UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

 

Commission File Number 333-50239

 

 

ACCURIDE CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware		61-1109077
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S.  Employer Identification No.)
7140 Office Circle, Evansville, Indiana		47715
(Address of Principal Executive Offices)		(Zip Code)
Registrant’s telephone number, including area code:  (812) 962-5000
Securities registered pursuant to Section 12(b) of the Act:
“None”
Securities registered pursuant to Section 12(g) of the Act:
“None”

 

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     ý      No    o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).  Yes  o     No    ý

 

The registrant is a privately held corporation.  As such, there is no practicable method to determine the aggregate market value of the voting stock held by non-affiliates of the registrant.

 

The number of shares of Common Stock, $.01 par value, of Accuride Corporation outstanding as of June 30, 2003 was 24,799.

 

DOCUMENTS INCORPORATED BY REFERENCE

None

 

 

ACCURIDE CORPORATION

FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, 2003

 

PART I
		Item 1.	Business
		Item 2.	Properties
		Item 3.	Legal Proceedings
		Item 4.	Submission of Matters to a Vote of Security Holders
PART II
		Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters
		Item 6.	Selected Consolidated Financial Data
		Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
		Item 7A.	Quantitative and Qualitative Disclosure About Market Risk
		Item 8.	Financial Statements and Supplementary Data
		Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
		Item 9A.	Controls and Procedures
PART III
		Item 10.	Directors and Executive Officers of the Registrant
		Item 11.	Executive Compensation
		Item 12.	Security Ownership of Certain Beneficial Owners and Management
		Item 13.	Certain Relationships and Related Party Transactions
		Item 14.	Principal Accountant Fees and Services
PART IV
		Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K
			Signatures
FINANCIAL STATEMENTS
	Independent Auditors’ Report
	Consolidated Balance Sheets
	Consolidated Statements of Income (Loss)
	Consolidated Statements of Stockholders’ Equity (Deficiency)
	Consolidated Statements of Cash Flows
	Notes to Consolidated Financial Statements
	Financial Statement Schedules

 

 

PART I

 

Item 1.           Business

 

General

 

Accuride Corporation, a Delaware corporation (“Accuride” or the “Company”), manufactures and supplies wheels and rims (“Wheels”) for heavy and medium commercial vehicles.  We offer the broadest product line in the North American Wheel market for heavy and medium trucks, buses, vans (“Heavy/Medium Trucks”) and trailers (“Trailers”) and are the only North American manufacturer and supplier of both steel and forged aluminum Wheels for Heavy/Medium Trucks and Trailers (“Heavy/Medium Wheels”).

 

We sell Wheels primarily to Heavy/Medium Truck, Trailer and Light Truck (as defined below) original equipment manufacturers (“OEMs”). Major customers include Ford Motor Company (“Ford”), Freightliner Corporation (“Freightliner”), General Motors Corporation (“General Motors”), Mack Trucks, Inc. (“Mack”), International Truck and Engine Corporation (“International”), Volvo Trucks North America (“Volvo”) and Paccar, Inc. (“Paccar”).  For over 10 years, our steel Wheels have been standard equipment at all North American Heavy/Medium Truck OEMs and at a number of North American Trailer OEMs. In addition, our steel Wheels are standard equipment at a majority of North America’s largest trucking fleets, including J.B. Hunt Transport Services, Ryder Truck Rental, Inc., Ruan Transportation Management Systems, and Schneider Specialized Carriers, Inc.  Our aluminum Wheels are standard equipment at Volvo, International, and Freightliner.  Approximately 22% of our sales are to Light Truck OEMs such as Ford and General Motors.

 

We serve the North American vehicle market, which can be divided into three categories: (i) Heavy/ Medium Trucks, (ii) Trailers and (iii) other vehicles such as light commercial trucks, pick-up trucks, sport utility vehicles and vans (“Light Trucks”).

 

Corporate History

 

Accuride and Accuride Canada Inc., a corporation formed under the laws of the province of Ontario, Canada and a wholly owned subsidiary of Accuride, were incorporated in November 1986 for the purpose of acquiring substantially all of the assets and assuming certain of the liabilities of Firestone Steel Products, a division of The Firestone Tire & Rubber Company. The respective acquisitions by the companies were consummated in December 1986. In 1988, the Company was purchased by Phelps Dodge Corporation (“Phelps Dodge”).

 

In November 1997, Hubcap Acquisition acquired control of the Company.  Hubcap Acquisition is a Delaware limited liability company whose members are KKR 1996 Fund L.P. and KKR Partners II, L.P., which are affiliates of Kohlberg Kravis Roberts & Co. L.P. (“KKR”).  RSTW Partners III, L.P. own a minority interest in the Company.

 

Acquisitions

 

AKW L.P. AKW L.P., a Delaware limited partnership was formed in 1997 as a 50-50 joint venture between Accuride and Kaiser Aluminum and Chemical Corporation (“Kaiser”) to design, manufacture, and sell heavy-duty forged aluminum Wheels.  On April 1, 1999, we acquired Kaiser’s 50% interest in AKW L.P.  Total consideration paid to Kaiser for the 50% interest was approximately $71 million.  The acquisition was accounted for by the purchase method of accounting.  During 2003, we changed the name of AKW L.P. to Accuride Erie L.P. (“Accuride Erie”).

 

 

Accuride de Mexico.  On November 5, 1997, we invested $4.9 million for a 51% interest in Accuride de Mexico, S.A. de C.V. (“AdM”), a venture with Industria Automotriz, S.A. de C.V. (“IaSa”), Mexico’s only commercial vehicle Wheel manufacturer. On July 16, 1999, we acquired IaSa’s 49% interest in AdM, pursuant to the terms of a purchase agreement by and among the Company, IaSa and certain other parties. The acquisition gives us 100% control of AdM. Total consideration paid was $7.4 million, consisting of a $7.3 million cash payment to IaSa for its 49% interest and $0.1 million paid to other parties for fees and expenses.

 

Joint Venture

 

 In 1991, we entered into a joint venture with The Goodyear Tire and Rubber Company (“Goodyear”) to assemble Wheels and tires for International to strengthen our position in the worldwide Wheel industry.  Together with Goodyear, we formed AOT, Inc. (“AOT”) in June 1991 in order to assemble Wheels and tires for International near International’s truck assembly operation in Springfield, Ohio. Accuride and Goodyear each own 50% of AOT.

 

Industry Overview

 

Currently, we believe the size of the steel and aluminum commercial vehicle Wheel industry for Heavy/Medium Trucks and Trailers in North America is approximately $0.4 billion annually, and we believe the size of the steel and aluminum Wheel industry for Light Trucks in North America is approximately $1.6 billion annually.  Wheels are produced for:

 

• Heavy/Medium Trucks, which are over-the-road vehicles designed to carry over 10,000 pounds such as large multi-axle rigs, buses and moving trucks;

 

• Trailers, which includes trailers and chassis; and

 

• Light Trucks, which are vehicles designed to carry under 10,000 pounds such as pick-up trucks, walk-in delivery vans and sport utility vehicles.

 

Wheels and rims produced for Heavy/Medium Trucks and Trailers are larger and heavier dual type Wheels. Wheels produced for Light Trucks are generally smaller and lighter single or dual type Wheels requiring lower load requirements.

 

The commercial Wheel industry may be categorized in three ways: (i) by vehicle category-Heavy/Medium Wheels and Light Truck Wheels, (ii) by production material-steel and aluminum Wheels, and (iii) by vehicle application-dual and single Wheels.

 

Heavy/Medium Wheels and Light Truck Wheels.  Heavy/Medium Wheels range in diameter from 17.5” to 24.5”.  Purchasers of Heavy/Medium Wheels consist primarily of Heavy/Medium Truck OEMs such as Freightliner, Paccar, International, Mack, and Volvo, and Trailer OEMs such as Great Dane Limited Partnership (“Great Dane”) and Wabash National Corporation (“Wabash”). The Heavy/Medium Wheel market is driven by the volume of Heavy/Medium Truck and Trailer manufacturing, which is tied to macroeconomic trends such as economic growth, fuel prices, interest rates, and insurance expense.

 

Light Truck Wheels typically range in diameter from 16” to 20”.   Purchasers of Light Truck Wheels consist primarily of Light Truck OEMs such as Ford and General Motors. The Light Truck Wheel market is driven by the volume of production of Light Trucks as well as the trend toward the use of larger diameter Light Truck Wheels in smaller Light Trucks such as sport utility vehicles to improve styling and performance.

 

Steel and Aluminum Wheels.  Steel Wheels are more resistant to damage and hold a substantial price advantage over aluminum Wheels. Aluminum Wheels are generally lighter in weight, more readily stylized.  The growth of aluminum Heavy/Medium Wheel and Light Truck Wheel sales is driven by the increasing importance of the aesthetic aspect of Wheels, and, to a lesser extent, reduced vehicle weight.

 

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Dual and Single Wheels.  Dual Wheels are used on Heavy/Medium Trucks, Trailers and Light Trucks. Dual Wheels may be mounted in tandem (i.e., side-by-side, two wheels on each end of an axle) or individually. Single Wheels are used on Light Trucks and passenger cars. We are the only producer of both dual and single steel Light Truck Wheels in North America.

 

Products and Services

 

We have the broadest product line in the North American Heavy/Medium Wheel industry. We also compete in the Light Truck Wheel market for larger (with diameters of 16” and over) steel Wheels for Light Trucks.  We offer steel and aluminum Wheels for Heavy/Medium Trucks and Trailers, heavy-duty Wheels for the vocational vehicle industry and stylized steel Wheels for Light Trucks.  We are also developing Wheels for military applications.  We distribute products directly to OEMs and through independent distributors.

 

Customers

 

Our customers fall into four general categories: (i) Heavy/Medium Truck OEMs (which represented approximately 47% of our 2003 net sales); (ii) Trailer OEMs (which represented approximately 19% of our 2003 net sales); (iii) Light Truck OEMs (which represented approximately 22% of our 2003 net sales); and (iv) aftermarket distributors and others (which represented approximately 12% of our 2003 net sales). Our major customers include Freightliner, Volvo, Mack, International and Paccar, which are Heavy/Medium Truck OEMs; Great Dane, Wabash, and Stoughton Trailers, Inc., which are Trailer OEMs; and Ford, DaimlerChrysler and General Motors, which are Light Truck OEMs.   We derived approximately 49.0% of our 2003 net sales from Freightliner, Ford, and International.   The loss of a significant portion of sales to any of these OEMs could have a negative impact on our business.  We also serve the aftermarket through a broad network of distributors.

 

Our design engineers work closely with our customers to support the vehicle system design. Established contacts with OEM engineers enable us to track industry trends, including new features and styles, and to ensure that new products meet changing requirements for new vehicle systems. For example, over the last few years, we have responded to and worked with customers to complete significant new development programs in the areas of full-contoured styled Light Truck Steel Wheels and styled-aluminum Wheels.

 

In the Heavy/Medium Wheel industry, Wheels are designated as standard equipment by the OEM, although other Wheels may be selected by fleet managers as component parts for their fleets. Generally, OEMs will have one standard Wheel manufacturer for any given vehicle model. Because we are the standard Steel Wheel manufacturer at nearly all North American Heavy/Medium Truck OEMs, almost all Heavy/Medium Trucks with Steel Wheels produced in North America will have our Wheels unless the end-purchaser of a particular Heavy/Medium Truck (or fleet of Heavy/Medium Trucks) specifically requests a Wheel produced by another supplier. Light Truck OEMs will ordinarily designate more than one Wheel option as standard for any particular vehicle model and one Wheel supplier to supply each option. Consequently, for any particular vehicle model, more than one supplier may have its Wheels designated as standard equipment. OEMs determine which of the standard Wheels to use on any one vehicle depending on factors such as product positioning, consumer preference and cost. In some cases, an OEM will allow an end-consumer to select a Wheel option from the set of Wheels designated as standard. The process of being designated as a standard supplier of a particular Wheel generally takes more than two years from the time of initial design to first delivery. A potential supplier must first develop a Wheel design based on styling and engineering specifications provided by the OEM. After a comprehensive engineering and feasibility review, the OEM designates a specific supplier for a particular Wheel. The duration of the designation is dependent upon the life cycle of the vehicle model.  A supplier that designs, engineers, manufactures and conducts quality control testing is generally referred to as a “Tier I” supplier.  We are a Tier I supplier to most commercial vehicle manufacturers in North America and believe that our early involvement with the engineers from our customers affords us a competitive advantage.

 

2

 

Manufacturing

 

Continuous Productivity Improvement.  We have developed and implemented a cost reduction and productivity program to continuously improve our operations and to modernize, upgrade and automate our manufacturing facilities. Over the past several years we have made significant investments to improve our facilities, including selected use of robotics and other automation, connection of the automated component lines to the assembly lines, and improvement in product quality through upgrading of key processes. The success of this program is reflected in improvements in operating results, cost-reduction, capacity, product quality and plant safety. The majority of our recent expenditures targeted the Light Truck Steel Wheel production processes at the Ontario, Canada, facility, and continued expansion of tubeless heavy Aluminum Wheel production capacity at the Erie, Pennsylvania and Cuyahoga Falls, Ohio,  facilities. We have budgeted approximately $23 million in 2004 for capital spending.  Management believes that its emphasis on low-cost manufacturing will continue to yield significant operational improvements, although no assurance of such improvements can be given.

 

Manufacturing Process.  Our Wheels are made using seven primary manufacturing processes: stamping, spin forming, roll forming, welding, coating/finishing, forging and machining. Our steel Wheel products are produced by spin forming or stamping of the disc, roll forming of the rim, welding, coating and finishing. Our forged aluminum Wheels are made using forging, spinning, heat treating, machining and polishing processes. The following describes the major processes we use to produce Wheels:

 

Stamping. We make discs for single Light Truck Wheels using stamping, which is the most cost-effective way to produce single steel discs because it requires the lowest cycle time per part of any available process.  Stamping allows for thinner gauge steel to be used to reduce weight without sacrificing strength.

