UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC  20549

 

FORM 10-Q

 

(Mark One)

ý         Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

 

For the quarterly period ended March 31, 2004.

 

OR

 

o         Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from                    to                   .

 

Commission file number 333-50239

 

ACCURIDE CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

 

Registrant’s Telephone Number, Including Area Code: (812) 962-5000

 

Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ý  No o

 

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

 

As of March 31, 2004, 24,799 shares of Accuride Corporation common stock, par value $.01 per share, were outstanding.

 

 

ACCURIDE CORPORATION

 

Table of Contents

 

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
	Consolidated Balance Sheets as of March 31, 2004 (Unaudited) and December 31, 2003
	Consolidated Statements of Income (Loss) for the Three Months Ended March 31, 2004 and 2003 (Unaudited)
	Consolidated Statement of Stockholders’ Equity (Deficiency) for the Three Months Ended March 31, 2004 (Unaudited)
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2004 and 2003 (Unaudited)
	Notes to Unaudited Consolidated Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchase of Equity Securities
Item 6. Exhibits and Reports on Form 8-K
Signatures

 

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PART I. FINANCIAL INFORMATION

Item I. Financial Statements

 

ACCURIDE CORPORATION

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

 

		March 31, 2004			December 31, 2003
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	29,364		$	42,692
Customer receivables, net of allowance for doubtful accounts of $816 and $822		55,090			36,309
Other receivables		7,098			8,403
Inventories, net		32,935			33,435
Supplies		11,301			10,717
Deferred income taxes		5,138			4,276
Prepaid expenses and other current assets		2,113			924
Total current assets		143,039			136,756
PROPERTY, PLANT AND EQUIPMENT, NET		203,163			206,660
OTHER ASSETS:
Goodwill		123,197			123,197
Investment in affiliates		3,244			3,106
Deferred financing costs, net of accumulated amortization of $7,269 and $6,847		5,066			5,458
Deferred income taxes		23,557			26,231
Pension benefit plan asset		27,304			26,887
Other		70			2
TOTAL		$	528,640		$	528,297
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable		$	35,899		$	34,128
Current portion of long-term debt		1,900			1,900
Accrued payroll and compensation		6,784			9,185
Accrued interest payable		3,633			8,824
Accrued and other liabilities		8,089			6,082
Total current liabilities		56,305			60,119
LONG-TERM DEBT, less current portion		487,601			488,575
OTHER POSTRETIREMENT BENEFIT PLAN LIABILITY		21,132			20,665
PENSION BENEFIT PLAN LIABILITY		24,145			24,376
OTHER LIABILITIES		259			404
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY (DEFICIENCY):
Preferred stock, $.01 par value; 5,000 shares authorized and unissued Common stock and additional paid in capital, $.01 par value; 45,000 shares authorized, 24,926 shares issued; 24,799 outstanding		52,070			52,070
Treasury stock, 127 shares at cost		(735		)	(735		)
Stock subscriptions receivable		0			(15		)
Accumulated other comprehensive income (loss)		(11,318		)	(11,576		)
Retained earnings (deficit)		(100,819		)	(105,586		)
Total stockholders’ equity (deficiency)		(60,802		)	(65,842		)
TOTAL		$	528,640		$	528,297
See notes to unaudited consolidated financial statements

 

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ACCURIDE CORPORATION

 

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(DOLLARS IN THOUSANDS)

(UNAUDITED)

 

		Three Months Ended March 31,
		2004			2003
NET SALES		$	111,401		$	88,248
COST OF GOODS SOLD		89,437			72,627
GROSS PROFIT		21,964			15,621
OPERATING EXPENSES:
Selling, general and administrative		6,371			5,889
INCOME FROM OPERATIONS		15,593			9,732
OTHER INCOME (EXPENSE):
Interest income		25			72
Interest (expense)		(9,213		)	(8,912		)
Equity in earnings of affiliates		138			181
Other income (expense), net		139			(613		)
INCOME BEFORE INCOME TAXES		6,682			460
INCOME TAX PROVISION		1,915			1,038
NET INCOME (LOSS)		$	4,767		$	(578	)
See notes to unaudited consolidated financial statements.

