10-Q 1 a2062371z10-q.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2001. OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from __________ to ___________. Commission file number 333-50239 ACCURIDE CORPORATION (Exact Name of Registrant as Specified in Its Charter) Delaware 61-1109077 -------- ---------- (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 7140 Office Circle Evansville, in 47715 -------------- ----- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (812) 962-5000 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / As of September 30, 2001, 24,796 shares of Accuride Corporation common stock, par value $.01 per share, were outstanding. ACCURIDE COPORATION TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE Item 1. Financial Statements Consolidated Balance Sheets as of September 30, 2001 (Unaudited) and December 31, 2000 3 Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2001 and 2000 (Unaudited) 4 Consolidated Statement of Stockholders' Equity (Deficiency) for the Nine Months Ended September 30, 2001 (Unaudited) 5 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2001 and 2000 (Unaudited) 6 Notes to Unaudited Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings 17 Item 2. Changes in Securities and Use of Proceeds 17 Item 6. Exhibits and Reports on Form 8-K 17 Signatures 18
2 PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS ACCURIDE CORPORATION CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
September 30, December 31, ASSETS 2001 2000 (Unaudited) ----------- ----------- CURRENT ASSETS: Cash and cash equivalents $ 27,171 $ 38,516 Customer receivables, net of allowance for doubtful accounts of $714 and $806 38,084 31,059 Other receivables 2,117 4,325 Inventories, net 29,520 37,484 Supplies 8,697 8,545 Deferred income taxes 7,370 5,175 Income taxes receivable 783 599 Prepaid expenses and other current assets 1,075 941 --------- --------- Total current assets 114,817 126,644 PROPERTY, PLANT AND EQUIPMENT, NET 228,939 237,410 OTHER ASSETS: Goodwill, net of accumulated amortization of $42,081 and $38,949 124,221 127,353 Investment in affiliates 3,408 3,189 Deferred financing costs, net of accumulated amortization of $5,926 and $4,436 9,317 9,546 Pension benefit plan asset 10,964 9,678 Other 1,206 1,451 --------- --------- TOTAL $ 492,872 $ 515,271 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) CURRENT LIABILITIES: Accounts payable $ 30,649 $ 38,231 Current portion of long-term debt 9,375 -- Short term notes payable 0 17,500 Accrued payroll and compensation 8,416 7,584 Accrued interest payable 6,570 11,830 Accrued and other liabilities 17,916 10,006 --------- --------- Total current liabilities 72,926 85,151 LONG-TERM DEBT, less current portion 452,150 431,386 OTHER POSTRETIREMENT BENEFIT PLAN LIABILITY 16,369 15,734 OTHER LIABILITIES 1,076 1,234 DEFERRED INCOME TAXES 2,051 10,966 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY (DEFICIENCY): Preferred stock, $.01 par value; 5,000 shares authorized and unissued Common stock and additional paid in capital, $.01 par value; 45,000 shares authorized, 24,923 and 24,923 shares issued; 24,796 and 24,837 outstanding in 2001 and 2000 24,939 24,939 Treasury stock, 127 shares and 86 shares at cost in 2001 and 2000 (735) (505) Stock subscriptions receivable (638) (868) Retained earnings (deficit) (75,216) (52,766) Other comprehensive loss (50) -- --------- --------- Total stockholders' equity (deficiency) (51,700) (29,200) --------- --------- TOTAL $ 492,872 $ 515,271 ========= =========
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, --------------------------- ---------------------------- 2001 2000 2001 2000 -------- --------- --------- --------- NET SALES $ 77,714 $ 104,403 $ 260,700 $ 384,727 COST OF GOODS SOLD 67,935 87,214 230,068 308,216 -------- --------- --------- --------- GROSS PROFIT 9,779 17,189 30,632 76,511 OPERATING: Selling, general and administrative 7,706 6,435 25,183 24,750 -------- --------- --------- --------- INCOME FROM OPERATIONS 2,073 10,754 5,449 51,761 OTHER INCOME (EXPENSE): Interest income 226 596 1,244 1,448 Interest (expense) (10,569) (10,842) (30,782) (31,497) Equity in earnings of affiliates 28 118 218 357 Other income (expense), net (7,413) (2,674) (8,011) (6,417) -------- --------- --------- --------- INCOME (LOSS) BEFORE INCOME TAXES (15,655) (2,048) (31,882) 15,652 INCOME TAX PROVISION (BENEFIT) (5,350) (859) (9,432) 6,574 -------- --------- --------- --------- NET INCOME (LOSS) $(10,305) $ (1,189) $ (22,450) $ 9,078 ======== ========= ========= =========
See notes to unaudited consolidated financial statements. 4 ACCURIDE CORPORATION CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY) (DOLLARS IN THOUSANDS) (UNAUDITED)
