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, 1999.
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
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(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)
2315 Adams Lane
Henderson, KY 42420
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (270) 826-5000
Indicate by check mark whether the registrant (1) has filed all reports
required to filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No __
There were 24,884 common shares outstanding as of September 30, 1999.
ACCURIDE COPORATION
TABLE OF CONTENTS
PART 1. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1999 (Unaudited) and 3
December 31, 1998
Consolidated Statements of Income for the Three and Nine Months 4
Ended September 30, 1999 and 1998 (Unaudited)
Consolidated Statement of Stockholders' Equity (Deficiency) for the 5
Nine Months Ended September 30, 1999 (Unaudited)
Consolidated Statements of Cash Flows for the Nine Months Ended 6
September 30, 1999 and 1998 (Unaudited)
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and 12
Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
2
ITEM 1. FINANCIAL STATEMENTS
ACCURIDE CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, DECEMBER 31,
ASSETS 1999 1998
(UNAUDITED)
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CURRENT ASSETS:
Cash and cash equivalents $ 18,590 $ 3,471
Customer receivables, net of allowance for doubtful accounts of $533 and
$1,008 70,678 52,287
Other receivables 6,671 8,372
Inventories, net 49,529 36,980
Supplies 7,860 7,187
Prepaid expenses 924 139
Income taxes receivable 243 458
Deferred income taxes 1,017 611
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Total current assets 155,512 109,505
PROPERTY, PLANT AND EQUIPMENT, NET 203,601 159,826
OTHER ASSETS:
Goodwill, net of accumulated amortization of $33,758 and $30,942 135,204 83,317
Investment in affiliates 2,807 25,855
Deferred financing costs, net of accumulated amortization of $3,004 and
$1,634 11,931 12,609
Deferred income taxes 3,287
Other 11,989 10,526
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TOTAL $ 521,044 $ 404,925
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable $ 44,331 $ 27,008
Current portion of long-term debt 2,350 1,350
Short term notes payable 7,500 3,911
Accrued payroll and compensation 9,235 8,149
Accrued interest payable 6,976 9,807
Accrued and other liabilities 9,424 6,606
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Total current liabilities 79,816 56,831
LONG-TERM DEBT, less current portion 455,383 387,939
DEFERRED INCOME TAXES 5,292
OTHER LIABILITIES 17,022 12,021
MINORITY INTEREST 6,230
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, 24,884 and 24,768 shares issued and outstanding in 1999 and 1998 24,738 24,158
Stock subscriptions receivable (1,549) (1,644)
Retained earnings (deficit) (59,658) (80,610)
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Total stockholders' equity (deficiency) (36,469) (58,096)
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TOTAL $ 521,044 $ 404,925
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See notes to unaudited consolidated financial statements.
3
ACCURIDE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
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1999 1998 1999 1998
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NET SALES $ 129,422 $ 93,954 $ 377,007 $285,537
COST OF GOODS SOLD 100,720 74,309 290,987 222,508
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GROSS PROFIT 28,702 19,645 86,020 63,029
OPERATING:
Selling, general and administrative 7,608 7,213 21,782 18,366
Start-up costs - 449 - 3,260
Management retention bonuses - 247 - 1,927
Recapitalization professional fees - - - 2,240
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INCOME FROM OPERATIONS 21,094 11,736 64,238 37,236
OTHER INCOME (EXPENSE):
Interest income 174 113 404 327
Interest (expense) (10,152) (8,911) (29,113) (24,286)
Equity in earnings of affiliates 32 2,362 2,358 1,817
Other (expense), net (681) (2,005) (1,605) (2,297)
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INCOME BEFORE INCOME TAXES AND MINORITY INTEREST $ 10,467 $ 3,295 $ 36,282 $ 12,797
INCOME TAX PROVISION 4,396 2,063 15,239 5,892
MINORITY INTEREST - 127 91 522
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NET INCOME $ 6,071 $ 1,105 $ 20,952 $ 6,383
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See notes to unaudited consolidated financial statements.
4
ACCURIDE CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
COMMON
STOCK AND
ADDITIONAL STOCK RETAINED
PAID IN SUBSCRIPTIONS EARNINGS
CAPITAL RECEIVABLE (DEFICIT) TOTAL
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BALANCE AT JANUARY 1, 1999 $ 24,158 $ (1,644) $ (80,610) $ (58,096)
Net income 20,952 20,952
Issuance of shares 580 (580) -
Proceeds from stock subscriptions receivable - 675 - 675
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BALANCE AT SEPTEMBER 30, 1999 $ 24,738 $ (1,549) $ (59,658) $ (36,469)
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See notes to unaudited consolidated financial statements.
5
ACCURIDE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------------
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 20,952 $ 6,383
Adjustments to reconcile net income to net cash
Provided by (used in) operating activities:
Depreciation 17,331 14,776
Amortization 4,449 3,390
Bonuses payable by principal stockholder - 1,838
Losses on asset disposition 905 -
Deferred income taxes 8,173 (187)
Equity in earnings of affiliates (2,358) (1,817)
Minority Interest 91 522
Changes in certain assets and liabilities (net of
effects from purchase of AKW, L.P.):
Receivables 4,319 (10,678)
Inventories and supplies (5,866) (4,598)
Prepaid expenses and other assets (1,883) (5,035)
Accounts payable 11,267 2,708
Accrued and other liabilities (4,546) 1,853
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Net cash provided by operating activities 52,834 9,155
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (31,993) (29,444)
Capitalized Interest - (179)
Payment for purchase of AdM (7,300) -
Payment for purchase of AKW, L.P.
(70,591) -
Net cash distribution from AKW L.P.