 

Spin Forming. We make discs for dual Wheels by using spin forming, which produces discs with variable wall thickness, thus reducing weight and enhancing the strength-to-weight ratio of the Wheel. Spin forming also provides a high-quality product with low raw material usage and waste.

 

Roll Forming. We make Light and Heavy/Medium steel rims using roll forming (feeding coiled steel through equipment that forms it into a cylinder, welds it, then feeds it through rim rollers to shape the rim). We have developed an extensive roll forming expertise in the 40-plus years that we have used this process and believe that we have one of the industry’s highest quality yields for rim rolling.

 

Welding. We use an arc welding process to permanently join together the manufactured rims and discs for Light and Heavy/Medium steel Wheels.  The arc welding process is done after the rims and discs have been assembled and provides an efficient, high strength attachment method required to sustain Wheel service loads.  A resistance butt welding process is used to join the opposing ends of the formed cylinder prior to the rollforming operation during the manufacture of steel rims.  This rim butt welding process is the most cost effective metal joining technology for this application and provides a high quality, air tight seam required to maintain proper tire inflation pressure.

 

Coating/Finishing. We pre-treat all steel Wheels in zinc phosphate, then apply an electro-disposition coating (“E-coat”), which is an acrylic, cathodic, gray or white base coating that provides resistance to corrosion. Subsequently, some customers may choose to have us add a topcoat over the E-coat for further protection.

 

Forging. We make Heavy/Medium aluminum Wheels by using forging, in which an aluminum billet is compressed into a basic Wheel shape using high amounts of pressure and energy. Forgings are formed into their final shape using spinning (in the rim area) and by machining the entire contour to create final mounting dimensions and appearance.  Forgings can offer decisive performance advantages in heavy applications.

 

Machining.  We use machining processes at our Cuyahoga Falls, Ohio, and Erie, Pennsylvania, facilities to convert processed forgings into finished machined Wheels.  We believe that the control of the final machined finish is essential to meet customer appearance standards.

 

3

 

Supplier Relationships

 

Steel Suppliers.  We have secured favorable pricing from a number of different suppliers by negotiating high-volume contracts with terms ranging from one to three years. While we believe that our supply contracts can be renewed on acceptable terms, there can be no assurance that such agreements can be renewed on such terms or at all. However, we do not believe that we are overly dependent on long-term supply contracts for our steel requirements as we have alternative sources available if need requires.  Furthermore, it should be understood that the domestic steel industry is subject to major restructuring and is poorly positioned, due to a lack of raw materials, to respond to major volume increases.  This may result in occasional industry allocations and surcharges.

 

Aluminum Suppliers.  We obtain aluminum through third-party suppliers.  We believe that aluminum is readily available from a variety of sources.  Aluminum prices have been volatile; however, we have price agreements with our current supplier to minimize the impact of these changes.

 

Sales and Marketing

 

We have built our brand franchise with a targeted sales and marketing effort aimed at Heavy/Medium Truck OEMs, Trailer OEMs, Light Truck OEMs and independent distributors. We actively market to major end-users, including trucking fleets and dealers. We position our sales managers near major customers such as Ford and General Motors in Detroit, Michigan and Freightliner in Portland, Oregon. Additional field sales personnel are geographically located throughout North America to service other OEMs, independent distributors, trucking fleets and dealers. Emphasis is placed on targeting end-users as we commercialize premium products and expand our aluminum product line. The majority of our core customers source their requirements either on annual contracts or standard sourcing contracts.

 

We have appointed independent distributors in every major market area in the United States, Canada, and Mexico. The majority of these distributors are members of the National Wheel and Rim Association and serve aftermarket needs and small OEMs that we do not service directly.  As a service to the aftermarket and small OEMs, we also provide order consolidation services from our distribution center in Taylor, Michigan.

 

Competition

 

We compete on the basis of price, delivery, quality, product line breadth and service.  Our competitive advantages include long standing customer relationships, broad product lines in steel and aluminum, high quality products and low manufacturing costs.  Due to the breadth of our product line, we compete with different companies in different markets.  Our principal competitor in the dual steel Heavy/Medium Wheel and single steel Light Truck Wheel markets is Hayes Lemmerz International, Inc. (“Hayes”).  Hayes has established a significant global presence and we believe Hayes is the market leader in the single steel Light Truck Wheel market and in the passenger car Wheel industry, which are more diversified markets than the other markets in which we compete. In the dual steel Light Truck Wheel industry, Accuride’s principal competitor is ArvinMeritor Automotive, Inc. (“Meritor”).  All of the dual Wheels sold by Meritor in North America are produced in either Brazil or Mexico. In the dual aluminum Heavy/Medium Wheel market, Accuride’s principal competitor is Alcoa, Inc. (“Alcoa”).  Alcoa does not produce steel Wheels.

 

Employees

 

As of January 31, 2004, we employed 1,685 individuals.  Facilities that are currently unionized include: London, Ontario, Canada; Erie, Pennsylvania; and Monterrey, Mexico.

 

Bargaining unit employees in the Ontario, Canada, facility are represented by National Automobile, Aerospace, Transportation, and General Workers Union of Canada (“CAW”) Local #27 Unit #17. The existing three-year contract expires on March 12, 2006.

 

4

 

Hourly employees at the Erie, Pennsylvania, facility are represented by the UAW Local # 1186.  The existing contract was implemented in August 2003 and expires in August 2007.

 

The Monterrey, Mexico, hourly employees are represented by “Federación Nacional de Sindicatos Independientes”, which is a non-politically affiliated union. The current contract has been in place since November 1997 and is subject to renegotiation on an annual basis. The annual expiration date is January 31^st.  On January 21, 2004 the parties reached agreement on the new contract, which was subsequently ratified by the membership.

 

Research and Development

 

The Research and Development (“R&D”) department is composed of 30 employees, 18 of whom are degreed engineers (six with advanced degrees).  The objectives of the R&D department are to design and develop new products, provide technical support and service to customers and to investigate and develop new process technology.  Over the last few years, we have completed significant new product and process development programs in the areas of full-faced styled steel Wheels, high strength, low alloy Wheels (“HSLA”), new forged aluminum Wheel designs, Wheels for military applications, and cladded wheels for Light Truck applications. Company-sponsored R&D costs for fiscal years 2003, 2002, and 2001 were approximately $5.5 million, $5.3 million and $5.3 million, respectively.  These costs were expensed and included in general and administration expenses during the period incurred.

 

International Sales

 

We consider sales to customers outside of the United States as international sales.  International sales in 2003 were $67.3 million, or 18.5% of our 2003 sales volume.  For additional information, see footnote 14 to the “Notes to Consolidated Financial Statements” included herein.

 

Patents and Trademarks

 

We maintain an intellectual property estate, including patents and extensive proprietary knowledge of products and systems.  We currently hold 11 patents related to Wheel technology and a further 6 patents are pending.  We have applied for federal and international trademark protection for numerous marks.  We do not rely on, and are not dependent on, patent ownership for our competitive position.  Were any or all patents held to be invalid, management believes we would not suffer significant damage.  However, we do actively pursue patents on our new technology.

 

Backlog

 

Our production is based on firm customer orders and estimated future demand.  Since firm orders generally do not extend beyond 15-45 days and we generally meet all requirements, backlog volume is generally not significant.

 

Cyclical and Seasonal Industry

 

The Heavy/Medium Wheel and Light Wheel industries are highly cyclical and, in large part, depend on the overall strength of the demand for Heavy/Medium Trucks, Trailers, and Light Trucks.  These industries have historically experienced significant fluctuations in demand based on factors such as general economic conditions, interest rates, government regulations, and consumer confidence.  Since mid-2000, the industry has been in a severe downturn; however, in recent months, major OEM customers are experiencing an upturn in incoming net orders.  In addition, Accuride’s operations are typically seasonal as a result of regular customer maintenance and model changeover shutdowns, which typically occur in the third and fourth quarter of each calendar year.  This seasonality may result in decreased net sales and profitability during the third and fourth fiscal quarters of each calendar year.

 

5

 

Environmental Matters

 

Our operations are subject to various federal, state and local requirements, including environmental laws.  Under certain environmental laws, a current or previous owner or operator of property may be liable for removal or remediation costs of certain hazardous substances or petroleum products on, under or in such property, without regard to whether the owner or operator knew of, or caused, the presence of the contaminants, and regardless of whether the practices that resulted in the contamination were legal at the time they occurred. The presence of, or failure to remediate such substances properly, may adversely affect the ability to sell or rent such property or to borrow using such property as collateral. Persons who generate, arrange for the disposal or treatment of, or dispose of hazardous substances may be liable for the costs of investigation, remediation or removal of such hazardous substances at or from the disposal storage or treatment facility, regardless of whether such facility is owned or operated by such person. Additionally, the owner of a site may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from a site. Compliance with environmental laws, stricter interpretations of or amendments to any such laws, or more vigorous enforcement policies by regulatory agencies with respect to any of them may require material expenditures by the Company.  There can be no assurance that future regulations will not require us to modify our facilities to meet revised requirements of environmental laws.

 

The nature of our current and former operations and the history of industrial uses at our facilities expose us to the risk of liabilities or claims with respect to environmental and worker health and safety matters that could have a material adverse effect on our business.  Phelps Dodge has indemnified us with respect to environmental liabilities at the Henderson, Kentucky, facility and the Ontario, Canada, facility. Kaiser has indemnified us with respect to certain pre-acquisition environmental liabilities at the Erie, Pennsylvania, facility.  On February 12, 2002, Kaiser filed a voluntary petition in the United States Bankruptcy Court for the District of Delaware for reorganization under Chapter 11 of the United States Bankruptcy Code, which could limit our ability to pursue indemnification claims, if necessary, from Kaiser.  Management does not believe that the outcome of any environmental proceedings will have a material adverse effect on the consolidated financial condition or results of operations of the Company.

 

Item 2.           Properties

 

We operate six manufacturing facilities in North America. We own manufacturing facilities in Henderson, Kentucky; Monterrey, Mexico; and London, Ontario, Canada.  We also lease facilities in Erie, Pennsylvania and Cuyahoga Falls, Ohio, a distribution warehouse in Taylor, Michigan, a sales office in Northville, Michigan (a city in the greater Detroit area), and an office building in Evansville, Indiana.  We believe our plants are adequate and suitable for the manufacturing of products for the markets in which we sell. In 2003, the London, Ontario facility operated near capacity while the other plants operated well below capacity due to reduced OEM production schedules for Heavy/Medium Trucks.  The properties owned by the Company are subject to current security interests under the Refinancing.  See “Item 7-Management’s Discussion and Analysis of Financial Condition and Results of Operations – Capital Resources and Liquidity.”

 

Our principal manufacturing, corporate, sales, warehouse, and research facilities are as follows:

 

Location		Square Feet		Use		Owned/ Leased
London, Ontario, Canada		536,259		Heavy/Medium Steel Wheels; steel Light Truck Wheels		Owned
Henderson, Kentucky		364,365		R&D; Heavy/Medium Steel Wheels		Owned
Taylor, Michigan (a)		75,000		Warehouse		Leased
Erie, Pennsylvania (b)		421,229		Aluminum Wheels forging and machining		Leased
Cuyahoga Falls, Ohio (c)		131,700		Aluminum Wheels machining and polishing		Leased
Columbia, Tennessee (d)		340,000		Steel Light Truck Wheels		Owned
Monterrey, Mexico		262,000		Light/Medium/Heavy Steel Wheels		Owned
Evansville, Indiana (e)		37,229		Corporate headquarters		Leased
Northville, Michigan (f)		4,334		Sales Office		Leased

 

6

 

a)                                      The warehouse is leased from The Package Company under a ten year lease at the rate of $22,882 per month through November 2004.  Monthly lease payments are $24,255 from December 2004 through November 2007 and $25,711 for the period of December 2007 through November 2009.  The lease expires in November 2009.

 

b)                                     The building is leased by Accuride, Erie under a ten-year lease at the rate of $1.00 per year. The initial term of the lease expires in 2007.

 

c)                                      The building is leased by Accuride Erie L.P. from Sarum Management.  The building lease was renewed in November 2003 with monthly lease payments of $36,292 through June 30, 2005. Monthly lease payments are $38,502 for the period of July 1, 2005 through June 30, 2007 and $40,846 for the period of July 1, 2007 through December 31, 2007.  The lease expires in December 2007, with an option to renew.

 

d)                                     Accuride closed this facility in 2002.  The facility is currently for sale.

 

e)                                      The building is leased from Viking Properties under a ten-year lease at the rate of $41,106 per month through October of 2004 and $45,232 per month thereafter.  The lease expires in 2009.

 

f)                                        The building is leased from Northwood Corporate Park, LP under a five-year lease that began December 1, 1997.  The lease was extended for another five-year period in February 2002 and the current rate is $7,179 per month.

 

The address of our principal executive office is 7140 Office Circle, Evansville, Indiana 47715, and our phone number is (812) 962-5000.

 

Item 3.           Legal Proceedings

 

We are subject to claims against us and we make claims against others in the ordinary course of our business.  We do not believe that there are any pending or threatened legal proceedings that, if adversely determined, could have a material adverse effect on us.

 

Item 4.           Submissions of Matters to a Vote of Security Holders

 

None.

 

Part II

 

Item 5.           Market for Registrant’s Common Equity and Related Stockholder Matters

 

Our Common Stock is privately held and not listed for trading on any public market.  As of March 1, 2004, there were approximately 46 record holders of our Common Stock.

 

DIVIDEND POLICY

 

We have not declared or paid cash dividends on our Common Stock.  We currently intend to retain any future earnings to pay down debt and finance the growth and development of our business and therefore do not anticipate paying any cash dividends in the foreseeable future.  Any future determination to pay cash dividends will be made by our Board of Directors in light of our earnings, financial position, capital requirements and such other factors as the Board of Directors deems relevant.  The payment of dividends is restricted under the terms of the Refinancing and the Indenture.  See “Item 7-Management’s Discussion and Analysis of Financial Condition and Results of Operations – Capital Resources and Liquidity.”