Common Stock and Accumulated Total Additional Stock Other Retained Stockholders' Comprehensive Paid in Treasury Subscriptions Comprehensive Earnings Equity Income (Loss) Capital Stock Receivable Income (Loss) (Deficit) (Deficiency) ------------- ---------- -------- ------------- ------------- -------- ------------- BALANCE AT JANUARY 1, 2001 -- $ 24,939 $ (505) $ (868) $ -- $ (52,766) $ (29,200) Net income (loss) $ (22,450) (22,450) (22,450) Proceeds from Stock Subscriptions Receivable 230 230 Issuance of Management Shares -- Redemption of shares (230) (230) Other Comprehensive Income (Loss): -- Cumulative Change in Accounting (Net of tax) (189) (189) (189) Realization of Deferred Amounts (Net of tax) 139 139 139 Comprehensive Income (Loss) $ (22,500) ========= BALANCE AT SEPTEMBER 30, 2001 $ 24,939 $ (735) $ (638) $ (50) $ (75,216) $ (51,700) ======== ======== ===== ======== ======== ========
See notes to unaudited consolidated financial statements 5 ACCURIDE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
Nine Months Ended September 30, -------------------------- 2001 2000 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(22,450) $ 9,078 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 18,941 19,649 Amortization 4,701 4,896 Losses on asset disposition 33 931 Gain on early retirement of debt -- (320) Deferred income taxes (11,109) 3,037 Equity in earnings of affiliates (219) (357) Changes in certain assets and liabilities: Receivables (4,817) 22,128 Inventories and supplies 7,683 (7,235) Prepaid expenses and other assets (1,330) 1,313 Accounts payable (7,582) 3,457 Accrued and other liabilities 3,879 (7,995) -------- -------- Net cash provided by (used in) operating activities (12,270) 48,582 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (9,707) (42,583) Capitalized interest (667) -- -------- -------- Net cash used in investing activities (10,374) (42,583) CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in revolving credit advance 25,000 -- Payments on long-term debt (4,940) (13,405) Payments on short-term advance (7,500) -- Deferred financing fees (1,261) -- Proceeds from stock subscriptions receivable 230 725 Redemption of shares (230) (290) -------- -------- Net cash provided by (used in) financing activities 11,299 (12,970) Decrease in cash and cash equivalents (11,345) (6,971) Cash and cash equivalents, beginning of period 38,516 32,493 -------- -------- Cash and cash equivalents, end of period $ 27,171 $ 25,522 ======== ========
See notes to unaudited consolidated financial statements 6 ACCURIDE CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) AS OF SEPTEMBER 30, 2001 AND DECEMBER 31, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 -------------------------------------------------------------------------------- Note 1 - BASIS OF PRESENTATION - The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, except that the unaudited consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. However, in the opinion of Accuride Corporation (the "Company" or "Accuride"), all adjustments (consisting of normal recurring accruals) considered necessary to present fairly the consolidated financial statements have been included. The results of operations for the nine months ended September 30, 2001 are not necessarily indicative of the results to be expected for the year ending December 31, 2001. The unaudited consolidated financial statements and notes thereto should be read in conjunction with the audited financial statements and notes thereto disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. MANAGEMENT'S ESTIMATES AND ASSUMPTIONS - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Note 2 - ACCOUNTING CHANGE SFAS 141 - Effective July 1, 2001, Accuride adopted Statements of Financial Accounting Standards ("SFAS") No. 141, "Accounting for Business Combinations". This statement establishes accounting and reporting standards for business combinations and prohibits the use of the pooling-of-interests method of accounting for those transactions after June 30, 2001. This statement has had no effect on the Company's financial statements. SFAS 133 - Effective January 1, 2001, Accuride adopted SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. All derivatives, whether designated in hedging relationships or not, are required to be recorded on the balance sheet at fair value. If the derivative is designated as a fair value hedge, the changes in fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income (OCI) and are recognized in the income statement when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings. The adoption of SFAS 133 resulted in a net pre-tax reduction to OCI of $300 ($189 after tax). The reduction in OCI was attributable to a net unrealized loss on cash flow hedges. During the nine month period ended September 30, 2001, $139 was reclassified into cost of goods sold as the related derivative instruments matured. The remaining $50 in OCI will be reclassified into earnings as realized during the fourth quarter of 2001. The Company uses derivative instruments, which are not designated as hedging instruments, to manage exposures to foreign currency, commodity prices, and interest rate risks. The Company's objectives for 7 holding derivatives are to minimize the risks using the most effective methods to eliminate or reduce the impacts of these exposures. Note 3 - INVENTORIES - Inventories were as follows:
