SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the Quarterly Period Ended June 30, 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
ACCURIDE CORPORATION
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 61-1109077
- -------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 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
----- -----
There were 24,884 common shares outstanding as of June 30, 1999.
1
ACCURIDE CORPORATION
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1999
(unaudited) and December 31, 1998 3
Consolidated Statements of Income for Six Months
Ended June 30, 1999 and 1998 (Unaudited) 4
Consolidated Statement of Stockholders' Equity (Deficiency)
for the Six Months Ended June 30, 1999 (Unaudited) 5
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1999 and 1998 (Unaudited) 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 23
2
ITEM I. FINANCIAL STATEMENTS
ACCURIDE CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31,
ASSETS 1999 1998
(UNAUDITED)
------------------------------
CURRENT ASSETS:
Cash and cash equivalents $ 22,601 $ 3,471
Customer receivables, net of allowance for doubtful accounts of $496 and $1,008 69,867 52,287
Other receivables 12,567 8,372
Inventories, net 44,562 36,980
Supplies 7,898 7,187
Prepaid expenses 791 139
Income taxes receivable 104 458
Deferred income taxes 793 611
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Total current assets 159,183 109,505
PROPERTY, PLANT AND EQUIPMENT, NET 200,088 159,826
OTHER ASSETS:
Goodwill, net of accumulated amortization of $32,880 and $30,942 135,103 83,317
Investment in affiliates 2,763 25,855
Deferred financing costs, net of accumulated amortization of $2,538 and $1,634 12,397 12,609
Deferred income taxes 3,287
Other 11,435 10,526
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TOTAL $ 520,969 $ 404,925
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--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable $ 41,640 $ 27,008
Current portion of long-term debt 2,350 1,350
Short term notes payable 7,500 3,911
Accrued payroll and compensation 8,552 8,149
Accrued interest payable 11,533 9,807
Accrued and other liabilities 10,168 6,606
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Total current liabilities 81,743 56,831
LONG-TERM DEBT, less current portion 455,355 387,939
DEFERRED INCOME TAXES 3,179
OTHER LIABILITIES 16,986 12,021
MINORITY INTEREST 6,321 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 (1,624) (1,644)
Retained earnings (deficit) (65,729) (80,610)
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Total stockholders' equity (deficiency) (42,615) (58,096)
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TOTAL $ 520,969 $ 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 SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------------- --------------------------
1999 1998 1999 1998
NET SALES $ 136,052 $ 97,675 $ 247,585 $ 191,583
COST OF GOODS SOLD 104,826 74,447 190,267 148,199
--------- --------- --------- ---------
GROSS PROFIT 31,226 23,228 57,318 43,384
OPERATING:
Selling, general and administrative 7,695 5,799 14,174 11,153
Start-up costs - 1,665 - 2,811
Management retention bonuses - 870 - 1,680
Recapitalization professional fees - - - 2,240
--------- --------- --------- ---------
INCOME FROM OPERATIONS 23,531 14,894 43,144 25,500
OTHER INCOME (EXPENSE):
Interest income 165 203 230 343
Interest (expense) (10,005) (8,672) (18,961) (15,375)
Equity in earnings (losses) of affiliates 11 2,155 2,326 (545)
Other (expense), net (556) 180 (924) (421)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 13,146 8,760 25,815 9,502
INCOME TAX PROVISION 5,522 3,482 10,843 3,829
MINORITY INTEREST 67 481 91 395
--------- --------- --------- ---------
NET INCOME $ 7,557 $ 4,797 $ 14,881 $ 5,278
--------- --------- --------- ---------
--------- --------- --------- ---------
See notes to unaudited consolidated financial statements.
4
ACCURIDE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(DOLLARS IN THOUSANDS)
COMMON
STOCK AND
ADDITIONAL STOCK RETAINED
PAID IN SUBSCRIPTIONS EARNINGS
CAPITAL RECEIVABLE (DEFICIT) TOTAL
-----------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 $ 24,158 $ (1,644) $ (80,610) $ (58,096)
Net income (Unaudited) 14,881 14,881
Issuance of shares (Unaudited) 580 (580) -
Proceeds from stock subscriptions receviable (Unaudited) - 600 - 600
-------- -------- --------- ---------
BALANCE AT June 30, 1999 (Unaudited) $ 24,738 $ (1,624) $ (65,729) $ (42,615)
-------- -------- --------- ---------
-------- -------- --------- ---------
See notes to unaudited consolidated financial statements.