 

7

 

STOCK OPTION AND PURCHASE PLAN

 

Effective January 21, 1998, we adopted the 1998 Stock Purchase and Option Plan for key employees of Accuride Corporation and subsidiaries (the “1998 Plan”).  The 1998 Plan permits the issuance of Common Stock and the grant of non-qualified stock options to purchase shares of Common Stock.

 

The following table gives information about equity awards under our 1998 Plan as of December 31, 2003:

 

Plan category		Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants, and rights			Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
		(a)		(b)			(c)
Equity compensation plans approved by security holders		2,175		$	2,783.00		272
Equity compensation plans not approved by security holders		—		—			—

 

RECENT SALES OF UNREGISTERED SECURITIES

 

On September 30, 2003, the Company issued 3.2 shares of Accuride common stock pursuant to the exercise of an employee stock option for $1,750 per share.  Exemption from registration under the Securities Act was based on the grounds that the issuance was offered and sold pursuant to a compensatory benefit plan within the meaning of Rule 701 of the Securities Act and did not involve a public offering within the meaning of Section 4(2) of the Securities Act.

 

Item 6.           Selected Consolidated Financial Data

 

The following financial data is an integral part of, and should be read in conjunction with the “Consolidated Financial Statements” and notes thereto.  Information concerning significant trends in the financial condition and results of operations is contained in “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

Selected Historical Operations Data (In thousands)

 

		Fiscal Year Ended December 31,
		2003			2002			2001			2000			1999
Operating Data:
Net sales (a)		$	364,258		$	345,549		$	332,071		$	475,804		$	505,854
Gross profit (a)(b)		62,830			59,317			33,796			79,217			110,617
Operating expenses		23,918			24,014			31,000			29,494			29,032
Income from operations (b)		38,912			35,303			2,796			49,723			81,585
Operating income margin (c)		10.7		%	10.2		%	0.8		%	10.5		%	16.1		%
Interest income (expense), net (d)		(49,877		)	(42,017		)	(40,199		)	(38,742		)	(38,988		)
Equity in earnings of affiliates (e)		485			182			250			455			2,316
Other income (expense), net (f)		825			1,430			(9,837		)	(6,157		)	(1,081		)
Net income (loss)		(8,725		)	(10,941		)	(33,154		)	2,513			25,331
Other Data:
Net cash provided by (used in):
Operating activities		7,964			15,307			1,359			66,343			86,835
Investing activities		(19,672		)	(19,766		)	(18,405		)	(51,688		)	(124,324		)
Financing activities		13,134			(1,983		)	26,238			(8,632		)	66,511
Depreciation and amortization (g)		34,129			30,740			35,611			32,279			29,784
Capital expenditures		20,261			19,316			17,705			50,420			44,507
Balance Sheet Data (end of period):
Cash and cash equivalents		$	42,692		$	41,266		$	47,708		$	38,516		$	32,493
Working capital (h)		33,945			17,587			(5,136		)	12,977			40,492
Total assets		528,297			515,167			498,223			515,271			525,772
Total debt		490,475			474,155			476,550			448,886			460,561
Stockholders’ equity (deficiency)		(65,842		)	(53,249		)	(62,354		)	(29,200		)	(32,131		)

 

8

 

(a)          Results of operations for the year ended December 31, 1999 are based on our 50% ownership of Accuride Erie through March 31, 1999 and 100% ownership of Accuride Erie since April 1, 1999.  Net sales and gross profit for aluminum wheels for the 9-month period from April 1, 1999 through December 31, 1999 were $76.1 million and $22.1 million, respectively.

 

(b)         Gross profit and income from operations for 1999 reflect a reduction to cost of $3.0 million related to the favorable Accuride Erie recall adjustment.  Gross profit for 2000 reflects $5.0 million of costs related to integration and restructuring charges at our Monterrey, Mexico, facility, and $0.2 million of cost related to restructuring charges related to our other facilities.  Gross profit for 2001 reflects $2.7 million of charges related to the closure of the Columbia, Tennessee, facility, $1.6 million of restructuring charges related to our other facilities, and a $2.6 million charge for impaired assets at the Monterrey, Mexico, facility.  Gross profit for 2002 reflects $0.9 million of costs related to a reduction in employee workforce, $0.4 million of costs related to non-cash pension curtailment expenses associated with the recently resolved labor dispute in the Henderson, Kentucky, facility, plus $1.1 million of costs related to the consolidation of light wheel production.  Gross profit for 2003 reflects $2.2 million for costs associated with the fire damage and resulting business interruption sustained at our facility in Cuyahoga Falls, Ohio in August 2003, $0.4 million for strike contingency costs associated with the recent renewal of our labor contract at our facility in Erie Pennsylvania, and $0.3 million for pension related costs at our facility in London, Ontario.

 

(c)          Represents operating income as a percentage of sales.

 

(d)         Includes $11,264 of refinancing costs during the fiscal year ended December 31, 2003.

 

(e)          Equity in earnings of affiliates includes Accuride’s income from (i) Accuride Erie, through March 31, 1999, in which prior to such date we owned a 50 % interest and (ii) AOT.

 

(f)            Other income (expense), net consists primarily of realized and unrealized gains and losses related to the change in market value of our currency, commodity, and interest rate derivative instruments.

 

(g)         Effective January 1, 2002, Accuride adopted Statements of Financial Accounting Standard (“SFAS”) No. 142, “Accounting for Goodwill and Other Intangible Assets”.  No goodwill amortization was recorded during the fiscal years ended December 31, 2002 and 2003.  Included in the fiscal year ended December 31, 2003 is $2,248 of deferred financing costs related to the third amended and restated credit agreement that we entered into on June 13, 2003 to refinance a portion of the debt outstanding under the July 27, 2001 second amended and restated credit agreement (the “Refinancing”).

 

(h)         Working capital represents current assets less cash and current liabilities.

 

9

 

Item 7.                                   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) describes the matters that we consider to be important to understanding the results of our operations for each of the three years in the period ended December 31, 2003, and our capital resources and liquidity as of December 31, 2003 and 2002.  Our discussion begins with our assessment of the conditions of the heavy and medium commercial vehicle industry along with a summary of the actions we have taken to reposition the Company.  We then analyze the results of our operations for the last three years, including the trends in the overall business followed by a discussion of our cash flows and liquidity, our new credit facility, and contractual commitments.  We then provide a review of the critical accounting judgments and estimates that we have made which we believe are most important to an understanding of our MD&A and our consolidated financial statements.  We conclude our MD&A with information on recent accounting pronouncements which we adopted during the year, as well as those not yet adopted that are expected to have an impact on our financial accounting practices.

 

The following discussion should be read in conjunction with the “Selected Consolidated Financial Data” and our Consolidated Financial Statements and the notes thereto, all included elsewhere herein.  The information set forth in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” includes forward-looking statements that involve risks and uncertainties. Many factors could cause actual results to differ materially from those contained in the forward-looking statements below.  See “Factors That May Affect Future Results.”

 

We have one reportable segment:  the design, manufacture and distribution of wheels and rims for heavy/medium trucks, trailers, and other vehicles such as light commercial trucks, pick-up trucks, sport utility vehicles and vans.  We sell our products primarily with in North America and Latin America to original equipment manufacturers and to the aftermarket.

 

Executive Summary

 

Net sales in 2003 increased 5.4% to $364.3 million from $345.5 million in 2002.  The increase in net sales is primarily a result of the beginning of the cyclical recovery in the commercial vehicle industry, led by increased demand from trailer and chassis OEMs, along with our increased penetration in the aluminum market.

 

Our individual plant performance remains strong at our facilities in Henderson Kentucky, Erie Pennsylvania, and Monterrey Mexico.  Our Cuyahoga Falls facility continues to improve its manufacturing performance in the wake of our August 2003 facility fire and the related business disruption.  Our London Ontario facility, while running very strong on the heavy commercial products side, continues to work on efficiency gains on the new light product processes installed at the end of 2002.

 

We are very pleased to have completed the refinancing of our senior credit facilities in June (the “Refinancing”) and subsequent re-pricing in December 2003.  These actions strengthened our balance sheet considerably.  We reduced debt amortizations in 2004 and 2005 from $137.4 million to $3.8 million; we amended our financial covenants to accommodate the prolonged industry downturn, we reduced interest expense and improved liquidity substantially through a new three-year $66 million revolver with unused capacity of $41 million as of December 31, 2003.

 

Following a three-year industry wide downturn, we believe the commercial vehicle market has begun a recovery.  Freight growth, improved fleet profitability, equipment age, equipment utilization and continued economic strength are driving order rates for new vehicles to levels not seen in several years.  Current industry forecasts by America’s Commercial Transportation Publications, the Automotive Market Research Council, Martin Labbe Associates, and other industry analysts (collectively referred to as “Analysts”), predict that the North American commercial vehicle industry will continue to gain momentum in 2004.  The general economic recovery, and pent-up demand, will continue to drive the pace of the cyclical recovery in the commercial vehicle industry.

 

10

 

Our operating challenge in 2004 will be to meet the rapidly rising demand environment while improving our internal productivity, and at the same time, mitigate the margin pressure from rising raw material prices, energy costs and a declining U.S. dollar.

 

Results of Operations

 

Comparison of Fiscal Years 2003 and 2002

 

The following table sets forth certain income statement information of Accuride for the fiscal years ended December 31, 2003 and December 31, 2002:

 

(Dollars in thousands)		Fiscal 2003					Fiscal 2002
Net sales		$	364,258		100.0	%	$	345,549		100.0	%
Gross profit		62,830			17.2	%	59,317			17.2	%
Operating expenses		23,918			6.6	%	24,014			6.9	%
Income from operations		38,912			10.7	%	35,303			10.2	%
Equity in earnings of affiliates		485			0.1	%	182			0.1	%
Other income (expense)		(49,052		)	(13.5	)%	(40,587		)	(11.7	)%
Net income (loss)		(8,725		)	(2.4	)%	(10,941		)	(3.2	)%

 

Net Sales.  Net sales increased by $18.8 million, or 5.4%, in 2003 to $364.3 million, compared to $345.5 million for 2002. The $18.8 million increase in net sales is primarily due to the beginning of the cyclical recovery in the commercial vehicle industry led by a $14 million increase in orders from trailer and chassis OEMs, a $12 million increase in the sales volume of aluminum wheels related to improved market penetration, and a $7 million increase related to the strengthening of the Canadian dollar.  These increases were partially offset by a $9 million decrease resulting from the discontinuance of a certain light wheel program, a $3 million decrease due to a soft market in Mexico, and a $4 million decrease resulting from continued pricing pressures.

 

Gross Profit.  Gross profit increased by $3.5 million, or 5.9%, to $62.8 million for 2003 from $59.3 million for 2002.  The principal causes for the improvement in our gross profit are a $14 million increase in sales volume and product mix, along with a $4 million increase from operating improvements at our facilities.  Factors unfavorably impacting our gross profit during 2003 include $4.0 million related to pricing, $3 million related to the strengthening Canadian dollar and $7 million of higher costs for steel, natural gas, and employee benefits.

 

Operating Expenses.  Operating expenses remained relatively constant for the twelve-month period ended December 31, 2003 compared to the twelve-month period ended December 31, 2002.

 

Equity in Earnings of Affiliates.  Equity in earnings of affiliates increased to $0.5 million for 2003 compared to $0.2 million for 2002 primarily as a result of a reversal of previously accrued taxes at AOT, Inc., a joint venture in which we own a 50% interest.

 

Other Income (Expense).  Net interest expense decreased to $38.6 million for 2003 compared to $42.0 million for 2002 due to declining interest rates.  During 2003, we incurred $11.3 million of refinancing costs associated with the Refinancing.  Other income for 2003 was $0.8 million compared to other income of $1.4 million in 2002.  The $0.6 million decrease in other income is the result of fluctuations in foreign currency exchange rates and our 2002 interest rate instruments.

 

Net Income (Loss).  We had a net loss of $8.7 million for the year ended December 31, 2003 compared to net loss of $10.9 million for the year ended December 31, 2002.  Included in the 2003 loss is $11.3 million of refinancing costs.  The higher effective tax rate in 2002 is primarily attributable to an increase in our valuation allowance to reduce a deferred tax asset which we do not expect to fully utilize.  The 2003 statutory benefit was impacted by fluctuations in currency and translation adjustments, which are recognized differently in foreign jurisdictions.

 

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Comparison of Fiscal Years 2002 and 2001

 

The following table sets forth certain income statement information of Accuride for the fiscal years ended December 31, 2002 and December 31, 2001:

 

(Dollars in thousands)		Fiscal 2002					Fiscal 2001
Net sales		$	345,549		100.0	%	$	332,071		100.0	%
Gross profit		59,317			17.2	%	33,796			10.2	%
Operating expenses		24,014			6.9	%	31,000			9.3	%
Income from operations		35,303			10.2	%	2,796			0.8	%
Equity in earnings of affiliates		182			0.1	%	250			0.1	%
Other income (expense)		(40,587		)	(11.7	)%	(50,036		)	(15.1	)%
Net income (loss)		(10,941		)	(3.2	)%	(33,154		)	(10.0	)%

 

Net Sales.  Net sales increased by $13.4 million, or 4.0%, in 2002 to $345.5 million, compared to $332.1 million for 2001. The $13.4 million increase in net sales is primarily due to the increased sales volume of aluminum wheels related to improved market penetration and an increase in industry commercial vehicle builds.  The increase in industry commercial vehicle builds was partly driven by accelerated purchases ahead of the new emission compliance deadline in October of 2002.  These increases were partially offset by the discontinuance of a certain light wheel program and weak market demand in the trailer market and aftermarket.