 

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ACCURIDE CORPORATION

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIENCY)

(DOLLARS IN THOUSANDS)

(UNAUDITED)

 

		Comprehensive Income			Common Stock and Additional Paid in Capital			Treasury Stock			Stock Subscriptions Receivable			Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Deficit)			Total Stockholders’ Equity (Deficiency)
BALANCE AT JANUARY 1, 2004					$	52,070		$	(735	)	$	(15	)	$	(11,576	)	$	(105,586	)	$	(65,842	)
Net Income		$	4,767														4,767			4,767
Exercise of stock options					0															0
Proceeds from stock subscriptions receivable					—			—			15						—			15
Other comprehensive income;
Unrealized gain on foreign currency hedges (net of tax)		161												161						161
Minimum pension liability adjustment (net of tax)		97												97						97
Comprehensive income		$	5,025
BALANCE AT MARCH 31, 2004					$	52,070		$	(735	)	$	0		$	(11,318	)	$	(100,819	)	$	(60,802	)

 

See notes to unaudited consolidated financial statements

 

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ACCURIDE CORPORATION

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)

(UNAUDITED)

 

		Three Months Ended March 31,
		2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	4,767		$	(578	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation		6,296			6,856
Amortization-deferred financing costs		447			631
Losses on asset disposition		2			—
Deferred income taxes		1,660			928
Equity in earnings of affiliate		(138		)	(181		)
Changes in certain assets and liabilities:
Receivables		(17,067		)	(7,128		)
Inventories and supplies		(85		)	(5,230		)
Prepaid expenses and other assets		(1,267		)	(4,326		)
Accounts payable		1,772			3,478
Accrued and other liabilities		(5,490		)	(7,149		)
Net cash provided by (used in) operating activities		(9,103		)	(12,699		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(3,009		)	(3,268		)
Capitalized interest		(201		)	(43		)
Net cash provided by (used in) investing activities		(3,210		)	(3,311		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in revolving credit advance		—			20,000
Payments on long-term debt		(1,000		)	(4,125		)
Deferred financing fees		(30		)	—
Proceeds from stock subscriptions receivable		15			75
Net cash provided by (used in) financing activities		(1,015		)	15,950
Increase (decrease) in cash and cash equivalents		(13,328		)	(60		)
Cash and cash equivalents, beginning of period		42,692			41,266
Cash and cash equivalents, end of period		$	29,364		$	41,206
See notes to unaudited consolidated financial statements

 

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ACCURIDE CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

AS OF MARCH 31, 2004 AND DECEMBER 31, 2003 AND FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003

 

Note 1 – Basis of Presentation – The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, except that the unaudited consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.  However, in the opinion of Accuride Corporation (“Accuride” or the “Company”), all adjustments (consisting of normal recurring accruals) considered necessary to present fairly the consolidated financial statements have been included.

 

The results of operations for the three months ended March 31, 2004 are not necessarily indicative of the results to be expected for the year ending December 31, 2004.  The unaudited consolidated financial statements and notes thereto should be read in conjunction with the audited financial statements and notes thereto disclosed in Accuride’s Annual Report on Form 10-K for the year ended December 31, 2003.

 

Management’s Estimates and Assumptions - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

 

Note 2 – Accounting Changes

 

FAS 106-1—In December 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.

 

FIN 46—In December 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.  The application of FIN 46R did not have an impact on the Company’s financial position or results of operations.

 

SFAS No. 132 (Revised 2003)—In December 2003, the FASB issued SFAS No. 132 (Revised 2003), Employers’ Disclosures about Pensions and Other Postretirement Benefits-an amendment of FASB Statements No. 87, 88, and 106. This Statement revises employers’ disclosures about pension plans and other postretirement benefit plans. It requires additional disclosures to those in the original Statement 132 about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. SFAS 132 (Revised  2003) was effective for financial statements with fiscal years ending after December 15, 2003. The Company adopted this statement as of

 

7

 

December 31, 2003 and revised its annual and interim disclosures for the periods ended December 31, 2003 and March 31, 2004, accordingly.