5
ACCURIDE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30
------------------------------
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 14,881 $ 5,278
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation 11,120 9,947
Amortization 3,016 2,217
Bonuses payable by a principal stockholder - 1,680
Deferred income taxes 6,284 (901)
Equity in (earnings) losses of affiliates (2,326) 545
Minority interest 91 395
Changesin certain assets and liabilities (Net of effects from Purchase of
AKW L.P.):
Receivables (766) (10,184)
Inventories and supplies (937) (1,681)
Prepaid expenses and other assets (997) (3,028)
Accounts payable 8,576 3,966
Accrued and other liabilities 37 7,736
--------- ---------
Net cash provided by operating activities 38,979 15,970
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (21,364) (21,675)
Capitalized interest - (146)
Payment for purchase of AKW L.P. (70,591)
Net cash distribution from AKW L.P. 265 407
Other (18) -
--------- ---------
Net cash used in investing activities (91,708) (21,414)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of short term notes payable 4,589 3,000
Principal payments on short-term notes payable (1,340)
Net increase(decrease) in revolving line of credit (32,638) 27,750
Proceeds from issuance of long-term debt 100,000 333,918
Deferred financing costs (692) (13,898)
Issuance of shares - 108,000
Proceeds from stock subscriptions receivable 600 1,009
Redemption of shares - (454,315)
--------- ---------
Net cash provided by financing activities 71,859 4,124
Increase(decrease) in cash and cash equivalents 19,130 (1,320)
Cash and cash equivalents, beginning of period 3,471 7,418
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Cash and cash equivalents, end of period $ 22,601 $ 6,098
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--------- ---------
See notes to unaudited consolidated financial statements.
6
ACCURIDE CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
- -------------------------------------------------------------------------------
Note 1 - BASIS OF PRESENTATION - The accompanying unaudited consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles, except that the unaudited consolidated financial
statements do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
However, in the opinion of Accuride Corporation (the "Company"), all
adjustments (consisting of normal recurring accruals) considered necessary to
present fairly the consolidated financial statements have been included.
The results of operations for the six months ended June 30, 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.
Note 2- 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. 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 Accuride 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 acquisition has 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 AKW based upon their
respective fair values as of the date of the acquisition based upon
valuations and other studies. A preliminary allocation of the purchase price
has been made to major categories of assets and liabilities based on
available information. The actual allocation of purchase price 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 acquisition is being amortized on the straight-line
method over 40 years.
The following unaudited pro forma financial data illustrates the estimated
effects as if the 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.
JUNE 30,
-----------------------------
1999 1998
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Net Sales $ 271,531 $ 233,688
Net Income $ 15,182 $ 3,336
Excluding the $6,800 AKW Product Recall, the unaudited pro forma net income
for the six months ended June 30, 1998 would have been $7,008. 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
7
to be a projection of future results and do not reflect, among other things,
any synergies that might have been achieved from combined operations.
Note 3 - INVENTORIES - Inventories were as follows:
JUNE 30, DECEMBER 31,
1999 1998
---------- ------------
Raw materials $ 7,982 $ 8,920
Work in process 8,834 7,757
Finished manufactured goods 26,800 20,060
LIFO adjustment 2,177 1,122
Other (1,231) (879)
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Inventories, net $ 44,562 $ 36,980
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-------- --------
Note 4 - LABOR RELATIONS -The Company's prior contract with the 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 lock-out. The members of
the UAW have rejected all of the Company's offers for a new contract. 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 six months ended June
30, 1999 and 1998, the Company paid $16,331 and $4,566 for interest and
$4,205 and $6,312 for income taxes, respectively. Non-cash transactions
resulting from the issuance of common stock and the related stock
subscriptions receivable of $1,539 and $2,511 occurred during the six months
ended June 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 Hubcab Acquisition acquired 90% of the common
shares of the Company. Non-cash transactions that resulted from the
Redemption in 1998 included the increase in 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. This 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 Accuride de Mexico, S.A.
de C.V. ("AdM") operates and determined AdM's functional currency to be the
U.S. dollar.