253 1,007
Other (18) -
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Net cash used in investing activities (109,649) (28,616)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of short-term notes payable 3,589 3,000
Principal payments on short-term notes payable - (1,340)
Net increase (decrease) in revolving line of credit (31,638) 41,749
Proceeds from issuance of long term debt 100,000 333,918
Deferred financing costs (692) (14,243)
Issuance of shares - 108,000
Proceeds from stock subscriptions receivable 675 2,121
Redemption of shares - (452,777)
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Net cash provided by financing activities 71,934 20,428
Increase in cash and cash equivalents 15,119 967
Cash and cash equivalents, beginning of period 3,471 7,418
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Cash and cash equivalents, end of period $ 18,590 $ 8,385
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See notes to unaudited consolidated financial statements.
6
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
AS OF SEPTEMBER 30, 1999 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
AND 1998
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Note 1 - BASIS OF PRESENTATION - The accompanying unaudited consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles, except that the unaudited consolidated financial
statements do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
However, in the opinion of Accuride Corporation (the "Company"), all
adjustments (consisting of normal recurring accruals) considered necessary to
present fairly the consolidated financial statements have been included.
The results of operations for the nine months ended September 30, 1999 are
not necessarily indicative of the results to be expected for the year ending
December 31, 1999. 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, 1998.
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 - ACQUISITIONS
ADM ACQUISITION - On July 16, 1999, the Company acquired Industria
Automotriz, S.A. de C.V.'s ("IaSa") 49% interest in Accuride de Mexico, S.A.
de C.V. ("AdM"), pursuant to the terms of a purchase agreement by and among
the Company, IaSa and the other parties listed thereto. AdM was formed on
November 5, 1997 between the Company, IaSa, and certain other parties to
produce, market and sell steel wheels, rims, side rings, lock rings, mounting
rings, spacer bands and related components. The acquisition gives the Company
100% control of AdM. Total consideration paid to IaSa for IaSa's 49% interest
was approximately $7.3 million.
AKW ACQUISITION - On April 1, 1999, the Company acquired Kaiser's 50%
interest in AKW, pursuant to the terms of a purchase agreement by and among
the Company, Kaiser and Accuride Ventures, Inc., a wholly owned subsidiary of
Accuride Corporation. In connection with the acquisition, AKW and Kaiser
amended and restated an existing lease agreement pursuant to which AKW leases
certain property from Kaiser. AKW was formed in 1997 as a 50-50 joint venture
between Kaiser and the Company to design, manufacture, and sell heavy-duty
aluminum wheels. The acquisition gives the Company, through its wholly owned
subsidiary, 100% control of 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 AKW acquisition had been completed as of the beginning of
the periods presented, after including the impact of certain adjustments,
such as goodwill amortization, depreciation, interest expense, the
elimination of equity in earnings of affiliates arising from the Company's
50% interest in AKW owned prior to the acquisition, and the related income
tax effects.
7
Nine months ended September 30,
1999 1998
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Net Sales $ 400,953 $ 348,943
Net Income $ 21,253 $ 4,397
Excluding the $6,800 impact of the AKW wheel recall campaign implemented in
1998 ("AKW Recall"), the unaudited pro forma net income for the nine months
ended September 30, 1998 would have been $7,069. The pro forma results are
not necessarily indicative of the actual results if the transactions had been
in effect for the entire period presented. In addition, they are not intended
to be a projection of future results and do not reflect, among other things,
any synergies that might have been achieved from combined operations.
The AdM and AKW acquisitions have been accounted for by the purchase method
of accounting. Under purchase accounting, the total purchase price has been
allocated to the tangible and intangible assets and liabilities of AdM and
AKW, respectively, based upon their respective fair values as of the dates of
the acquisitions based upon valuations and other studies. A preliminary
allocation of the purchase prices have been made to major categories of
assets and liabilities based on available information. The actual allocation
of purchase prices and the resulting effect on income from operations may
differ significantly from the amounts recorded by the Company. Goodwill
recorded by the Company in connection with the acquisitions is being
amortized on the straight-line method over 40 years.
Note 3 - INVENTORIES - Inventories were as follows:
September 30, December 31,
1999 1998
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Raw materials $ 14,465 $ 8,920
Work in process 9,143 7,757
Finished manufactured goods 24,962 20,060
LIFO adjustment 2,129 1,122
Other (1,170) (879)
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Inventories, net $ 49,529 $ 36,980
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Note 4 - LABOR RELATIONS - The Company's prior contract with the
International Union, Automobile, Aerospace, and Agriculture Implement Workers
of America ("UAW") covering employees at the Henderson facility expired in
February 1998 and the Company was not able to negotiate a mutually acceptable
agreement with the UAW. Therefore, a strike occurred at the Henderson
facility on February 20, 1998. On March 31, 1998, the Company began an
indefinite lockout. The members of the UAW have rejected all of the Company's
offers for a new contract. The Company is continuing to operate with
contractors and its salaried employees. Currently, there is, and the Company
believes that there will be, no supply disruption to the Company's customer
base; however, there can be no assurance to that effect.
Note 5 - SUPPLEMENTAL CASH FLOW DISCLOSURE - During the nine months ended
September 30, 1999 and 1998, the Company paid $30,492 and $17,921 for
interest and $6,851 and $6,486 for income taxes, respectively. Non-cash
transactions resulting from the issuance of common stock and the related
stock subscriptions receivable of $580 and $1,539 occurred during the nine
months ended September 30, 1999 and 1998, respectively. Effective January 21,
1998 the Company entered into a stock subscription and redemption agreement
(the "Redemption") with Phelps Dodge Corporation and Hubcap Acquisition
L.L.C. ("Hubcap Acquisition"), wherein Hubcap Acquisition acquired 90% of the
common shares of the Company. Non-cash transactions that resulted from the
Redemption in 1998 included the increase in
8
stockholders' equity and the net deferred tax asset in the amount of $18,480
from the increase in the tax basis of assets.
Note 6 - NEW ACCOUNTING PRONOUNCEMENT - Statement of Financial Standards No.
