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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 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
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 September 30, 2001, 24,796 shares of Accuride Corporation common stock,
par value $.01 per share, were outstanding.
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ACCURIDE COPORATION
TABLE OF CONTENTS
<Table>
<Caption>
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2001 (Unaudited)
and December 31, 2000 3
Consolidated Statements of Income for the Three and Nine Months
Ended September 30, 2001 and 2000 (Unaudited) 4
Consolidated Statement of Stockholders' Equity (Deficiency) for the
Nine Months Ended September 30, 2001 (Unaudited) 5
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2001 and 2000 (Unaudited) 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
</Table>
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PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
ACCURIDE CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<Table>
<Caption>
September 30, December 31,
ASSETS 2001 2000
(Unaudited)
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 27,171 $ 38,516
Customer receivables, net of allowance for
doubtful accounts of $714 and $806 38,084 31,059
Other receivables 2,117 4,325
Inventories, net 29,520 37,484
Supplies 8,697 8,545
Deferred income taxes 7,370 5,175
Income taxes receivable 783 599
Prepaid expenses and other current assets 1,075 941
--------- ---------
Total current assets 114,817 126,644
PROPERTY, PLANT AND EQUIPMENT, NET 228,939 237,410
OTHER ASSETS:
Goodwill, net of accumulated amortization
of $42,081 and $38,949 124,221 127,353
Investment in affiliates 3,408 3,189
Deferred financing costs, net of accumulated
amortization of $5,926 and $4,436 9,317 9,546
Pension benefit plan asset 10,964 9,678
Other 1,206 1,451
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TOTAL $ 492,872 $ 515,271
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable $ 30,649 $ 38,231
Current portion of long-term debt 9,375 --
Short term notes payable 0 17,500
Accrued payroll and compensation 8,416 7,584
Accrued interest payable 6,570 11,830
Accrued and other liabilities 17,916 10,006
--------- ---------
Total current liabilities 72,926 85,151
LONG-TERM DEBT, less current portion 452,150 431,386
OTHER POSTRETIREMENT BENEFIT PLAN LIABILITY 16,369 15,734
OTHER LIABILITIES 1,076 1,234
DEFERRED INCOME TAXES 2,051 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 (638) (868)
Retained earnings (deficit) (75,216) (52,766)
Other comprehensive loss (50) --
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Total stockholders' equity (deficiency) (51,700) (29,200)
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TOTAL $ 492,872 $ 515,271
========= =========
</Table>
See notes to unaudited consolidated financial statements
3
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ACCURIDE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<Table>
<Caption>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ----------------------------
2001 2000 2001 2000
-------- --------- --------- ---------
NET SALES $ 77,714 $ 104,403 $ 260,700 $ 384,727
COST OF GOODS SOLD 67,935 87,214 230,068 308,216
-------- --------- --------- ---------
GROSS PROFIT 9,779 17,189 30,632 76,511
OPERATING:
Selling, general and administrative 7,706 6,435 25,183 24,750
-------- --------- --------- ---------
INCOME FROM OPERATIONS 2,073 10,754 5,449 51,761
OTHER INCOME (EXPENSE):
Interest income 226 596 1,244 1,448
Interest (expense) (10,569) (10,842) (30,782) (31,497)
Equity in earnings of affiliates 28 118 218 357
Other income (expense), net (7,413) (2,674) (8,011) (6,417)
-------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (15,655) (2,048) (31,882) 15,652
INCOME TAX PROVISION (BENEFIT) (5,350) (859) (9,432) 6,574
-------- --------- --------- ---------
NET INCOME (LOSS) $(10,305) $ (1,189) $ (22,450) $ 9,078
======== ========= ========= =========
</Table>
See notes to unaudited consolidated financial statements.