September 30, December 31, 2001 2000 ------------- ------------ Raw Materials $ 3,880 $ 7,650 Work in Process 10,985 11,163 Finished manufactured goods 13,846 17,731 LIFO adjustment 809 940 ------- ------- Inventories, net $29,520 $37,484 ======= =======
Note 4 - LABOR RELATIONS - The Company's prior contract with the United Auto Workers ("UAW") covering employees at the Henderson, Kentucky, facility expired in February 1998, and the Company was not able to negotiate a mutually acceptable agreement with the UAW. As a result, a strike occurred at the Henderson facility on February 20, 1998. On March 31, 1998, the Company began an indefinite lockout. The Company is continuing to operate with its salaried employees and contractors. Currently, there is, and the Company believes that there will be, no supply disruption to the Company's customer base; however, there can be no assurance to that effect. Note 5 - SUPPLEMENTAL CASH FLOW DISCLOSURE - During the nine months ended September 30, 2001 and 2000, the Company paid $35,140 and $34,489 for interest and $1,834 and $1,622 for income taxes, respectively. Note 6 - RESTRUCTURING RESERVE - Included in the Company's operating results for the nine months ended September 30, 2001, are restructuring charges of $2.7 million. These charges result from the Company's plans to close its Columbia, Tennessee, facility and consolidate the production of light wheels into its other facilities. The Company anticipates that these restructuring activities will be completed by the end of the third quarter of fiscal year 2002. Note 7 - NEW ACCOUNTING PRONOUNCEMENTS SFAS 142 - On July 20, 2001, the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards ("SFAS") No. 142, "Accounting for Goodwill and Other Intangible Assets". SFAS 142 is effective for the Company beginning January 1, 2002. The Statement establishes accounting and reporting standards for goodwill and intangible assets. Beginning January 1, 2002, the Company will no longer amortize goodwill, but will test for impairment at least annually. Management is still evaluating the full effect of this new accounting standard on the financial statements. SFAS 144 - On October 3, 2001, the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS 144 is effective for the Company beginning January 1, 2002. The Statement addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed. Management is still evaluating the full effect of this new accounting standard on the financial statements. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion should be read in conjunction with the consolidated financial statements and notes included in Item 1 of Part 1 of this report on Form 10-Q. Except for the historical information contained herein, this report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. Accuride's actual results may differ materially from those indicated by such forward-looking statements. RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2000. The following table sets forth certain income statement information of Accuride for the three months ended September 30, 2001 and September 30, 2000:
September 30, 2001 September 30, 2000 --------------------------- --------------------------- Net sales $ 77,714 100.0% $ 104,403 100.0% Gross profit 9,779 12.6% 17,189 16.5% Operating expenses 7,706 9.9% 6,435 6.2% Income from operations 2,073 2.7% 10,754 10.3% Equity in earnings of affiliates 28 0.0% 118 0.1% Other income (expense) (17,756) (22.8%) (12,920) (12.4%) Net income (loss) (10,305) (13.3%) (1,189) (1.1%) OTHER DATA: Adjusted EBITDA $ 10,002 12.8%(a) $ 18,191 17.3%(a)
-------------- (a) Represents Adjusted EBITDA less equity in earnings of affiliates as a percent of sales. NET SALES. Net sales decreased by $26.7 million, or 25.6%, for the three months ended September 30, 2001 to $77.7 million, compared to $104.4 million for the three months ended September 30, 2000. The decrease is due to the cyclical downturn of the entire Heavy/Medium commercial vehicle market and the general overall decline in the US economy. The cyclicality of the Heavy/Medium commercial vehicle market is affected by a number of economic factors including inventory levels, industrial production, and general economic demand for consumer goods. We anticipate the demand for Heavy/Medium Trucks to continue to be soft for the next several quarters. GROSS PROFIT. Gross profit decreased $7.4 million, or 43.0%, to $9.8 million for the three months ended September 30, 2001 from $17.2 million for the three months ended September 30, 2000. The principal cause for the decrease in gross profit was the decrease in sales volume. The decrease in sales volume was partially offset by productivity improvements, reduced overtime, and cost savings achieved through a reduction in work force. Gross profit as a percentage of net sales decreased to 12.6% for