133 ("SFAS 133"), "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES," was issued in June 1998 and was amended by Statement of
Financial Standards No. 137 ("SFAS 137"), "ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES - DEFERRAL OF THE EFFECTIVE DATE OF SFAS
133." SFAS 133, as amended by SFAS 137, is effective for all fiscal quarters
of all fiscal years beginning after June 15, 2000. The Statement establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial condition and measure
those instruments at fair value. If certain conditions are met, a derivative
may be specifically designated as a fair value hedge, a cash flow hedge, or a
hedge of a foreign currency exposure. The accounting for changes in the fair
value of a derivative (that is, gains and losses) depends on the intended use
of the derivative and the resulting designation. Management has not yet fully
evaluated the effect of the new standard on the financial statements.
Note 7 - FOREIGN CURRENCY - As of January 1, 1999, the Mexican economy was
determined not to be highly inflationary. Accordingly, management has
reviewed the primary economic environment in which AdM operates and
determined AdM's functional currency to be the U.S. dollar.
Note 8 - 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 nine months ended September 30, 1999
and 1998, respectively, which are summarized below. Sales between geographic
areas are made at negotiated selling prices.
United
THREE MONTHS ENDED SEPTEMBER 30, 1999 States Canada Mexico Eliminations Combined
Net Sales:
Sales to unaffiliated customers-Domestic $ 117,239 $ 3,299 $ 5,216 $ - $ 125,754
Sales to unaffiliated customers-Export 925 2,743 3,668
Sales among geographic segments 7,675 36,356 1,735 (45,766) -
--------------------------------------------------------------------
Total $ 125,839 $39,655 $ 9,694 $ (45,766) $ 129,422
--------------------------------------------------------------------
--------------------------------------------------------------------
Income from operations $ 18,824 $ 1,555 $ 715 $ - $ 21,094
THREE MONTHS ENDED SEPTEMBER 30, 1998
Net Sales:
Sales to unaffiliated customers-Domestic $ 81,308 $ 3,645 $ 7,322 $ - $ 92,275
Sales to unaffiliated customers-Export 579 - 1,100 1,679
Sales among geographic segments 1,266 31,930 520 (33,716) -
--------------------------------------------------------------------
Total $ 83,153 $35,575 $ 8,942 $ (33,716) $ 93,954
--------------------------------------------------------------------
--------------------------------------------------------------------
Income from operations $ 6,520 $ 3,459 $ 1,757 $ - $ 11,736
9
United
NINE MONTHS ENDED SEPTEMBER 30, 1999 States Canada Mexico Eliminations Combined
Net Sales:
Sales to unaffiliated customers-Domestic $ 341,423 $11,518 $ 15,541 $ - $ 368,482
Sales to unaffiliated customers-Export 2,126 30 6,369 - 8,525
Sales among geographic segments 25,017 107,501 6,746 (139,264) -
---------------------------------------------------------------------
Total $ 368,566 $119,049 $ 28,656 $(139,264) $ 377,007
--------------------------------------------------------------------
--------------------------------------------------------------------
Income from operations $ 55,202 $ 6,195 $ 2,841 $ - $ 64,238
Assets:
Identifiable assets $ 353,478 $128,035 $ 57,811 $ (21,087) $ 518,237
Investments in affiliates 2,807 2,807
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Total $ 356,285 $128,035 $ 57,811 $ (21,087) $ 521,044
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NINE MONTHS ENDED SEPTEMBER 30, 1998
Net Sales:
Sales to unaffiliated customers-Domestic $ 237,381 $19,986 $ 21,905 $ - $ 279,272
Sales to unaffiliated customers-Export $ 1,588 $ 175 $ 4,502 $ - 6,265
Sales among geographic segments $ 5,590 $97,670 $ 1,464 $(104,724) -
--------------------------------------------------------------------
Total $ 244,559 $117,831 $ 27,871 $(104,724) $ 285,537
--------------------------------------------------------------------
--------------------------------------------------------------------
Income from operations $ 21,644 $12,017 $ 3,575 $ - $ 37,236
Assets:
Identifiable assets $ 211,474 $144,922 $ 36,498 $ (14,034) $ 378,860
Investments in affiliates 26,921 26,921
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Total $ 238,395 $144,922 $ 36,498 $ (14,034) $ 405,781
--------------------------------------------------------------------
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10
Sales to three customers exceeded 10% of total net sales for the three months
and nine months ended September 30, as follows:
1999 % of 1998 % of
THREE MONTHS ENDED SEPTEMBER 30, Amount Sales Amount Sales
Customer one $ 19,098 14.8% $ 17,706 18.8%
Customer two 19.0% 19,924 21.2%
24,565 12.5% 15,680 16.7%
--------------- ----- ---------------- -----
16,226
$ 59,889 46.3% $ 53,310 56.7%
--------------- ----- ---------------- -----
--------------- ----- ---------------- -----
1999 % of 1998 % of
NINE MONTHS ENDED SEPTEMBER 30, Amount Sales Amount Sales
--------------- ----- ---------------- -----
Customer one $ 69,937 18.6% $ 46,793 16.4%
Customer two 61,271 16.3% 38,754 13.6%
46,368 12.3% 40,411 14.2%
--------------- ----- ---------------- -----
$ 177,576 47.2% $ 125,958 44.2%
--------------- ----- ---------------- -----
--------------- ----- ---------------- -----
Each geographic segment made sales to all three major customers in the three
and nine months ended September 30, 1999 and 1998.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. The following discussion should be read in conjunction
with the consolidated financial statements and notes included in Item 1 of
Part 1 of this report on Form 10-Q. Except for the historical information
contained herein, this report on Form 10-Q contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from those indicated by such forward-looking statements.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1998.
