Table of ContentsUNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-Q
(Mark(Mark One)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended October 31,
19992000OR
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from
toCommission file number: 1-11592
HAYES LEMMERZ INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWAREDELAWARE13-338463613-3384636(State or Other Jurisdiction of (IRS Employer Incorporation or Organization)Identification No.) 15300 CENTENNIAL DRIVE
NORTHVILLE, MICHIGAN 48167(Address of Principal Executive Offices)(Zip Code)
RegistrantsRegistrant’s telephone number, including area code: (734) 737-5000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes[X]No[ ]
The number of shares of common stock outstanding as of December 15,1999,2000, was30,339,34528,455,495 shares.TABLE OF CONTENTS
HAYES LEMMERZ INTERNATIONAL, INC.QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Operations 3 PART I. FINANCIAL INFORMATION:Item 1.Financial StatementsConsolidated Statements of Operations3Consolidated Balance Sheets 4 Consolidated Statements of Cash Flows 5 Notes to Consolidated Financial Statements 6 Item 2. ManagementsManagement’s Discussion and Analysis of Financial Condition and Results of Operations1614Item 3. Quantitative and Qualitative Disclosures about Market Risk 17 PART II. OTHER INFORMATION 19PART II. OTHER INFORMATION:Item 1. Legal Proceedings 2018Item 2. Changes in Securities and Use of Proceeds 2018Item 3. Defaults upon Senior Securities 2018Item 4. Submission of Matters to a Vote of Security-HoldersSecurity Holders2018Item 5. Other Information 2018Item 6. Exhibits and Reports on Form 8-K 2018SignaturesSIGNATURES2119
UNLESS OTHERWISE INDICATED, REFERENCES TO THECOMPANY“COMPANY” MEAN HAYES LEMMERZ INTERNATIONAL, INC., AND ITS SUBSIDIARIES AND REFERENCE TO A FISCAL YEAR MEANS THECOMPANYSCOMPANY’S YEAR ENDED JANUARY 31 OF THE FOLLOWING YEAR (E.G., FISCAL19992000 MEANS THE PERIOD BEGINNING FEBRUARY 1,1999,2000, AND ENDING JANUARY 31,2000)2001). THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS, AND BUSINESS OF THE COMPANY. THESE FORWARD LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES. NO ASSURANCE CAN BE GIVEN THAT ANY OF SUCH MATTERS WILL BE REALIZED. FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS INCLUDE, AMONG OTHERS, THE FOLLOWING POSSIBILITIES: (1) COMPETITIVE PRESSURE IN THECOMPANYSCOMPANY’S INDUSTRY INCREASES SIGNIFICANTLY; (2) GENERAL ECONOMIC CONDITIONS ARE LESS FAVORABLE THAN EXPECTED; (3) THECOMPANYSCOMPANY’S DEPENDENCE ON THE AUTOMOTIVE INDUSTRY (WHICH HAS HISTORICALLY BEEN CYCLICAL); (4) CHANGES IN THE FINANCIAL MARKETS AFFECTING THECOMPANYSCOMPANY’S FINANCIAL STRUCTURE AND THECOMPANYSCOMPANY’S COST OF CAPITAL AND BORROWED MONEY; AND (5) THE UNCERTAINTIES INHERENT IN INTERNATIONAL OPERATIONS AND FOREIGN CURRENCY FLUCTUATIONS. THE COMPANY HAS NO DUTY UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 TO UPDATE THE FORWARD LOOKING STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-Q AND THE COMPANY DOES NOT INTEND TO PROVIDE SUCH UPDATES.2
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Item 1. Financial StatementsHAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements Of Operations(Millions of dollars, except share amounts)(Unaudited)
Three Months EndedNine Months EndedOctober 31,October 31,1999199819991998Net sales$598.5$443.9$1,730.8$1,240.8Cost of goods sold493.1361.21,425.21,024.1Gross profit105.482.7305.6216.7Marketing, general and administration21.816.770.748.7Engineering and product development4.45.715.615.7Amortization of intangibles8.24.622.012.7Other income(1.5)(1.8)(5.3)(3.9)Equity in losses (earnings) of unconsolidated subsidiaries(0.8)0.4(2.1)(0.6)Earnings from operations73.357.1204.7144.1Interest expense, net37.522.4115.569.4Earnings before taxes on income, minority interest and extraordinary loss35.834.789.274.7Income tax provision15.514.638.431.4Earnings before minority interest and extraordinary loss20.320.150.843.3Minority interest0.40.41.31.4Earnings before extraordinary loss19.919.749.541.9Extraordinary loss, net of tax of $6.0 million(8.3)Net income$19.9$19.7$49.5$33.6Per share information:Earnings before extraordinary loss$0.66$0.65$1.63$1.39Extraordinary loss, net of tax(0.28)Basic net income per share$0.66$0.65$1.63$1.11Basic average shares outstanding (in thousands)30,33730,18030,33330,134Earnings before extraordinary loss$0.63$0.62$1.55$1.29Extraordinary loss, net of tax(0.26)Diluted net income per share$0.63$0.62$1.55$1.03Diluted average shares outstanding (in thousands)31,67832,00431,88032,482
Three Months Ended Nine Months Ended October 31, October 31, 2000 1999 2000 1999 Net sales $ 558.3 $ 598.5 $ 1,695.9 $ 1,730.8 Cost of goods sold 485.1 493.1 1,436.4 1,425.2 Gross profit 73.2 105.4 259.5 305.6 Marketing, general and administration 28.3 21.8 76.8 70.7 Engineering and product development 3.6 4.4 13.0 15.6 Amortization of intangibles 7.0 8.2 21.3 22.0 Other (income) expense 73.6 (2.0 ) 68.7 (6.8 ) Equity in earnings of unconsolidated subsidiaries (0.2 ) (0.3 ) (0.7 ) (0.6 ) Earnings (loss) from operations (39.1 ) 73.3 80.4 204.7 Interest expense, net 41.6 37.5 120.4 115.5 Earnings (loss) before taxes on income and minority interest (80.7 ) 35.8 (40.0 ) 89.2 Income tax (benefit) provision (33.9 ) 15.5 (16.8 ) 38.4 Earnings (loss) before minority interest (46.8 ) 20.3 (23.2 ) 50.8 Minority interest 0.7 0.4 2.1 1.3 Net income (loss) $ (47.5 ) $ 19.9 $ (25.3 ) $ 49.5 Per share information: Basic net income (loss) per share $ (1.63 ) $ 0.66 $ (0.85 ) $ 1.63 Basic average shares outstanding (in thousands) 29,189 30,337 29,965 30,333 Diluted net income (loss) per share $ (1.62 ) $ 0.63 $ (0.84 ) $ 1.55 Diluted average shares outstanding (in thousands) 29,237 31,678 30,089 31,880 See accompanying notes to consolidated financial statements.
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HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets(Millions of Dollars)
October 31,January 31,19991999(Unaudited)AssetsCurrent assets:Cash and cash equivalents$50.6$51.3Receivables (less allowance of $6.3 million at October 31, 1999 and $4.0 million at January 31, 1999)246.7181.6Inventory184.7166.6Prepaid expenses and other17.922.8Total current assets499.9422.3Net property, plant and equipment1,155.2878.0Goodwill and other assets1,176.9810.6Total assets$2,832.0$2,110.9Liabilities and Stockholders EquityCurrent liabilities:Bank borrowings$89.2$44.8Current portion of long-term debt18.512.3Accounts payable and accrued liabilities502.3456.7Total current liabilities610.0513.8Long-term debt1,571.3976.1Pension and other long-term liabilities339.0329.1Deferred income taxes76.658.4Minority interest13.012.6Total liabilities2,609.91,890.0Commitments and Contingencies:Stockholders equity:Preferred stock, 25,000,000 shares authorized, none issued or outstandingCommon stock, par value $0.01 per share:Voting authorized 99,000,000 shares; issued and outstanding 27,690,069 at October 31, 1999 and 27,675,209 at January 31, 19990.30.3Nonvoting authorized 5,000,000 shares; issued and outstanding, 2,649,026 at October 31 1999 and January 31, 1999Additional paid in capital237.1236.8Retained earnings (accumulated deficit)42.4(7.1)Accumulated other comprehensive income(57.7)(9.1)Total stockholders equity222.1220.9Total liabilities and stockholders equity$2,832.0$2,110.9
See accompanying notes to consolidated financial statements.