the three months ended September 30, 2001 from 16.5% for the three months ended September 30, 2000. The decrease in gross profit as a percentage of sales is due to lower margins resulting from loss of volume and the resulting per unit cost increases due to spreading fixed costs over fewer production units. OPERATING EXPENSES. Operating expenses increased $1.3 million, or 20.3%, to $7.7 million for the three months ended September 30, 2001 from $6.4 million for the three months ended September 30, 2000. The quarterly expense for the period ending September 30, 2000 was unusually low due to a $1.6 million adjustment to reduce the employee bonus and profit sharing liabilities which were accrued in the first half of 2000. Excluding the $1.6 million adjustment, operating expenses decreased $0.3 million, or 4.7%, to 9 $6.1 million for the three months ended September 30, 2001 from $6.4 million for the three months ended September 30, 2000. OTHER INCOME (EXPENSE). Other expense increased $4.9 million, or 38.0%, to $17.8 million for the three-month period ended September 30, 2001 compared to $12.9 million for the three months ended September 30, 2000, due primarily to fluctuations in foreign currency rates, interest rates, and commodity prices which negatively impacted the value of our derivative instruments. ADJUSTED EBITDA. Adjusted EBITDA decreased $8.2 million, or 45.1% to $10.0 million for the three months ended September 30, 2001 from $18.2 million for the three months ended September 30, 2000 due to the lower gross profit as described above. In determining Adjusted EBITDA for the three months ended September 30, 2001, income from operations has been increased by (1) depreciation and amortization (except for amortization of deferred financing costs), (2) equity in earnings of affiliates, and (3) $0.2 million of financing costs related to the amended and restated credit facility. In determining Adjusted EBITDA for the three months ended September 30, 2000, income from operations has been increased by (1) depreciation and amortization (except for amortization of deferred financing costs), and (2) equity in earnings of affiliates. NET INCOME (LOSS). Accuride had a net loss of $10.3 million for the three months ended September 30, 2001 compared to a net loss of $1.2 million for the three months ended September 30, 2000 due to lower pretax earnings, as described above. NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2000. The following table sets forth certain income statement information of the Company for the nine months ended September 30, 2001 and September 30, 2000:
September 30, 2001 September 30, 2000 --------------------------- --------------------------- Net sales $ 260,700 100.0% $ 384,727 100.0% Gross profit 30,632 11.7% 76,511 19.9%(b) Operating expenses 25,183 9.7% 24,750 6.4% Income from operations 5,449 2.1% 51,761 13.5% Equity in earnings of affiliates 218 0.1% 357 0.1% Other income (expense) (37,549) (14.4%) (36,466) (9.5%) Net income (loss) (22,450) (8.6%) 9,078 2.4% OTHER DATA: Adjusted EBITDA $ 32,256 12.3%(a) $ 80,898 20.9%(a)
-------------- (a) Represents Adjusted EBITDA less equity in earnings of affiliates as a percent of sales. (b) Includes a one-time restructuring adjustment for Accuride de Mexico, S.A. de C.V. ("AdM") of $3.3 million. 10 NET SALES. Net sales decreased by $124.0 million, or 32.2%, for the nine months ended September 30, 2001 to $260.7 million, compared to $384.7 million for the nine months ended September 30, 2000. The decrease in net sales is primarily due to the cyclical downturn of the entire Heavy/Medium commercial vehicle market and the general overall decline in the US economy. The cyclicality of the Heavy/Medium commercial vehicle market is affected by a number of economic factors including inventory levels, industrial production, and general economic demand for consumer goods. We anticipate the demand for Heavy/Medium Trucks to continue to be soft for the next several quarters. GROSS PROFIT. Gross profit decreased by $45.9 million, or 60.0%, to $30.6 million for the nine months ended September 30, 2001 from $76.5 million for the nine months ended September 30, 2000. The principal cause for the decrease in gross profit was the decrease in sales volume. In addition to the decrease in sales volume, gross profit was affected by unfavorable cost issues relating to the production of wheels, including higher natural gas prices and lower steel scrap prices. These unfavorable variances were partially offset by productivity improvements, reduced overtime, and cost savings achieved through a reduction in work force. Included in gross profit are $2.9 million of restructuring and relocation charges for the closure of our Columbia plant and the consolidation of our light wheel process. In 2000, a one-time charge of $3.3 million was included in gross profit related to the transition and high start-up production costs at the new facility in Monterrey, Mexico. Gross profit as a percentage of net sales