8
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 foreign operations in the United
States, Canada, and Mexico, for the three and six months ended June 30, 1999
and 1998, respectively, which are summarized below. Sales between geographic
areas are made at negotiated selling prices.
United
THREE MONTHS ENDED JUNE 30, 1999 States Canada Mexico Eliminations Combined
Net Sales:
Sales to unaffiliated customers-Domestic $ 123,061 $ 4,319 $ 5,806 $ - $ 133,186
Sales to unaffiliated customers-Export 811 - 2,055 - 2,866
Sales among geographic segments 9,180 35,546 2,505 (47,231) -
--------------------------------------------------------------------
Total $ 133,052 $ 39,865 $ 10,366 $ (47,231) $ 136,052
--------------------------------------------------------------------
--------------------------------------------------------------------
Income from operations: $ 20,102 $ 2,399 $ 1,030 $ - $ 23,531
THREE MONTHS ENDED JUNE 30, 1998
Net Sales:
Sales to unaffiliated customers-Domestic $ 83,096 $ 4,434 $ 7,964 $ - $ 95,494
Sales to unaffiliated customers-Export 593 - 1,588 2,181
Sales among geographic segments 2,033 35,682 443 (38,158) -
--------------------------------------------------------------------
Total $ 85,722 $ 40,116 $ 9,995 $ (38,158) $ 97,675
--------------------------------------------------------------------
--------------------------------------------------------------------
Income from operations: $ 9,531 $ 4,080 $ 1,283 $ - $ 14,894
SIX MONTHS ENDED JUNE 30, 1999
Net Sales:
Sales to unaffiliated customers-Domestic $ 224,184 $ 8,219 $ 10,325 $ - $ 242,728
Sales to unaffiliated customers-Export 1,201 30 3,626 - 4,857
Sales among geographic segments 17,342 71,145 5,011 (93,498) -
--------------------------------------------------------------------
Total $ 242,727 $ 79,394 $ 18,962 $ (93,498) $ 247,585
--------------------------------------------------------------------
--------------------------------------------------------------------
Income from operations: $ 36,378 $ 4,640 $ 2,126 $ - $ 43,144
Assets:
Identifiable assets $ 366,622 $ 112,845 $ 52,776 $ (14,037) $ 518,206
Investments in affiliates 2,763 - - 2,763
--------------------------------------------------------------------
Total $ 369,385 $ 112,845 $ 52,776 $ (14,037) $ 520,969
--------------------------------------------------------------------
--------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1998
Net Sales:
Sales to unaffiliated customers-Domestic $ 156,073 $ 16,341 $ 14,583 $ - $ 186,997
Sales to unaffiliated customers-Export 1,009 175 3,402 - 4,586
Sales among geographic segments 4,324 65,740 944 (71,008) -
--------------------------------------------------------------------
Total $ 161,406 $ 82,256 $ 18,929 $ (71,008) $ 191,583
--------------------------------------------------------------------
--------------------------------------------------------------------
Income from operations: $ 15,124 $ 8,558 $ 1,818 $ - $ 25,500
Assets:
Identifiable assets $ 239,503 $ 111,895 $ 35,723 $ (14,037) $ 373,084
Investments in affiliates 23,813 23,813
--------------------------------------------------------------------
Total $ 263,316 $ 111,895 $ 35,723 $ (14,037) $ 396,897
--------------------------------------------------------------------
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9
Sales to three customers exceeded 10% of total net sales for the three
months and six months ended June 30, as follows:
Three months ended June 30,
1999 % of 1998 % of
Amount Sales Amount Sales
Customer one $ 23,045 16.9 % $ 16,771 17.2 %
Customer two 23,780 17.5 % 10,494 10.7 %
Customer three 18,432 13.5 % 12,561 12.9 %
-------- ------ -------- ------
$ 65,257 47.9 % $ 39,826 40.8 %
-------- ------ -------- ------
-------- ------ -------- ------
Six months ended June 30,
Customer one $ 50,839 20.5 % $ 29,087 15.2 %
Customer two 36,706 14.8 % 18,830 9.8 %
Customer three 30,142 12.2 % 24,731 12.9 %
-------- ------ -------- ------
$117,687 47.5 % $ 72,648 37.9 %
-------- ------ -------- ------
-------- ------ -------- ------
Each geographic segment made sales to all three major customers in the three
and six months ended June 30, 1999 and 1998.