NET SALES. Net sales increased by $35.5 million, or 37.8%, for the three
months ended September 30, 1999 to $129.4 million, compared to $94.0 million
for the three months ended September 30, 1998. The increase in net sales is
primarily due to (i) including total sales from AKW with the consolidated
sales of the Company effective April 1, 1999, the date of the AKW
acquisition, (ii) an increase in sales at Columbia, Tennessee facility and
(iii) an increase in industry volumes. Sales from AKW for the third quarter
1999 were $26.0 million compared to $0 for the third quarter 1998 as AKW was
previously accounted for on the equity method as "equity in earnings of
affiliate" and was not consolidated prior to the AKW acquisition. Excluding
the $26.0 million in sales at AKW, net sales would have increased by $9.4
million, or 10.0%, for the three months ended September 30, 1999 to $103.4,
compared to $94.0 million for the three months ended September 30, 1998.
Sales of products from the new Columbia, Tennessee facility, which started
operation in August 1998, were $6.2 million in the third quarter 1999
compared to $2.8 million in the third quarter 1998. The remaining increase in
sales of $6.0 million resulted from an increase in industry volume.
GROSS PROFIT. Gross profit increased by $9.1 million, or 46.4%, to $28.7
million for the three months ended September 30, 1999 from $19.6 million for
the three months ended September 30, 1998. The $9.1 million increase in gross
profit was due to (i) $6.3 million gross profit at AKW, which has been
accounted for on a consolidated basis effective with the AKW acquisition on
April 1, 1999, and (ii) an increase in gross profit as a result of increased
volumes and a reduction in the costs associated with the labor strike at the
Henderson facility and a reduction in costs associated with the August 1998
start-up of the Columbia, Tennessee facility. Gross profit as a percent of
sales improved by 1.3% from 20.9% for the third quarter 1998 to 22.2% for the
third quarter 1999. Partially offsetting this increase were lower gross
profits at AdM. AdM's gross profit decreased by $1.0 million to $1.5 million
for the three months ended September 30, 1999 from $2.5 million for the three
months ended September 30, 1998. The decrease in gross profit at AdM was due
to a slow down in the Latin American market and higher than anticipated start
up cost of the new AdM facility.
OPERATING EXPENSES. Operating expenses decreased by $0.3 million, or 3.8%, to
$7.6 million for the three months ended September 30, 1999 from $7.9 million
for the three months ended September 30, 1998. This decrease was due to
one-time operating expenses incurred in the third quarter of 1998 for
start-up costs of $0.4 million relating to the new Columbia, Tennessee
facility, and the management retention bonuses of $0.2 million paid by Phelps
Dodge Corporation, a previous principal stockholder ("Phelps Dodge") in
conjunction with the Company's recapitalization. Excluding the expenses
recorded for the three months ended September 30, 1998 for the Columbia,
Tennessee facility start-up costs and the management retention bonuses,
operating expenses increased by $0.4 million to $7.6 million for the three
months ended September 30, 1999 from $7.2 million for the three months ended
September 30, 1998. This increase was partially due to an increase in
selling, general and administrative expense and research and development
costs associated with AKW, which has been accounted for on a consolidated
basis effective with the AKW acquisition on April 1, 1999.
12
OTHER INCOME (EXPENSE). Interest expense increased by $1.3 million, or 14.6%,
to $10.2 million for the three month period ended September 30, 1999 compared
to $8.9 million for the three months ended September 30, 1998, due primarily
to the debt incurred for the acquisition of Kaiser's 50% interest in AKW on
April 1, 1999. Equity in earnings of affiliates decreased by $2.3 million to
$0.1 million for the three month period ended September 30, 1999 from $2.4
million for the three months ended September 30, 1998. The decrease was due
to the Company's acquisition of AKW and the resultant change in accounting to
begin consolidating the results of AKW effective April 1, 1999. Net other
expenses decreased by $1.3 million for the three months ended September 30,
1999 to $0.7 million from $2.0 million incurred for the three month period
ended September 30, 1998 primarily due to foreign currency forward contract
gains.
ADJUSTED EBITDA. Adjusted EBITDA increased by $7.5 million, or 35.9%, to
$28.3 million for the three months ended September 30, 1999 from $20.8
million for the three months ended September 30, 1998 due to higher product
sales volume and the inclusion of 100% of AKW's earnings. In determining
Adjusted EBITDA for the three months ended September 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. In determining Adjusted EBITDA for the three months ended
September 30, 1998, income from operations has been adjusted by (i)
depreciation and amortization (except for amortization of deferred financing
costs), (ii) equity in earnings (losses) of affiliates, (iii) $0.2 million of
management retention bonuses paid by Phelps Dodge, (iv) an estimated cost of
$0.6 million incurred in connection with the labor strike at the Company's
facility in Henderson, Kentucky, and (v) an estimated cost of $1.1 million
for restructuring at the London, Ontario facility.
NET INCOME. Net income increased by $5.0 million to $6.1 million for the
three months ended September 30, 1999 from $1.1 million for the three months
ended September 30, 1998 due to higher pretax earnings, as described above,
and a lower effective tax rate.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1998.
NET SALES. Net sales increased by $91.5 million, or 32.0%, for the nine
months ended September 30, 1999 to $377.0 million, compared to $285.5 million
for the nine months ended September 30, 1998. The increase in net sales is
primarily due to increased industry volume, the inclusion of $50.5 million of
aluminum sales from AKW since April 1, 1999 (previously accounted for under
the equity method prior to the acquisition date) and a $22.2 million increase
in sales from the new Columbia, Tennessee facility which started operations
in August 1998. Excluding $50.5 million of AKW sales and the increase in the
Columbia, Tennessee facility sales of $22.2 million, net sales increased by
$18.8 million, or 6.6% to $301.5 million for the nine months ended September
30, 1999 from $282.7 million for the nine months ended September 30, 1998 as
a result of increased industry volume.