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HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows(Millions of Dollars)(Unaudited)
Nine Months EndedOctober 31,19991998Cash flows from operating activities:Net income$49.5$33.6Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and tooling amortization79.849.6Amortization of intangibles22.013.6Amortization of deferred financing fees4.93.6Increase (decrease) in deferred taxes(2.0)12.9Increase in minority interest1.33.6Equity in earnings of subsidiaries(2.1)(0.6)Extraordinary loss14.4Gain on disposal of assets/business(8.0)Changes in operating assets and liabilities that increase (decrease) cash flows:Receivables(112.8)(40.6)Inventories(0.6)(2.7)Prepaid expenses and other3.2(1.8)Accounts payable and accrued liabilities6.17.5Other long-term liabilities(6.2)(27.0)Cash provided by operating activities35.166.1Cash flows from investing activities:Acquisition of property, plant and equipment(136.1)(88.9)Tooling expenditures(9.2)(6.6)Purchase of businesses, net of cash received(630.1)(79.3)Proceeds from disposal of assets/business40.0Other, net(12.1)(26.7)Cash used for investing activities(747.5)(201.5)Cash flows from financing activities:Net change in bank borrowings and revolver630.310.7Proceeds from accounts receivable securitization99.4120.8Stock options exercised0.21.7Fees paid to issue long term debt(15.2)(1.4)Cash provided by financing activities714.7131.8Effect of exchange rate changes on cash and cash equivalents(3.0)(1.7)Decrease in cash and cash equivalents(0.7)(5.3)Cash and cash equivalents at beginning of year51.323.1Cash and cash equivalents at end of period$50.6$17.8Supplemental data:Cash paid for interest$17.2$56.2Cash paid for income taxes$12.5$6.9
See accompanying notes to consolidated financial statements.
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Table of ContentsHAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets(Millions of Dollars)
October 31, January 31, 2000 2000 (Unaudited) AssetsCurrent assets: Cash and cash equivalents $ 23.6 $ 25.9 Receivables (less allowance of $8.0 million at October 31, 2000 and $6.3 million at January 31, 2000) 240.5 188.7 Inventory 201.2 175.6 Prepaid expenses and other 16.9 9.4 Total current assets 482.2 399.6 Property, plant and equipment, net 1,108.6 1,178.4 Goodwill and other assets 1,183.1 1,198.8 Total assets $ 2,773.9 $ 2,776.8 Liabilities and Stockholders’ EquityCurrent liabilities: Bank borrowings $ 85.4 $ 73.6 Current portion of long-term debt 72.5 69.6 Accounts payable and accrued liabilities 446.6 583.9 Total current liabilities 604.5 727.1 Long-term debt 1,600.9 1,384.6 Pension and other long-term liabilities 290.3 316.3 Deferred income taxes 94.4 115.6 Minority interest 10.1 14.3 Total liabilities 2,600.2 2,557.9 Commitments and Contingencies Stockholders’ equity: Preferred stock, 25,000,000 shares authorized, none issued or outstanding — — Common stock, par value $0.01 per share: Voting — authorized 99,000,000 shares; issued and outstanding, 25,806,469 at October 31, 2000 and 27,705,019 at January 31, 2000 0.3 0.3 Nonvoting — authorized 5,000,000 shares; issued and outstanding, 2,649,026 at October 31, 2000 and January 31, 2000 — — Additional paid in capital 237.1 237.1 Retained earnings 32.7 58.0 Common Stock in treasury at cost, 1,901,450 shares (26.3 ) — Accumulated other comprehensive loss (70.1 ) (76.5 ) Total stockholders’ equity 173.7 218.9 Total liabilities and stockholders’ equity $ 2,773.9 $ 2,776.8
See accompanying notes to consolidated financial statements. 4
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows(Millions of Dollars)(Unaudited)
Nine Months Ended October 31, 2000 1999 Cash flows from operating activities: Net income (loss) $ (25.3 ) $ 49.5 Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: Depreciation and tooling amortization 90.8 79.8 Amortization of intangibles 21.3 22.0 Amortization of deferred financing fees 4.8 4.9 Decrease in deferred taxes (14.4 ) (2.0 ) Increase in minority interest 3.9 1.3 Impairment of long-lived assets and restructuring charges 75.6 — Equity in earnings of subsidiaries (0.7 ) (0.6 ) Gain on disposal of assets/business — (8.0 ) Changes in operating assets and liabilities that increase (decrease) cash flows: Receivables (49.9 ) (112.8 ) Inventories (31.1 ) (0.6 ) Prepaid expenses and other (7.9 ) 3.2 Accounts payable and accrued liabilities (116.1 ) 6.1 Other long-term liabilities (9.5 ) (6.2 ) Cash provided by (used for) operating activities (58.5 ) 36.6 Cash flows from investing activities: Acquisition of property, plant and equipment (123.8 ) (136.1 ) Tooling expenditures (1.9 ) (9.2 ) Purchase of businesses, net of cash received (6.4 ) (630.1 ) Increased investment in majority-owned subsidiary (7.3 ) — Proceeds from disposal of assets/business — 40.0 Other, net (15.6 ) (13.6 ) Cash used for investing activities (155.0 ) (749.0 ) Cash flows from financing activities: Increase in bank borrowings and revolver 250.7 630.3 Proceeds (payments) from accounts receivable securitization (17.2 ) 99.4 Purchase of treasury stock (26.3 ) — Stock options exercised — 0.2 Fees paid to issue long term debt — (15.2 ) Cash provided by financing activities 207.2 714.7 Effect of exchange rate changes on cash and cash equivalents 4.0 (3.0 ) Decrease in cash and cash equivalents (2.3 ) (0.7 ) Cash and cash equivalents at beginning of year 25.9 51.3 Cash and cash equivalents at end of period $ 23.6 $ 50.6 Supplemental data: Cash paid for interest $ 110.5 $ 83.9 Cash paid for income taxes $ 10.9 $ 12.5 See accompanying notes to consolidated financial statements.
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HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Three and Nine Months Ended October 31,19992000 and19981999(Unaudited)(Millions of Dollars Unless Otherwise Stated)(1)
Basis of Presentation
The accompanying consolidated financial statements have been prepared by management and in the opinion of management, contain all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial position of the Company as of October 31,1999,2000, and January 31,1999,2000, and the results of its operations for the three and nine months ended October 31,1999,2000, and19981999 and cash flows for the nine months ended October 31,1999,2000, and1998.1999. The consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in theCompanysCompany’s Annual Report on Form 10-K for the fiscal year ended January 31,1999.2000. Results for interim periods are not necessarily indicative of those to be expected for the year.(2)
Acquisitions/Divestitures
On February 3, 1999, the Company completed the acquisition of CMI International, Inc. (CMI). The purchase price for CMI was $605 million in cash, of which approximately $129 million was used to repay CMIs outstanding indebtedness existing at the time of the acquisition, and of which approximately $476 million was paid to the shareholders of CMI. The cash portion of the consideration, the refinancing of the existing debt of CMI and the fees and expenses of the acquisition of CMI were financed with the proceeds of the Companys senior secured credit facilities and the issuance by the Company of $250 million in aggregate principal amount of 8 1/4% senior subordinated notes due 2008 (the 8 1/4% Notes).
On April 21, 1999, the Company completed the acquisition of Metaalindustrie Bergen B.V. (MIB). MIB is a full service machining supplier, specializing in the machining of large aluminum castings for a variety of automotive and industrial applications located in Bergen, the Netherlands.