Note 9 - SUBSEQUENT EVENTS - On July 16, 1999, the Company acquired from
Industria Automotriz S.A. de C.V. ("IaSa") the remaining 49% minority
interest of AdM, pursuant to the terms of a Purchase Agreement by and among
the Company and the other parties listed thereto. The purchase price of the
acquisition was $7,300.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. The following discussion should be read in conjunction
with the consolidated financial statements and notes included in Item 1 of
Part I of this form. 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.
AKW ACQUISITION
On April 1, 1999, the Company acquired Kaiser Aluminum & Chemical
Corporation's ("Kaiser") 50% interest in AKW L.P., a Delaware limited
partnership ("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. 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 Accuride and Kaiser to design, manufacture, and sell heavy-duty
aluminum wheels. The acquisition gives the Company 100% ownership of AKW.
Total consideration paid to Kaiser for the 50% interest was approximately $70
million. The Company initially financed the acquisition through the Company's
$140 million senior secured revolving credit facility, which was subsequently
replaced by permanent financing through the Amended and Restated Credit
Facility described below in "Capital Resources and Liquidity." The
acquisition has been accounted for by the purchase method of accounting.
Goodwill recorded by the Company in connection with the acquisition is being
amortized on the straight-line method over 40 years.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1998.
NET SALES. Net sales increased by $38.4 million, or 39.3%, for the three
months ended June 30, 1999 to $136.1 million, compared to $97.7 million for
the three months ended June 30, 1998. The increase in net sales is primarily
due to (i) including total sales from AKW with consolidated sales effective
April 1, 1999, the date of the acquisition, (ii) new products sold at the
Columbia, Tennessee facility and (iii) an increase in industry volumes. Sales
from AKW for the second quarter 1999 were $24.5 million compared to $0 for
the second quarter 1998 as AKW was previously accounted for on the equity
method as "equity in earnings of affiliates" and was not consolidated prior
to the acquisition. Sales of products from the new Columbia, Tennessee
facility, which started operations in the third quarter of 1998, were $6.4
million during the second quarter of 1999. Excluding the $24.5 million in
sales at AKW and $6.4 million sales from the Columbia, Tennessee facility,
net sales would have increased by $7.5 million, or 7.7%, for the three months
ended June 30, 1999 to $105.2 million, compared to $97.7 million for the
three months ended June 30, 1998.
GROSS PROFIT. Gross profit increased by $8.0 million, or 34.5% to $31.2
million for the three months ended June 30, 1999 from $23.2 million for the
three months ended June 30, 1998. The $8.0 million increase in gross profit
was primarily due to $6.3 million gross profit at AKW, which has been
accounted for on a consolidated basis effective with the acquisition on April
1, 1999, and an increase in gross profit at the Henderson, Kentucky facility
as a result of increased volumes and reducing the costs associated with the
labor strike. Partially offsetting this increase were lower gross profits at
AdM and the Columbia, Tennessee facility. Gross profit as a percentage of net
sales decreased to 23.0% for the three months ended June 30, 1999 from 23.8%
for the three months ended June 30, 1998. The decrease in gross profit as a
percentage of sales is due to lower margins at AdM and the Columbia,
Tennessee facility. Excluding the sales and gross profit from AKW of $6.3
million and the gross loss at the Columbia facility of $0.4 million, gross
profit
11
would have increased by $2.1 million, or 9.1% to $25.3 million for the three
months ended June 30, 1999 from $23.2 million for the three months ended June
30, 1998.