 

Gross Profit.  Gross profit increased by $25.5 million, or 75.4%, to $59.3 million for 2002 from $33.8 million for 2001.  Gross profit as a percentage of sales improved to 17.2% compared to 10.2% for the year ended December 31, 2001.  The principal causes for the improvement in our gross profit are increased aluminum sales volume and increased absorption of fixed costs, strong operational performance at all sites driven by improved material pricing and utilization, and cost reductions related to operational efficiencies.  In addition, there was a non-recurring $2.7 million reserve related to the closure of our Columbia, Tennessee, facility in 2001.

 

Operating Expenses.  Operating expenses decreased by $7.0 million, or 22.5%, to $24.0 million for 2002 from $31.0 million for 2001.  $4.2 million of the decrease relates to an accounting change taking effect on January 1, 2002, which eliminated the amortization of goodwill.  In addition, there was a reduction in legal accruals due to favorable resolutions of certain legal matters.

 

Equity in Earnings of Affiliates.  Equity in earnings of affiliates remained relatively constant, decreasing by approximately $0.1 million to $0.2 million for 2002 from $0.3 million for 2001.

 

Other Income (Expense).  Net interest expense increased to $42.0 million for 2002 compared to $40.2 million for 2001 primarily due to realized losses on a terminated interest rate swap in 2002.  Other income for 2002 was $1.4 million compared to other expense of $9.8 million in 2001.  The $11.2 million improvement in other income (expense), net is primarily the result of fluctuations in foreign currency exchange rates favorably impacting our foreign currency derivative instruments.  In addition, we had an unrealized gain of $3.2 million on our interest rate swap in 2002 versus a $3.2 million unrealized loss on our interest rate swap in 2001.

 

Net Income (Loss).  We had a net loss of $10.9 million for the year ended December 31, 2002 compared to net loss of $33.2 million for the year ended December 31, 2001 due to higher pretax earnings as described above, partially offset by a higher effective tax rate.  The higher effective tax rate is primarily attributable to an increase in our valuation allowance to reduce a deferred tax asset which we do not expect to fully utilize.

 

Effects of Inflation.

 

The effects of inflation were not considered material during fiscal years 2003, 2002 or 2001.

 

12

 

Capital Resources and Liquidity

 

Accuride’s primary sources of liquidity are cash flows from operations and borrowings under our revolving credit facility.  Primary uses of cash are funding working capital, capital expenditures and debt service.

 

We believe our cash on hand, remaining availability under our credit facility and positive cash flows from operations will provide us with sufficient liquidity during the next twelve months.  Our continuing liquidity, however, is contingent upon future operating performance, cash flows, and our ability to continue to meet financial covenants in our credit facilities.

 

As of December 31, 2003, we had cash and short-term investments of $42.7 million compared to $41.3 million as of December 31, 2002.  Cash provided from operating activities of $8.0 million and net financing activities of $13.1 million were used to fund the investing activities of $19.7 million.  Net financing activities include $180.0 million of borrowings and $163.8 million of repayments against the senior facilities, $3.2 million of costs for deferred financing fees and $0.1 million of proceeds from stock subscriptions receivable.

 

Investing activities during the year ended December 31, 2003 were $19.7 million compared to $19.8 million for the year ended December 31, 2002.  The 2003 investing activities included $10.0 million to install manufacturing capacity for the production of light full face design wheels, $1.5 million at AdM, $5.0 million at Accuride Erie, and $4.2 million at our other facilities.  These investing activities were partially offset by a $1.0 million cash distribution from AOT.  The 2002 investing activities included $10.5 million related to the consolidation of light wheel production, $0.7 million at AdM, $1.8 million at Accuride Erie, and $6.8 million at our other facilities.

 

Cash flow from financing activities during the year ended December 31, 2003 was a source of $13.1 million compared to a use of $2.0 million for the year ended December 31, 2002.  Please see “Bank Borrowing,” below.

 

Our capital expenditures in 2003 were $20.7 million.  Accuride expects its capital expenditures to be approximately $23 million in 2004.  It is anticipated that these expenditures will fund (i) investments in productivity and low cost manufacturing improvements in 2004 of approximately $10 million (including $4 million to install manufacturing capacity for the production of light full face design wheels); (ii) Equipment and facility maintenance of approximately $11 million; and (iii) continuous improvement initiatives of approximately $2 million.

 

Contractual Obligations and Commercial Commitments

 

The following table summarizes our contractual obligations as of December 31, 2003 and the effect such obligations and commitments are expected to have on our liquidity and cash flow in future periods:

 

$ Millions		2004			2005			2006			2007			2008			Thereafter			Total
Long-Term Debt:
New Revolver		$			$			$	25.0		$			$			$			$	25.0
New Term B		0.9			0.9			0.9			177.3									180.0
Term C		1.0			1.0			47.0			47.0									96.0
Senior Subordinated Notes														189.9						189.9
Interest on Long-Term Debt (a)		38.0			39.8			39.8			26.7			8.8						153.1
Operating Leases:		2.1			1.9			1.7			1.3			0.9			0.7			8.6
Unconditional Purchase Obligations: (b)		2.1																		2.1
Other Long-Term Liabilities: (c)		5.9			7.1			6.6			6.0			5.4						31.0
Total Obligations		50.0			50.7			121.0			258.3			205.0			0.7			685.7

 

13

 

(a)          All of the Company’s long-term debt is at Libor based variable rates as of December 31, 2003 except for the senior subordinated notes which have a fixed interest rate of 9.25%.  The projected interest assumes a one percent increase per year through 2006 in Libor rates.

 

(b)         The unconditional purchase commitments are principally take-or-pay obligations related to the purchase of certain materials, including natural gas, consistent with customary industry practice.

 

(c)          Consists primarily of post-retirement estimated future benefit payments and estimated pension contributions.

 

Bank Borrowing.   Effective July 27, 2001 we entered into a second amended and restated credit agreement to modify the provisions of our Term Loans and Revolver (the “Amended Credit Agreement”).   The Amended Credit Agreement provided for (i) $55.4 million that was to mature on January 21, 2005 (“Term A”), (ii) $69.3 million that was to mature on January 21, 2006 (“Term B”), (iii) $47.0 million that matures on January 21, 2006 and $47.0 million that matures on January 21, 2007 (“Term C”), and (iv) up to $100,000 under the revolving credit facility  (which may be limited to $87,500 based on certain leverage ratios) (the “Revolving Credit Facility”).

 

Effective June 13, 2003 we entered into a third amended and restated credit agreement to refinance a portion of the debt outstanding under the July 27, 2001 second amended and restated credit agreement (the “Refinancing”).  Under the Refinancing we repaid in full the aggregate amounts outstanding under the “Term A” facility, “Term B” facility” and the Revolving Credit Facility with proceeds from (i) a new term credit facility in an aggregate principal amount of $180 million that matures on June 13, 2007 (“New Term B”), and (ii) a new revolving facility (“New Revolver”) in an aggregate principal amount of $66 million (comprised of a $36 million U.S. revolving credit facility and a $30 million Canadian revolving credit facility) which matures on June 13, 2006 (collectively, the “New Senior Facilities”) of which $25 million of the New Revolver was funded at close.  The New Senior Facilities provide for (i) increased interest rate spreads to LIBOR, (ii) a second priority lien on substantially all of the Company’s US and Canadian properties and assets to secure the New Term B, (iii) a first priority lien on the Company’s properties and assets securing the New Revolver and Term C, (iv) a pledge of 65% of the stock of our Mexican subsidiary, and (v) a modification to the Company’s financial covenants.  A negative pledge restricts the imposition of other liens or encumbrances on any of the assets, subject to certain exceptions.

 

The “Term C” facility under the second amended and restated credit agreement remains outstanding under the Refinancing and the amortizations and maturities on the Term C facility remain unchanged.

 

Accuride’s Canadian subsidiary is the borrower under the New Revolver and Accuride has guaranteed the repayment of such borrowing under the Refinancing.  As of December 31, 2003, $25.0 million was outstanding under the New Revolver.

 

The New Term B facility requires a $0.9 million repayment on June 13, 2004, June 13, 2005, and June 13, 2006, and $177.3 million on June 13, 2007.  The Term C loan requires a $1.0 million repayment on January 21, 2004, and January 21, 2005, and $47.0 million repayment on January 21, 2006 and January 21, 2007.

 

On December 10, 2003, we completed an amendment to the Refinancing..  The Company re-priced its New Term B loan at LIBOR plus 525 basis points, a reduction of 100 basis points, and Term C loan at LIBOR plus 325 basis points, a reduction of 75 basis points.  In addition, the Company eliminated the LIBOR floor provision for the New Term B loan.

 

14

 

Restrictive Debt Covenants.  Our credit documents contain numerous 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, theability to incur additional debt, to pay dividends, to create liens, to make certain payments and investments and to sell or otherwise dispose of assets and merge or consolidate with other entities. Accuride is also required to meet certain financial ratios and tests including a leverage ratio, an interest coverage ratio, and a fixed charge coverage ratio. A failure to comply with the obligations contained in the credit documents could result in an event of default, and possibly the acceleration of the related debt and the acceleration of debt under other instruments evidencing indebtedness that may contain cross-acceleration or cross-default provisions. As of December 31, 2003, we were in compliance with our financial covenants and ratios.

 

Senior Subordinated Notes.   In January 1998 we issued the $200 million Notes pursuant to an Indenture (the “Indenture”).  The Indenture is limited in aggregate principal amount to $300 million, of which $200 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. The Indenture provides certain restrictions on the payment of dividends by Accuride.  The Indenture is subject to and governed by the Trust Indenture Act of 1939, as amended.  The Notes are general unsecured obligations of Accuride and are subordinated in right of payment to all existing and future Senior Indebtedness (as defined in the Indenture).  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.  As of December 31, 2003 the aggregate principal amount of Notes outstanding was $189.9 million.

 

Off-Balance Sheet Arrangements.  The Company’s off-balance sheet arrangements include the operating leases and unconditional purchase obligations which are principally take-or-pay obligations related to the purchase of certain materials, including natural gas, consistent with customary industry practice as well as letters of credit as discussed in Note 8, “Long-Term Debt”, under Item 8 of this Form 10-K.

 

Critical Accounting Policies and Estimates

 

Our consolidated financial statements and accompanying notes have been prepared in accordance with generally accepted accounting principles applied on a consistent basis.  The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses during the reporting periods.

 

We continually evaluate our accounting policies and estimates we use to prepare the consolidated financial statements.  In general, management’s estimates are based on historical experience, on information from third party professionals and on various other assumptions that are believed to be reasonable under the facts and circumstances.  Actual results could differ from those estimates made by management.

 

We believe our critical accounting policies and estimates, as reviewed and discussed with the Audit Committee of the Board of Directors, include accounting for impairment of long-lived assets, goodwill, pensions, and taxes.

 

Impairment of Long-lived Assets- We evaluate long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  In performing the review of recoverability, we estimate future cash flows expected to result from the use of the asset and its eventual disposition.  The estimates of future cash flows, based on reasonable and supportable assumptions and projections, require management’s subjective judgments.  The time periods for estimating future cash flows is often lengthy, which increases the sensitivity to assumptions made.  Depending on the assumptions and estimates used, the estimated future cash flows projected in the evaluation of long-lived assets can vary within a wide range of outcomes.  We consider the likelihood of possible outcomes in determining the best estimate of future cash flows.

 

15

 

Accounting for Goodwill- Since the adoption of Statement of Financial Accounting Standards (SFAS) No. 142 on January 1, 2002, we no longer amortize goodwill but instead test annually for impairment as required by SFAS 142.  If the carrying value of goodwill exceeds its fair value, an impairment loss must be recognized.  A present value technique is often the best available technique with which to estimate the fair value of a group of assets.  The use of a present value technique requires the use of estimates of future cash flows.  These cash flow estimates incorporate assumptions that marketplace participants would use in their estimates of fair value as well as our own assumptions.  These cash flow estimates are based on reasonable and supportable assumptions and consider all available evidence.  However, there is inherent uncertainty in estimates of future cash flows and termination values.  As such, several different terminal values were used in our calculations and the likelihood of possible outcomes was considered.

 

Pensions- We account for our defined benefit pension plans in accordance with SFAS No. 87, “Employers’ Accounting for Pensions,” which requires that amounts recognized in financial statements be determined on an actuarial basis.  As permitted by SFAS No. 87, we use a smoothed value of plan assets (which is further described below).  SFAS No. 87 requires that the effects of the performance of the pension plan’s assets and changes in pension liability discount rates on our computation of pension income (cost) be amortized over future periods.

 

The most significant element in determining our pension income (cost) in accordance with SFAS No. 87 is the expected return on plan assets.  In 2003, we assumed that the expected long-term rate of return on plan assets would be 9.0% for the U.S. plans and 9.5% for the Canadian plans.  The assumed long-term rate of return on assets is applied to a calculated value of plan assets, which recognizes changes in the fair value of plan assets in a systematic manner over five years.  This produces the expected return on plan assets that is included in pension income (cost).  The difference between this expected return and the actual return on plan assets is deferred.  The net deferral of past asset gains (losses) affects the calculated value of plan assets and, ultimately, future pension income (cost). Over the long term, our U.S. pension plan assets have earned approximately 9% while our Canadian plan assets have earned approximately 11%.  The expected return on plan assets is reviewed annually, and if conditions should warrant, would be revised.  If we were to lower this rate, future pension cost would increase.

 

At the end of each year, we determine the discount rate to be used to calculate the present value of plan liabilities.  The discount rate is an estimate of the current interest rate at which the pension liabilities could be effectively settled at the end of the year.  In estimating this rate, we look to rates of return on high-quality, fixed-income investments that receive one of the two highest ratings given by a recognized ratings agency.  At December 31, 2003, we determined this rate to be 6.0%, a decrease of 50 basis points from the rate used at December 31, 2002.  Changes in discount rates over the past three years have not materially affected pension income (cost), and the net effect of changes in the discount rate, as well as the net effect of other changes in actuarial assumptions and experience, have been deferred, in accordance with SFAS No. 87.