On July 1, 1999, the Company acquired an additional 45% of the equity of its joint venture Siam Lemmerz Co., Limited in Thailand. This transaction increased the Companys ownership from 25% to 70%.
On July 30, 1999, the Company completed the sale of its equity interests in A-CMI and A-CMI Scandinavia Casting Center ANS, two joint ventures formerly owned by CMI. The equity interests were purchased by ALCOA Inc., CMIs partner in these joint ventures, for net proceeds of $37 million.
The following unaudited pro forma financial data illustrates the estimated effects as if the above-mentioned acquisitions had been completed as of the beginning of the periods presented, after including the impact of certain adjustments, such as amortization, depreciation, interest expense and the related income tax effects:
Three MonthsNine MonthsEndedEnded1999199819991998Sales$598.5$573.9$1,730.8$1,703.9Net income$19.9$19.7$49.5$29.3Basic net income per share$0.66$0.65$1.63$0.97Diluted net income per share$0.63$0.62$1.55$0.92
The pro forma results are not necessarily indicative of the actual results as if the transactions had been in effect for the entire periods presented. In addition, they are not intended to be a projection of future results and do not reflect, among other things, any synergies that might have been achieved from combined operations.
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Table of ContentsHAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)Three and Nine Months Ended October 31, 1999 and 1998(Unaudited)(Millions of Dollars Unless Otherwise Stated)
(3)Summary of New Accounting Pronouncements
In 1998, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 98-5, Reporting the Costs of Start-Up Activities. SOP 98-5 is effective January 1, 1999 and requires that start-up costs capitalized prior to January 1, 1999 be written off and any future start-up costs be expensed as incurred. The Company adopted this standard on February 1, 1999 and adoption did not have a material impact on the Companys results of operations.
In June 1998, June 1999 and June1999,2000, the Financial Accounting Standards Board(FASB(“FASB”) issued Statement of Financial Accounting Standards(SFAS(“SFAS”) No. 133,Accounting“Accounting for Derivative Instruments and HedgingActivities andActivities”, SFAS 137,Accounting“Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No.133.133” and SFAS 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities an amendment of FASB Statement No. 133”. These Statements establish accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. These Statements require that changes in thederivativesderivative’s fair value be recognized currently in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows aderivativesderivative’s gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. This accounting is effective for fiscal years beginning after June 15, 2000. The Companyanticipates adoptingwill adopt this standard in its fiscal year 2001 and does not, at this time, anticipate a material impact on theCompanysCompany’s financial position or results of operations when adopted.
In September 1999, the Emerging Issues Task Force reached a consensus for Issue 99-5, Accounting for Pre-Production Costs Related to Long-Term Supply Arrangements. This consensus may be applied on a prospective basis for costs incurred after December 31, 1999, or as a cumulative effect adjustment as of the beginning of the current fiscal year. The Company is currently reviewing the potential impact of this statement, but does not anticipate adoption will have a material impact on the financial statements.(3) Inventories
(4) Inventories
The major classes of inventory are as follows:
October 31,January 31,19991999Raw Materials$66.6$65.2Work-in-process59.348.8Finished goods58.852.6Total$184.7$166.6
October 31, January 31, 2000 2000 Raw Materials $ 68.4 $ 62.3 Work-in-process 60.4 55.9 Finished goods 72.4 57.4 Total $ 201.2 $ 175.6
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Table of ContentsHAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements
— (Continued)Three and Nine Months Ended October 31,19992000 and19981999(Unaudited)(Millions of Dollars Unless Otherwise Stated)
(5)(4) Property, plant and equipment
The major classes of property, plant and equipment are as follows:
October 31,January 31,19991999Land$29.0$24.9Buildings262.8201.1Machinery and equipment1,108.4832.81,400.21,058.8Accumulated depreciation(245.0)(180.8)Net property, plant and equipment$1,155.2$878.0
October 31, January 31, 2000 2000 Land $ 29.8 $ 30.1 Buildings 260.3 265.5 Machinery and equipment 1,117.6 1,151.6 1,407.7 1,447.2 Accumulated depreciation (299.1 ) (268.8 ) Net property, plant and equipment $ 1,108.6 $ 1,178.4
(6)(5) Earnings per share
SFAS No. 128,Earnings“Earnings perShare (EPSShare” (“EPS”), requires two calculations of earnings per share to be disclosed, basic EPS and diluted EPS. Basic EPS is computed using only the weighted average shares outstanding, while diluted EPS is computed considering the dilutive effect of options and warrants.
Shares outstanding for the three and nine months ended October 31,19992000 and1998,1999, were as follows:
Three MonthsNine MonthsEndedEnded1999199819991998Basic weighted average shares outstanding30,33730,18030,33330,134Dilutive effect of options and warrants1,3411,8241,5472,348Diluted weighted average shares outstanding31,67832,00431,88032,482
Three Months Nine Months Ended Ended 2000 1999 2000 1999 Basic weighted average shares outstanding 29,189 30,337 29,965 30,333 Dilutive effect of options and warrants 48 1,341 124 1,547 Diluted weighted average shares outstanding 29,237 31,678 30,089 31,880
(7)(6) Comprehensive Income (Loss)
SFAS No. 130,Reporting“Reporting Comprehensive Income,” establishes standards for the reporting and display of comprehensive income. Comprehensive income is defined as all changes in aCompanysCompany’s net assets except changes resulting from transactions with shareholders. It differs from net income in that certain items currently recorded to equity would be a part of comprehensive income.
The components of comprehensive income (loss) for the nine months ended October 31,19992000 and19981999 are as follows:
Oct. 31,Oct. 31,19991998Net Income$49.5$33.6Cumulative translation adjustments(48.6)4.6Total comprehensive income$0.9$38.2
Oct. 31, Oct. 31, 2000 1999 Net Income (loss) $ (25.3 ) $ 49.5 Cumulative translation adjustments 6.4 (48.6 ) Total comprehensive income (loss) $ (18.9 ) $ 0.9
(8)(7) Commitments and Contingencies
Management believes that at October 31, 1999, the Company was in compliance with the various covenants under the agreements pursuant to which it has or may borrow money. Management expects that the
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Notes to Consolidated Financial Statements (Continued)Three and Nine Months Ended October 31, 1999 and 1998(Unaudited)(Millions of Dollars Unless Otherwise Stated)(8) Commitments and Contingencies (Continued)
Company will remain in compliance with these covenants in all material respects through the period ending October 31, 2000.
The Company is party to various litigation. Management believes that the outcome of these lawsuits will not have a material adverse effect on the consolidated operations or financial condition of the Company.7
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
(9)Notes to Consolidated Financial Statements — (Continued)Three and Nine Months Ended October 31, 2000 and 1999(Unaudited)(Millions of Dollars Unless Otherwise Stated)(8) Segment Reporting
The Company is organized based primarily on markets served and products produced. Under this organization structure, theCompanysCompany’s operating segments have been aggregated into three reportable segments: Automotive Wheels, Cast Components and Other. The Other category includes Commercial Highway products, the corporate office and elimination of intercompany activities, none of which meet the requirements of being classified as an operating segment.
The following table represents revenues and other financial information by business segment for the nine months ended October 31:
RevenueNet IncomeTotal Assets199919981999199819991998Automotive Wheels$1,022.4$934.9$32.1$21.4$2,183.3$2,103.7Cast Components539.4150.811.27.7950.3212.3Other169.0155.16.24.5(301.6)(313.8)Total$1,730.8$1,240.8$49.5$33.6$2,832.0$2,002.2
Revenue Net Income (Loss) Total Assets 2000 1999 2000 1999 2000 1999 Automotive Wheels $ 1,057.5 $ 1,012.6 $ 9.8 $ 32.9 $ 1,445.2 $ 1,553.9 Cast Components 505.1 539.4 (1.0 ) 11.2 966.4 950.3 Other 133.3 178.8 (34.1 ) 5.4 362.3 327.8 Total $ 1,695.9 $ 1,730.8 $ (25.3 ) $ 49.5 $ 2,773.9 $ 2,832.0
(10)(9) Reclassifications
Certain prior period amounts have been reclassified to conform to the current year presentation.