 

SFAS 148—On December 31, 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure.  This statement amends SFAS Statement No. 123, “Accounting for Stock-Based Compensation” and provides alternative methods of transition for a voluntary change to the fair value based methods of accounting for stock-based employee compensation.  In addition, this statement amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results.

 

The Company applies APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for the plans; accordingly, since the grant price of the stock options was at least 100% of the fair value at the date of the grant, no compensation expense has been recognized by the Company in connection with the option grants.  Had compensation cost for the plans been determined based on the fair value at the grant dates for awards under the plan consistent with the fair value method of SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, the effect on the Company’s net income (loss) would have been the following:

 

		For the Three Months Ended March 31
		2004			2003
Net income (loss) as reported		$	4,767		$	(578	)
Add:  Total stock-based employee compensation expense determined under the intrinsic value based method, net of related tax effects
Deduct:  Total stock-based employee compensation expense determined under the fair value based method, net of related tax effects		(22		)	(19		)
Pro forma net income (loss)		$	4,745		$	(597	)

 

Note 3 – Inventories – Inventories were as follows:

 

		March 31, 2004			December 31, 2003
Raw Materials		$	3,879		$	4,119
Work in Process		13,178			13,354
Finished Manufactured Goods		14,090			14,520
LIFO Adjustment		1,788			1,442
Inventories, net		$	32,935		$	33,435

 

Note 4 – Accounting for Derivatives and Hedging Activities – The Company uses derivative financial instruments as part of its overall risk management strategy as further described under Item 7A of the 2003 Annual Report on Form 10-K.  The derivative instruments used by the Company from time to time include interest rate, foreign exchange, and commodity price instruments.  All derivative instruments designated as hedges are recognized on the balance sheet at their estimated fair value.

 

Foreign Exchange Instruments - - The Company is currently using Canadian dollar collar option contracts to limit foreign exchange risk on anticipated but not yet committed transactions expected to be denominated in Canadian dollars.  These option contracts are designated as cash flow hedges and

 

8

 

management expects that these derivative instruments will be highly effective.  The Company is using the intrinsic value method to account for these transactions.  As such, the unrealized change in the intrinsic value of the options will be recorded in Other Comprehensive Income (See Note 6) and the realized gains or losses are reflected in current period earnings as “Cost of Goods Sold”.  Both the realized and unrealized gains and losses related to the time value of the options are recorded in Other Income & Expense.  To the extent that any of these contracts are not completely effective in offsetting the change in the value of the anticipated transactions being hedged, any changes in fair value relating to the ineffective portion of these contracts will be immediately recognized in “Cost of Goods Sold”.

 

Note 5 – Supplemental Cash Flow Disclosure – During the three months ended March 31, 2004 and 2003, Accuride paid $14,179 and $13,156 for interest.  During these same time periods, Accuride paid $170 and $670 for income taxes, respectively.

 

Note 6 – Comprehensive income is summarized as follows:

 

		For the Three Months Ended March 31
		2004			2003
Net income (loss)		$	4,767		$	(578	)
Other comprehensive income
Unrealized gain on foreign currency hedges (net of tax)		161			898
Minimum pension liability adjustment (net of tax)		97
Total comprehensive income		$	5,025		$	320

 

Included in other comprehensive income for the three months ended March 31, 2004 and March 31, 2003, respectively, is $161 and $898 (net of tax) of unrealized gains on derivatives that have been designated as cash flow hedges in accordance with SFAS 133, as further described in Note 3.  The $161 of unrealized gains remaining in other comprehensive income related to derivative instruments will be reclassified into earnings as realized during the next nine months.  Also included in other comprehensive income for the three months ended March 31, 2004 is $97 (net of tax) of minimum pension liability adjustments related to fluctuations of the Canadian dollar and translation of our Canadian pension plans.

 

Note 7 – Pension and Other Postretirement Benefit Plans

 

Components of Net Periodic Benefit Cost for the three months ended March 31:

 

		Pension Benefits						Other Benefits
		2004			2003			2004			2003
Service cost-benefits earned during the year		$	670		$	577		$	222		$	194
Interest cost on projected benefit obligation		1,048			963			362			354
Expected return on plan assets		(1,417		)	(1,247		)	0			0
Prior service cost and other amortization (net)		404			343			(11		)	(6		)
Net amount charged to income		$	705		$	636		$	573		$	542

 

Employer Contributions- As of March 31, 2004, $1,470 has been contributed to company sponsored pension plans.  The Company presently anticipates contributing an additional $3,633 to fund its pension plans in 2004 for a total of $5,103.