 

The recent declines in the financial markets coupled with the decline in interest rates have caused our accumulated pension obligation to exceed the fair value of the related plan assets.  As a result, in 2003 we recorded an increase to our accrued pension liability and a non-cash charge to equity of approximately $3.8 million after-tax.  This charge may be reversed in future periods if market conditions improve or interest rates rise.

 

For the year ended December 31, 2003, we recognized consolidated pretax pension cost of $2.5 million, up from $2.0 million in 2002.  We currently expect that the consolidated pension cost for 2004 will not be materially different from 2003.  We currently expect to contribute $5.2 million to our pension plans during 2004, however, we may elect to adjust the level of contributions based on a number of factors, including performance of pension investments, changes in interest rates, and changes in workforce compensation.

 

Taxes- Management judgment is required in developing our provision for income taxes, including the determination of deferred tax assets, liabilities and any valuation allowances recorded against the deferred tax assets.  We evaluate quarterly the realizability of our net deferred tax assets by assessing the valuation allowance and adjusting the amount of such allowance, if necessary.  The factors used to assess the likelihood

 

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of realization are our forecast of future taxable income and the availability of tax planning strategies that can be implemented to realize the net deferred tax assets.  Failure to achieve forecasted taxable income might affect the ultimate realization of the net deferred tax assets.  Factors that may affect our ability to achieve sufficient forecasted taxable income include, but are not limited to, the following:  increased competition, a decline in sales or margins, or loss of market share.

 

At December 31, 2003, we had net deferred tax assets of $30.5 million.  Although realization of our net deferred tax assets is not certain, management has concluded that we will more likely than not realize the full benefit of the deferred tax assets.

 

Recent Developments

 

New Accounting Pronouncements- Accounting standards issued during 2003 which could impact us include SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, FIN 46R, Consolidation of Variable Interest Entities and Interpretation of ARB 51, and FAS 106-1, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.

 

SFAS 149 - On April 30, 2003, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”.  The statement amends and clarifies derivative instruments embedded in other contracts, and for hedging activities under Statement 133.  SFAS 149 was effective for Accuride on a prospective basis for contracts entered into or modified and for hedging relationships designated for fiscal periods beginning after June 30, 2003.  This statement had no effect on the Company’s consolidated financial statements.

 

SFAS 150 - On May 15, 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”.  This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity.  It requires that an issuer classify a financial instrument that is within its scope as a liability, even though it might previously have been classified as equity.  SFAS 150 was effective for financial instruments entered into or modified after May 31, 2003, and applies to all financial instruments in the first interim period beginning after June 15, 2003.  This statement had no effect on the Company’s consolidated financial statements.

 

FIN 46R—On December 24, 2003, the FASB issued a revision to Interpretation 46 (FIN 46R) to clarify some of the provisions of FASB Interpretation No. 46, Consolidation of Variable Interest Entities. The term “variable interest” is defined in FIN 46 as “contractual, ownership or other pecuniary interest in an entity that change with changes in the entity’s net asset value.”  Variable interests are investments or other interests that will absorb a portion of an entity’s expected losses if they occur or receive portions of the entity’s expected residual returns if they occur.  FIN 46R defers the effective date of FIN 46 for certain entities and makes several other changes to FIN 46.  The Company does not expect the recognition provisions of FIN 46 or FIN 46R to have a material impact on the Company’s financial position or results of operations.

 

FAS 106-1—On December 8, 2003, the President of the United States signed the Medicare Prescription Drug, Improvement and Modernization Act into law.  The Act introduces a prescription drug benefit under Medicare (Medicare Part D) as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D.  FASB Statement No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions, requires presently enacted changes in relevant laws to be considered in current period measurements of postretirement benefit costs and the APBO.  However, specific authoritative guidance on the accounting for the federal subsidy is currently pending, and Accuride has elected to defer accounting for the effects of this pronouncement as allowed by this staff position.  It is not certain at this time what effects this law and pronouncement will have on the Company’s financial position or results of operations.

 

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Factors That May Affect Future Results

 

In this report, we have 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 our 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.  The following statements are also considered forward-looking:

 

•                  the commercial vehicle industry appears to have begun a recovery;

•                  the availability of working capital and additional capital to Accuride;

•                  continuation of operational improvements and sources of supply of raw materials; and

•                  the lack of future supply disruption as a result of labor issues.

 

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.  We 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.”  We undertake 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 we may make on related subjects in our filings with the SEC.  We cannot assure you that our expectations, beliefs, or projections will result or be achieved or accomplished.  In addition to other factors discussed in the 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:

 

Significant Indebtedness – Our significant debt could adversely affect our financial resources and prevent us from satisfying our debt service obligations.  We have a significant amount of indebtedness and may also incur additional indebtedness in the future. We may not generate sufficient cash flow from operations, or have future borrowings available to it, sufficient to pay our debt. At December 31, 2003, total indebtedness was $490.5 million and our total stockholders’ deficit was $65.8 million.

 

Our ability to make debt payments or refinance our indebtedness depends on future performance, which, to a certain extent, is subject to general economic, financial, competitive and other factors, some of which are beyond our control.  Based upon our current level of operations and anticipated growth, management believes that available cash flow, together with available credit will be adequate to meet our financial needs for the next twelve months.  There can be no assurance, however, that Accuride’s business will generate sufficient cash flow from operations or that future borrowings will be available in an amount sufficient to enable us to pay our debts or to make necessary capital expenditures, or that we could obtain an amendment to our credit agreement or refinance our debt on commercially reasonable terms or at all.

 

Our substantial indebtedness could have important consequences including, but not limited to, the following: (i) a substantial decrease in net operating cash flows or an increase in expenses could make it difficult for us to meet our debt service requirements; (ii) a substantial portion of cash flows will be used to pay interest expense and debt amortization, which will reduce the funds that would otherwise be available for operations and future business opportunities; (iii) the ability to obtain additional financing for acquisitions, working capital, capital expenditures, or other purposes may be impaired or unavailable; (iv) we may be more highly leveraged than our competitors, which may place us at a competitive disadvantage; (v) our substantial indebtedness may make us more vulnerable during a downturn in our business or in the economy generally; and (vi) some of our existing debt contains financial and restrictive covenants that limit our ability to, among other things, borrow additional funds, dispose of assets, and pay cash dividends.

 

A significant portion of our outstanding indebtedness bears interest at variable rates.  From time to time, we have attempted to limit our exposure to increases in interest rates by entering into interest rate protection agreements. Such agreements, however, do not completely eliminate the exposure to variable rates. Any increase in interest rates will reduce funds available to us for our operations and future business opportunities and will exacerbate the consequences of the leveraged capital structure.

 

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Restrictive Debt Covenants - Covenants and restrictions in our credit documents limit our ability to take certain actions.  Our credit documents contain numerous significant financial and operating covenants that limit the discretion of management with respect to certain business matters.  These covenants include, among others, significant restrictions on our ability to:

 

•                  incur certain additional debt;

•                  create liens;

•                  make certain payments and investments;

•                  sell or otherwise dispose of assets;

•                  consolidate with other entities; and

•                  declare dividends or redeem or repurchase capital stock.

 

We must also meet certain financial ratios and tests.  Failure to comply with the obligations contained in the credit documents 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.

 

Cyclical and Seasonal Industry – The wheel industry is cyclical and seasonal, resulting in fluctuations of revenue and income.  The Heavy/Medium Wheel and Light Wheel industries are highly cyclical and, in large part, depend on the overall strength of the demand for Heavy/Medium Trucks, Trailers, and Light Trucks.  These industries have historically experienced significant fluctuations in demand based on factors such as general economic conditions, gas prices, interest rates, government regulations, and consumer confidence.  Since mid-2000, the industry has been in a severe downturn; however, in recent months, major OEM customers have experienced an upturn in incoming net orders.  In addition, our operations are typically seasonal as a result of regular customer maintenance and model changeover shutdowns, which typically occur in the third and fourth quarter of each calendar year.  This seasonality may result in decreased net sales and profitability during the third and fourth fiscal quarters of each calendar year.

 

Dependence on Major Customers - The loss of one of our significant customers could have an adverse effect on our business.  We derived approximately 19.8%, 16.1% and 13.1% of our 2003 net sales from Freightliner, Ford and International, respectively.  We have been a supplier to these customers for many years.  We are continuing to engage in efforts intended to improve and expand our relations with each of these customers.  We have supported our position with these customers through direct and active contact with end users, trucking fleets and dealers, and have located certain of our sales personnel in offices near these customers and most of our other major customers.  Although we believe that our relationship with these customers is good, we cannot assure that we will maintain or improve these relationships, that these customers will continue to do business with us as they have in the past, or that we will be able to supply these customers or any of our other customers at current levels.  The loss of a significant portion of our sales to Freightliner, Ford and/or International could have a material adverse effect on our business.  In addition, the delay or cancellation of material orders from, or problems at, Freightliner, Ford and International or any of our other major customers could have a material adverse effect on our business.

 

Raw Materials – We are vulnerable to significant price increases and shortages.  We use substantial amounts of raw steel and aluminum.  Although steel is generally available from a number of sources, we have obtained favorable sourcing by negotiating and entering into high-volume contracts with third parties with terms ranging from one to three years.  We obtain aluminum from various third-party suppliers.  While we believe that our supply contracts can be renewed on acceptable terms, we cannot assure that we will be successful in renewing these contracts on such favorable terms or at all.  A substantial interruption in the supply of steel or aluminum or inability to obtain a supply of raw steel or aluminum on commercially desirable terms could have an adverse effect on our business.  Steel pricing has been volatile during the past several months.  While we have historically been able to pass through to our customers steel price increases, we cannot assure that rapid and significant changes in the price of steel will not occur in the near future or that we will be able to pass on any such cost increases to our customers.  Aluminum prices have been volatile; however, we have price agreements with our current supplier to protect against the impact of these changes.

 

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Labor Relations - The majority of our employees are members of labor unions and any labor disputes could adversely affect our business.  The majority of our employees are members of labor unions. As of January 1, 2004, approximately 79% of our employees at the Ontario, Canada, facility were represented by the CAW.   The approximate percentage of employees at the Erie, Pennsylvania, and Monterrey, Mexico, facilities who are represented by the UAW and the El Sindicato Industrial de Trabajadores de Nuevo Leon is 78% and 80%, respectively.  Hourly employees at the Erie, Pennsylvania, facility are represented by the UAW Local #1186.  A supply disruption to our customer base due to a labor dispute work stoppage could have a material adverse effect on our business.

 

OEM Supplier Industry - We depend on our customers that are OEMs in the Heavy/Medium Truck, Trailer and Light Truck industries.  We are a supplier to OEMs in the Heavy/Medium Truck, Trailer and Light Truck industries, which are characterized by a small number of OEMs that are able to exert considerable pressure on suppliers to reduce costs, improve quality, and provide enhanced design and engineering capabilities.  OEMs continue to demand and receive price reductions and measurable increases in quality through their use of competitive selection processes, rating programs, and various other arrangements.  Although we have been able to offset a portion of these price reductions through production cost savings, we cannot assure you that we will be able to generate such cost savings in the future.  The inability to generate sufficient production cost savings in the future to offset such price reductions provided to OEMs could adversely affect our profitability.  Additionally, OEMs have generally required suppliers to provide more design engineering input at earlier stages of the product development process, the costs of which have, in some cases, been absorbed by the suppliers.  Future price reductions, increased quality standards, or additional engineering capabilities required by OEMs could have a negative impact on our business.

 

Strong Competition - We operate in a highly competitive environment.  Our product line is broad and it competes with different companies in different markets.  Our markets are characterized by companies with substantial capital, established sales forces, extensive research and development facilities and personnel, and other resources.  Several of our competitors have substantially greater financial or other resources and therefore may be more competitive.  In addition, OEMs may expand their internal production of Wheels, shift sourcing to other suppliers or take other actions that could reduce the market for our products and have a negative impact on our business.  We may encounter increased competition in the future from existing competitors or new competitors.

 

Environmental Liabilities - We may be subject to liability under environmental laws.  We are subject to various foreign, federal, state and local environmental laws, ordinances, and regulations, including those governing discharges into the air and water, the storage, handling and disposal of solid and hazardous wastes, the remediation of soil and groundwater contaminated by petroleum products or hazardous substances or wastes, and the health and safety of our employees.  Under certain of these laws, ordinances or regulations, a current or previous owner or operator of property may be liable for the costs of removal or remediation of certain hazardous substances or petroleum products on, under, or in its property, without regard to whether the owner or operator knew of, or caused, the presence of the contaminants, and regardless of whether the practices that resulted in the contamination were legal at the time they occurred.  The presence of, or failure to remediate properly such substances, may adversely affect the ability to sell or rent such property or to borrow using such property as collateral.  Persons who generate, arrange for the disposal or treatment of, or dispose of hazardous substances may be liable for the costs of investigation, remediation or removal of these hazardous substances at or from the disposal or treatment facility, regardless of whether the facility is owned or operated by that person.  Additionally, the owner of a site may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from a site.  Accuride believes that it is in material compliance with environmental laws, ordinances and regulations and does not anticipate any material adverse effect on earnings or competitive position relating to environmental matters.  It is possible that future developments could lead to material costs of environmental compliance.  The nature of our current and former operations and the history of industrial uses at some of our facilities expose us to the risk of liabilities or claims with respect to environmental and worker health and safety matters which could have a negative impact on our business.

 

Key Management - We depend on key management for the success of our business.  Our success depends largely upon the abilities and experience of certain key management personnel. The loss of the

 

20

 

services of one or more of these key personnel, and in particular Terrence J. Keating, President and Chief Executive Officer, could have a negative impact on our business.  We do not maintain key-man life insurance policies on any of our executives.