(11)(10) Guarantor and Nonguarantor Financial Statements
In connection with the Companys merger with Motor Wheel, and as part of the financing thereof, the Company issued and sold $250 million in aggregate principal amount of 11%The Company’s senior subordinated notesdue 2006 (the 11% Notes) in a public offering.
In connection with the Companys acquisition of Lemmerz Holding GmbH on June 30, 1997 (the Lemmerz Acquisition), the Company issued and sold $400 million in aggregate principal amount of 9 1/8% senior subordinated notes due 2007 (the 9 1/8% Notes).
In anticipation of the acquisition of CMI and as part of the financing thereof, the Company issued and sold the 8 1/4% Notes. Effective June 17, 1999, the Company completed the offer to exchange all of the 8 1/4% Notes for 8 1/4% Series B Senior Subordinated Notes due 2008.
The 11% Notes, 9 1/8% Notes and 8 1/4% Notes rankpari passuwith each other and are general unsecured obligations of the Company, subordinated in right of payment to all existing and future senior indebtedness of the Company, andare guaranteed by certain of theCompanysCompany’s domestic subsidiaries.
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Table of ContentsHAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)ThreeCertain other domestic subsidiaries andNine Months Ended October 31, 1999 and 1998(Unaudited)the foreign subsidiaries (the “Non-Guarantor Subsidiaries”) do not guarantee the senior subordinated notes.(Millions of Dollars Unless Otherwise Stated)
(11) Guarantor and Nonguarantor Financial Statements Continued
The following condensed consolidating financial information presents:
(1) Condensed consolidating financial statements as of October 31, 1999,2000, and January 31,1999,2000, and for the nine-month periods ended October 31,1999,2000, and1998,1999, of (a) Hayes Lemmerz International, Inc., the parent, (b) the guarantor subsidiaries, (c) the nonguarantor subsidiaries and (d) the Company on a consolidated basis, and(2) Elimination entries necessary to consolidate Hayes Lemmerz International, Inc., the parent, with the guarantor and nonguarantor subsidiaries.
Investments in foreign subsidiaries are accounted for by the parent on the equity method (domestic subsidiaries are accounted for by the parent on the cost method) for purposes of the consolidating presentation. Theprincipleprincipal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions.8
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements — (Continued)
Three and Nine Months Ended October 31, 2000 and 1999(Unaudited)(Millions of Dollars Unless Otherwise Stated)(10) Guarantor and Nonguarantor Financial Statements — (Continued)Condensed Consolidating
StatementStatements of OperationsFor the Nine Months Ended October 31, 2000
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total Net sales $ 248.4 $ 515.8 $ 948.4 $ (16.7 ) $ 1,695.9 Cost of goods sold 205.0 455.0 793.1 (16.7 ) 1,436.4 Gross profit 43.4 60.8 155.3 — 259.5 Marketing, general and Administration 8.9 18.9 49.0 — 76.8 Engineering and product development 1.2 5.8 6.0 — 13.0 Amortization of intangibles 0.8 6.1 14.4 — 21.3 Equity in earnings of unconsolidated subsidiaries (0.4 ) (0.3 ) — — (0.7 ) Other income (expense), net 2.0 57.2 9.5 — 68.7 Earnings (loss) from operations 30.9 (26.9 ) 76.4 — 80.4 Interest expense, net 21.8 42.6 56.0 — 120.4 Earnings (loss) before taxes on income, and minority interest 9.1 (69.5 ) 20.4 — (40.0 ) Income tax (benefit) provision (0.1 ) (25.1 ) 8.4 — (16.8 ) Earnings (loss) before minority interest 9.2 (44.4 ) 12.0 — (23.2 ) Minority interest — — 2.1 — 2.1 Net income (loss) $ 9.2 $ (44.4 ) $ 9.9 $ — $ (25.3 ) Condensed Consolidating Statements of Operations
For the Nine Months Ended October 31, 1999
GuarantorNonguarantorConsolidatedParentSubsidiariesSubsidiariesEliminationsTotalNet sales$261.6$555.1$916.5$(2.4)$1,730.8Cost of goods sold220.4465.5741.7(2.4)1,425.2Gross profit41.289.6174.8305.6Marketing, general and administration4.017.549.270.7Engineering and product development3.35.07.315.6Amortization of intangibles1.16.114.822.0Equity in earnings of unconsolidated subsidiaries(1.8)(0.3)(2.1)Other income, net(2.1)(1.6)(1.6)(5.3)Earnings from operations36.762.6105.4204.7Interest expense, net20.841.952.8115.5Earnings before taxes on income, And minority interest15.920.752.689.2Income tax provision8.39.720.438.4Earnings before minority interest7.611.032.250.8Minority interest0.21.11.3Net income$7.6$10.8$31.1$$49.5
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total Net sales $ 261.6 $ 555.1 $ 916.5 $ (2.4 ) $ 1,730.8 Cost of goods sold 220.4 465.5 741.7 (2.4 ) 1,425.2 Gross profit 41.2 89.6 174.8 — 305.6 Marketing, general and Administration 4.0 17.5 49.2 — 70.7 Engineering and product development 3.3 5.0 7.3 — 15.6 Amortization of intangibles 1.1 6.1 14.8 — 22.0 Equity in earnings of unconsolidated subsidiaries (0.3 ) — (0.3 ) — (0.6 ) Other income, net (3.6 ) (1.6 ) (1.6 ) — (6.8 ) Earnings from operations 36.7 62.6 105.4 — 204.7 Interest expense, net 20.8 41.9 52.8 — 115.5 Earnings before taxes on income, and minority interest 15.9 20.7 52.6 — 89.2 Income tax provision 8.3 9.7 20.4 — 38.4 Earnings before minority interest 7.6 11.0 32.2 — 50.8 Minority interest — 0.2 1.1 — 1.3 Net income $ 7.6 $ 10.8 $ 31.1 $ — $ 49.5
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Table of ContentsHAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements
— (Continued)Three and Nine Months Ended October 31,19992000 and19981999(Unaudited)(Millions of Dollars Unless Otherwise Stated)(11)(10) Guarantor and Nonguarantor Financial Statements Continued— (Continued)Condensed Consolidating
Statement of OperationsBalance SheetFor the Nine months endedOctober 31,19982000
GuarantorNonguarantorConsolidatedParentSubsidiariesSubsidiariesEliminationsTotalNet sales$215.1$514.0$519.3$(7.6)$1,240.8Cost of goods sold185.2428.1418.4(7.6)1,024.1Gross profit29.985.9100.9216.7Marketing, general and administration6.913.828.048.7Engineering and product development2.14.29.415.7Amortization of intangibles1.06.25.512.7Equity in earnings of unconsolidated subsidiaries(0.6)(0.6)Other income, net(0.5)(0.1)(3.3)(3.9)Earnings from operations21.061.861.3144.1Interest expense, net28.735.45.369.4Earnings (loss) before taxes on income, minority interest and extraordinary loss(7.7)26.456.074.7Income tax provision11.59.410.531.4Earnings (loss) before minority interest and extraordinary loss(19.2)17.045.543.3Minority interest0.21.21.4Earnings (loss) before extraordinary loss(19.2)16.844.341.9Extraordinary loss, net of tax8.38.3Net income (loss)$(27.5)$16.8$44.3$$33.6