GROSS PROFIT. Gross profit increased by $23.0 million, or 36.5% to $86.0
million for the nine months ended September 30, 1999 from $63.0 million for
the nine months ended September 30, 1998. The gross profit increase was due
to an overall increase in industry sales volume and the addition of $12.6
million of gross profit from AKW, which has been accounted for on a
consolidated basis effective with the acquisition on April 1, 1999. Gross
profit as a percentage of net sales increased to 22.8% for the nine months
ended September 30, 1999 from 22.1% for the nine months ended September 30,
1998. The increase in gross profit as a percentage of sales is primarily due
to an overall increase in volume and improved margins. The improvements were
achieved by effectively controlling the costs associated with the labor
strike at the Henderson facility. Increased industry volumes also favorably
impacted gross profit. Excluding gross profits from AKW of $12.6 million,
gross profit would have increased by $10.4 million, or 16.5% to $73.4 million
for the nine months ended September 30, 1999 from $63.0 million for the nine
months ended September 30, 1998.
13
OPERATING EXPENSES. Operating expenses decreased by $4.0 million, or 15.5%,
to $21.8 million for the nine months ended September 30, 1999 from $25.8
million for the nine months ended September 30, 1998. This decrease was
primarily due to one-time operating expenses incurred in the first nine
months of 1998 for professional fees of $2.2 million related to the Company's
recapitalization, for start-up costs of $3.3 million relating to the
Columbia, Tennessee facility, and the management retention bonuses of $1.9
million paid by Phelps Dodge in conjunction with the Company's
recapitalization. Excluding the expenses recorded for the nine months ended
September 30, 1998 for professional fees, start-up costs, and management
retention bonuses, operating expenses increased by $3.4 million to $21.8
million for the nine months ended September 30, 1999 from $18.4 million for
the nine months ended September 30, 1998. This $3.4 million increase is
primarily due to the Company investing in additional professional and
administrative resources to support its growth initiatives and the addition
of operating expenses from AKW which previously were not included on a
consolidated basis. As a percentage of net sales, operating expenses,
excluding the expenses for professional fees, start-up costs, and management
retention bonuses, for the nine months ended September 30, 1999 were 5.8% as
compared to 6.4% for the nine months ended September 30, 1998.
OTHER INCOME (EXPENSE). Interest expense increased to $29.1 million for the
nine months ended September 30, 1999 compared to $24.3 million for the nine
months ended September 30, 1998, due to the debt incurred in the
recapitalization of the Company on January 21, 1998, being outstanding for
the first nine months of 1999 compared to an outstanding amount from January
21, 1998 to September 30, 1998. Interest expense also increased due to the
debt incurred for the acquisition of Kaiser's 50% interest in AKW on April 1,
1999. Equity in earnings of affiliates increased by $0.6 million to $2.4
million for the nine months ended September 30, 1999 from $1.8 million for
the nine months ended September 30, 1998. The increase was due to the
increased equity earnings from the AKW joint venture. AKW contributed $2.3
million of earnings during the first quarter of 1999, before the acquisition
on April 1, 1999, as compared to earnings of $1.5 million in the first nine
months of 1998 which was net of the $3.4 million effect of a product recall
campaign implemented at AKW in the first quarter 1998. Beginning April 1,
1999, when the Company acquired Kaiser's 50% interest in AKW, earnings from
AKW were reported on a consolidated basis and were not recorded as equity
earnings. Net other expenses decreased by $0.7 million for the nine months
ended September 30, 1999 to $1.6 million from $2.3 million incurred for the
nine months ended September 30, 1998 primarily due to foreign currency
forward contract gains.
ADJUSTED EBITDA. Adjusted EBITDA increased by $18.7 million, or 27.4%, to
$86.9 million for the nine months ended September 30, 1999 from $68.2 million
for the nine months ended September 30, 1998. The Adjusted EBITDA increase
was due to higher product sales volume and the addition of 100% of AKW's
income on a consolidated basis from April 1, 1999. In determining Adjusted
EBITDA for the nine months ended September 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. In determining Adjusted EBITDA for the nine months ended
September 30, 1998, income from operations has been adjusted by (i)
depreciation and amortization (except for amortization of deferred financing
costs), (ii) equity in earnings (losses) of affiliates, (iii) $2.2 million of
professional fees related to the Company's recapitalization, (iv) $3.4
million relating to the AKW Recall, (v) $1.9 million of management retention
bonuses paid by Phelps Dodge, (vi) $3.6 million incurred in connection with
the labor strike at the Company's facility in Henderson, Kentucky, and (v) an
estimated cost of $1.1 million for restructuring at the London, Ontario
facility.
NET INCOME. Net income increased by $14.6 million to $21.0 million for the
nine months ended September 30, 1999 from $6.4 million for the nine months
ended September 30, 1998 due primarily to
14
higher pretax earnings, as described above, a lower effective tax rate, and a
decrease in minority interest due to the Acquisition of AdM (See footnote 2).
CHANGES IN FINANCIAL CONDITION
At September 30, 1999, the Company's total assets amounted to $521.0 million,
as compared to $404.9 million at December 31, 1998. The $116.1 million or
28.7% increase in total assets during the nine months ended September 30,
1999 was the result of a $15.1 million increase in cash, an increase in net
property, plant and equipment of $43.8 million, a $18.4 million increase in
customer receivables, a $12.5 million increase in net inventories, a $0.7
million increase in supplies, a $0.8 million increase in prepaid expenses, a
$1.5 million increase in other assets, a $0.4 million increase in current
deferred income taxes, and a $51.9 million increase in net goodwill, offset
by a decrease of $23.1 in investment of affiliates, a $0.3 million decrease
in income taxes receivable, a decrease of $3.3 million in long term deferred
income taxes, a $1.7 million decrease in other receivables, and a decrease of
$0.6 million in deferred financing costs. The increase in net property, plant
and equipment is primarily due to $30.0 million of equipment acquired at AKW
on April 1, 1999 and a $11.5 million investment in AdM's new facility. The
increase in customer receivables resulted from increased sales volume from
U.S. customers and the acquisition of aluminum wheel receivables from AKW.
