Accuride Corp. recorded net income of $12.4 million on net sales of $341.6 million for the third quarter ended Sept. 30, 2006. That compares to earnings of $19.1 million on sales of $316.1 million for the same period in 2005.
The company attributed the 8.1% increase in sales primarily to the "continued robust demand in the commercial vehicle industry and the partial pass-through of rising raw material costs."
For the first nine months of the year, Accuride posted net income of $50.8 million on net sales of a little more than $1 billion. Compared to the previous year, net income was up 40%, while net sales were up 13.8%.
During the third quarter of 2006, Accuride had a continuing dispute with Ford Motor Co. originating from Ford's decision to re-source certain Accuride products over the next 12 to 18 months. In light of Ford's decision to re-source the products, Accuride elected not to renew its contract with Ford.
Alternatively, the company offered to enter into new agreements with Ford to continue to provide product at an increased price and subject to mutually agreed terms and conditions. Ford declined to enter into new agreements and instead filed a breach of contract lawsuit seeking to challenge Accuride's election not to renew the prior contracts. Accuride has contested the allegations.
Until the matter is resolved, Accuride will continue to supply the products to Ford at the increased prices pursuant to certain interim terms.
"The decision to not renew our contract with Ford is consistent with our strategy to phase-out marginally profitable businesses," says CEO Terry Keating. "The Ford business represented approximately 7% of our revenue in 2005. We are currently working to replace this revenue with higher margin business that provides a better return to our shareholders."
Due to the uncertainty involved in the litigation, Accuride is recording the incremental price increase as a "gain contingency" for accounting purposes and will not include such amount in income until the contingency is resolved. As of Sept. 30, 2006, the incremental cash received of $10.6 million and accounts receivable of $4.4 million are reflected in assets, and the incremental price amounts totaling $15 million are reflected in current liabilities.