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total Cash and cash equivalents $ 7.0 $ 0.2 $ 16.4 $ — $ 23.6 Receivables 49.8 7.8 182.9 — 240.5 Inventories 33.9 51.9 115.4 — 201.2 Prepaid expenses and other 2.9 7.4 17.3 (10.7 ) 16.9 Total current assets 93.6 67.3 332.0 (10.7 ) 482.2 Net property, plant and equipment 155.9 279.9 672.8 — 1,108.6 Goodwill and other assets 1,498.0 301.9 652.7 (1,269.5 ) 1,183.1 Total assets $ 1,747.5 $ 649.1 $ 1,657.5 $ (1,280.2 ) $ 2,773.9 Bank borrowings $ 0.0 $ — $ 85.4 $ — $ 85.4 Current portion of long-term debt 59.3 — 13.2 — 72.5 Accounts payable and accrued liabilities 97.6 73.1 280.5 (4.6 ) 446.6 Total current liabilities 156.9 73.1 379.1 (4.6 ) 604.5 Long-term debt, net of current portion 1,504.5 — 96.4 — 1,600.9 Deferred income taxes 18.4 8.2 67.8 — 94.4 Pension and other long-term liabilities 76.8 51.8 161.7 — 290.3 Minority interest — — 10.1 — 10.1 Parent loans (241.9 ) 327.0 (75.6 ) (9.5 ) — Total liabilities 1,514.7 460.1 639.5 (14.1 ) 2,600.2 Common stock 0.3 — — — 0.3 Additional paid-in capital 251.9 108.7 1,012.6 (1,136.1 ) 237.1 Retained earnings (accumulated deficit) (51.8 ) 80.3 134.2 (130.0 ) 32.7 Common stock in treasury (26.3 ) — — — (26.3 ) Accumulated other comprehensive income (loss) 58.7 — (128.8 ) — (70.1 ) Total stockholders’ equity 232.8 189.0 1,018.0 (1,266.1 ) 173.7 Total liabilities and stockholder’s equity $ 1,747.5 $ 649.1 $ 1,657.5 $ (1,280.2 ) $ 2,773.9
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Table of ContentsHAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements
— (Continued)Three and Nine Months Ended October 31,19992000 and19981999(Unaudited)(Millions of Dollars Unless Otherwise Stated)(11)(10) Guarantor and Nonguarantor Financial Statements Continued— (Continued)Condensed Consolidating Balance Sheet
As of OctoberJanuary 31,19992000
GuarantorNonguarantorConsolidatedParentSubsidiariesSubsidiariesEliminationsTotalCash and cash equivalents$26.7$0.1$23.8$$50.6Receivables88.735.9122.1246.7Inventories36.446.8101.5184.7Prepaid expenses and other4.65.010.0(1.7)17.9Total current assets156.487.8257.4(1.7)499.9Net property, plant and equipment162.3333.0659.91,155.2Goodwill and other assets1,423.8308.9708.5(1,264.3)1,176.9Total assets$1,742.5$729.7$1,625.8$(1,266.0)$2,832.0Bank borrowings$2.7$86.5$89.2Current portion of long-term debt0.218.318.5Accounts payable and accrued liabilities125.2104.0276.8(3.7)502.3Total current liabilities128.1104.0381.6(3.7)610.0Long-term debt, net of current portion1,470.7100.61,571.3Deferred income taxes(5.1)28.553.276.6Pension and other long-term liabilities91.362.3187.9(2.5)339.0Minority interest13.013.0Parent loans(135.4)302.2(166.4)(0.4)(0.0)Total liabilities1,549.6497.0569.9(6.6)2,609.9Common stock0.30.3Additional paid-in capital252.0110.51,004.0(1,129.4)237.1Retained earnings (accumulated deficit)(51.8)123.4100.8(130.0)42.4Accumulated other comprehensive income(7.6)(1.2)(48.9)(57.7)Total stockholders equity192.9232.71,055.9(1,259.4)222.1Total liabilities and stockholders equity$1,742.5$729.7$1,625.8$(1,266.0)$2,832.0
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total Cash and cash equivalents $ 6.8 $ 0.1 $ 19.0 $ — $ 25.9 Receivables 34.1 4.2 150.4 — 188.7 Inventories 38.0 46.1 91.5 — 175.6 Prepaid expenses and other 0.9 4.0 21.9 (17.4 ) 9.4 Total current assets 79.8 54.4 282.8 (17.4 ) 399.6 Net property, plant and equipment 158.3 339.1 681.0 — 1,178.4 Goodwill and other assets 1,464.0 304.8 694.3 (1,264.3 ) 1,198.8 Total assets $ 1,702.1 $ 698.3 $ 1,658.1 $ (1,281.7 ) $ 2,776.8 Bank borrowings $ — $ — $ 73.6 $ — $ 73.6 Current portion of long-term debt 57.9 — 11.7 — 69.6 Accounts payable and accrued liabilities 126.9 154.1 326.1 (23.2 ) 583.9 Total current liabilities 184.8 154.1 411.4 (23.2 ) 727.1 Long-term debt, net of current portion 1,289.2 — 95.4 — 1,384.6 Deferred income taxes 18.5 28.5 68.6 — 115.6 Pension and other long-term liabilities 80.3 57.1 181.4 (2.5 ) 316.3 Minority interest — — 14.3 — 14.3 Parent loans (61.9 ) 225.2 (166.7 ) 3.4 — Total liabilities 1,510.9 464.9 604.4 (22.3 ) 2,557.9 Common stock 0.3 — — — 0.3 Additional paid-in capital 251.9 108.7 1,005.9 (1,129.4 ) 237.1 Retained earnings (accumulated deficit) (61.1 ) 124.7 124.4 (130.0 ) 58.0 Accumulated other comprehensive Income (loss) 0.1 — (76.6 ) — (76.5 ) Total stockholders’ equity 191.2 233.4 1,053.7 (1,259.4 ) 218.9 Total liabilities and stockholder’s equity $ 1,702.1 $ 698.3 $ 1,658.1 $ (1,281.7 ) $ 2,776.8
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Table of ContentsHAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements
— (Continued)Three and Nine Months Ended October 31,19992000 and19981999(Unaudited)(Millions of Dollars Unless Otherwise Stated)(11)(10) Guarantor and Nonguarantor Financial Statements Continued— (Continued)Condensed Consolidating
Balance SheetStatement of Cash FlowsJanuaryFor the Nine Months Ended October 31,19992000
GuarantorNonguarantorConsolidatedParentSubsidiariesSubsidiariesEliminationsTotalCash and cash equivalents$23.3$0.1$27.9$$51.3Receivables42.926.0112.7181.6Inventories33.149.883.7166.6Prepaid expenses and other1.62.919.9(1.6)22.8Total current assets100.978.8244.2(1.6)422.3Net property, plant and equipment148.1313.9416.0878.0Goodwill and other assets799.1309.2363.4(661.1)810.6Total assets$1,048.1$701.9$1,023.6$(662.7)$2,110.9Bank borrowings$2.6$$42.2$$44.8Current portion of long-term debt0.212.112.3Accounts payable and accrued liabilities87.5159.1211.2(1.1)456.7Total current liabilities90.3159.1265.5(1.1)513.8Long-term debt, net of current portion900.875.3976.1Deferred income taxes(5.1)13.050.558.4Pension and other long-term liabilities83.179.4169.1(2.5)329.1Minority interest0.412.212.6Parent loans(191.5)228.7(33.9)(3.3)Total liabilities877.6480.6538.7(6.9)1,890.0Common stock0.30.3Additional paid-in capital251.7108.7293.4(417.0)236.8Retained earnings (accumulated deficit)(59.4)112.6178.5(238.8)(7.1)Accumulated other comprehensive income.(22.1)13.0(9.1)Total stockholders equity170.5221.3484.9(655.8)220.9Total liabilities and stockholders equity$1,048.1$701.9$1,023.6$(662.7)$2,110.9
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total Cash flows provided by (used in) operating activities $ (0.9 ) $ (75.0 ) $ 17.4 $ — $ (58.5 ) Cash flows from investing activities: Acquisition of property, plant and equipment (8.5 ) (18.3 ) (97.0 ) — (123.8 ) Acquisition of tooling — — (1.9 ) — (1.9 ) Purchase of businesses, net of cash — — (6.4 ) — (6.4 ) Increased investment in majority-owned subsidiary — — (7.3 ) — (7.3 ) Other, net 29.5 (8.5 ) (36.6 ) — (15.6 ) Cash provided by (used in) investing activities 21.0 (26.8 ) (149.2 ) — (155.0 ) Cash flows from financing activities: Net change in bank borrowings and revolver 216.7 — 34.0 — 250.7 Proceeds (payments) from accounts receivable securitization (17.2 ) — — — (17.2 ) Purchase of treasury stock (26.3 ) — — — (26.3 ) Cash provided by financing activities 173.2 — 34.0 — 207.2 Increase (decrease) in parent loans and advances (193.1 ) 101.9 91.2 — — Effect of exchange rates of cash and cash equivalents — — 4.0 — 4.0 Net increase (decrease) in cash and cash equivalents 0.2 0.1 (2.6 ) — (2.3 ) Cash and cash equivalents at beginning of period 6.8 0.1 19.0 — 25.9 Cash and cash equivalents at end
of period$ 7.0 $ 0.2 $ 16.4 $ — $ 23.6
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Table of ContentsHAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIESNotes to Consolidated Financial Statements
— (Continued)Three and Nine Months Ended October 31,19992000 and19981999(Unaudited)(Millions of Dollars Unless Otherwise Stated)(11)(10) Guarantor and Nonguarantor Financial Statements Continued— (Continued)Condensed Consolidating