 

Control by KKR Affiliates - The rights of our shareholders could be adversely affected because of the concentrated control of our stock.  As of December 31, 2003, approximately 87% of our Common Stock was held by Hubcap Acquisition.  Hubcap Acquisition is a Delaware limited liability company whose members are KKR 1996 Fund L.P. and KKR Partners II, L.P.   KKR 1996 Fund L.P., which owns more than a 95% equity interest in Hubcap Acquisition, is a Delaware limited partnership whose sole general partner is KKR Associates 1996 L.P.   KKR Associates 1996 L.P. is a Delaware limited partnership whose sole general partner is KKR 1996 GP L.L.C.   KKR 1996 GP L.L.C. is a Delaware limited liability company whose members are also the members of the limited liability company that is the general partner of Kohlberg Kravis Roberts & Co. L.P. (“KKR”).  Accordingly, affiliates of KKR control us and have the power to elect all of our directors, appoint new management and approve any action requiring the approval of our shareholders, including adopting amendments to our Certificate of Incorporation and approving mergers or sales of substantially all of our assets.  We cannot give any assurance that the interests of KKR and its affiliates will not conflict with the interests of other holders of our securities.

 

Item 7A.                          Quantitative and Qualitative Disclosure about Market Risk

 

In the normal course of doing business, we are exposed to the risks associated with changes in foreign exchange rates, raw material/commodity prices, and interest rates.  We use 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.  We monitor our foreign currency exposures to maximize the overall effectiveness of our foreign currency derivatives. The principal currency of exposure is the Canadian dollar. From time to time we use foreign currency financial instruments, designated as hedging instruments under SFAS 133, to offset the impact of the variability in exchange rates on our operations, cash flows, assets and liabilities. At December 31, 2003, we had no open foreign exchange derivative instruments although the Company anticipates it will enter into similar contracts in 2004.

Our foreign currency derivative contracts provide only limited protection against currency risks.  Factors that could impact the effectiveness of our currency risk management programs include accuracy of sales estimates, volatility of currency markets and the cost and availability of derivative instruments.  The counterparty to the foreign exchange contracts is a financial institution with an investment grade credit rating. The use of forward contracts protects our cash flows against unfavorable movements in exchange rates, to the extent of the amount under contract.

 

Raw Material/Commodity Price Risk

 

We rely upon the supply of certain raw materials and commodities in our production processes and we have entered into firm purchase commitments for steel, aluminum, and natural gas. The exposures associated with these commitments are primarily managed through the terms of the sales, supply, and procurement contracts.  Additionally, from time to time, we use commodity price swaps and futures contracts to manage the variability in certain commodity prices on our operations and cash flows.  At December 31, 2003, we had no open commodity price swaps and futures contracts.

 

Interest Rate Risk

 

We use long-term debt as a primary source of capital in our business.  The following table presents the principal cash repayments and related weighted average interest rates by maturity date for our long-term fixed-rate debt and other types of long-term debt at December 31, 2003.  The weighted average interest rates are based on 12 month Libor in effect as of December 31, 2003:

 

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(Dollars in Thousands)		2004			2005			2006			2007			2008			Thereafter		Total			Fair Value
Long-term Debt:
Fixed														$	189,900		—		$	189,900		$	195,597
Avg. Rate														9.25		%	—		9.25		%
Variable		$	1,900		$	1,900		$	72,900		$	224,300					—		$	301,000		$	306,493
Avg. Rate		5.67		%	5.67		%	5.01		%	6.28		%				—		5.95		%

 

We are exposed to the variability of interest rates on our variable rate debt.  From time to time, we use financial instruments to hedge against increases in interest rates.  As of December 31, 2003, no such contracts were outstanding.

 

Item 8.                                   Financial Statements and Supplementary Data

 

Attached, beginning at page F-1.

 

Item 9.                                   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

None.

 

Item 9A.                          Controls and Procedures.

 

Under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report.  Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures, which are designed to ensure that information required to be included in our periodic SEC reports is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosures, are effective.  Subsequent to the date of this evaluation, there have been no significant changes in our internal controls or in other factors that could significantly affect such controls.

 

In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

PART III

 

Item 10.                            Directors and Executive Officers of the Registrant

 

Directors and Executive Officers

 

The directors and executive officers of Accuride, and their ages as of December 31, 2003, are as follows:

 

Name		Age		Position
Terrence J. Keating		54		Director, President and Chief Executive Officer
John R. Murphy		53		Executive Vice President/Finance and Chief Financial Officer
David K. Armstrong		47		Senior Vice President and General Counsel
Elizabeth I. Hamme		53		Senior Vice President/Human Resources
Henry L. Taylor		49		Senior Vice President/Sales and Marketing
Robert Nida		60		Vice President/Technology and Continuous Improvement
Craig Kessler		41		Vice President/Operations
Phil Newsome		47		Vice President/Steel Technology
James H. Greene, Jr.		53		Director
Todd A. Fisher		38		Director
Frederick M. Goltz		32		Director

 

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Terrence J. Keating.  Mr. Keating was named Chief Executive Officer, President and a director of the Company on May 1, 2002.  Prior to being named as CEO and President, Mr Keating served as Senior Vice President – Operations.  Mr. Keating joined the Company in December, 1996 as Vice President-Operations.  Prior to joining the Company,  Mr. Keating was the manager of Indianapolis Diesel Engine Plant of International Truck and Engine Corporation, a division of Navistar International Company.  Mr. Keating holds a B.S. in Mechanical Engineering Technology from Purdue University and an M.B.A. in Operations from Indiana University.

 

John R. Murphy.  Mr. Murphy is Executive Vice President/Finance and Chief Financial Officer of the Company.  Mr. Murphy joined the Company in March, 1998 as Vice President/Finance and Chief Financial Officer.  Prior to joining the Company, Mr. Murphy was the President and Chief Executive Officer of Falconite, Inc., a privately held rental equipment company.  From 1994 to 1997, Mr. Murphy was Executive Vice President-Administration, Chief Financial Officer and Corporate Secretary of North American Stainless, Inc.  Mr. Murphy also serves as a director of O’Reilly Automotive (NASDAQ symbol ORLY) and is the Chairman of its Audit Committee.  Mr. Murphy holds a B.S. in Accounting from the Pennsylvania State University and an M.B.A. from the University of Colorado.

 

David K. Armstrong.  Mr. Armstrong is Senior Vice President and General Counsel for the Company.  He also serves as Corporate Secretary.  Mr. Armstrong joined the Company in October, 1998.  Prior to joining the Company, Mr. Armstrong was a partner at the law firm of Snell & Wilmer L.L.P.  Mr. Armstrong holds a B.S. and MAcc in Accounting and a Juris Doctorate, all from Brigham Young University.

 

Elizabeth I. Hamme.  Ms. Hamme is Senior Vice President/Human Resources.  Ms. Hamme joined the Company, as Vice President/Human Resources in February 1995.  Prior to joining the Company, Ms. Hamme served as an independent consultant to the manufacturing and financial services sectors. Ms. Hamme holds a B.A. in Political Science and an M.A. in Adult Education from the George Washington University.

 

Henry L. Taylor.  Mr. Taylor is Senior Vice President/Sales and Marketing.  Mr. Taylor joined the Company in April 1996 as Vice President Marketing and International Sales.  Prior to joining the Company, Mr. Taylor worked at Rockwell Automotive, in product management, marketing, international business and business development.  Mr. Taylor holds a B.S. in Marketing and Management from the University of Nevada, Reno (“UNR”) and has completed graduate courses in business at UNR, St. Louis University and Case Western University.

 

Robert Nida.  Mr. Nida is Vice President/Technology and Continuous Improvement.  Prior to being named to this position, Mr. Nida served as Director/Continuous Improvement. Mr. Nida joined the Company in July 1997 as the Director of Human Resources/Continuous Improvement at AKW.  Prior to joining the Company, Mr. Nida worked at FAG Bearings and AlliedSignal where he held positions in Human Resources, Customer Quality, Manufacturing, and R&D.  Mr. Nida holds a B.A. in Sociology from Bridgewater College and a Masters in Total Quality Management from Friends University.

 

Craig Kessler.  Mr. Kessler is Vice President/Operations.  Prior to his appointment to this position he served as Director/North American Wheels. He also served as Director/Operations of the Company’s facility in Columbia Tennessee. Mr. Kessler joined the Company in July of 1985 as an engineer within the Henderson, Kentucky facility.  Mr. Kessler holds a B.S. in Mechanical Engineering from the University of Evansville.

 

Phil Newsome.  Mr. Newsome was named as Vice President/Steel Technology in September 2003.  Prior to his appointment to this position he served as Director/Research and Development.  Mr. Newsome joined the Company in July of 1998.  Prior to joining the Company, Mr. Newsome worked at Hayes Lemmerz

 

23

 

International as an Engineering Manager.  Mr. Newsome holds a B.S. in Engineering Technology from Texas A&M University and a M.S. in Welding Engineering from Ohio State University.

 

James H. Greene, Jr.  Mr. Greene has been a director of the Company since 1998. He is a member of KKR & Co., L.L.C., the limited liability company which serves as the general partner to KKR. He is also a director of the following public companies:  Alliance Imaging Inc., Amphenol Corporation, Owens-Illinois, Inc., Safeway Inc., Shoppers Drug Mart Corporation, and Zhone Technologies, Inc.

 

Todd A. Fisher.  Mr. Fisher has been a director of the Company since 1998. He has been a member of KKR & Co., L.L.C. since January 1, 2001 and was an executive of KKR from June 1993 to December 31, 2000. From July 1992 to June 1993, Mr. Fisher was an associate at Goldman, Sachs & Co.  Mr. Fisher also serves as a director of the following public companies:  Alea Group Holding Ltd., BRW-Parent of Bristol West Holdings, Inc., Rockwood Specialties, Inc., and Willis Group Holdings Limited.

 

Frederick M. Goltz.  Mr. Goltz has been a director of the Company since 1999.  He has been an executive of KKR since 1995 with the exception of the period from July 1997 to July 1998 during which time he earned an MBA at INSEAD.  Prior to 1995, he was with Furman Selz Incorporated in its Corporate Finance Department.

 

Code of Ethics for CEO and Senior Financial Officers

 

As part of our system of corporate governance, our Board of Directors has adopted a code of ethics that is applicable to all employees including our Chief Executive Officer and senior financial officers.  The Accuride Code of Conduct is filed as Exhibit 14.1 to this Annual Report.

 

Audit Committee Financial Expert

 

Accuride Corporation is a privately owned company. Our Board of Directors currently consists of representatives of our majority shareholder and management.  None of the current members of the audit committee has been designated a “financial expert” as that term is used in the Sarbanes-Oxley Act of 2002, however, the Board of Directors believes that each of the current members of the Audit Committee is fully qualified to address any issues that are likely to come before the Committee, including the evaluation of our financial statements and supervision of our independent auditors.

 

Item 11.                            Executive Compensation

 

Compensation of Directors.  Members of the Board of Directors employed by the Company do not receive any separate compensation for services performed as a director.  Those members of the Board of Directors not otherwise employed by the Company receive a $30,000 annual retainer.  There is no separate compensation for service on the compensation or audit committees.  See also “Item 13-Certain Relationships and Related Transactions.”

 

Summary Compensation Table

 

The following table sets forth information with respect to the compensation paid by the Company for services rendered during the year ended December 31, 2003 to the Chief Executive Officer and to each of the four other most highly compensated executive officers of the Company (the “Named Executive Officers”).

 

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												Long Term Compensation
													Awards
				Annual Compensation									Restricted Stock Award(s)		Securities Underlying Options/SARs		Payouts
Name and Principal Position		Year		Salary			Bonus			Other Annual Compensation							LTIP Payouts		All Other Compensation
										(a)									(b)
Terrence J. Keating (a)		2003		$	330,000		$	352,249		$	10,066		—		—		—		$	119,423
(President and Chief		2002		$	282,920		$	139,432		$	11,940		—		318		—		$	74,907
Executive Officer)		2001		$	202,910		$	75,465		$	9,533		—		—		—		$	52,330
John R. Murphy
(Executive Vice		2003		$	283,500		$	374,092		$	9,499		—		—		—		$	120,769
President/		2002		$	275,625		$	267,300		$	10,111		—		203		—		$	91,312
Finance & CFO)		2001		$	270,000		$	140,625		$	9,532		—		—		—		$	83,522
David K. Armstrong		2003		$	200,700		$	176,556		$	9,588		—		—		—		$	53,769
(Senior Vice President		2002		$	193,700		$	124,542		$	13,764		—		134		—		$	44,492
and General Counsel)		2001		$	181,200		$	67,388		$	14,808		—		—		—		$	36,704
Elizabeth I. Hamme		2003		$	179,160		$	157,607		$	9,479		—		—		—		$	52,930
(Senior Vice President/		2002		$	172,965		$	111,236		$	10,252		—		134		—		$	36,682
Human Resources)		2001		$	161,840		$	60,188		$	8,780		—		—		—		$	35,335
Henry L. Taylor		2003		$	170,040		$	128,925		$	9,391		—		—		—		$	44,416
(Senior Vice President/		2002		$	160,860		$	79,751		$	8,919		—		134		—		$	9,752
Sales and Marketing)		2001		$	150,040		$	47,832		$	7,989		—		—		—		$	11,980

 

(a)                                  Compensation includes financial planning service fees, vacation sold, overseas travel incentive, and gross-ups on financial planning and gift certificate as follows:

 

		Year		Financial Planning Service Fees Plus Gross-up			Vacation Sold			Gift Certificate/ Award Plus Gross-up			Overseas Travel Incentive
Mr. Keating		2003		$	10,030		—			$	36		—
		2002		$	10,111		—			—			$	1,829
		2001		$	9,533		—			—			—
Mr. Murphy		2003		$	9,355		—			$	144		—
		2002		$	10,111		—			—			—
		2001		$	9,532		—			—			—
Mr. Armstrong		2003		$	9,443		—			$	145		—
		2002		$	10,215		—			$	37		$	3,512
		2001		$	9,625		$	5,184		—			—
Ms. Hamme		2003		$	9,443		—			$	36		—
		2002		$	10,215		—			$	37		—
		2001		$	8,780		—			—			—
Mr. Taylor		2003		$	9,355		—			$	36		—
		2002		$	8,882		—			$	37		—
		2001		$	5,222		—			—			$	2,767

 

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(b)                                 Compensation includes contributions made by the Company to the employees’ non-qualified retirement plans, qualified savings plan (company match and/or profit sharing), the Executive Life Insurance Plan (which provides employees with a bonus to pay for a universal life insurance policy that is fully owned by the employee), personal excess umbrella insurance coverage, and gross-ups as set forth below:

 

		Year		Non-Qualified Retirement Plans Plus Gross-Up			Company Match & Profit Sharing			ELIP Premiums Plus Gross-up			Umbrella Insurance Premium Plus Gross-up
Mr. Keating		2003		$	69,017		$	25,681		$	22,607		$	2,118
		2002		$	35,689		$	5,000		$	32,277		$	1,941
		2001		$	18,992		$	12,010		$	21,327		—
Mr. Murphy		2003		$	63,728		$	25,148		$	29,775		$	2,118
		2002		$	52,695		$	5,000		$	29,775		$	3,842
		2001		$	42,705		$	14,194		$	26,623		—
Mr. Armstrong		2003		$	17,969		$	19,383		$	15,000		$	1,417
		2002		$	15,008		$	4,615		$	14,654		$	10,215
		2001		$	11,412		$	10,638		$	14,654		—
Ms. Hamme		2003		$	15,823		$	17,069		$	18,621		$	1,417
		2002		$	12,214		$	4,324		$	18,203		$	1,941
		2001		$	7,630		$	9,502		$	18,203		—
Mr. Taylor		2003		$	9,946		$	16,058		$	17,005		$	1,407
		2002		$	5,108		$	3,490		—			$	1,154
		2001		$	3,544		$	8,436		—			—

 

The following table gives information for options exercised by each of the Named Executive Officers in 2003 and the value (stock price less exercise price) of the remaining options held by those executive officers at year end, using management’s estimate of the Common Stock value on December 31, 2003.