OPERATING EXPENSES. Operating expenses decreased by $0.6 million, or 7.2%, to
$7.7 million for the three months ended June 30, 1999 from $8.3 million for
the three months ended June 30, 1998. This decrease was primarily due to one
time operating expenses incurred during the second quarter of 1998 for
start-up costs of $1.7 million relating to the new Columbia, Tennessee
facility, and the management retention bonuses of $0.9 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 June 30, 1998 start-up costs and
management retention bonuses, operating expenses increased by $1.9 million to
$7.7 million for the three months ended June 30, 1999 from $5.8 million for
the three months ended June 30, 1998. As a percentage of net sales, operating
expenses, excluding the expenses for start-up costs and management retention
bonuses, for the three months ended June 30, 1999 were 5.7% as compared to
5.9% for the three months ended June 30, 1998.
OTHER INCOME (EXPENSE). Interest expense increased to $10.0 million for the
three months ended June 30, 1999 compared to $8.7 million for the three
months ended June 30, 1998, due primarily to the debt incurred for the
acquisition of Kaiser's 50% share of AKW on April 1, 1999. Equity in earnings
(losses) of affiliates decreased by $2.2 million for the three months ended
June 30, 1999 from $2.2 million for the three months ended June 30, 1998. The
decrease was due to ownership change of AKW, from 50% to 100% and the
resultant change in accounting to begin consolidating the results of AKW
effective April 1, 1999.
ADJUSTED EBITDA. Adjusted EBITDA increased by $5.7 million, or 22.7%, to
$30.8 million for the three months ended June 30, 1999 from $25.1 million for
the three months ended June 30, 1998 due to higher steel product sales volume
and the inclusion of 100% of AKW earnings. In determining Adjusted EBITDA for
the three months ended June 30, 1999, income from operations has been
adjusted by (i) depreciation and amortization (except for amortization of
deferred financing costs) and (ii) equity in earnings of affiliates. In
determining Adjusted EBITDA for the three months ended June 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) $0.9 million of management retention
bonuses paid by Phelps Dodge, and (iv) an estimated cost of $0.5 million
incurred in connection with the labor strike at the Company's facility in
Henderson, Kentucky.
NET INCOME. Net income increased by $2.8 million to $7.6 million for the
three months ended June 30, 1999 from $4.8 million for the three months ended
June 30, 1998 due to higher pretax earnings, as described above.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1998.
NET SALES. Net sales increased by $56.0 million, or 29.2%, for the six months
ended June 30, 1999 to $247.6 million, compared to $191.6 million for the six
months ended June 30, 1998. The increase in net sales is primarily due to
increased industry volume, including $24.5 million of aluminum sales from AKW
since April 1, 1999 (previously accounted for under the equity method prior
to the acquisition date) and $18.8 million of new products sales from the new
Columbia, Tennessee facility which started operations in the third quarter of
1998. Excluding $24.5 million of AKW sales and the Columbia, Tennessee
facility sales of $18.8 million, net sales would have increased $12.7 million
or 6.6% to $204.3 million for the six months ended June 30, 1999 from $191.6
for the six months ended June 30, 1998.
GROSS PROFIT. Gross profit increased by $13.9 million, or 32.0% to $57.3
million for the six months ended June 30, 1999 from $43.4 million for the six
months ended June 30, 1998. The gross profit increase was due
12
to an overall increase in industry sales volume and due to including $6.3
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 23.2% for the six months
ended June 30, 1999 from 22.6% for the six months ended June 30, 1998. The
increase in gross profit as a percentage of sales is due to an overall
increase in volume and improved margins at the Henderson, Kentucky facility.
The improvements at Henderson, Kentucky were achieved by effectively
controlling the costs associated with the labor strike. Increased industry
volumes also favorably impacted gross profit. Excluding gross profit from AKW
of $6.3 million and the gross loss at the Columbia facility of $0.2 million,
gross profit would have increased by $7.8 million, or 18.0% to $51.2 million
for the six months ended June 30, 1999 from $43.4 million for the six months
ended June 30, 1998.