decreased to 11.7% for the nine months ended September 30, 2001 from 19.9% for the nine months ended September 30, 2000. The decrease in gross profit as a percentage of sales is due to lower margins resulting from loss of volume and resulting per unit cost increases due to spreading fixed cost over fewer production units. Excluding the one-time $2.9 million restructuring and relocation charge in 2001 and the $3.3 million transition and start-up costs in 2000, gross profit as a percentage of net sales decreased to 10.6% for the nine months ended September 30, 2001 from 19.0% for the nine months ended September 30, 2000. OPERATING EXPENSES. Operating expenses increased by $0.4 million, or 1.6%, to $25.2 million for the nine months ended September 30, 2001 from $24.8 million for the nine months ended September 30, 2000. OTHER INCOME (EXPENSE). Other expense increased $1.0 million, or 2.7%, to $37.5 million for the nine-month period ended September 30, 2001 compared to $36.5 million for the nine months ended September 30, 2000, due primarily to fluctuations in foreign currency rates, interest rates, and commodity prices which negatively impacted the value of our derivative instruments. ADJUSTED EBITDA. Adjusted EBITDA decreased by $48.6 million, or 60.1%, to $32.3 million for the nine months ended September 30, 2001 from $80.9 million for the nine months ended September 30, 2000 due to the lower gross profit as described above. In determining Adjusted EBITDA for the nine months ended September 30, 2001, income from operations has been adjusted by (1) depreciation and amortization (except for amortization of deferred financing costs), (2) equity in earnings of affiliates, (3) $1.4 million of costs related to a reduction in the employee workforce, (4) a $2.9 million adjustment associated with the restructuring of light wheel production, and (5) $0.2 million of financing costs related to the amended and restated credit facility. In determining Adjusted EBITDA for the nine months ended September 30, 2000, income from operations has been adjusted by (1) depreciation and amortization (except for amortization of deferred financing costs), (2) equity in earnings of affiliates, (3) $2.7 million of aborted merger and acquisition costs, and (4) a $3.3 million adjustment for restructuring costs related to operations at the Monterrey, Mexico, facility. NET INCOME (LOSS). Accuride had a net loss of $22.5 million for the nine months ended September 30, 2001 compared to net income of $9.1 million for the nine months ended September 30, 2000 due to lower pretax earnings, as described above. 11 CHANGES IN FINANCIAL CONDITION At September 30, 2001, Accuride's total assets amounted to $492.9 million, as compared to $515.3 million at December 31, 2000. The $22.4 million or 4.3% decrease in total assets during the nine months ended September 30, 2001 was primarily the result of an increase in net receivables of $4.8 million, an increase in deferred income taxes of $2.2 million, and an increase in pension benefit plan assets of $1.3 million, offset by an $11.3 million decrease in cash, an $8.0 million decrease in inventories, an $8.5 million decrease in net property, plant and equipment and a $3.2 million decrease in goodwill. Net receivables increased due to higher sales in the month of September 2001 compared to December 2000 and an increase in days sales outstanding. Deferred income taxes receivable increased as a result of book and tax timing differences. Pension benefit plan assets were increased to meet statutory funding requirements. Cash decreased due to loss on operations and changes in working capital. Inventories decreased primarily in response to the downturn in customer demand and management's focus on raw material management. Net property, plant and equipment and goodwill decreased as the result of normal depreciation and amortization expense. At September 30, 2001, Accuride's total liabilities amounted to $544.6 million, as compared to $544.5 million at December 31, 2000. The $0.1 million increase in total liabilities was primarily a result of the $25.0 million net borrowings under the Revolver and an increase in net accruals and other liabilities of $4.0 million offset by a $7.6 million decrease in trade payables, a $12.4 million repayment on term loans, and a $8.9 million decrease in deferred income taxes. The increase in net accruals and other liabilities is due to the timing of payments. The decrease in trade payables is consistent with the decrease in inventory and capital spending. The Company repaid $7.5 million on the AdM working capital facility and $4.9 million was prepaid on the Term loans. The deferred income tax liability decreased due to current net operating losses that we will be able to utilize in future years to offset taxable income. CAPITAL RESOURCES AND LIQUIDITY Accuride's primary sources of liquidity during the nine months ended September 30, 2001 were cash reserves and borrowings under the Revolver. Primary uses of cash were