The other receivables increase was due to inclusion of AKW's other
receivables, an increase in receivable from IaSa, and an increase in the
unrealized gain associated with the foreign currency forward contracts
entered into by the Company. The increase in net inventories is due to the
addition of AKW's aluminum inventory. The $51.9 million increase in net
goodwill is attributable to the purchase of AKW, as is the decrease in
investment of affiliates.
At September 30, 1999, the Company's total liabilities amounted to $557.5
million, as compared to $456.8 million at December 31, 1998. The $100.7
million or 22.0% increase in total liabilities was due to a $67.5 million
increase in long-term debt, a $17.3 million increase in accounts payable, a
$3.6 million increase in short term notes payable at AdM, an increase of $1.0
million in the current portion of long-term debt, an increase of $1.1 million
in accrued payroll and compensation, a $2.8 million increase in accrued and
other current liabilities, a $5.0 million increase in other non-current
liabilities and an increase in deferred income taxes of $5.2 million, offset
by a decrease of $2.8 million in accrued interest. The $67.5 million increase
in long-term debt was due to a $100.0 million increase in the Company's term
loan through the Amended and Restated Credit Facility described below in
"Capital Resources and Liquidity," partially offset by a $32.5 million
repayment of the Company's $140.0 million revolving credit facility, (the
"Revolver"). The increase in accounts payable was due to increased production
volumes and assuming $3.8 million of AKW's payables. The increase in accrued
interest payable resulted from the additional debt acquired. The increase in
other non-current liabilities was mostly due to assuming approximately $3.8
million of AKW's pension liabilities. The decrease in accrued interest was
primarily due to timing of interest payments.
15
CAPITAL RESOURCES AND LIQUIDITY
The Company's primary sources of liquidity are cash flow from operations and
borrowing under the Revolver. The Company's primary uses of cash are funding
working capital, capital expenditures under the Company's expansion plans and
debt service.
As of September 30, 1999, the Company had cash and short-term investments of
$18.6 million compared to $3.5 million at the beginning of the year. The
Company's operating activities provided $52.8 million and the financing
activities provided $71.9 million which were used to fund the Company's
investing activities of $109.6 million and an increase in cash and cash
equivalents of $15.1 million.
Investing activities during the nine months ended September 30, 1999 were
$109.6 million compared to $28.6 million for the nine months ended September
30, 1998.
Cash flow from financing activities during the nine months ended September
30, 1999 was $71.9 million compared to $20.4 million for the nine months
ended September 30, 1998.
The Company incurred capital expenditures in 1998 (excluding capital
expenditures by AdM) of $29.9 million. The Company expects its capital
expenditures (excluding forecasted capital expenditures by AdM and AKW of
$15.2 million and $13.8 million, respectively) to decrease to approximately
$19.5 million in 1999. It is anticipated that these expenditures will fund
(i) approximately $4.1 million for a technology advancement projects; (ii)
investments in productivity improvements in 1999 to the Company's steel wheel
business of approximately $7.1 million and (iii) maintenance of business
expenditures of approximately $8.3 million. Future investments in
productivity improvements are expected to be focused on additional
automation, shop floor and engineering systems and improved coating
capabilities.
The Company anticipates that AdM will require additional funding for the
remainder of 1999 to acquire equipment, to finalize construction of the
Monterrey, Mexico facility, and to fund various start-up costs and working
capital needs. The Monterrey, Mexico facility started operations in July
1999. Total project costs through 1999 is expected to be approximately $31.0
million, of which approximately $28.9 million was spent as of September 30,
1999. The Company finalized a $32.5 million credit facility for AdM on July
9, 1998. This credit facility is comprised of a term loan of $25.0 million
and a working capital facility of $7.5 million. As of September 30, 1999 the
credit facility was fully drawn. Repayment of the term loan is to be made in
eight substantially equal quarterly installments commencing June 25, 2001.
The working capital facility terminates on July 9, 2000, unless extended for
successive one-year periods at the option of the lenders. Interest on the
term loan and working capital advances is based on the applicable London
interbank borrowing offered rate ("LIBOR") plus an applicable margin.
Effective September 13, 1999 the credit facility was amended to reflect a
parent guaranty executed by the Company, guaranteeing the repayment of the
advances under this facility.
AMENDED AND RESTATED CREDIT FACILITY. On April 16, 1999 the Company entered
into an amended and restated credit facility (the "Amended Credit Facility")
with a syndicate of banks and other financial institutions (the "Lenders")
led by Citicorp USA, Inc., as administrative agent (the "administrative
agent"), Salomon Smith Barney, Inc., as arranger, Bankers Trust Company, as
syndication agent, and Wells Fargo Bank N.A. as documentation agent. The
Amended Credit Facility provides for an additional $100.0 million term loan
("Tranche C") to be added to the previous term loans of (i) $60.0 million
that matures on January 21, 2005 ("Tranche A") and (ii) $75.0 million that
matures on January 21, 2006 ("Tranche B"). The Company's Canadian subsidiary
is the borrower under Tranche A, and the Company has guaranteed the repayment
of such borrowing under Tranche A and all other obligations of such Canadian
subsidiary under the Amended Credit Facility. The Company also has a $140.0
million
16
Revolver, which declines to $100.0 million on January 21, 2003 and matures on
January 21, 2004. As of September 30, 1999, no amounts were outstanding under
the Revolver. The Tranche A and B term loans provide for 1% annual
amortization prior to maturity and the Tranche C term loan provides for 1%
annual amortization through January 21, 2005, with the final two years each
providing for 47% amortization. Interest on the term loans and the Revolver
is based on the applicable LIBOR rate plus an applicable margin. The loans
are secured by, among other things, the shares of stock, partnership
interests and limited liability company ownership interests of the Company's
subsidiaries.