OPERATING EXPENSES. Operating expenses decreased by $3.7 million, or 20.7%,
to $14.2 million for the six months ended June 30, 1999 from $17.9 million
for the six months ended June 30, 1998. This decrease was primarily due to
one time operating expenses incurred in the first six months of 1998 for
professional fees of $2.2 million related to the Company's recapitalization,
for start-up costs of $2.8 million relating to the Columbia, Tennessee
facility, and the management retention bonuses of $1.7 million paid by Phelps
Dodge in conjunction with the Company's recapitalization. Excluding the
expenses recorded for the six months ended June 30, 1998 for professional
fees, start-up costs, and management retention bonuses, operating expenses
increased by $3.0 million to $14.2 million for the six months ended June 30,
1999 from $11.2 million for the six months ended June 30, 1998. As a
percentage of net sales, operating expenses, excluding the expenses for
professional fees, start-up costs, and management retention bonuses, for the
six months ended June 30, 1999 were 5.7% as compared to 5.8% for the six
months ended June 30, 1998.
OTHER INCOME (EXPENSE). Interest expense increased to $19.0 million for the
six months ended June 30, 1999 compared to $15.4 million for the six months
ended June 30, 1998, due to the debt incurred in the recapitalization of the
Company on January 21, 1998, being outstanding for the first six months of
1999 compared to an outstanding amount from January 21, 1998 to June 30,
1998. Interest expense also increased due to the debt incurred for the
acquisition of Kaiser's 50% share of AKW on April 1, 1999. Equity in earnings
(losses) of affiliates increased by approximately $2.8 million to $2.3
million for the six months ended June 30, 1999 from a loss of $0.5 million
for the six months ended June 30, 1998. The increase was due to the increased
equity earnings from the AKW joint venture which contributed $2.3 million of
earnings in the first half of 1999 as compared to a loss of $0.5 million in
the first half of 1998 which was due to the $3.4 million effect of a product
recall campaign implemented at AKW in the first quarter of 1998. Beginning
April 1, 1999, when the Company acquired the remaining 50% ownership of AKW,
earnings from AKW were reported on a consolidated basis and were not recorded
as equity earnings.
ADJUSTED EBITDA. Adjusted EBITDA increased by $11.2 million, or 23.6%, to
$58.6 million for the six months ended June 30, 1999 from $47.4 million for
the six months ended June 30, 1998. The Adjusted EBITDA increase was due to
higher steel product sales volume and the addition of all AKW income on a
consolidated basis as of April 1, 1999. In determining Adjusted EBITDA for
the six months ended June 30, 1999, income from operations has been adjusted
by (i) depreciation and amortization (except for amortization of deferred
financing costs) and (ii) equity in earnings of affiliates. In determining
Adjusted EBITDA for the six months ended June 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 product
recall, (v) $1.7 million of management retention bonuses paid by Phelps
Dodge, and (vi) $3.0 million incurred in connection with the labor strike at
the Company's facility in Henderson, Kentucky.
13
NET INCOME. Net income increased by $9.6 million to $14.9 million for the six
months ended June 30, 1999 from $5.3 million for the six months ended June
30, 1998 due primarily to higher pretax earnings, as described above.
CHANGES IN FINANCIAL CONDITION
At June 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 six months ended June 30, 1999 was
primarily the result of a $19.1 million increase in cash, an increase in net
property, plant and equipment of $40.3 million, a $17.6 million increase in
customer receivables, a $4.2 million increase in other receivables, a $7.6
million increase in net inventories, a $0.7 million increase in supplies, a
$0.7 million increase in prepaid expenses, a $0.9 million increase in other
assets and a $51.8 million increase in net goodwill, offset by a decrease of
$23.1 in investment of affiliates, a decrease of $3.3 million in deferred
income taxes and a $0.4 million decrease in income taxes receivable. The
increase in net property, plant and equipment is primarily due to $30.0
million worth of equipment acquired at AKW on April 1, 1999 and a $9.0
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 primarily due to inclusion of AKW's other receivables, an
increase in a receivable from IaSa and an increase in an unrealized gain
associated with the foreign currency forward contracts entered into by the
Company. The increase in net inventories is primarily due to the addition of
AKW's aluminum inventory. The $51.8 million increase in net goodwill is
attributable to the purchase of AKW, as is the decrease in investment of
affiliates.