 

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Note 8 – Contingencies

 

The Company is from time to time involved in various legal proceedings of a character normally incident to its business. Management does not believe that the outcome of these proceedings will have a material adverse effect on the consolidated financial condition or results of operations of the Company.

 

The Company’s operations are subject to federal, state and local environmental laws, rules and regulations. Pursuant to the Recapitalization of the Company on January 21, 1998, the Company was indemnified by PDC with respect to certain environmental liabilities at its Henderson and London facilities, subject to certain limitations. Pursuant to the AKW acquisition agreement on April 1, 1999, in which Accuride purchased Kaiser Aluminum and Chemical Corporation’s (“Kaiser”) 50% interest in AKW, the Company has been indemnified by Kaiser with respect to certain environmental liabilities relating to the facilities leased by AKW (the “Erie Lease”). 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.

 

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion should be read in conjunction with the consolidated financial statements and notes included in Item 1 of Part 1 of this report on Form 10-Q.  Except for the historical information contained herein, this report on Form 10-Q contains forward-looking statements that involve risks and uncertainties.  Our actual results may differ materially from those indicated by such forward-looking statements.

 

Results of Operations

 

Three Months Ended March 31, 2004 Compared to the Three Months Ended March  31, 2003.

 

The following table sets forth certain income statement information of Accuride for the three months ended March 31, 2004 and March 31, 2003

 

		March 31, 2004					March 31, 2003
		(dollars in thousands)
Net sales		$	111,401		100.0	%	$	88,248		100.0	%
Gross profit		21,964			19.7	%	15,621			17.7	%
Operating expenses		6,371			5.7	%	5,889			6.7	%
Income from operations		15,593			14.0	%	9,732			11.0	%
Equity in earnings of affiliates		138			0.1	%	181			0.2	%
Other income (expense)		(9,049		)	(8.1	)%	(9,453		)	(10.7	)%
Net income (loss)		4,767			4.3	%	(578		)	(0.7	)%

 

Net Sales.  Net sales for the three months ended March 31, 2004 were $111.4 million, an increase of 26.3% compared to net sales of $88.2 million for the three months ended March 31, 2003.  The increase in net sales is primarily a result of the continuing cyclical recovery in the commercial vehicle industry and an increase in the sales volume of aluminum wheels related to improved market penetration.

 

Gross Profit.  Gross profit increased $6.4 million, or 41.0%, to $22.0 million for the three months ended March 31, 2004 from $15.6 million for the three months ended March 31, 2003.  The increase is primarily attributable to the increase in net sales, an impact of $7.8 million, which was partially offset by a strengthening Canadian dollar and higher raw material prices.  Gross profit for the first quarter of 2004 as a percent of sales was 19.7%, compared to 17.7% in 2003.  Gross profit margin for 2004 was positively impacted by higher sales and production volumes, resulting in increased absorption of fixed costs.

 

Operating Expenses.  Operating expenses increased $0.5 million, or 8.5% to $6.4 million for the three months ended March 31, 2004 from $5.9 million for the three months ended March 31, 2003.  The increase is primarily due to the higher cost of salaries and benefits.  As a percent of sales, operating expenses for the first quarter of 2004 have decreased to 5.7% compared to 6.7% for the first quarter of 2003.

 

Other Income (Expense).  Other expense decreased $0.5 million to $9.0 million for the three-month period ended March 31, 2004 from $9.5 million for the three months ended March 31, 2003.  The decrease is primarily attributable to fluctuations in foreign exchange rates.

 

Net Income (Loss).  We had net income of $4.8 million for the three months ended March 31, 2004 compared to net loss of $0.6 million for the three months ended March 31, 2003 primarily due to higher pre-tax earnings as discussed above.