DESCRIPTION OF THE NOTES. In January 1998 the Company issued $200 million of
notes (the "Notes") pursuant to an indenture (the "Indenture") between the
Company and U.S. Trust Company, N.A., as trustee (the "Trustee"). The
Indenture is limited in aggregate principal amount to $300.0 million, of
which $200.0 million were issued as Private Notes and subsequently exchanged
for Exchange Notes, which exchange has been registered under the Securities
Act of 1933, as amended. Additional notes may be issued in one or more series
from time to time, subject to the limitations set forth under the Indenture.
The Indenture provides certain restrictions on the payment of dividends by
the Company. The Indenture is subject to and governed by the Trust Indenture
Act of 1939, as amended. The Notes are general unsecured obligations of the
Company and are subordinated in right of payment to all existing and future
Senior Indebtedness (as defined in the Indenture) of the Company. The Notes
mature on February 1, 2008. Interest on the Notes accrues at the rate of
9.25% per annum and is due and payable semi-annually in arrears on February 1
and August 1, commencing on August 1, 1998, to holders of record of the Notes
on the immediately preceding January 15 and July 15.
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 1999, planned capital expenditures and debt service
obligations. Any future acquisitions, joint ventures or other similar
transactions will likely require additional capital, and there can be no
assurance that any such capital will be available to the Company on
acceptable terms or at all. The Company's ability to fund its working capital
needs, planned capital expenditures and scheduled debt payments, to implement
its expansion plans, to refinance indebtedness and to comply with all of the
financial covenants under its debt agreements, depends on its future
operating performance and cash flow, which in turn, are subject to prevailing
economic conditions and to financial, business and other factors, some of
which are beyond the Company's control.
YEAR 2000 COMPLIANCE
In 1997, a comprehensive project plan to address the Year 2000 issue as it
relates to the Company's operation was developed and implemented. The scope
of the plan includes seven phases including Awareness, Identification, Impact
Analysis, Risk Evaluation, Remediation, Testing and Contingency Planning. A
project team that consists of key members of the technology staff,
representatives of functional business units and senior management was
developed.
An assessment of the impact of the Year 2000 issue on the Company's computer
systems was completed in the fourth quarter of 1997. From the assessment, the
Company identified and prioritized those systems deemed to be mission
critical or those that have a significant impact on normal operations.
The Company relies on third party vendors and service providers for certain
data processing capabilities. Formal communications with these providers were
initiated in 1997 to assess the Year 2000 readiness of their products and
services. Responses indicate that the significant providers currently have
compliant versions available or are well into the renovation and testing
phases. However, the Company can give no guarantee that the systems of these
service providers and vendors on which the Company's systems rely will be
timely Year 2000 compliant.
17
Additionally, the Company has implemented a plan to manage the potential risk
posed by the impact of the Year 2000 issue on its major customers and
suppliers. Formal communications are continuing and the assessment is moving
forward on schedule.
CURRENT STATUS. The project team estimates that the Company's Year 2000
readiness project is approximately 98% complete. The following table provides
a summary of the current status of the seven phases involved and a projected
timetable for completion.
Project Phase % Completed Completion Comments
------------- ----------- ---------- --------
Awareness 100% Completed
Identification 100% Completed
Impact Analysis 100% Completed
Risk Evaluation 100% Completed
Remediation 99% Estimated All critical systems are completed
Testing 95% Estimated Involves ongoing testing of critical systems
Contingency Plan 100% Completed
Overall Completion 98% Estimated
COSTS. The Company has thus far primarily used and expects to continue to use
internal resources to implement its readiness plan and to upgrade or replace
and test systems affected by the Year 2000 issue. Year 2000 remediation costs
were approximately $1.4 million in 1997. During 1998, the Company incurred
approximately $1.3 million of direct and indirect costs for company-owned
systems and applications related to Year 2000 remediation. The Company
estimates that its additional costs for Year 2000 remediation and testing of
its computer systems through the end of 1999 will not exceed $1.1 million. A
majority of these costs are currently believed to be incremental expenses
that will not recur in the Year 2000 or thereafter.
The costs and the timetable in which the Company plans to complete the Year
2000 readiness activities are based on management's estimates, which were
derived using numerous assumptions of future events including the continued
availability of certain resources, third party readiness plans and other
factors. The Company can make no guarantee that these estimates will be
achieved, and actual results could differ from such plans.
RISK ASSESSMENT. Given information known at this time about the Company's
systems that are non-compliant, coupled with the Company's on-going, normal
course of business efforts to upgrade or replace critical systems, as
necessary, management does not expect Year 2000 compliance costs to have a
material adverse impact on the Company. Although the Company believes that
internal Year 2000 compliance will be achieved by December 31, 1999, there
can be no assurance that the Year 2000 problem affecting the Company, its
customers and suppliers will not have a material adverse effect on the
Company's business, financial condition and results of operations. In light
of the many adverse conditions that could happen to the Company associated
with Year 2000 compliance, along with the speculation that some or many of
them may not happen, it is difficult to hypothesize a most reasonably likely
worst case Year 2000 scenario with any degree of certainty. With that in
mind, the Company currently believes the most reasonably likely worst case
scenario would be the failure of certain key production capabilities or
similar failures occurring within the Company's supply chain. These types of
catastrophic failures would result in the inability of the Company to supply
products to customers for a period of time.
CONTINGENCY PLAN. Realizing that some disruption may occur despite its
efforts, the Company has developed contingency plans for each critical system
in the event that one or more of those systems fail.
18
The Company has considered the following items, among others, as key pieces
of the contingency plans: the creation of special "rapid response" technology
teams, scheduling availability of key personnel, additional testing and
simulation activities, establishment of rapid decision processes, development
of support critical customer functions in the event information systems or
mechanized processes experience Year 2000 disruptions, determination of
alternative suppliers, and implementation of data retention and recovery
procedures for customers and critical business data with on-site (primary) as
well as off-site (secondary) data copies. While review and modification of
the plans is on going, the contingency plans are substantially completed.