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ACCURIDE CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<Table>
<Caption>
Common
Stock and Accumulated Total
Additional Stock Other Retained Stockholders'
Comprehensive Paid in Treasury Subscriptions Comprehensive Earnings Equity
Income (Loss) Capital Stock Receivable Income (Loss) (Deficit) (Deficiency)
------------- ---------- -------- ------------- ------------- -------- -------------
BALANCE AT JANUARY 1, 2001 -- $ 24,939 $ (505) $ (868) $ -- $ (52,766) $ (29,200)
Net income (loss) $ (22,450) (22,450) (22,450)
Proceeds from Stock
Subscriptions Receivable 230 230
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) 139 139 139
Comprehensive Income (Loss) $ (22,500)
=========
BALANCE AT SEPTEMBER 30, 2001 $ 24,939 $ (735) $ (638) $ (50) $ (75,216) $ (51,700)
======== ======== ===== ======== ======== ========
</Table>
See notes to unaudited consolidated financial statements
5
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ACCURIDE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<Table>
<Caption>
Nine Months Ended
September 30,
--------------------------
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(22,450) $ 9,078
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 18,941 19,649
Amortization 4,701 4,896
Losses on asset disposition 33 931
Gain on early retirement of debt -- (320)
Deferred income taxes (11,109) 3,037
Equity in earnings of affiliates (219) (357)
Changes in certain assets and liabilities:
Receivables (4,817) 22,128
Inventories and supplies 7,683 (7,235)
Prepaid expenses and other assets (1,330) 1,313
Accounts payable (7,582) 3,457
Accrued and other liabilities 3,879 (7,995)
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Net cash provided by (used in) operating activities (12,270) 48,582
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (9,707) (42,583)
Capitalized interest (667) --
-------- --------
Net cash used in investing activities (10,374) (42,583)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in revolving credit advance 25,000 --
Payments on long-term debt (4,940) (13,405)
Payments on short-term advance (7,500) --
Deferred financing fees (1,261) --
Proceeds from stock subscriptions receivable 230 725
Redemption of shares (230) (290)
-------- --------
Net cash provided by (used in) financing activities 11,299 (12,970)
Decrease in cash and cash equivalents (11,345) (6,971)
Cash and cash equivalents, beginning of period 38,516 32,493
-------- --------
Cash and cash equivalents, end of period $ 27,171 $ 25,522
======== ========
</Table>
See notes to unaudited consolidated financial statements
6
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ACCURIDE CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
AS OF SEPTEMBER 30, 2001 AND DECEMBER 31, 2000 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2001 AND 2000
--------------------------------------------------------------------------------
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 nine months ended September 30, 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 principles 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
SFAS 141 - Effective July 1, 2001, Accuride adopted Statements of Financial
Accounting Standards ("SFAS") No. 141, "Accounting for Business Combinations".
This statement establishes accounting and reporting standards for business
combinations and prohibits the use of the pooling-of-interests method of
accounting for those transactions after June 30, 2001. This statement has had no
effect on the Company's financial statements.
SFAS 133 - Effective January 1, 2001, Accuride adopted SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities," 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 nine month period ended September 30, 2001, $139
was reclassified into cost of goods sold as the related derivative instruments
matured. The remaining $50 in OCI will be reclassified into earnings as realized
during the fourth quarter of 2001.
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
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holding derivatives are to minimize the risks using the most effective methods
to eliminate or reduce the impacts of these exposures.
Note 3 - INVENTORIES - Inventories were as follows:
<Table>
<Caption>
September 30, December 31,
2001 2000
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Raw Materials $ 3,880 $ 7,650
Work in Process 10,985 11,163
Finished manufactured goods 13,846 17,731
LIFO adjustment 809 940
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Inventories, net $29,520 $37,484
======= =======
</Table>
Note 4 - LABOR RELATIONS - The Company's prior contract with the United Auto
Workers ("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. As a result, a strike occurred at the
Henderson facility on February 20, 1998. On March 31, 1998, the Company began an
indefinite lockout. The Company is continuing to operate with its salaried
employees and contractors. Currently, there is, and the Company believes that
there will be, no supply disruption to the Company's customer base; however,
there can be no assurance to that effect.