 

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Changes in Financial Condition

 

At March 31, 2004, our total assets amounted to $529.4 million, as compared to $528.3 million at December 31, 2003.  The $1.1 million, or 0.2%, increase in total assets during the three months ended March 31, 2004 was primarily the result of an increase in net customer receivables of $18.8 million offset by a decrease in cash and cash equivalents of $13.3 million and a $1.8 million decrease in deferred income taxes.  Net customer receivables increased due to higher sales in the month of March 2004 compared to December 2003 and the timing of collections.  The decrease in cash is primarily related to changes in working capital precipitated by stronger sales and seasonal working capital needs.  The deferred income tax asset decreased because we have begun utilizing prior years net operating losses.

 

At March 31, 2004, our total liabilities amounted to $590.2 million, as compared to $594.1 million at December 31, 2003.  Total liabilities decreased $3.9 million, or 0.7%, primarily as a result of a $5.2 million decrease in accrued interest payable, a $2.4 million decrease in accrued payroll and compensation, and a $1.0 million decrease in long-term debt which was partially offset by a $1.8 million increase in payables and a $2.7 million increase in accrued and other liabilities.  The decrease in accrued interest payable is a result of the timing of interest payments.  Accrued payroll and compensation decreased as 2003 management bonuses and employee profit sharing were paid in the first quarter of 2004.  Long-term debt decreased due to a $1.0 million payment on the Term C loan during the fiscal quarter ended March 31, 2004.  The increase in accounts payable and accrued and other liabilities is primarily the result of stronger quarter-ending activity and higher material costs. The increase in accounts payable was partially offset by lower capital spending and the timing of payments.

 

Capital Resources and Liquidity

 

Our primary sources of liquidity during the first quarter of 2004 were cash reserves.  In addition, the Company has a $66 million revolving credit facility (the “New Revolver”), of which $41 million is currently available.  Primary uses of cash were seasonal working capital needs, capital expenditures and debt service.

 

As of March 31, 2004, we had cash and cash equivalents of $29.4 million compared to $42.7 million at December 31, 2003.  Our operating activities for the three months ended March 31, 2004 used $9.1 million of cash compared to a use of $12.7 million of cash during the three months ended March 31, 2003.  Investing activities for the three months ended March 31, 2004 used $3.2 million compared to $3.3 million for the three months ended March 31, 2003.  Net financing activities used $1.0 million during the three months ended March 31, 2004 and provided $15.9 million during the three months ended March 31, 2003.

 

Our capital expenditures in 2003 were $20.7 million.  We expect our capital expenditures to be approximately $23 million in 2004 of which approximately $3 million has been spent to date.  These expenditures will be funded by cash generated from operations and existing cash reserves.  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 (iv) continuous improvement initiatives of approximately $2 million.

 

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Contractual Obligations and Commercial Commitments

 

The following table summarizes our contractual obligations as of March 31, 2004 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			47.0			47.0									95.0
Senior Subordinated Notes														189.9						189.9
Interest on Long-Term Debt (a)		24.0			39.8			39.8			26.7			8.8						139.1
Operating Leases:		1.6			1.9			1.7			1.3			0.9			0.7			8.1
Unconditional Purchase Obligations: (b)		1.3																		1.3
Other Long-Term Liabilities: (c)		4.2			7.1			6.6			6.0			5.4						29.3
Total Obligations		32.0			50.7			121.0			258.3			205.0			0.7			667.7

 

(a)          All of the Company’s long-term debt is at Libor based variable rates as of March 31, 2004 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 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”).  The Refinancing, as amended on December 10, 2003, provides for (i) a new term credit facility in an aggregate principal amount of $180 million that matures on June 13, 2007 (“New Term B”), and a revolving credit 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”).  The “Term C” facility under the second amended and restated credit agreement remains outstanding under the Refinancing.  As of March 31, 2004, $25 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 facility requires a $1.0 million repayment on January 21, 2005, and $47.0 million repayment on January 21, 2006 and January 21, 2007.  Interest on the term loans and the New Revolver is based on LIBOR plus an applicable margin.  The loans are secured by, among other things, a first priority lien on our properties and assets securing the New Revolver and Term C, a second priority lien on substantially all of our US and Canadian properties and assets to secure the New Term B, and a pledge of 65% of the stock of our Mexican subsidiary.  A negative pledge restricts the imposition of other liens or encumbrances on any of the assets, subject to certain exceptions.