At June 30, 1999, the Company's total liabilities amounted to $557.3 million,
as compared to $456.8 million at December 31, 1998. The $100.5 million or
22.0% increase in total liabilities was primarily due to a $67.5 million
increase in long-term debt, a $14.6 million increase in accounts payable, a
$3.6 million increase in short term notes payable at AdM, a $1.7 million
increase in accrued interest, a $3.6 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 $3.2 million. 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 Revolver. The increase in accounts payable was
due to increased production volumes and acquiring $9.2 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 acquiring approximately $3.8 million of AKW's pension
liabilities.
CAPITAL RESOURCES AND LIQUIDITY
The Company's primary sources of liquidity are cash flow from operations and
borrowings 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 June 30, 1999, the Company had cash and short-term investments of $22.6
million compared to $3.5 million at the beginning of the year. The Company's
operating activities provided $39.0 million and the financing activities
provided $71.9 million which was used to fund the Company's investing
activities of $91.7 million and to increase its cash and short-term
investments $19.1 million in order to fund the purchase of AKW.
14
Investing activities during the six months ended June 30, 1999 were $91.7
million compared to $21.4 million for the six months ended June 30, 1998.
Cash flow from financing activities during the six months ended June 30, 1999
were $71.9 million compared to $4.1 million for the six months ended June 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 capital expenditures by AdM) to decrease to
approximately $20.0 million in 1999. It is anticipated that these
expenditures will fund (i) approximately $4.1 million of 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 $8.8 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 capital expenditures
of approximately $3.5 million for the remainder of 1999 to finalize
construction and equip the Monterrey, Mexico facility. The Monterrey, Mexico
facility is expected to be operational in late-1999 at an approximate cost
for land and building of $9.2 million. Total project cost through 1999 is
expected to be approximately $29.4 million, of which approximately $25.9
million was spent as of June 30, 1999. The Company finalized a $32.5 million
credit facility for AdM on July 9, 1998. This is comprised of a term loan of
$25.0 million and a working capital facility of $7.5 million. As of June 30,
1999 the $32.5 million credit facility was fully drawn.
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 revolver, which declines to $100.0 million on January 21, 2003 and
matures on January 21, 2004. As of June 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. 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
15
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.
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 95% complete. The following table provides
a summary of the current status of the seven phases involved and a projected
timetable for completion.
16
PROJECT PHASE % COMPLETED COMPLETION COMMENTS
Awareness 100% Completed
Identification 100% Completed
Impact Analysis 100% Completed
Risk Evaluation 100% Completed
Remediation 95% Oct. 31, 1999 All critical systems are completed.
Testing 90% Sept. 30, 1999 Involves ongoing testing of critical systems.
Contingency Plan 90% Aug. 31, 1999
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. 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. A
majority of these costs are currently believed to be incremental expenses
that will not recur in the Year 2000 or thereafter. Year 2000 remediation
costs were approximately $1.4 million in 1997. 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.
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 ongoing, 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, although unlikely, 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 is in the process of developing contingency plans for
each critical system in the event that one or more of those systems fail.
Although not yet complete, the Company is considering 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-
17
site (primary) as well as off-site (secondary) data copies. While this is an
ongoing process, the Company expects to have the contingency plan
substantially completed by August 31, 1999.
SUBSEQUENT EVENTS
On July 16, 1999, the Company acquired Industria Automotriz S.A. de C.V.'s
("IaSa") pursuant to the terms of a Purchase Agreement by and among the
Company and the other parties listed thereto. The acquisition gives Accuride
100 % ownership of AdM. The purchase price of the acquisition was $7.3
million.
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 release 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 fluctuations 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.
18
The foregoing review of the factors should not be construed as exhaustive or
as any admission regarding the adequacy of disclosures made by the Company
prior to this filing. For further information, refer to the "Risk Factors"
section included in the Company's Annual Report on Form 10-K for the Fiscal
Year ended December 31, 1998 filed with the Securities and Exchange
Commission.