Note 5 - SUPPLEMENTAL CASH FLOW DISCLOSURE - During the nine months ended
September 30, 2001 and 2000, the Company paid $35,140 and $34,489 for interest
and $1,834 and $1,622 for income taxes, respectively.
Note 6 - RESTRUCTURING RESERVE - Included in the Company's operating results for
the nine months ended September 30, 2001, are restructuring charges of $2.7
million. These charges result from the Company's plans to close its Columbia,
Tennessee, facility and consolidate the production of light wheels into its
other facilities. The Company anticipates that these restructuring activities
will be completed by the end of the third quarter of fiscal year 2002.
Note 7 - NEW ACCOUNTING PRONOUNCEMENTS
SFAS 142 - On July 20, 2001, the Financial Accounting Standards Board ("FASB")
issued Statements of Financial Accounting Standards ("SFAS") No. 142,
"Accounting for Goodwill and Other Intangible Assets". SFAS 142 is effective for
the Company beginning January 1, 2002. The Statement establishes accounting and
reporting standards for goodwill and intangible assets. Beginning January 1,
2002, the Company will no longer amortize goodwill, but will test for impairment
at least annually. Management is still evaluating the full effect of this new
accounting standard on the financial statements.
SFAS 144 - On October 3, 2001, the Financial Accounting Standards Board ("FASB")
issued Statements of Financial Accounting Standards ("SFAS") No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS 144 is
effective for the Company beginning January 1, 2002. The Statement addresses
financial accounting and reporting for the impairment of long-lived assets and
for long-lived assets to be disposed. Management is still evaluating the full
effect of this new accounting standard on the financial statements.
8
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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 SEPTEMBER 30, 2001 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 2000.
The following table sets forth certain income statement information of Accuride
for the three months ended September 30, 2001 and September 30, 2000:
<Table>
<Caption>
September 30, 2001 September 30, 2000
--------------------------- ---------------------------
Net sales $ 77,714 100.0% $ 104,403 100.0%
Gross profit 9,779 12.6% 17,189 16.5%
Operating expenses 7,706 9.9% 6,435 6.2%
Income from operations 2,073 2.7% 10,754 10.3%
Equity in earnings of affiliates 28 0.0% 118 0.1%
Other income (expense) (17,756) (22.8%) (12,920) (12.4%)
Net income (loss) (10,305) (13.3%) (1,189) (1.1%)
OTHER DATA:
Adjusted EBITDA $ 10,002 12.8%(a) $ 18,191 17.3%(a)
</Table>
--------------
(a) Represents Adjusted EBITDA less equity in earnings of affiliates as a
percent of sales.
NET SALES. Net sales decreased by $26.7 million, or 25.6%, for the three months
ended September 30, 2001 to $77.7 million, compared to $104.4 million for the
three months ended September 30, 2000. The decrease is due to the cyclical
downturn of the entire Heavy/Medium commercial vehicle market and the general
overall decline in the US economy. The cyclicality of the Heavy/Medium
commercial vehicle market is affected by a number of economic factors including
inventory levels, industrial production, and general economic demand for
consumer goods. We anticipate the demand for Heavy/Medium Trucks to continue to
be soft for the next several quarters.
GROSS PROFIT. Gross profit decreased $7.4 million, or 43.0%, to $9.8 million for
the three months ended September 30, 2001 from $17.2 million for the three
months ended September 30, 2000. The principal cause for the decrease in gross
profit was the decrease in sales volume. The decrease in sales volume was
partially offset by productivity improvements, reduced overtime, and cost
savings achieved through a reduction in work force. Gross profit as a percentage
of net sales decreased to 12.6% for the three months ended September 30, 2001
from 16.5% for the three months ended September 30, 2000. The decrease in gross
profit as a percentage of sales is due to lower margins resulting from loss of
volume and the resulting per unit cost increases due to spreading fixed costs
over fewer production units.