 

Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values

 

		Shares Acquired on Exercise		Value Realized			Number of Securities Underlying Unexercised Options/SARs at Fiscal Year-End				Value of Unexercised In-the-Money Options/SARs at Fiscal Year-End(a)
Name							Exercisable		Unexercisable		Exercisable		Unexercisable
Terrence Keating		0		$	0		219.0		163.0		—		—
John R. Murphy		0		$	0		232.9		110.1		—		—
David K. Armstrong		0		$	0		127.0		71.0		—		—
Elizabeth I. Hamme		0		$	0		127.0		71.0		—		—
Henry L. Taylor		0		$	0		127.0		71.0		—		—

 

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(a)                                  The value of the shares underlying the options as of December 31, 2003 is not in excess of the base price.  There is no established trading market for our Common Stock.

 

Pension Plan Disclosure

 

The Accuride Cash Balance Pension Plan (the “Retirement Plan”) covers certain employees of the Company.  Under the Retirement plan, each participant has a “cash balance account” which is established for bookkeeping purposes only.  Each year, each participant’s cash balance account is credited with a percentage of the participant’s earnings (as defined in the Retirement Plan).  The percentage ranges from 2% to 11.5%, depending on the participant’s age, years of service and date of participation in the Retirement Plan.  If a participant has earnings above the Social Security taxable wage base (“excess earnings”), then an additional 2% of the excess earnings amount is credited to the participant’s account.  Participants’ accounts also are credited with interest each year, based upon the rates payable on certain U.S. Treasury debt instruments.  Employees first becoming participants after January 1, 1998 also receive an additional credit for their first year of service.

 

A participant’s benefit at normal retirement age, if calculated as a lump sum payment, equals the balance of his or her cash balance account.  The actuarial equivalent of the account balance also can be paid as a single life annuity, a qualified joint and survivor annuity, or an alternative form of payment allowed under the Retirement Plan.

 

The estimated annual benefits payable upon retirement at normal retirement age (assuming continued compensation at the present amounts until normal retirement age, crediting of interest at a 6% rate and disregarding future cost-of-living increases in the Social Security wage base and qualified plan compensation and benefit limits), for each of the following Named Executive Officers are:

 

Terrence J. Keating		$	43,300
John R. Murphy		$	42,400
David K. Armstrong		$	64,800
Elizabeth I. Hamme		$	42,900
Henry L. Taylor		$	55,600

 

1998 Stock Purchase and Option Plan

 

In early 1998, we adopted the 1998 Stock Purchase and Option Plan for Employees of Accuride Corporation and Subsidiaries (the “1998 Plan”).  The 1998 Plan provides for the issuance of a maximum of 3,247 shares of Common Stock, subject to adjustment to reflect certain events such as stock dividends, stock splits, recapitalizations, mergers or reorganizations of, or by, the Company. The 1998 Plan is intended to assist the Company and its Subsidiaries in attracting and retaining employees of outstanding ability and to promote the identification of their interests with those of the stockholders of the Company.

 

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Any officer or full-time employee of the Company or a Subsidiary is eligible to be selected by the Compensation Committee of the Board of Directors (“Committee”) to participate in the 1998 Plan.  The 1998 Plan permits the Committee to grant shares of Common Stock in the form of either (i) Purchase Shares, subject to conditions or restrictions on the participant’s right to sell or transfer the shares (“Purchase Stock”) or (ii) Non-Qualified Stock Options (“Options”) to purchase shares of Common Stock subject to conditions and limitations as established by the Committee.  Collectively the grant of Purchase Stock and Options are referred to herein as a “Plan Grants”.  The 1998 Plan will expire ten years after it was approved by the Company’s shareholders, unless sooner terminated by the Company’s Board of Directors.  Any termination of the 1998 Plan will not affect the validity of any Plan Grant outstanding on the date of the termination.

 

The Committee administers the Plan, including, without limitation, the determination of the employees to whom  Plan Grants will be made, the number of shares of Common Stock subject to each Plan Grant, and the various terms of Plan Grants, provided that, neither the exercise price of an Option, nor the purchase price for Purchase Stock may be less than 50% of the market value of the Common Stock on the date of grant.  The Committee may from time to time amend the terms of any  Plan Grant, but, except for adjustments made upon a change in the Common Stock by reason of a stock split, spin-off, stock dividend, stock combination or reclassification, recapitalization, reorganization, consolidation, change of control, or similar event, such action shall not adversely affect the rights of any participant under the 1998 Plan with respect to a Plan Grant without a participant’s consent. The Board of Directors retains the right to amend, suspend or terminate the 1998 Plan.

 

Severance Agreements

 

Accuride has entered into severance agreements with certain senior management employees, including the Named Executive Officers, pursuant to which in the event of any such employee’s termination “without cause” or “for good reason” (as defined therein) we will pay such employee one year’s base salary.

 

In addition to the severance agreements described above, Accuride has entered into change-in-control agreements with senior management employees, including the Named Executive Officers, and certain other key executives of the Company.  Under these agreements, each participating executive is entitled to severance benefits if his or her employment with the Company is terminated within eighteen months of a change in control of the Company (as defined in the agreement) either by the employee for good reason or by the Company for any reason other than cause, disability, normal retirement, or death.  In the event of a covered termination, (a) severance benefits for Tier I (Messrs. Keating and Murphy) include a payment equal to 300% of the employee’s salary plus average incentive compensation award over the prior three years, (b) severance benefits for Tier II (Messrs. Armstrong, Taylor and Ms. Hamme) include a payment equal to 200% of the employee’s salary plus average incentive compensation award over the prior three years, (c) severance benefits for Tier III (other key executives) include a payment equal to 100% of the employee’s salary.  The agreements also provide for the continuance of certain other benefits, including health insurance coverage until the earlier of the employee becoming eligible for coverage by a subsequent employer or the expiration of 18 months from the date of termination.  Any payment received under the change-in-control agreement shall be reduced by the full amount of any payments to which the executive may be entitled due to termination pursuant to any other Company severance policy.

 

Employee Equity Arrangements

 

Pursuant to the 1998 Plan, we sold Plan-Purchase Stock and issued  Plan-Options to selected employees, including the Named Executive Officers, which represent, in the aggregate, approximately 11.0% of the fully diluted Common Stock (of which the Named Executive Officers will hold approximately 54%).  In connection with such arrangements, the Company and each such employee entered into an Employee Stockholders’ Agreement and a Stock Option Agreement.  The Employee Stockholders’ Agreement (i) places restrictions on each such employee’s ability to transfer shares of  Plan-Purchase Stock and Common Stock acquired upon exercise of the Plan-Options, including a right of first refusal in favor of the Company, (ii) provides each such employee the right to participate pro rata in certain sales of Common Stock by Hubcap Acquisition or its affiliates and (iii) provides Hubcap Acquisition and its affiliates the right to require each

 

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such employee to participate pro rata in certain sales of Common Stock by Hubcap Acquisition or its affiliates. The Stockholders’ Agreement also grants (subsequent to an initial public offering of the Common Stock) piggyback registration rights to each such employee pursuant to a registration rights agreement between Hubcap Acquisition and the Company.  In addition, the Employee Stockholders’ Agreement gives us the right to purchase shares and options held by each such employee upon termination of employment for any reason and permits each such employee to sell stock and options in the event of death, disability or retirement after turning 65 years of age.

 

Compensation Committee Interlocks and Insider Participation

 

Messrs. Greene, Fisher, and Goltz, with Mr. Greene as Chairman, serve as the members of the Compensation Committee of the Board of Directors of the Company.  Messrs. Greene and Fisher are members of KKR 1996 GP L.L.C., which beneficially owns 87% of Accuride, and members of KKR & Co., L.L.C., which serves as general partner of KKR.  Mr. Goltz is an executive of KKR & Co., L.L.C.  (See “Item 13. Certain Relationships and Related Party Transactions.”)

 

Item 12.                            Security Ownership of Certain Beneficial Owners and Management

 

The following table sets forth the ownership of the Common Stock as of March 1, 2004 by each person known to be the owner of 5% or more of the Common Stock, by each person who is a director or Named Executive Officer of the Company and by all directors and executive officers of the Company as a group.

 

		Common Stock Beneficially Owned (a)
Name and Address		Shares		Percent
KKR 1996 GP L.L.C. (b) c/o Kohlberg Kravis Roberts & Co. L.P. 9 West 57th Street New York, New York 10019		21,600.0		87.10	%
James H. Greene, Jr. (b)		—		—
Todd A. Fisher (b)		—		—
Frederick M. Goltz (b)		—		—
RSTW  Partners III, L.P. (c) 5847 San Felipe Houston, TX 77057		2,400.0		9.68	%
Terrence J. Keating (d)		259.0		1.04	%
John R. Murphy (e)		302.9		1.21	%
David K. Armstrong (f)		167.0			*
Elizabeth Hamme (g)		167.0			*
Henry L. Taylor (h)		167.0			*
All executive officers and directors as a group		1,062.9		4.15	%

 

*                                         Less than one percent.

 

(a)                                  The amounts and percentage of Common Stock beneficially owned are reported on the basis of regulations of the Securities and Exchange Commission (“SEC”) governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. Under these rules, more than one person may be deemed a beneficial owner of the same securities and a person may be deemed to be a beneficial owner of securities as to which he has no economic interest. The percentage of class outstanding is based on 24,799 shares of Common Stock outstanding as of March 1, 2004 and also includes shares to be deemed beneficially owned by the officers and directors.

 

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(b)                                 Shares of Common Stock shown as beneficially owned by KKR 1996 GP L.L.C. are held by Hubcap Acquisition.  KKR 1996 GP L.L.C. is the sole general partner of KKR Associates 1996 L.P., which is the sole general partner of KKR 1996 Fund L.P. KKR 1996 Fund L.P. is one of two members of Hubcap Acquisition and owns more than a 95% equity interest in Hubcap Acquisition.  KKR 1996 GP L.L.C. is a limited liability company, the managing members of which are Messrs. Henry R. Kravis and George R. Roberts, and the other members of which are Messrs. Paul E. Raether, Michael W. Michelson, James H. Greene, Jr.,  Edward A. Gilhuly, Perry Golkin, Scott M. Stuart, Johannes P. Huth, Todd A. Fisher and Alexander Navab Jr.  Messrs.  Greene and Fisher are directors of the Company. Each of such individuals may be deemed to share beneficial ownership of any shares beneficially owned by KKR 1996 GP L.L.C.  Each of such individuals disclaims beneficial ownership. Mr. Frederick M. Goltz is a director of the Company and is also an executive of KKR.  Mr. Goltz disclaims that he is the beneficial owner of any shares beneficially owned by KKR Associates 1996 L.P.

 

(c)                                  RSTW Management, L.P. is the sole general partner of RSTW Partners III, L.P.; Rice Mezzanine Corporation (“RMC”) is the general partner of RSTW Management, L.P.  RMC is a subchapter S-Corporation, the shareholders of which are Messrs. Don K. Rice, Jeffrey P. Sangalis, Jeffrey A. Toole, and James P. Wilson.  Each of such individuals may be deemed to share beneficial ownership of any shares beneficially owned by RSTW Partners III, L.P.  Each of such individuals disclaims beneficial ownership.

 

(d)                                 Includes 60.0 shares, which are subject to an option to purchase such shares from the Company at $5,000 per share, and 159.0 shares which are subject to an option to purchase such shares from the Company at $1,750 per share.

 

(e)                                  Includes 131.5 shares, which are subject to an option to purchase such shares from the Company at $5,000 per share, and 101.4 shares which are subject to an option to purchase such shares from the Company at $1,750 per share.

 

(f)                                    Includes 60 shares, which are subject to an option to purchase such shares from the Company at $5,000 per share, and 67.0 shares which are subject to an option to purchase such shares from the Company at $1,750 per share.

 

(g)                                 Includes 60 shares, which are subject to an option to purchase such shares from the Company at $5,000 per share, and 67.0 shares which are subject to an option to purchase such shares from the Company at $1,750 per share.

 

(h)                                 Includes 60 shares, which are subject to an option to purchase such shares from the Company at $5,000 per share, and 67.0 shares which are subject to an option to purchase such shares from the Company at $1,750 per share.