funding operating shortfalls, seasonal working capital needs, capital expenditures and debt service. As of September 30, 2001, Accuride had cash and cash equivalents of $27.2 million compared to $38.5 million at December 31, 2000. Accuride's operating activities for the nine months ended September 30, 2001 used $12.3 million of cash compared to $48.6 million of cash generated for the nine months ended September 30, 2000. Investing activities for the nine months ended September 30, 2001 used $10.4 million compared to $42.6 million for the nine months ended September 30, 2000. Financing activities provided $11.3 million during the nine months ended September 30, 2001. Cash flow from financing activities used $13.0 million for the nine months ended September 30, 2000. During the nine-month period ended September 30, 2001, Accuride repurchased 40 shares of the Company's common stock from a former management employee for approximately $0.2 million. Accuride incurred capital expenditures in the year ended December 31, 2000 of $51.7 million. Capital expenditures are expected to approximate $18 million in the year 2001. Capital expenditures in 2000 were unusually high as a result of significant capacity expansion projects that were underway. These projects were substantially complete by the end of 2000. Management has evaluated the Company's capital plan in light of the industry downturn and believes that the 2001 capital expenditures will be sufficient to properly maintain machinery and equipment and also provide quality improvements and increased productivity. It is anticipated that these expenditures will fund (1) maintenance of business expenditures of approximately $6 million; (2) carryover project spending of approximately $4 million to complete our aluminum forging and machining capacity expansion and the completion of our new assembly process for light wheels; (3) quality and cost reduction improvements of approximately $4 million; and (4) capital costs of approximately $4 12 million associated with the relocation and installation of light wheel production equipment previously located in Columbia, Tennessee. In July 2001, Accuride amended and restated its credit agreement (the "Credit Agreement"). Pursuant to the Credit Agreement, financial covenants regarding the leverage ratio, the interest coverage ratio and the fixed charge coverage ratio were modified and a financial covenant regarding minimum EBITDA was added. The Credit Agreement provides for, among other items, a reduced Revolver commitment from $140 to $100 million, with Revolver availability limited to $87.5 million until the leverage ratio is below 4.5 times; increased interest rates, and a first priority lien in substantially all of its US and Canadian properties and assets. Amortizations and maturities on the Term Debt and Revolver remain unchanged. Accuride's credit documents contain financial and operating covenants that limit the discretion of management with respect to certain business matters. These covenants place significant restrictions on, among other things, the ability to incur additional debt, to create liens, to make certain payments and investments and to sell or otherwise dispose of assets and merge or consolidate with other entities. Accuride is also required to meet certain financial ratios and tests including a minimum EBITDA test, a leverage ratio, an interest coverage ratio, and a fixed coverage charge ratio. Failure to comply with the obligations contained in the credit agreements could result in an event of default, and possibly the acceleration of the related debt and the acceleration of debt under other instruments that may contain cross-acceleration or cross-default provisions. Management believes that cash liquidity and availability under the Revolver will provide adequate funds for Accuride's foreseeable working capital needs, planned capital expenditures and debt service obligations for the next twelve months. Accuride's ability to fund working capital needs, planned capital expenditures, scheduled debt payments, and to comply with all of the financial covenants under its credit agreements, depends on its future operating performance and cash flow, which in turn, are subject to prevailing economic conditions and to financial, business and other factors, some of which are beyond our control. 