OPERATING EXPENSES. Operating expenses increased $1.3 million, or 20.3%, to $7.7
million for the three months ended September 30, 2001 from $6.4 million for the
three months ended September 30, 2000. The quarterly expense for the period
ending September 30, 2000 was unusually low due to a $1.6 million adjustment to
reduce the employee bonus and profit sharing liabilities which were accrued in
the first half of 2000. Excluding the $1.6 million adjustment, operating
expenses decreased $0.3 million, or 4.7%, to
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$6.1 million for the three months ended September 30, 2001 from $6.4 million for
the three months ended September 30, 2000.
OTHER INCOME (EXPENSE). Other expense increased $4.9 million, or 38.0%, to $17.8
million for the three-month period ended September 30, 2001 compared to $12.9
million for the three months ended September 30, 2000, due primarily to
fluctuations in foreign currency rates, interest rates, and commodity prices
which negatively impacted the value of our derivative instruments.
ADJUSTED EBITDA. Adjusted EBITDA decreased $8.2 million, or 45.1% to $10.0
million for the three months ended September 30, 2001 from $18.2 million for the
three months ended September 30, 2000 due to the lower gross profit as described
above. In determining Adjusted EBITDA for the three months ended September 30,
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) $0.2 million of financing costs related to
the amended and restated credit facility. In determining Adjusted EBITDA for the
three months ended September 30, 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). Accuride had a net loss of $10.3 million for the three months
ended September 30, 2001 compared to a net loss of $1.2 million for the three
months ended September 30, 2000 due to lower pretax earnings, as described
above.
NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2000.
The following table sets forth certain income statement information of the
Company for the nine months ended September 30, 2001 and September 30, 2000:
<Table>
<Caption>
September 30, 2001 September 30, 2000
--------------------------- ---------------------------
Net sales $ 260,700 100.0% $ 384,727 100.0%
Gross profit 30,632 11.7% 76,511 19.9%(b)
Operating expenses 25,183 9.7% 24,750 6.4%
Income from operations 5,449 2.1% 51,761 13.5%
Equity in earnings of affiliates 218 0.1% 357 0.1%
Other income (expense) (37,549) (14.4%) (36,466) (9.5%)
Net income (loss) (22,450) (8.6%) 9,078 2.4%
OTHER DATA:
Adjusted EBITDA $ 32,256 12.3%(a) $ 80,898 20.9%(a)
</Table>
--------------
(a) Represents Adjusted EBITDA less equity in earnings of affiliates as a
percent of sales.
(b) Includes a one-time restructuring adjustment for Accuride de Mexico, S.A.
de C.V. ("AdM") of $3.3 million.
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NET SALES. Net sales decreased by $124.0 million, or 32.2%, for the nine months
ended September 30, 2001 to $260.7 million, compared to $384.7 million for the
nine months ended September 30, 2000. The decrease in net sales is primarily due
to the cyclical downturn of the entire Heavy/Medium commercial vehicle market
and the general overall decline in the US economy. The cyclicality of the
Heavy/Medium commercial vehicle market is affected by a number of economic
factors including inventory levels, industrial production, and general economic
demand for consumer goods. We anticipate the demand for Heavy/Medium Trucks to
continue to be soft for the next several quarters.
GROSS PROFIT. Gross profit decreased by $45.9 million, or 60.0%, to $30.6
million for the nine months ended September 30, 2001 from $76.5 million for the
nine months ended September 30, 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
improvements, reduced overtime, and cost savings achieved through a reduction in
work force. Included in gross profit are $2.9 million of restructuring and
relocation charges for the closure of our Columbia plant and the consolidation
of our light wheel process. In 2000, a one-time charge of $3.3 million was
included in gross profit related to the transition and high start-up production
costs at the new facility in Monterrey, Mexico. Gross profit as a percentage of
net sales decreased to 11.7% for the nine months ended September 30, 2001 from
19.9% for the nine months ended September 30, 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 due to spreading fixed cost over fewer
production units. Excluding the one-time $2.9 million restructuring and
relocation charge in 2001 and the $3.3 million transition and start-up costs in
2000, gross profit as a percentage of net sales decreased to 10.6% for the nine
months ended September 30, 2001 from 19.0% for the nine months ended September
30, 2000.
