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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: July 12, 1996
VARITY CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 1-5190 22-3091314
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
672 DELAWARE AVENUE, BUFFALO, NEW YORK 14209
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (716) 888-8000
This document consists of 9 pages
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Item 2. DISPOSITION OF ASSETS
(a) In connection with the merger of Hayes Wheels International, Inc.
(Hayes Wheels) and MWC Holdings, Inc. (MWC), on July 2, 1996,
Varity Corporation (the Company) completed the previously
announced sale of its entire 46.3% ownership interest in Hayes
Wheels to MWC. In consideration for its 8,144,000 shares of
Hayes Wheels common stock, the Company received approximately
$235 million in cash ($28.80 per share of Hayes Wheels common
stock) and 814,400 shares of newly issued common stock of Hayes
Wheels, the surviving company subsequent to the merger of Hayes
Wheels and MWC.
Item 7. FINANCIAL STATEMENTS
(b) Pro forma condensed financial information.
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PRO FORMA CONSOLIDATED CONDENSED
FINANCIAL INFORMATION (UNAUDITED)
In connection with the merger of Hayes Wheels and MWC, on July 2, 1996, the
Company completed the previously announced sale of its entire 46.3% ownership
interest in Hayes Wheels to MWC. In consideration for its 8,144,000 shares of
Hayes Wheels common stock, the Company received approximately $235 million in
cash ($28.80 per share of Hayes Wheels common stock) and 814,400 shares of
newly issued common stock of Hayes Wheels, the surviving company subsequent to
the merger of Hayes Wheels and MWC.
The Company currently intends to utilize a portion of the net proceeds
received to redeem the outstanding Canadian $1.625 Cumulative Redeemable
Convertible Exchangeable Preferred Class II Stock, Series A (Class II
Preferreds), pursuant to its July 12, 1996 notification to holders of its
intention to redeem such stock, and intends to defease its $150 million, 11-3/8%
Senior Notes due 1998 (Senior Notes). The Company expects to redeem the Senior
Notes on November 15, 1996 at their principal amount plus accrued interest. The
following unaudited pro forma consolidated condensed financial information
assumes that the sale of Hayes Wheels common stock, redemption of the Class II
Preferreds and the in-substance defeasance of the Senior Notes had been
completed as of February 1, 1995 for the consolidated condensed statements of
operations information, and as of April 30, 1996 for the consolidated condensed
balance sheet information. However, there can be no assurance that the
redemption of the Class II Preferreds and defeasance of the Senior Notes will be
consummated or that the terms of these anticipated transactions will be as
assumed in the following pro forma consolidated condensed financial information.
The pro forma consolidated condensed financial information is provided for
informational purposes only and may not be indicative of the results that would
have occurred if the transaction had been effected on the dates indicated or
which may be obtained in the future. The pro forma consolidated condensed
financial information and accompanying notes should be read in conjunction with
the consolidated condensed financial statements and notes thereto included in
the Company's Form 10-Q for the fiscal quarter ended April 30, 1996.
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<TABLE>
<CAPTION>
VARITY CORPORATION
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 1996
(Unaudited)
(Dollars in millions except per share amounts)
Pro Forma Pro Forma
Adjustments Adjusted
for Sale of for Sale of
Hayes Wheels Hayes Wheels
Actual Common Stock Common Stock
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<S> <C> <C> <C>
SALES $ 585.1 $ $ 585.1
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EXPENSES:
Cost of goods sold 478.4 478.4
Marketing, general and administration 43.3 43.3
Engineering and product development 27.0 27.0
Interest, net 5.2 (4.9)(a) 0.3
Other expense, net 0.6 0.6
Restructuring charge 5.0 5.0
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559.5 (4.9) 554.6
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INCOME BEFORE INCOME TAXES AND EARNINGS
OF ASSOCIATED COMPANIES 25.6 4.9 30.5
Income tax provision (6.4) (6.4)
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INCOME BEFORE EARNINGS OF ASSOCIATED COMPANIES 19.2 4.9 24.1
Equity in earnings of associated companies 2.8 (2.8)(b) -
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Income from continuing operations $ 22.0 $ 2.1 $ 24.1
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EARNINGS PER COMMON SHARE FROM
CONTINUING OPERATIONS $ 0.54 $ 0.61
See Notes to Pro Forma Consolidated Condensed Financial Information.
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<TABLE>
<CAPTION>
VARITY CORPORATION
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 1996
(Unaudited)
(Dollars in millions except per share amounts)
Pro Forma Pro Forma
Adjustments Adjusted
for Sale of for Sale of
Hayes Wheels Hayes Wheels
Actual Common Stock Common Stock
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<S> <C> <C> <C>
SALES $ 2,375.0 $ $ 2,375.0
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EXPENSES:
Cost of goods sold 1,918.7 1,918.7
Marketing, general and administration 174.3 174.3
Engineering and product development 99.5 99.5
Interest, net 18.2 (19.7)(a) (1.5)
Other income, net (0.5) (0.5)
Restructuring charges, net 14.6 14.6
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2,224.8 (19.7) 2,205.1
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INCOME BEFORE INCOME TAXES AND EARNINGS
OF ASSOCIATED COMPANIES 150.2 19.7 169.9
Income tax provision (37.9) (37.9)
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INCOME BEFORE EARNINGS OF ASSOCIATED COMPANIES 112.3 19.7 132.0
Equity in earnings (losses) of associated companies 12.7 (13.1)(b) (0.4)
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Income from continuing operations $ 125.0 $ 6.6 $ 131.6
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EARNINGS PER COMMON SHARE FROM CONTINUING
OPERATIONS $ 2.99 $ 3.20
See Notes to Pro Forma Consolidated Condensed Financial Information.