 

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, the ability 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

 

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evidencing indebtedness that may contain cross-acceleration or cross-default provisions. As of March 31, 2004, and currently, we are in compliance with our financial covenants and ratios.

 

Senior Subordinated Notes.  In January 1998 we issued $200 million of senior subordinated notes (the “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, to holders of record of the Notes on the immediately preceding January 15 and July 15.  As of March 31, 2004 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 any letters of credit.

 

We believe that cash liquidity and availability under the New Revolver will provide adequate funds for our working capital needs, planned capital expenditures and debt service obligations for the next twelve months.  Our ability to fund working capital needs, planned capital expenditures, scheduled debt payments, and to comply with all of the financial covenants under our credit agreement, depends on our future operating performance and cash flow, which in turn, are subject to prevailing economic conditions and to financial, business and other factors, some of which are beyond our control.

 

Accounting Changes.  See Note 2 to the Consolidated Financial Statements for a discussion of accounting changes.

 

Critical Accounting Policies and Estimates.  We have included a summary of our Critical Accounting Estimates in our annual report on Form 10-K for the year ended December 31, 2003, filed on March 17, 2004.  There have been no material changes to the summary provided in that report.

 

Factors Affecting 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 the officers of the Company.  Forward-looking statements are identified by the words “estimate,” “project,” “anticipate,” “will continue,” “will likely result,” “expect,” “intend,” “believe,” “plan,” “predict” and similar expressions.  Forward looking statements also include statements regarding our estimation of the market demand for Heavy/Medium Trucks and Trailers, Accuride’s foreseeable working capital needs for the next twelve months, and Accuride’s disclosures concerning market risk.  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 this report, some of the important

 

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factors that could cause actual results to differ materially from those discussed in the forward-looking statements include the following:

 

•                  our significant indebtedness may have important consequences, including, but not limited to, impairment of our ability to obtain additional financing, reduction of funds available for operations and business opportunities or limitations on our ability to dispose of assets;

•                  our credit documents contain significant financial and operating covenants that limit the discretion of management with respect to certain business matters.  We must also meet certain financial ratios and tests as described above.  Failure to comply with the obligations contained in the debt agreements could result in an event of default, and possibly the acceleration of the related debt and the acceleration of debt under other instruments evidencing debt that may contain cross-acceleration or cross-default provisions;

•                  we use a substantial amount of raw steel and aluminum and are vulnerable to significant price increases;

•                  the recovery of the Heavy/Medium truck industry may not be as robust as anticipated and the pace of the general economic recovery may lag expectations;

•                  significant volatility in the foreign currency markets could have an adverse effect on us;

•                  our ability to service our indebtedness is dependent upon operating cash flow;

•                  the loss of a major customer could have a material adverse effect on our business;

•                  the demands of original equipment manufacturers for price reductions may adversely affect profitability;

•                  an interruption in supply of steel or aluminum could reduce our ability to obtain favorable sourcing of such raw materials;

•                  we may encounter increased competition in the future from existing competitors or new competitors;

•                  we may be subject to liability under certain environmental laws and the cost of compliance with these regulations could have a material adverse effect on our financial condition and may adversely affect our ability to sell or rent such property or to borrow using such property as collateral;

•                  a labor strike may disrupt our supply to our customer base;

•                  the interests of our principal stockholder may conflict with the interests of the holders of our securities; and

•                  our success depends largely upon the abilities and experience of certain key management personnel.  The loss of the services of one or more of these key personnel could have a negative impact on our business.

 

For further information, refer to the business description and additional risk factors sections included in our Form 10-K for the year ended December 31, 2003, as filed with the SEC.

 

Item 3. Quantitative and Qualitative Disclosures 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. Forward foreign exchange contracts, designated as hedging instruments under SFAS 133, are used to offset the impact of the variability in exchange rates on our operations, cash flows, assets and liabilities. At March 31, 2004, we had open foreign exchange collar option contracts of $54.8 million.  Foreign exchange option contract maturities

 

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are from one to twelve months. Management believes the use of foreign currency financial instruments reduces the risks that arise from doing business in international markets.