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:
- - significant indebtedness of the Company may have important consequences,
including, but not limited to, impairment of the Company's ability to
obtain additional financing, reduction of funds available for operations
and business opportunities or limitation on the Company's ability to
dispose of assets;
- - the Company's ability to service its indebtedness is dependent upon
operating cash flow of its subsidiaries;
- - loss of a major customer could have material adverse effect on the
Company's business;
- - original equipment manufacturers' demands for price reduction may
adversely affect profitability;
- - cyclical nature of industry could cause fluctuation in demand for Company's
products;
- - labor strike may disrupt the Company's supply to its customer base;
- - interruption in supply of steel or aluminum could reduce Company's ability
to obtain favorable sourcing of such raw materials;
- - Company's competitors could reduce the market share of the Company's
product;
- - potential liability of the Company for environmental matters and the costs
of compliance with certain governmental regulations could have a material
adverse effect on the Company's financial condition and may adversely
affect the Company's ability to sell or rent such property or to borrow
using such property as collateral;
- - 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;
- - interests of the principal stockholder of the Company may conflict with the
interests of the holders of securities of the Company, and
- - no assurance that the Company's computer software and operating systems, or
those of its customers or suppliers, will be Year 2000 compliant.
19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company, in the normal course of doing business, is exposed to the risks
associated with changes in foreign exchange rates, interest rates and raw
material prices. The Company selectively uses derivative financial
instruments to manage these risks. The Company uses foreign exchange
contracts to hedge foreign currency commitments. Specifically, these foreign
exchange contracts offset foreign currency denominated purchase commitments
to suppliers, accounts receivable from and future committed sales to
customers, and operating expenses. Management believes the use of foreign
currency financial instruments reduces the risks that arise from doing
business in international markets. At September 30, 1999, the Company had
open foreign exchange forward contracts and options with a notional amount of
$153.3 million. Foreign exchange forward contract maturities were from one to
fourteen months, and option contract maturities were from five to fourteen
months.
The Company's hedging activities provide only limited protection against
currency risks. Factors that could impact the effectiveness of the Company's
hedging programs include accuracy of sales estimates, volatility of currency
markets and the cost and availability of hedging instruments. The
counterparties to the foreign exchange contracts are financial institutions
with investment grade credit ratings. The Company monitors its foreign
currency cash flow transactions and executes contracts to hedge its foreign
exchange exposures. The use of forward contracts and options protects the
Company's cash flows against unfavorable movements in exchange rates, to the
extent of the amount under contract. A 10% adverse change in currency
exchange rates for the Company's foreign currency derivatives held at
September 30, 1999, would have an impact of approximately $13.3 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.
The Company uses long-term debt as a primary source of capital in its
business. The following table presents the principal cash repayments and
related weighted average interest rates by maturity date for its long-term
fixed-rate debt and other types of long-term debt at September 30, 1999:
(Dollars in Fair
Thousands) 1999 2000 2001 2002 2003 Thereafter Total Value
---- ---- ---- ---- ---- ---------- ----- -----
Long-term Debt:
Fixed $200,000 $200,000 $188,000
Avg. Rate 9.25% 9.25%
Variable $0 $2,350 $11,725 $14,850 $5,475 $220,983 $255,383 $255,383
Avg. Rate 8.26% 7.46% 7.42% 7.69% 8.29% 8.19%
The Company has used an interest rate swap to alter interest rate exposures
between fixed and floating rates on a portion of the Company's long-term
debt. As of September 30, 1999, $99.0 million notional amount of interest
rate swap was outstanding. On average during the nine month period ended
September 30, 1999, the Company paid 5.75% as a fixed rate and received
5.0858% on the interest rate swap. Under the terms of the interest rate swap,
the Company agrees with the counterparty to exchange, at specified intervals,
the difference between the fixed rate and floating rate interest amounts
calculated by reference to the agreed notional principal amount. The interest
rate swap matures in January 2001. The Company also used an interest rate cap
to set a ceiling on the maximum floating interest rate the Company would
incur on a portion of the Company's long-term debt. As of September 30, 1999,
$34.7 million notional amount of interest rate cap was outstanding. Under the
terms of the interest rate cap, the Company is entitled to receive from the
counterparty on a quarterly basis the amount, if any, by which the
three-month Eurodollar interest rate exceeds 7.5%. The interest rate cap
matures in January 2001.
20
The Company is exposed to credit related losses in the event of
nonperformance by the counterparties to the interest rate swap and interest
rate cap, although no such losses are expected as the counterparties are
financial institutions 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 and options to hedge
against changes in certain commodity prices. At September 30, 1999, the
Company had open commodity price swaps and option contracts with a notional
amount of $19.1 million. These commodity price swaps and option contracts had
maturities from one to fifteen months. A 10% adverse change in commodity
prices would have an impact of approximately $1.8 million on the fair value
of these contracts. The Company is exposed to credit related losses in the
event of nonperformance by the counterparties to the commodity price swaps
and option contracts, although no such losses are expected as the
counterparties are financial institutions having an investment grade credit
rating.
21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company does not believe that there are any pending or threatened
legal proceedings other than non-material legal proceedings incidental
to the Company's business.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
Exhibit No Description
---------- -----------
27.1 Financial Data Schedule
b. Form 8-K:
No reports on Form 8-K have been filed during the three month period ended
September 30, 1999.
22
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 12, 1999
------------------ -----------------
William P. Greubel
President and Chief Executive Officer
/s/ JOHN R. MURPHY Dated: November 12, 1999
-------------- -----------------
John R. Murphy
Vice President - Finance and Chief Financial Officer
Principal Accounting Officer
23