13 FACTORS AFFECTING FUTURE RESULTS In this report, Accuride has made various statements regarding current expectations or forecasts of future events. These statements are "forward-looking statements" within the meaning of that term in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are also made from time-to-time in press releases and in oral statements made by Accuride's officers. Forward-looking statements are identified by the words "estimate," "project," "anticipate," "will continue," "will likely result," "expect," "intend," "believe," "plan," "predict" and similar expressions. Forward looking statements also include statements regarding the market demand for Heavy/Medium Trucks, Accuride's foreseeable working capital needs for the next twelve months, the availability of additional capital to Accuride, continuation of operational improvements and sources of supply of raw materials, the lack of future supply disruption as a result of labor issues, and improvement in demand for our products and the expansion of our markets. Such forward-looking statements are based on assumptions and estimates, which although believed to be reasonable, may turn out to be incorrect. Therefore, undue reliance should not be placed upon these estimates and statements. Accuride cannot assure that any of these statements or estimates will be realized and actual results may differ from those contemplated in these "forward-looking statements." Accuride undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise. You are advised to consult further disclosures Accuride may make on related subjects in its filings with the SEC. Accuride cannot assure you that its expectations, beliefs, or projections will result or be achieved or accomplished. In addition to other factors discussed in this report, some of the important factors that could cause actual results to differ materially from those discussed in the forward-looking statements include the following: o Accuride's credit documents contain significant financial and operating covenants that limit the discretion of management with respect to certain business matters. Accuride must also meet certain financial ratios and tests. Failure to comply with the obligations contained in the debt agreements could result in an event of default, and possibly the acceleration of the related debt and the acceleration of debt under other instruments evidencing debt that may contain cross-acceleration or cross-default provisions; o current conditions in the economy could worsen and a recession may persist longer than anticipated; o the decrease in general market demand for Accuride's products due to high inventory levels of heavy and medium trucks and other unfavorable conditions affecting the industry could be greater than anticipated; o Accuride's significant indebtedness may have important consequences, including, but not limited to, impairment of Accuride's ability to obtain additional financing, reduction of funds available for operations and business opportunities or limitations on our ability to dispose of assets; o Accuride's ability to service its indebtedness is dependent upon operating cash flow; o the loss of a major customer could have a material adverse effect on our business; o the demands of original equipment manufacturers for price reductions may adversely affect profitability; o an interruption in supply of steel or aluminum could reduce our ability to obtain favorable sourcing of such raw materials; o Accuride may encounter increased competition in the future from existing competitors or new competitors; 14 o Accuride may be subject to liability under certain environmental laws and the cost of compliance with these regulations could have a material adverse effect on Accuride's financial condition and may adversely affect Accuride's ability to sell or rent such property or to borrow using such property as collateral; o a labor strike may disrupt Accuride's supply to its customer base; o the continued service of key management personnel is not guaranteed; and o the interests of the principal stockholder of Accuride may conflict with the interests of the holders of securities of the Company. For further information, refer to the business description and additional risk factors sections included in the Company's Form 10-K for the year ended December 31, 2000, as filed with the SEC. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Accuride, in the normal course of doing business, is exposed to the risks associated with changes in foreign exchange rates, raw material/commodity prices, and interest rates. Accuride uses derivative instruments to manage these exposures. The objectives for holding derivatives are to minimize the risks using the most effective methods to eliminate or reduce the impacts of these exposures. FOREIGN CURRENCY RISK Certain forecasted transactions, assets, and liabilities are exposed to foreign currency risk. Accuride monitors its foreign currency exposures to maximize the overall effectiveness of its foreign currency derivatives. The principal currency of exposure is the Canadian dollar. Forward foreign exchange contracts, not designated as hedging instruments under SFAS 133, are used to offset the impact of the variability in exchange rates on our operations, cash flows, assets and liabilities. At September 30, 2001, Accuride had open foreign exchange forward contracts of $75.1 million. Foreign exchange forward contract maturities are from one to fifteen months. Management believes the use of foreign currency financial instruments reduces the risks that arise from doing business in international markets. Accuride's foreign currency derivative