 

However, 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 counterparties to the foreign exchange contracts are financial institutions with investment grade credit ratings.  The use of option contracts protects our cash flows against unfavorable movements in exchange rates, to the extent of the amount under contract.

 

A 10% adverse change in currency exchange rates for the foreign currency collar options held at March 31, 2004, would have an impact of approximately $2.2 million on the fair value of such instruments.  This quantification of exposure to the market risk associated with foreign exchange financial instruments does not take into account the offsetting impact of changes in the fair value of our foreign denominated assets, liabilities and firm commitments.

 

Raw Material/Commodity Price Risk

We rely upon the supply of certain raw materials and commodities in our production processes and have entered into long-term supply contracts for our steel and aluminum requirements.  The exposures associated with these commitments are primarily managed through the terms of the sales, supply, and procurement contracts.  From time to time, we use commodity price swaps and futures contracts to manage the variability in certain commodity prices. Commodity price swap and futures contracts are used to offset the impact of the variability in certain commodity prices on our operations and cash flows.  At March 31, 2004, 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 March 31, 2004:

 

(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		$	900		$	1,900		$	72,900		$	224,300							$	300,000		$	306,375
Avg. Rate		6.69		%	5.47		%	4.77		%	6.20		%						5.89		%

 

We are exposed to the variability of interest rates on our variable rate debt.  However, of the total variable rate debt of $300.0 million outstanding as of March 31, 2004, an amount of $180.0 million representing the New Term B loan and an amount of $25.0 million representing the amount outstanding under the New Revolver are fixed at interest rates of 6.7% and 5.4%, respectively, through December 2004.  The weighted average interest rates for the New Term B loan and New Revolver are based on twelve month LIBOR in effect as of March 31, 2004.

 

 Item 4. Controls and Procedures

 

Disclosure 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

 

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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.

 

Changes in Controls and Procedures

During the quarter ended March 31, 2004, there was no change in our internal controls over financial reporting that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

 

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PART II.

OTHER INFORMATION

 

Item 1.  Legal Proceedings

 

Neither Accuride nor any of its subsidiaries is a party to any material legal proceeding.  However, Accuride from time-to-time is involved in ordinary routine litigation incidental to its business.

 

Item 2.  Changes in Securities, Use of Proceeds and Issuer Purchase of Equity Securities

 

During the fiscal quarter ended March 31, 2004, Accuride issued no common stock.  On March 8, 2004, Accuride issued options to purchase an aggregate of 272 shares of Accuride’s Common Stock to certain members of management.  These options vest pro rata over a four-year period and must be exercised within a ten-year period.  The exercise price of such options is $1,750 per share.  None of these securities were registered under the Securities Act of 1933, as amended.

 

Such issuances of options to purchase Common Stock were made pursuant to the 1998 Stock Purchase and Option Plan for Employees of Accuride Corporation and Subsidiaries.  Exemption from registration under the Securities Act was based upon the grounds that the issuance of such securities did not involve a public offering within the meaning of Section 4(2) of the Securities Act.

 

Item 6.  Exhibits and Reports on Form 8-K

 

(a)
		Exhibit No.		Description
		31.1		Certification Pursuant to Section 302 of the Sarbanes Oxley Act of 2002 and Rule 13a-14 of the Exchange Act of Terrence J. Keating.
		31.2		Certification Pursuant to Section 302 of the Sarbanes Oxley Act of 2002 and Rule 13a-14 of the Exchange Act of John R. Murphy.
		32.1		Certification Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.

 

(b)                                 Reports on Form 8-K:

 

Form 8-K containing our fourth quarter results for 2003 was furnished to the SEC on February 12, 2004.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

ACCURIDE CORPORATION

 

/s/ Terrence J. Keating			Dated:	May 12, 2004
Terrence J. Keating
President and Chief Executive Officer

 

 

/s/ John R. Murphy			Dated:	May 12, 2004
John R. Murphy
Executive Vice President – Finance and Chief Financial Officer
Principal Accounting Officer

 

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