StatementStatements of Cash FlowsFor thenine months ended October 31, 1999
GuarantorNonguarantorConsolidatedParentSubsidiariesSubsidiariesEliminationsTotalCash flows provided by (used in) operating activities$(80.2)$(29.1)$144.4$$35.1Cash flows from investing activities:Acquisition of property, plant and equipment(24.1)(36.8)(75.2)(136.1)Acquisition of tooling(9.2)(9.2)Purchase of businesses, net of cash(615.0)(0.5)(14.6)(630.1)Proceeds from disposal of assets/business2.637.440.0Other, net21.3(9.8)(23.6)(12.1)Cash used in investing activities(627.0)(44.5)(76.0)(747.5)Cash flows from financing activities:Net change in bank borrowings and revolver570.160.2630.3Fees paid to issue long term debt(15.2)(15.2)Stock options exercised0.20.2Net proceeds from accounts receivable securitization99.499.4Cash provided by financing activities654.560.2714.7Increase (decrease) in parent loans and advances56.173.6(129.7)Effect of exchange rates of cash and cash equivalents(3.0)(3.0)Net increase (decrease) in cash and cash equivalents3.4(4.1)(0.7)Cash and cash equivalents at beginning of period23.30.127.951.3Cash and cash equivalents at end of period$26.7$0.1$23.8$$50.6
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Table of ContentsHAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)Three andNine Months Ended October 31, 1999and 1998
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total Cash flows provided by (used in) operating activities $ (80.2 ) $ (29.1 ) $ 145.9 $ — $ 36.6 Cash flows from investing activities: Acquisition of property, plant and equipment (24.1 ) (36.8 ) (75.2 ) — (136.1 ) Acquisition of tooling (9.2 ) — — — (9.2 ) Purchase of businesses, net of cash (615.0 ) (0.5 ) (14.6 ) — (630.1 ) Proceeds from disposal
of assets/business— 2.6 37.4 — 40.0 Other, net 21.3 (9.8 ) (25.1 ) — (13.6 ) Cash used in investing activities (627.0 ) (44.5 ) (77.5 ) — (749.0 ) Cash flows from financing activities: Net change in bank borrowings and revolver 570.1 — 60.2 — 630.3 Fees paid to issue long term debt (15.2 ) — — — (15.2 ) Stock options exercised 0.2 — — — 0.2 Net proceeds from accounts receivable securitization 99.4 — — — 99.4 Cash provided by financing activities 654.5 — 60.2 — 714.7 Increase (decrease) in parent loans and advances 56.1 73.6 (129.7 ) — — Effect of exchange rates of cash and cash equivalents — — (3.0 ) — (3.0 ) Net increase (decrease) in cash and cash equivalents 3.4 — (4.1 ) — (0.7 ) Cash and cash equivalents at beginning of period 23.3 0.1 27.9 — 51.3 Cash and cash equivalents at end
of period$ 26.7 $ 0.1 $ 23.8 $ — $ 50.6 13
(Unaudited)(Millions of Dollars Unless Otherwise Stated)
(11) Guarantor and Nonguarantor Financial Statements Continued
Condensed Consolidating Statement of Cash FlowsFor the nine months ended October 31, 1998
GuarantorNonguarantorConsolidatedParentSubsidiariesSubsidiariesEliminationsTotalCash flows provided by (used in) operating activities$(54.5)$44.3$76.3$$66.1Item 2. Cash flows from investing activities:AcquisitionManagement’s Discussion and Analysis ofproperty, plantFinancial Condition andequipment(12.3)(31.9)(44.7)(88.9)AcquisitionResults oftoolingOperations(6.6)(6.6)Purchase of businesses, net of cash received(8.8)(70.5)(79.3)Other, net(35.5)8.70.1(26.7)Cash provided by (used in) investing activities(63.2)(23.2)(115.1)(201.5)Cash flows from financing activities:Net change in bank borrowings and revolver4.7(34.5)40.510.7Stock options exercised1.71.7Fees paid to issue debt(1.4)(1.4)Net proceeds from accounts receivable securitization120.8120.8Cash provided by (used in) financing activities125.8(34.5)40.5131.8Increase (decrease) in parent loans and advances(12.7)13.1(0.4)Effect of exchange rates of cash and cash equivalents(1.7)(1.7)Net increase (decrease) in cash and cash equivalents(4.6)(0.3)(0.4)(5.3)Cash and cash equivalents at beginning of period4.60.118.423.1Cash and cash equivalents at end of period$$(0.2)$18.0$$17.8
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Table of Contents
Item 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONSResults of Operations
Three Months Ended October 31,
19992000 Compared to Three Months Ended October 31,19981999Net Sales
TheCompanysCompany’s net sales for the third quarter of fiscal19992000 were$598.5$558.3 million,an increasea decrease of34.8%6.7% as compared to net sales of$443.9$598.5 million for the third quarter of fiscal1998. This increase was due to1999. Significant reductions in heavy truck production and softening in OEM light vehicle volumes in theadditional sales contributed as a result of the CMI acquisition, which was effective February 3, 1999, and higherUnited States have resulted in lower sales in the North AmericanAutomotiveCommercial Highway, North American Cast Components and North American Wheelgroup. TheseGroups. Increased salesincreasesin the European Wheel Groups werepartiallyoffset bylower selling prices duethe Euro weakening against the Dollar in the third quarter of fiscal 2000 as compared to thepass throughthird quarter oflower aluminum costs and the maxi-devaluation of the Brazilian economy.fiscal 1999.Gross Profit
TheCompanysCompany’s gross profit for the third quarter of fiscal1999 increased2000 decreased to$105.4$73.2 million or17.6%13.1% of net sales as compared to$82.7$105.4 million or18.6%17.6% of net sales for the third quarter of fiscal1998.1999. TheCompanysCompany’s third quarter gross profit margin was negatively impactedprimarilyby the reduction in the North American heavy truck and OEM sales and production inefficiencies related to the volatile heavy truck andpremium costs associated withOEM production environment. In addition, gross margin was negatively impacted by theunexpectedly strong demand for lightweight aluminum wheelswrite off of $5.0 million inboth North Americaexcess andEurope, slower demand for steel wheels in Europe as a result of the higher aluminum wheel penetrationobsolete inventories pursuant to capacity reductions andthe continuation of the economic devaluation in developing markets.softening market conditions.
Marketing, General and AdministrativeMarketing, general and administrative expenses were $28.3 million or 5.1% of net sales for the third quarter of fiscal 2000 as compared to $21.8 million or 3.6% of net sales for the third quarter of fiscal
1999 as compared1999. Marketing, general and administrative expenses for the third quarter of fiscal 2000 were negatively impacted by the write off of $7.2 million principally associated with cancelled transactions, and an increase in the allowance for doubtful accounts and severance costs due to$16.7market conditions.Engineering and Product Development
Engineering and product development costs were $3.6 million or
3.8%0.6% of net sales for thesame periodthird quarter of fiscal1998. The increase in expenses was attributable2000 as compared toadditional costs incurred as a result of the CMI acquisition. As a percent of sales, however, marketing, general and administrative costs have improved as synergies from this acquisition have been realized.