OPERATING EXPENSES. Operating expenses increased by $0.4 million, or 1.6%, to
$25.2 million for the nine months ended September 30, 2001 from $24.8 million
for the nine months ended September 30, 2000.
OTHER INCOME (EXPENSE). Other expense increased $1.0 million, or 2.7%, to $37.5
million for the nine-month period ended September 30, 2001 compared to $36.5
million for the nine months ended September 30, 2000, due primarily to
fluctuations in foreign currency rates, interest rates, and commodity prices
which negatively impacted the value of our derivative instruments.
ADJUSTED EBITDA. Adjusted EBITDA decreased by $48.6 million, or 60.1%, to $32.3
million for the nine months ended September 30, 2001 from $80.9 million for the
nine months ended September 30, 2000 due to the lower gross profit as described
above. In determining Adjusted EBITDA for the nine months ended September 30,
2001, income from operations has been adjusted by (1) depreciation and
amortization (except for amortization of deferred financing costs), (2) equity
in earnings of affiliates, (3) $1.4 million of costs related to a reduction in
the employee workforce, (4) a $2.9 million adjustment associated with the
restructuring of light wheel production, and (5) $0.2 million of financing costs
related to the amended and restated credit facility. In determining Adjusted
EBITDA for the nine months ended September 30, 2000, income from operations has
been adjusted by (1) depreciation and amortization (except for amortization of
deferred financing costs), (2) equity in earnings of affiliates, (3) $2.7
million of aborted merger and acquisition costs, and (4) a $3.3 million
adjustment for restructuring costs related to operations at the Monterrey,
Mexico, facility.
NET INCOME (LOSS). Accuride had a net loss of $22.5 million for the nine months
ended September 30, 2001 compared to net income of $9.1 million for the nine
months ended September 30, 2000 due to lower pretax earnings, as described
above.
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CHANGES IN FINANCIAL CONDITION
At September 30, 2001, Accuride's total assets amounted to $492.9 million, as
compared to $515.3 million at December 31, 2000. The $22.4 million or 4.3%
decrease in total assets during the nine months ended September 30, 2001 was
primarily the result of an increase in net receivables of $4.8 million, an
increase in deferred income taxes of $2.2 million, and an increase in pension
benefit plan assets of $1.3 million, offset by an $11.3 million decrease in
cash, an $8.0 million decrease in inventories, an $8.5 million decrease in net
property, plant and equipment and a $3.2 million decrease in goodwill. Net
receivables increased due to higher sales in the month of September 2001
compared to December 2000 and an increase in days sales outstanding. Deferred
income taxes receivable increased as a result of book and tax timing
differences. Pension benefit plan assets were increased to meet statutory
funding requirements. Cash decreased due to loss on operations and changes in
working capital. Inventories decreased primarily in response to the downturn in
customer demand and management's focus on raw material management. Net property,
plant and equipment and goodwill decreased as the result of normal depreciation
and amortization expense.
At September 30, 2001, Accuride's total liabilities amounted to $544.6 million,
as compared to $544.5 million at December 31, 2000. The $0.1 million increase in
total liabilities was primarily a result of the $25.0 million net borrowings
under the Revolver and an increase in net accruals and other liabilities of $4.0
million offset by a $7.6 million decrease in trade payables, a $12.4 million
repayment on term loans, and a $8.9 million decrease in deferred income taxes.
The increase in net accruals and other liabilities is due to the timing of
payments. The decrease in trade payables is consistent with the decrease in
inventory and capital spending. The Company repaid $7.5 million on the AdM
working capital facility and $4.9 million was prepaid on the Term loans. 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.
CAPITAL RESOURCES AND LIQUIDITY
Accuride's primary sources of liquidity during the nine months ended September
30, 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 September 30, 2001, Accuride had cash and cash equivalents of $27.2
million compared to $38.5 million at December 31, 2000. Accuride's operating
activities for the nine months ended September 30, 2001 used $12.3 million of
cash compared to $48.6 million of cash generated for the nine months ended
September 30, 2000. Investing activities for the nine months ended September 30,
2001 used $10.4 million compared to $42.6 million for the nine months ended
September 30, 2000.