 

Item 13.                            Certain Relationships and Related Party Transactions

 

As of March 1, 2004, KKR 1996 GP L.L.C. beneficially owned approximately 87% of our outstanding shares of Common Stock. See “Item 12-Security Ownership of Certain Beneficial Owners and Management.” The managing members of KKR 1996 GP L.L.C. are Messrs. Henry R. Kravis and George R. Roberts and the other members of which are Messrs. Paul E. Raether, Michael W. Michelson, James H. Greene, Jr., Edward A. Gilhuly, Perry Golkin, Scott M. Stuart, Johannes P. Huth, Todd A. Fisher and Alexander Navab Jr.  Messrs. Greene and Fisher are also directors of the Company, as is Frederick M. Goltz, who is an executive of KKR & Co., L.L.C. Each of the members of KKR 1996 GP L.L.C. is also a member of KKR & Co., L.L.C, which serves as the general partner of KKR.

 

30

 

KKR has agreed to render management, consulting and financial services to us for an annual fee of $0.6 million. See “Item 10-Directors and Executive Officers of the Company” and “Item 12-Security Ownership of Certain Beneficial Owners and Management.”

 

Hubcap Acquisition has the right, under certain circumstances and subject to certain conditions, to require us to register under the Securities Act shares of Common Stock held by it pursuant to the registration rights agreement between Hubcap Acquisition and the Company and the stockholders agreement among Hubcap Acquisition, the Company, and Phelps Dodge.  Such registration rights are generally available to Hubcap Acquisition until registration under the Securities Act is no longer required to enable it to resell the Common Stock owned by it. The registration rights agreement provides, among other things, that we will pay all expenses in connection with the first six demand registrations requested by Hubcap Acquisition and in connection with any registration commenced by the Company as a primary offering in which Hubcap Acquisition participates through piggyback registration rights granted under such agreement. Hubcap Acquisition’s exercise of its registration rights under the registration rights agreement is subject to the tag along and the drag along rights of certain other stockholders provided for in the stockholders agreement.

 

During 2003, no shares of Common Stock were repurchased as treasury stock.

 

Item 14.                            Principal Accountant Fees and Services

 

Audit Fees

 

Fees for audit services totaled approximately $0.5 million in 2003 and approximately $0.5 million in 2002, including fees associated with the annual audit, the reviews of the Company’s quarterly reports on Form 10-Q, and statutory audits required internationally.

 

Audit Related Fees

 

Fees for audit related services totaled approximately $0.1 million in 2003 and approximately $0.1 million in 2002.  Audit related services principally include accounting consultation and audits of benefit plans.

 

Tax Fees

 

Fees for tax services, including tax compliance, tax advice, tax planning, and transfer pricing studies totaled approximately $0.8 million in 2003 and $0.9 million in 2002.

 

All Other Fees

 

Fees for all other services not described above totaled approximately $0.1 million in 2003 and $0.1 million in 2002.

 

The Audit Committee’s policy is to pre-approve all audit and non-audit services provided by the independent auditors.  Since May 6, 2003, the Audit Committee has approved 100% of the services described under Audit-Related Fees, Tax Fees, and All Other Fees.

 

31

 

PART IV

 

Item 15.                            Exhibits, Financial Statement Schedules, and Reports on Form 8-K

 

(a)                                  The following constitutes a list of Financial Statements, Financial Statement Schedules, and Exhibits required to be included in this report:

 

1.                                       Financial Statements

 

The following financial statements of the Registrant are filed herewith as part of this report:

 

	Independent Auditors’ Report.
	Consolidated Balance Sheets - December 31, 2003 and December 31, 2002.
	Consolidated Statements of Income (Loss) - Years ended December 31, 2003, December 31, 2002, and December 31, 2001.
	Consolidated Statements of Stockholders’ Equity (Deficiency) - Years ended December 31, 2003, December 31, 2002, and December 31, 2001.
	Consolidated Statements of Cash Flows - Years ended December 31, 2003, December 31, 2002, and December 31, 2001.
	Notes to Consolidated Financial Statements - Years ended December 31, 2003, December 31, 2002, and December 31, 2001.

 

2.                                       Financial Statement Schedules

 

Schedule II - Valuation and Qualifying Accounts.

 

Schedules other than those listed above are omitted because of the absence of conditions under which they are required or because the required information is presented in the Financial Statements or notes thereto.

 

3.                                       Exhibits

 

Exhibit No.		Description
2.1		Stock Subscription and Redemption Agreement, dated as of November 17, 1997, among the Company, Hubcap Acquisition L.L.C. and Phelps Dodge Corporation.  Previously filed as an exhibit to the Form S-4 effective July 23, 1998 (Reg. No. 333-50239) and incorporated herein by reference.
3.1		Certificate of Incorporation, as amended, of Accuride Corporation.  Previously filed as an exhibit to the Form S-4 effective July 23, 1998 (Reg. No. 333-50239) and incorporated herein by reference.
3.2		By-Laws of Accuride Corporation.  Previously filed as an exhibit to the Form S-4 effective July 23, 1998 (Reg. No. 333-50239) and incorporated herein by reference.
4.1		Indenture, dated as of January 21, 1998, between Accuride Corporation and U.S. Trust Company of California, N.A., as trustee, relating to $200,000,000 aggregate principal amount of 9.25% Senior Subordinated Notes due 2008.  Previously filed as an exhibit to the Form S-4 effective July 23, 1998 (Reg. No. 333-50239) and incorporated herein by reference.
4.2		Registration Rights Agreement, dated as of January 21, 1998, between Accuride Corporation, and BT Alex. Brown Incorporated, Citicorp Securities, Inc., and J.P. Morgan Securities Inc.  Previously filed as an exhibit to the Form S-4 effective July 23, 1998 (Reg. No. 333-50239) and incorporated herein by reference.
4.3		Specimen Certificate of 9.25% Senior Subordinated Notes due 2008, Series A (the “Private Notes”).  Previously filed as an exhibit to the Form S-4 effective July 23, 1998 (Reg. No. 333-50239) and incorporated herein by reference.
4.4		Specimen Certificate of 9.25% Senior Subordinated Notes due 2008, Series B (the “Exchange Notes”).

 

32

 

		Previously filed as an exhibit to the Form S-4 effective July 23, 1998 (Reg. No. 333-50239) and incorporated herein by reference.
10.1		Stockholders’ Agreement by and among Accuride Corporation, Phelps Dodge Corporation and Hubcap Acquisition L.L.C.  Previously filed as an exhibit to the Form S-4 effective July 23, 1998 (Reg. No. 333-50239) and incorporated herein by reference.
10.2		Registration Rights Agreement by and between Accuride Corporation and Hubcap Acquisition L.L.C.  Previously filed as an exhibit to the Form S-4 effective July 23, 1998 (Reg. No. 333-50239) and incorporated herein by reference.
10.3		1998 Stock Purchase and Option Plan for Employees of Accuride Corporation and Subsidiaries.  Previously filed as an exhibit to the Form S-4 effective July 23, 1998 (Reg. No. 333-50239) and incorporated herein by reference.  Management contract for compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
10.3.5		Amendment No. 2 to the 1998 Stock Purchase and Option Plan for Employees of Accuride Corporation and Subsidiaries.  Previously filed as an exhibit to the Form 10-Q for the quarterly period ended June 30, 2002 and incorporated herein by reference
10.4		Form of Non-qualified Stock Option Agreement by and between Accuride Corporation and certain employees.  Previously filed as an exhibit to the Form S-4 effective July 23, 1998 (Reg. No. 333-50239) and incorporated herein by reference.  Management contract for compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
10.5		Form of Repayment and Stock Pledge Agreement by and between Accuride and certain employees.  Previously filed as an exhibit to the Form S-4 effective July 23, 1998 (Reg. No. 333-50239) and incorporated herein by reference.  Management contract for compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
10.6		Form of Secured Promissory Note in favor of Accuride Corporation.  Previously filed as an exhibit to the Form S-4 effective July 23, 1998 (Reg. No. 333-50239) and incorporated herein by reference.
10.7		Form of Stockholders’ Agreement by and among Accuride Corporation, certain employees and Hubcap Acquisition L.L.C.  Previously filed as an exhibit to the Form S-4 effective July 23, 1998 (Reg. No. 333-50239) and incorporated herein by reference.
10.8		Form of Severance Agreement by and between Accuride Corporation and certain executives.  Previously filed as an exhibit to the Form S-4 effective July 23, 1998 (Reg. No. 333-50239) and incorporated herein by reference.  Management contract for compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
10.9		Lease Agreement dated November 1, 1988, by and between Kaiser Aluminum & Chemical Corporation and The Bell Company regarding the property in Cuyahoga Falls, Ohio, as amended and extended.  Previously filed as an exhibit to the Form S-4 effective July 23, 1998 (Reg. No. 333-50239) and incorporated herein by reference.
10.10		Second amendment to lease agreement between AKW, L.P. (Accuride Erie) (as successor to Kaiser Aluminum and Chemical Corporation) and Sarum Management (as successor to the Bell Company) regarding the property in Cuyahoga Falls, Ohio.  Previously filed as an Exhibit to the Form 10-K filed on March 21, 2003.
10.11		Third amendment to lease agreement between Accuride Erie L.P. and Sarum Management regarding the property in Cuyahoga Falls, Ohio.  Filed herein.
10.12		Lease Agreement dated October 26, 1998, by and between Accuride Corporation and Woodward, LLC. regarding the Evansville, Indiana, office space.  Previously filed as an exhibit to the Form 10-K filed on March 30, 1999 and incorporated herein by reference.
10.13		Second Addendum to lease agreement between Accuride and Woodward, LLC regarding the Evansville office space.  Previously filed as an exhibit to the Form 10-K filed on March 21, 2003 and incorporated herein by reference.
10.15		Amended and Restated Lease Agreement dated April 1, 1999, between AKW, L.P. and Kaiser.  Previously filed as an exhibit to the Form 8-K filed on April 12, 1999 and incorporated herein by reference.
10.17		Amended and Restated Supplemental Savings Plan dated January 1, 1998.  Previously filed as an exhibit to the Form S-4 effective July 23, 1998 (Reg. No. 333-50239) and incorporated herein by reference.  Management contract for compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
10.18		Amended and Restated Supplemental Savings Plan dated January 1, 2003.  Management contract for

 

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		compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.  Filed herein.
10.19		Accuride Executive Retirement Allowance Policy dated November 2003.  Management contract for compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.  Filed herein.
10.20		Joint Marketing Agreement between the Company and Gianetti Ruote SpA.  Previously filed as an exhibit  to the Form 10-K filed on March 26, 2001 and incorporated herein by reference.
10.21		Technology Cross License Agreement between the Company and Gianetti Ruote SpA.  Previously filed as  an exhibit to the Form 10-K filed on March 26, 2001 and incorporated herein by reference.
10.22		Second Amended and Restated Credit Agreement.  Previously filed as an exhibit to the Form10-Q filed on  August 9, 2001 and incorporated herein by reference.
10.23		Second Amended and Restated Pledge Agreement.  Previously filed as an exhibit to the Form10-Q filed on August 9, 2001 and incorporated herein by reference.
10.24		Security Agreement between the Company, Accuride Canada, Inc., and Citicorp USA, Inc.  Previously filed  as an exhibit to the Form10-Q filed on August 9, 2001 and incorporated herein by reference.
10.25		Security Agreement between Accuride Canada, Inc., and Citicorp USA, Inc.  Previously filed as an exhibit to  the Form 10-Q filed on August 9, 2001 and incorporated herein by reference.
10.26		Form of Change-In-Control Agreement (Tier I employees).  Management contract for compensatory plan or  arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.  Previously filed as an  exhibit to the Form 10-K filed on March 11, 2002 and incorporated herein by reference.
10.27		Form of Change-In-Control Agreement (Tier II employees).  Management contract for compensatory plan or  arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.  Previously filed as an  exhibit to the Form 10-K filed on March 11, 2002 and incorporated herein by reference.
10.28		Form of Change-In-Control Agreement (Tier III employees).  Management contract for compensatory plan or  arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.  Previously filed as an  exhibit to the Form 10-K filed on March 11, 2002 and incorporated herein by reference.
10.29		Third Amended and Restated Credit Agreement, dated June 13, 2003, as previously filed as an exhibit to the  Form 8-K filed August 11, 2003 and incorporated herein by reference.
10.30		Third Amended and Restated Pledge of Shares Agreement, dated June 13, 2003, as previously filed as an exhibit to the  Form 10-Q filed August 13, 2003 and incorporated herein by reference
10.31		First Amendment to Third Amended and Restated Credit Agreement, dated December 10, 2003.  Filed herein.
10.32		First Amendment to Lease Agreement between Accuride Corporation and The Package Company, L.L.C.,regarding the property in Taylor, Michigan.  Filed herein.
14.1		Accuride Code of Conduct
21.1		Subsidiaries of Accuride Corporation.
23.1		Consent of Deloitte & Touche LLP.
31.1		Section 302 Certification of Terrence J. Keating in connection with the Annual Report of Form 10-K of Accuride Corporation for the fiscal year ended December 31, 2003.
31.2		Section 302 Certification of John R. Murphy in connection with the Annual Report of Form 10-K of Accuride Corporation for the fiscal year ended December 31, 2003.
32.1		Section 906 Certification of Terrence J. Keating in connection with the Annual Report on Form 10-K of Accuride Corporation for the fiscal year ended December 31, 2003.
32.2		Section 906 Certification of John R. Murphy in connection with the Annual Report on Form 10-K of Accuride Corporation for the fiscal year ended December 31, 2003.

 

(b)                                 Reports on Form 8-K:

 

Form 8-K containing our third quarter results for 2003 was furnished to the SEC on November 13, 2003.

 

Form 8-K announcing discussions with our senior lenders concerning an amendment to our senior credit facility was furnished to the SEC on November 13, 2003.

 

Form 8-K announcing the completion of the first amendment to the third amended and restated senior credit facility was furnished to the SEC on December 11, 2003.

 

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