Engineering and product development costs were$4.4 million or 0.7% of net sales for the third quarter of fiscal1999 as compared to $5.7 million or 1.3% of net sales for1999. This improvement principally reflects thethird quarter of fiscal 1998. Engineering and product development costs were lower, despite the CMI acquisition, due to synergies realized andtiming associated with recovery of engineering and development costs from our customers.Other (Income) Expense
AmortizationPursuant to its acquisition strategy in prior periods, the Company has been in the process ofintangibles increasedintegrating operations as well as evaluating capacity, technology and personnel needs. In response to continued softening in the heavy truck and light vehicle markets, the Company accelerated this process and approved restructuring plans in the third quarter of fiscal 2000. In addition to the items discussed in Gross Profit and Marketing, General and Administrative categories above, impairment and restructuring charges totaling $75.6 million were recorded in the third quarter of fiscal 2000.Of the $75.6 million, $63.8 million was attributable to impairment of long-lived assets, principally excess and obsolete machinery and equipment which the Company intends to dispose of in the near future. Impairment was measured based on the estimated net proceeds from the disposal of such equipment.
Restructuring charges consist of $6.7 million for severance benefits and $0.9 million for future lease costs of closed office facilities. These costs are all related primarily to 387 administrative and operations employees impacted by
$3.6restructuring programs in Europe. There were no payments made in the third quarter of fiscal 2000.14
In addition, Other (Income) Expense includes $4.2 million
to $8.2for the write down of the Company’s investment in a joint venture in Venezuela and certain contractual agreements that have no future value.Interest Expense
Interest expense was $41.6 million for the third quarter of fiscal
1999. This increase is attributable2000 compared tothe increased goodwill recognized as a result of the CMI acquisition.
Interest expense was$37.5 million forthe third quarter of fiscal 1999, an increase of $15.1 million overthe same period of fiscal1998 of $22.4 million.1999. This increase was due primarily to the increase indebt as a result of the CMI acquisition.interest rates and borrowings.Nine Months Ended October 31,
19992000 Compared to Nine Months Ended October 31,19981999Net Sales
TheCompanysCompany’s net sales for the first nine months of fiscal19992000 were$1,730.8$1,695.9 million,an increasea decrease of39.5%2.0%, as compared to net sales of$1,240.8$1,730.8 million for the first nine months of fiscal1998.1999. Thisincreasedecrease was due tothe additional sales contributed as a result of the CMI acquisition, which was effective February 3, 1999, the additional sales contributed by the acquisitions of Alumitech, Borlem, MIN-CER, N.F. Die and Kalyani (the 1998 acquisitions), andhigher sales in the North AmericanAutomotiveand European Wheelgroup. These sales increases were partiallyGroups offset by lowerselling pricessales in the North American Commercial Highway and North American Components Groups due tothe pass through of lower aluminum costssoftening marketing conditions and themaxi-devaluationweakening of theBrazilian economy.Euro against the Dollar by approximately 12%.Gross Profit
TheCompanysCompany’s gross profit for the first nine months of fiscal1999 increased2000 decreased to$305.6$259.5 million or17.7%15.3% of net sales as compared to$216.7$305.6 million or17.5%17.7% of net sales for the first nine months of fiscal1998.1999. Thisincreasedecrease reflects the reduction in the North American heavy truck and OEM sales and production inefficiencies related to the volatile heavy truck and OEM production environment. In addition, gross margin wasattributable tonegatively impacted by theincreased revenueswrite off of $5.0 million in excess andimproved productivityobsolete inventories in themajoritythird quarter ofthe Companys businesses.fiscal 2000 pursuant to capacity reductions and softening market conditions.
Marketing, General and AdministrativeMarketing, general and administrative expenses were
$70.7$76.8 million or4.1%4.5% of net sales for the first nine months of fiscal1999 as2000 compared to$48.7$70.7 million or3.9%4.1% of net sales for the same period of fiscal1998. This
16
Table of Contents1999. The increasedue to market conditions.was attributable to additional costs incurred as a result of the CMI and 1998 acquisitions. The Company believes thatin marketing, general and administrative expenses was attributable to $7.2 million in write offs in the third quarter of fiscal 2000 principally related to cancelled transactions, and an increase in the allowance for doubtful accounts and severance costsas a percent of net sales will improve as the synergies are realized as a result of these acquisitions.
Engineering and Product DevelopmentEngineering and product development costs were $13.0 million or 0.8% of net sales for the first nine months of fiscal 2000 as compared to $15.6 million or 0.9% of net sales for the first nine months of fiscal
19991999.Other (Income) Expense
Pursuant to its acquisition strategy in prior periods, the Company has been in the process of integrating operations as
comparedwell as evaluating capacity, technology and personnel needs. In response to$15.7continued softening in the heavy truck and light vehicle markets, the Company accelerated this process and approved restructuring plans in the third quarter of fiscal 2000. In addition to the items discussed in Gross Profit and Marketing, General and Administrative categories above, impairment and restructuring charges totaling $75.6 millionor 1.3%were recorded in the third quarter of fiscal 2000.Of the $75.6 million, $63.8 million was attributable to impairment of long-lived assets, principally excess and obsolete machinery and equipment which the Company intends to dispose of in the near future. Impairment was measured based on the estimated net
salesproceeds from the disposal of such equipment.Restructuring charges consist of $6.7 million for severance benefits and $0.9 million for future lease costs of closed office facilities. These costs are all related primarily to 387 administrative and operations employees impacted by restructuring programs in Europe. There were no payments made in the third quarter of fiscal 2000.
15
In addition, Other (Income) Expense includes $4.2 million for the
first nine monthswrite down offiscal 1998. DespitetheincreaseCompany’s investment incosts attributable to the CMIa joint venture in Venezuela and1998 acquisitions, engineering and product development costs as a percent of sales improved over the prior fiscal year.certain contractual agreements that have no future value.Interest Expense
Amortization of intangibles increased by $9.3 million to $22.0Interest expense was $120.4 million for the first nine months of fiscal1999. This increase is attributable2000 compared tothe increased goodwill recognized as a result of the CMI and 1998 acquisitions.
Other income was $5.3$115.5 million forthe first nine months of fiscal 1999, an increase of $1.4 million overthe same period of fiscal1998.1999. This increase was due primarily togains on the sales of a joint venture interest and other assets, partially offset by currency losses and other redundancy costs associated with productivity improvement programs in the Company.
Interest expense was $115.5 million for the first nine months of fiscal 1999, an increase of $46.1 million over the same period of fiscal 1998 of $69.4 million. This increase was due tothe increase indebt as a result of the CMIinterest rates and1998 acquisitions.borrowings.
The extraordinary loss for early extinguishment of debt in fiscal 1998 represented the write-off of the remaining deferred financing costs associated with the term debt incurred in connection with both the Lemmerz Acquisition and the merger with Motor Wheel. As a result of strong cash flow and significantly improved credit position, the Company was able to restructure its senior credit facility and fully repay certain of the outstanding term debt.Financial Condition, Liquidity and Capital Resources
TheCompanysCompany’s operationsprovided $35.1used $58.5 million in cash in the first nine months of fiscal1999, a decrease2000, an increase of$31.0$95.1 million over the same period of fiscal1998.1999. Thisdecreaseincrease was due primarily toincreased working capital requirements as a resultthe timing ofthe acquisition of CMI.payments to suppliers and higher inventories.
