurement contracts. Additionally,
Accuride uses commodity price swaps to manage the variability in certain
commodity prices. Commodity price swap contracts not designated as hedging
instruments under SFAS 133 are used to offset the impact of the variability in
certain commodity prices on our operations and cash flows. At March 31, 2001,
Accuride had open commodity price swaps of $13.0 million. These commodity price
swaps had maturities from one to nine months. A 10% adverse change in commodity
prices would have an impact of approximately $1.3 million on the fair value of
these contracts. Accuride is exposed to credit related losses in the event of
nonperformance by the counterparty to the commodity price swaps, although no
such losses are expected as the counterparty is a financial institution having
an investment grade credit rating.
INTEREST RATE RISK
Accuride 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, 2001:
(Dollars in Fair
Thousands) 2001 2002 2003 2004 2005 THEREAFTER TOTAL VALUE
---- ---- ---- ---- ---- ---------- ----- -----
Long-term Debt:
Fixed $189,900 $189,900 $113,940
Avg. Rate 9.25% 9.25%
Variable $0 $12,500 $5,475 $2,350 $58,150 $163,750 $242,225 $242,225
Avg. Rate 7.38% 7.51% 7.68% 7.21% 7.85% 7.66%
Accuride is exposed to the variability of interest rates on its variable rate
debt. Accuride has used an interest rate swap to alter interest rate exposures
between fixed and variable rates on a portion of Accuride's long-term debt. As
of March 31, 2001, a forward starting, two-year interest rate swap of $100.0
million was outstanding. The interest rate swap becomes effective in July 2001
and matures in July 2003. Once effective, Accuride will receive three-month
LIBOR and will pay 4.78%. This interest rate swap, not designated as a hedging
instrument under SFAS 133, is used to offset the impact of the variability in
interest rates on portions of Accuride's variable rate debt. Accuride is exposed
to credit related losses in the event of nonperformance by the counterparty to
the interest rate swap, 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 Accuride nor any of its subsidiaries is a party to any material
legal proceeding. However, Accuride from time-to-time is involved in
ordinary routine litigation incidental to its business.
Item 2. Changes in Securities and Use of Proceeds
During the thirteen weeks ended March 31, 2001, Accuride issued no common
stock or options. The Company repurchased 40 shares of common stock from a
former management employee for approximately $0.2 million.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
None
b. Reports on Form 8-K:
No reports on Form 8-K have been filed during the three-month period ended
March 31, 2001.
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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
/S/ WILLIAM P. GREUBEL Dated: MAY 14, 2001
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William P. Greubel
President and Chief Executive Officer
/S/ JOHN R. MURPHY Dated: MAY 14, 2001
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John R. Murphy
Executive Vice President - Finance and Chief Financial Officer
Principal Accounting Officer