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<TABLE>
<CAPTION>
VARITY CORPORATION
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
APRIL 30, 1996
(Unaudited)
(Dollars in millions)
Pro Forma Pro Forma
Adjustments Adjusted
for Sale of for Sale of
Hayes Wheels Hayes Wheels
Actual Common Stock Common Stock
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<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 37.7 $ 35.6 (c) $ 73.3
Marketable securities 33.2 26.0 (d) 59.2
Receivables 388.2 388.2
Inventories 159.4 159.4
Prepaid expenses and other 27.8 27.8
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Total current assets 646.3 61.6 707.9
Investments in associated and other companies 120.9 (116.3)(e) 4.6
Fixed assets, net 685.1 685.1
Other assets and intangibles 383.2 (0.8)(f) 382.4
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$ 1,835.5 $ (55.5) $ 1,780.0
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LIABILITIES
Current liabilities:
Current portion of long-term debt and notes payable $ 20.5 $ $ 20.5
Accounts payable 271.4 271.4
Accrued liabilities 236.6 38.2 (g) 267.0
(7.8)(c)
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Total current liabilities 528.5 30.4 558.9
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Non-current liabilities:
Long-term debt 150.5 (150.0)(c) 1.7
1.2 (h)
Other long-term liabilities 327.0 327.0
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Total non-current liabilities 477.5 (148.8) 328.7
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STOCKHOLDERS' EQUITY:
Preferred stock 6.8 (6.8)(c) -
Common stock 643.6 643.6
Contributed surplus 656.3 (30.0)(c) 626.3
Deficit (274.5) 105.0 (i) (176.3)
(6.8)(j)
Other (24.8) 0.3 (k) (23.3)
1.2 (k)
Treasury stock at cost (177.9) (177.9)
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Total stockholders' equity 829.5 62.9 892.4
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$ 1,835.5 $ (55.5) $ 1,780.0
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See Notes to Pro Forma Consolidated Condensed Financial Information.
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NOTES TO PRO FORMA CONSOLIDATED CONDENSED
FINANCIAL INFORMATION (UNAUDITED)
(a) To reflect the reduction in interest expense associated with the Senior
Notes that would have been defeased based on the intended use of the
estimated net proceeds from the sale of Hayes Wheels common stock, to
reverse the amortization of debt issuance costs and discount associated
with the Senior Notes and to reflect interest income earned on residual
cash proceeds. For pro forma purposes, it was assumed that the Senior
Notes were eliminated from the financial statements through an in-substance
defeasance at the beginning of the period, with redemption to occur on
November 15, 1996. The interest expense due on the Senior Notes through
the date of redemption would have been reported as a component of the
extraordinary loss recorded on the early extinguishment of debt. The pro
forma consolidated condensed statements of operations do not include the
extraordinary loss.
No additional tax expense would have been recorded as any net increase in
pre-tax income would have been offset through the use of tax loss
carryforwards.
(b) To eliminate the equity in earnings of Hayes Wheels. As a result of the
Company's 46.3% ownership interest in Hayes Wheels, the Company accounted
for its investment on the equity method of accounting. All transactions
between the Company and Hayes Wheels during the periods presented were made
at arms-length terms and are reflected as such in the consolidated
condensed statements of operations.
(c) Represents the application of estimated net proceeds arising from the sale
including $157.8 million for the in-substance defeasance of the Senior
Notes (including $7.8 million of interest accrued as of April 30, 1996) and
$36.8 million relating to the redemption of the Class II Preferreds.
Additionally, in connection with the in-substance defeasance of the Senior
Notes, an amount representing the interest expense due on the Senior Notes
from April 30, 1996 to the date of their redemption (November 15, 1996),
net of interest income earned, has been presented as a reduction to the net
proceeds received from the sale.
(d) To record the consideration received in the form of 814,400 shares of newly
issued common stock of Hayes Wheels, the surviving company subsequent to
the merger of Hayes Wheels and MWC. The securities received are
available-for-sale as defined in Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." For pro forma purposes, the price at which the shares were
initially offered at has been used in the balance sheet as of April 30,
1996.
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(e) To eliminate the Company's 46.3% investment in Hayes Wheels accounted for
under the equity method of accounting.
(f) To write-off unamortized deferred debt issuance costs associated with the
existing Senior Notes defeased in adjustment (c). The pro forma
consolidated condensed statements of operations exclude the write-off of
these unamortized deferred debt issuance costs as they would have been a
component of the extraordinary loss recorded on the early extinguishment of
debt.
(g) To reflect the estimated liability associated with transaction fees and
income and other taxes payable resulting from the sale of Hayes Wheels
common stock.
(h) To write-off unamortized discount associated with the existing Senior Notes
defeased in adjustment (c). The pro forma consolidated condensed
statements of operations exclude the write-off of the unamortized discount
as it would have been a component of the extraordinary loss recorded on the
early extinguishment of debt.
(i) To reflect the net gain on the sale of Hayes Wheels common stock. The pro
forma consolidated condensed statements of operations exclude the non-
recurring $105 million gain arising from the sale.
(j) To reflect an extraordinary loss associated with the defeasance of the
Senior Notes. See adjustments (c), (f) and (h). The pro forma
consolidated condensed statements of operations exclude this loss.
(k) To write-off the Company's 46.3% share of Hayes Wheels' pension liability
adjustment and foreign currency translation adjustment recorded as a
component of the Company's stockholders' equity against the gain on sale of
Hayes Wheels common stock.
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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 hereunto duly authorized.
VARITY CORPORATION
(Registrant)
By: /s/ Mark J. MacGuidwin
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Mark J. MacGuidwin
Vice President,
Controller (Principal
Accounting Officer)
Date: July 12, 1996
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