Capital expenditures for the first nine months of fiscal19992000 were$136.1$123.8 million. These expenditures were primarily for additional machinery and equipment to improve productivityincrease production capacityand reduce costs, to meet demand for new vehicle platforms and to meet expected requirements forourthe Company’s products. The Company anticipates capital expenditures for fiscal19992000 will beapproximately $190 million relating primarily to new vehicle platforms, capacity increases worldwide to meet the growing demand for our products, cost reduction programs and the funding of new programs associated with the acquisition of CMI.less than $170.0 million.
On February 3, 1999, the Company entered into a third amended and restated credit agreement (theThird“Third Amended and Restated CreditAgreementAgreement”) with Canadian Imperial Bank of Commerce(CIBC(“CIBC”) and Merrill Lynch Capital Corporation((“MerrillLynchLynch”), as managing agents. Pursuant to the Third Amended and Restated Credit Agreement, a syndicate of lenders agreed to lend to the Company up to $450 million in the form of a senior secured term loan facility and up to $650 million in the form of a senior secured revolving credit facility. Such term loan and revolving facilities are guaranteed by the Company and all of its existing and future material domestic subsidiaries. Such term loan and revolving facilities are secured by a first priority lieninon substantially all of the properties and assets of the Company and its material domestic subsidiaries, now owned or later acquired,later,including a pledge of all of the shares of certain of theCompanysCompany’s existing and future domestic subsidiaries and 65% of the shares of certain ofourthe Company’s existing and future foreign subsidiaries. As of October 31,19992000 there was$450$399 million outstanding under the term loanfacilitiesfacility and$489$386 million available under the revolving facility.
On December 8, 2000, the Company reached agreement with its senior lenders to amend the Third Amended and Restated Credit Agreement. Pursuant to such agreement, financial covenants regarding the leverage ratio, the interest coverage ratio and the fixed charge coverage ratio were modified and a ratio of senior indebtedness to earnings before interest, taxes, depreciation and amortization was added. In addition, an annual limit on capital expenditures was added, the stock repurchase authority was deleted and a cumulative limit on acquisitions was deleted. The text of the amendment agreement is filed as an exhibit to this Form 10-Q and is incorporated herein by reference.In April 1998, the Company entered into a
three-yearthree year agreement pursuant to which the Company and certain of its subsidiaries sold, and will continue to sell on an ongoing basis, a portion of their accounts receivables to a special purpose entity((“Funding Co.”), which is wholly owned by the Company. Accordingly,
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Table of Contentsthe Company and such subsidiaries, irrevocably and without recourse, transferred and will transfer substantially all of their U.S. dollar denominated trade accounts receivable to Funding Co. Funding Co. then sold and will sell such trade accounts receivable to an independent issuer of receivable-backed commercial paper. The Company has collection and administrative responsibilities with respect to all the receivables which are sold.Receivables sold at October 31, 2000 total $145.8 million.
During the second quarter, the Board of Directors approved the repurchase of up to an aggregate of $30 million of the Company’s outstanding common stock. Through October 31, 2000, the Company repurchased approximately 1.9 million shares of its common stock for an aggregate purchase price of approximately $26.3 million.At October 31,
1999,2000, management believes that the Company was in compliance with the various covenants under the agreements pursuant to which it has or may borrow money. Management expects that the Company will remain in compliance with these covenants, as modified by the December 8, 2000 amendment16
to the Third Amended and Restated Credit Agreement, in all material respects through the period ending October 31,2000.2001.
Other Matters
Year 2000
The Company has developed plans to address its exposure in all critical information technology (IT) and non-IT systems to computer programs which identify years with two digits instead of four. Such programs may recognize the year 2000 as the year 1900. The Company is also assessing the year 2000 capabilities of its critical suppliers, customers and key service providers to determine, to the extent possible, whether its operations will be adversely impacted by these companies.
The Company primarily relies on packaged software applications which are year 2000 compliant. The Company has substantially completed the testing of these applications and has confirmed their year 2000 compliance. The Company is also testing all internally developed IT software for the year 2000 compliance. This process was completed by the end of the second quarter of fiscal 1999.
The Company continues to assess all critical non-IT systems for year 2000 compliance. Non-IT systems include, among other things, manufacturing equipment, telephone systems and heating and cooling systems. An inventory of all critical non-IT systems and manufacturers to determine year 2000 compliance has been prepared. This process was completed during the first quarter of fiscal 1999.
As of October 31, 1999, the costs incurred directly related to becoming year 2000 compliant were approximately $5.4 million with minimal additional costs expected to be incurred subsequent to October 31, 1999. The year 2000 remediation effort has not postponed any IT projects, the delay of which would have a material adverse effect on the business, financial condition or results of operations.
The Company is year 2000 compliant at this time with all critical business and production processes ready. Although the Company is striving to be completely year 2000 compliant, year 2000 issues may still negatively affect the Company. Based on progress to date, management believes that such impact, if any, will not have a material adverse impact on the business, financial condition or results of operations. The Company cannot guarantee that this will be so.
Although the Company has contacted critical suppliers, customers and key service providers to determine their level of year 2000 compliance, a lack of year 2000 readiness at these companies could adversely impact the Companys operations. The Company has developed a program for monitoring year 2000 risk in its supply chain and have mailed Supplier Year 2000 Self-Assessment questionnaires to all critical suppliers and key service providers. The full extent of any such adverse impact (if any) is impossible to determine. The Company is attempting to mitigate any possible adverse impact by identifying alternate suppliers where possible. The Company may also increase inventory of crucial materials in anticipation of possible disruptions.
The Company has developed contingency plans for all critical business and production processes which the Company believes will help to minimize its year 2000 risk.
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Table of ContentsItem 3.
Quantitative and Qualitative Disclosures about Market Risk
For the period ended October 31,1999,2000, the Company did not experience any material change in market risk exposures affecting the quantitative and qualitative disclosures as presented in theCompanysCompany’s Annual Report on Form 10-K for the year ended January 31,1999.2000.
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PART II. OTHER INFORMATIONItem 1. Legal Proceedings
None
Item 2.
Changes in Securities and Use of ProceedsNone
Item 3. Defaults
uponUpon Senior SecuritiesNone
Item 4.
Submission of Matters to a Vote ofSecurity-HoldersSecurity HoldersThe Company held its Annual Meeting of Stockholders on August 3, 2000. The results of the matters submitted to a vote of the Company’s stockholders at the Annual Meeting were reported in the Company’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2000 and are incorporated herein by reference.
Item 5. Other Information
None
Item 6.
Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description 10.30 Amendment No. 2 to the Third Amended and Restated Credit Agreement dated as of December 8, 2000, among the Company, as Borrower, the several banks and other financial institutions from time to time parties thereto, as Lenders, Canadian Imperial Bank of Commerce, as Administrative Agent and Co-Lead Arranger, Credit Suisse First Boston, as Syndication Agent and Co-Lead Arranger, Merrill Lynch Capital Corporation, as Co-Documentation Agent, and Dresdner Bank AG, as Co-Documentation Agent and European Swing Line Administrator. 10.31 Severance Agreements, each dated June 15, 2000, between the Company and certain of its officers. 27 Financial Data Schedule
(b)Reports on Form 8-K
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None 18
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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.
HAYES LEMMERZ INTERNATIONAL, INC.
By: /s//s/ WILLIAM D.N. VERMILYASHOVERS
William D. N. VermilyaShoversCorporate Controller andVice President — Finance; ChiefAccountingFinancial OfficerDecember 15,
19992000
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EXHIBIT INDEX
Sequentially Exhibit Numbered Number Description Page 10.30 Amendment No. 2 to the Third Amended and Restated Credit Agreement dated as of December 8, 2000, among the Company, as Borrower, the several banks and other financial institutions from time to time parties thereto, as Lenders, Canadian Imperial Bank of Commerce, as Administrative Agent and Co-Lead Arranger, Credit Suisse First Boston, as Syndication Agent and Co-Lead Arranger, Merrill Lynch Capital Corporation, as Co-Documentation Agent, and Dresdner Bank AG, as Co-Documentation Agent and European Swing Line Administrator. 10.31 Severance Agreements, each dated June 15, 2000, between the Company and certain of its officers. 27 Financial Data Schedule
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