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 June 30, 1999, the Company had open
foreign exchange forward contracts and options with a notional amount of
$119.8 million. Foreign exchange forward contract maturities were from one to
eleven months, and option contract maturites were from eight to seventeen
months.
The Company's hedging activities provide only limited protection against
currency risks. Factors that could impact the effectiveness of the Company's
hedging programs include accuracy of sales estimates, volatility of currency
markets and the cost and availability of hedging instruments. The
counterparties to the foreign exchange contracts are financial institutions
with investment grade credit ratings. The Company monitors its foreign
currency cash flow transactions and executes contracts to hedge its foreign
exchange exposures. The use of forward contracts and options protects the
Company's cash flows against unfavorable movements in exchange rates, to the
extent of the amount under contract. A 10% adverse change in currency
exchange rates for the Company's foreign currency derivatives held at June
30, 1999, would have an impact of approximately $10.0 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 June 30, 1999:
(Dollars in
thousands) 1999 2000 2001 2002 2003 Thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- ----- ----------
Long-Term Debt:
Fixed $200,000 $200,000 $197,500
Avg. Rate 9.25% 9.25%
Variable $0 $2,350 $11,725 $14,850 $5,475 $224,250 $258,650 $258,650
Avg. Rate 7.32% 8.31% 8.36% 8.03% 7.32% 7.44%
The Company has used an interest rate swap to alter interest rate exposures
between fixed and floating rates on a portion of the Company's long-term
debt. As of June 30, 1999, $100.0 million notional amount of interest rate
swap was outstanding. On average during the six month period ended June 30,
1999, the Company paid 5.75% as a fixed rate and received 5.0083% on the
interest rate swap. Under the terms of the
19
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 June 30, 1999, $35.0 million notional amount of interest rate cap was
outstanding. Under the terms of the interest rate cap, the Company is
entitled to receive from the counterparty on a quarterly basis the amount, if
any, by which the three-month Eurodollar interest rate exceeds 7.5%. The
interest rate cap matures in January, 2001. The Company is exposed to credit
related losses in the event of nonperformance by the 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 June 30, 1999, the Company
had open commodity price swaps and option contracts with a notional amount of
$13.0 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 $1.1 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.
20
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 2. Changes in Securities
During the thirteen weeks ended June 30, 1999, the Company issued 116
shares of the Company's common stock, par value $.01 per share ("Common
Stock") to certain members of management for aggregate consideration in
cash and secured promissory notes of approximately $580,000. During
such period, the Company also issued options to purchase 221 shares of
Common Stock to such members of management. The exercise price of such
options was $5,000 per share. None of these securities were registered
under the Securities Act of 1933, as amended.
Such issuances of Common Stock and options to purchase Common Stock
were made pursuant to the 1998 Stock Purchase and Option Plan for
Employees of Accuride Corporation and Subsidiaries. In each of the
above instances, exemption from registration under the Securities Act
was based upon the grounds that the issuance of such securities did not
involve a public offering within the meaning of Section 4(2) of the
Securities Act.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submissions of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
Exhibit No Description
- ---------- -----------
10.1 Purchase Agreement date July 16, 1999 between the Company and
IaSa regarding the purchase of 49% interest in AdM.
10.2 Amended and Restated Completion Guarantee Agreement dated
July 16, 1999 between the Company, AdM, and Citibank Mexico, S.A.,
Grupo Financiero
21
Citibank
27.1 Financial Data Schedule
(b) Form 8-K
The following 8-K reports were filed during the quarter ended
June 30, 1999.
Form 8-K filed April 12, 1999 regarding the acquisition of 50%
interest of AKW, LP from Kaiser
Form 8-K/A filed June 10, 1999 regarding the financial
information related to the acquisition of 50% of AKW, LP
from Kaiser.
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: August 13, 1999
- -------------------------------
William P. Greubel
President and Chief Executive Officer
/s/ JOHN R. MURPHY Dated: August 13, 1999
- -------------------------------
John R. Murphy
Vice President - Finance and Chief Financial Officer
Principal Accounting Officer
23