contracts provide only limited protection against currency risks. Factors that could impact the effectiveness of Accuride's currency risk management programs include accuracy of sales estimates, volatility of currency markets and the cost and availability of derivative instruments. The counterparties to the foreign exchange contracts are financial institutions with investment grade credit ratings. The use of forward contracts protects Accuride's cash flows against unfavorable movements in exchange rates, to the extent of the amount under contract. A 10% adverse change in currency exchange rates for the foreign currency derivatives held at September 30, 2001, would have an impact of approximately $7.5 million on the fair value of such instruments. This quantification of exposure to the market risk associated with foreign exchange financial instruments does not take into account the offsetting impact of changes in the fair value of Accuride's foreign denominated assets, liabilities and firm commitments. RAW MATERIAL/COMMODITY PRICE RISK Accuride relies upon the supply of certain raw materials and commodities in our production processes and we have entered into firm purchase commitments for steel and aluminum. The exposures associated with these commitments are primarily managed through the terms of the sales, supply, and procurement contracts. Additionally, Accuride uses commodity price swaps 15 and futures contracts to manage the variability in certain commodity prices. Commodity price swap and futures contracts, not designated as hedging instruments under SFAS 133, are used to offset the impact of the variability in certain commodity prices on our operations and cash flows. At September 30, 2001, Accuride had open commodity price swaps and futures contracts of $4.4 million. These commodity price swaps and futures contracts had maturities from one to fifteen months. A 10% adverse change in commodity prices would have an impact of approximately $.4 million on the fair value of these contracts. Accuride is exposed to credit related losses in the event of nonperformance by the counterparties to the commodity price swaps and futures contracts, although no such losses are expected as the primary counterparty is a financial institution having an investment grade credit rating. INTEREST RATE RISK Accuride uses long-term debt as a primary source of capital in its business. The following table presents the principal cash repayments and related weighted average interest rates by maturity date for its long-term fixed-rate debt and other types of long-term debt at September 30, 2001:
(Dollars in Thousands) Fair 2001 2002 2003 2004 2005 Thereafter Total Value ---- ------- ------ ------- ------- ---------- -------- -------- Long-term Debt: Fixed $189,900 $189,900 $110,142 Avg. Rate 9.25% 9.25% Variable $0 $12,500 $4,125 $36,000 $56,404 $163,256 $272,285 $225,997 Avg. Rate 7.13% 7.28% 6.74% 8.67% 7.88% 7.85%
Accuride is exposed to the variability of interest rates on its variable rate debt. Accuride has used an interest rate swap to alter interest rate exposures between fixed and variable rates on a portion of Accuride's long-term debt. As of September 30, 2001, an interest rate swap of $100.0 million was outstanding. Under the terms of the interest rate swap, Accuride agrees with the counterparty to exchange, at specified intervals, the difference between 4.78% and the variable rate interest amounts calculated by reference to the notional principal amount. The interest rate swap was effective in July 2001 and matures in July 2003. This interest rate swap, not designated as a hedging instrument under SFAS 133, is used to offset the impact of the variability in interest rates on portions of Accuride's variable rate debt. Accuride is exposed to credit related losses in the event of nonperformance by the counterparty to the interest rate swap, although no such losses are expected as the counterparty is a financial institution having an investment grade credit rating. 16 PART II. OTHER INFORMATION Item 1. Legal Proceedings Neither Accuride nor any of its subsidiaries is a party to any material legal proceeding. However, Accuride from time-to-time is involved in ordinary routine litigation incidental to its business. Item 2. Changes in Securities and Use of Proceeds During the thirteen weeks ended September 30, 2001, Accuride issued no common stock or options. Item 6. Exhibits and Reports on Form 8-K EXHIBITS: None REPORTS ON FORM 8-K: No reports on Form 8-K have been filed during the three-month period ended September 30, 2001. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ACCURIDE CORPORATION /s/ William P. Greubel Dated: November 1, 2001 ------------------------------------- ---------------- William P. Greubel President and Chief Executive Officer /s/ John R. Murphy Dated: November 1, 2001 ------------------------------------- ---------------- John R. Murphy Executive Vice President-Finance and Chief Financial Officer Principal Accounting Officer 18