Financing activities provided $11.3 million during the nine months ended
September 30, 2001. Cash flow from financing activities used $13.0 million for
the nine months ended September 30, 2000.
During the nine-month period ended September 30, 2001, Accuride repurchased 40
shares of the Company'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 approximate $18 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 $6 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 $4
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million associated with the relocation and installation of light wheel
production equipment previously located in Columbia, Tennessee.
In July 2001, Accuride amended and restated its credit agreement (the "Credit
Agreement"). Pursuant to the Credit Agreement, financial covenants regarding the
leverage ratio, the interest coverage ratio and the fixed charge coverage ratio
were modified and a financial covenant regarding minimum EBITDA was added. The
Credit Agreement provides for, among other items, a reduced Revolver commitment
from $140 to $100 million, with Revolver availability limited to $87.5 million
until the leverage ratio is below 4.5 times; increased interest rates, and a
first priority lien in substantially all of its US and Canadian properties and
assets. Amortizations and maturities on the Term Debt and Revolver remain
unchanged.
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 minimum EBITDA test, a leverage ratio, an interest coverage ratio,
and a fixed coverage charge ratio. Failure to comply with the obligations
contained in the credit 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.
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 credit 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.
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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, 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 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;
o current conditions in the economy could worsen and a recession may persist
longer than anticipated;
o the decrease in general market demand for Accuride's products due to high
inventory levels of heavy and medium trucks and other unfavorable
conditions affecting the industry could be greater than anticipated;
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;
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;
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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/commodity
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 September 30, 2001, Accuride had open foreign
exchange forward contracts of $75.1 million. Foreign exchange forward contract
maturities are from one to fifteen 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 management programs include accuracy of sales
estimates, volatility of currency markets and the cost and availability of
derivative 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
September 30, 2001, would have an impact of approximately $7.5 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.
RAW MATERIAL/COMMODITY PRICE RISK
Accuride relies upon the supply of certain raw materials and commodities 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
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and futures contracts to manage the variability in certain commodity prices.
Commodity price swap and futures 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 September 30,
2001, Accuride had open commodity price swaps and futures contracts of $4.4
million. These commodity price swaps and futures contracts had maturities from
one to fifteen months. A 10% adverse change in commodity prices would have an
impact of approximately $.4 million on the fair value of these contracts.
Accuride is exposed to credit related losses in the event of nonperformance by
the counterparties to the commodity price swaps and futures contracts, although
no such losses are expected as the primary 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 September 30, 2001:
<Table>
<Caption>
(Dollars in Thousands) Fair
2001 2002 2003 2004 2005 Thereafter Total Value
---- ------- ------ ------- ------- ---------- -------- --------
Long-term Debt:
Fixed $189,900 $189,900 $110,142
Avg. Rate 9.25% 9.25%
Variable $0 $12,500 $4,125 $36,000 $56,404 $163,256 $272,285 $225,997
Avg. Rate 7.13% 7.28% 6.74% 8.67% 7.88% 7.85%
</Table>
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 September 30, 2001, an interest rate swap of $100.0 million was outstanding.
Under the terms of the interest rate swap, Accuride agrees with the counterparty
to exchange, at specified intervals, the difference between 4.78% and the
variable rate interest amounts calculated by reference to the notional principal
amount. The interest rate swap was effective in July 2001 and matures in July
2003. 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.
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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 September 30, 2001, Accuride issued no
common stock or options.
Item 6. Exhibits and Reports on Form 8-K
EXHIBITS:
None
REPORTS ON FORM 8-K:
No reports on Form 8-K have been filed during the three-month period ended
September 30, 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: November 1, 2001
------------------------------------- ----------------
William P. Greubel
President and Chief Executive Officer
/s/ John R. Murphy Dated: November 1, 2001
------------------------------------- ----------------
John R. Murphy
Executive Vice President-Finance and
Chief Financial Officer
Principal Accounting Officer
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