<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended APRIL 30, 1996
OR
/ / 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: 1-11592
HAYES WHEELS INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 13-3384636
(State or other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
38481 HURON RIVER DRIVE,
ROMULUS, MICHIGAN 48174
(Address of Principal Executive Offices)(Zip Code)
Registrant's telephone number, including area code: (313) 941-2000
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 THE REGISTRANT'S COMMON STOCK OUTSTANDING AS OF MAY 15,
1996 WAS 17,574,000 SHARES.
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This report consists of 19 pages.
Exhibit 27 is filed as part of this report.
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HAYES WHEELS INTERNATIONAL, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION: PAGE
<S> <C>
Item 1. Financial Statements
Consolidated Statements of Operations ......................................................... 3
Consolidated Balance Sheets ................................................................... 4
Consolidated Statements of Cash Flows ......................................................... 5
Notes to Consolidated Financial Statements .................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ......... 8
PART II OTHER INFORMATION:
Item 1. Legal Proceedings ............................................................................. 10
Item 2. Changes in Securities ......................................................................... 10
Item 3. Defaults upon Senior Securities ............................................................... 10
Item 4. Submission of Matters to a Vote of Security-Holders ........................................... 10
Item 5. Other Information ............................................................................. 10
Item 6. Exhibits and Reports on Form 8-K .............................................................. 19
SIGNATURES ..................................................................................................... 19
</TABLE>
UNLESS OTHERWISE INDICATED REFERENCES TO THE "COMPANY" MEAN HAYES WHEELS
INTERNATIONAL, INC. AND ITS SUBSIDIARIES AND REFERENCE TO A FISCAL YEAR MEANS
THE COMPANY'S YEAR ENDED JANUARY 31 OF THE FOLLOWING YEAR (E.G., FISCAL 1996
MEANS THE PERIOD BEGINNING FEBRUARY 1, 1996, AND ENDING JANUARY 31, 1997).
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL 30,
1996 1995
------- -------
<S> <C> <C>
Net sales ............................................ $ 156.2 $ 159.7
Cost of goods sold ................................... 133.6 133.1
------- -------
Gross profit .................................... 22.6 26.6
Marketing, general and administration ................ 7.8 7.6
Engineering and product development .................. 1.8 1.3
Other (income) expense (0.5) 0.2
------- -------
Earnings from operations ........................ 13.5 17.5
Interest expense, net ................................ 3.6 3.8
------- -------
Income before taxes on income ................... 9.9 13.7
Income tax provision ................................. 3.8 5.4
------- -------
Net income ...................................... $ 6.1 $ 8.3
======= =======
Per share income:
Net income ......................................... $ 0.35 $ 0.47
======= =======
Weighted average shares outstanding (in thousands).. 17,574 17,574
======= =======
Dividends declared per share ....................... $ 0.015 $ 0.015
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
3
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HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
APRIL 30, JAN. 31,
1996 1996
-------- -------
(UNAUDITED)
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................... $ 0.8 $ 1.8
Receivables (less allowance of $0.1 million at April 30, 1996
and January 31, 1996) ...................................... 113.4 109.6
Inventories (Note 3) ........................................ 52.5 58.9
Prepaid expenses and other .................................. 8.8 9.9
------- -------
Total current assets ................................. 175.5 180.2
Property, plant and equipment:
Land ........................................................ 18.6 18.3
Buildings ................................................... 77.9 76.8
Machinery and equipment ..................................... 341.7 319.7
------- -------
438.2 414.8
Accumulated depreciation .................................... (117.3) (110.4)
------- -------
Net property, plant and equipment .................... 320.9 304.4
Goodwill and other assets ......................................... 152.5 149.3
------- -------
Total assets ................................................ $ 648.9 $ 633.9
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Bank borrowings ............................................. $ 1.2 $ 4.1
Current portion of long-term debt ........................... 0.1 0.1
Accounts payable and accrued liabilities .................... 115.1 125.5
------- -------
Total current liabilities ............................ 116.4 129.7
Noncurrent liabilities:
Long-term debt .............................................. 152.5 128.9
Deferred income taxes ....................................... 48.9 48.1
Pension and other long-term liabilities ..................... 80.0 81.8
------- -------
Total noncurrent liabilities ......................... 281.4 258.8
Commitments and contingencies (Note 4)
Stockholders' equity:
Preferred stock, 25,000,000 shares authorized, none issued .. -- --
Common stock, par value $0.01 per share:
Authorized 50,000,000 shares
Issued and outstanding, 17,574,000 shares ............ 0.2 0.2
Additional paid in capital .................................. 198.5 198.5
Retained earnings ........................................... 55.6 49.6
Foreign currency translation adjustment ..................... (0.6) (0.3)
Pension liability adjustment ................................ (2.6) (2.6)
------- -------
Total stockholders' equity ........................... 251.1 245.4
------- -------
Total liabilities and stockholders' equity .................. $ 648.9 $ 633.9
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
4
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HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(MILLIONS OF DOLLARS)
(UNAUDITED)
<TABLE>
THREE MONTHS ENDED APRIL 30,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................... $ 6.1 $ 8.3
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Depreciation ............................................... 7.3 6.3
Amortization of intangibles and debt issue costs ........... 1.5 1.5
Increase in deferred taxes ................................. 0.9 1.1
Changes in operating assets and liabilities:
Increase in receivables ................................. (3.8) (16.4)
Decrease in inventories ................................. 5.4 3.1
Decrease in prepaid expenses and other .................. 1.1 0.5
Decrease in accounts payable and accrued liabilities .... (11.1) (13.3)
Decrease (Increase) in other long-term liabilities ...... (1.9) 0.1
------- -------
Cash provided by (used for) operating activities ........ 5.5 (8.8)
Cash flows from investing activities:
Acquisition of property, plant and equipment ............... (23.4) (6.9)
Other, net.... ............................................. (3.5) (1.7)
------- -------
Cash used for investing activities ...................... (26.9) (8.6)
Cash flows from financing activities:
Decrease in foreign bank borrowings and loans .............. (2.9) (2.5)
Dividend paid to stockholders .............................. (0.3) (0.3)
Increase in bank revolving loan & other domestic loans ..... 23.6 27.3
------- -------
Cash provided by financing activities ................... 20.4 24.5
Effect of exchange rate changes on cash and cash equivalents .. -- --
------- -------
Increase (decrease) in cash and cash equivalents ........ (1.0) 7.1
Cash and cash equivalents at beginning of year ................ 1.8 0.5
------- -------
Cash and cash equivalents at end of period .................... $ 0.8 $ 7.6
======= =======
Supplemental data:
Cash paid for interest ..................................... $ 1.2 $ 1.3
Cash paid for income taxes ................................. $ 0.1 $ 0.3
</TABLE>
See accompanying notes to consolidated financial statements.
5
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HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED APRIL 30, 1996 AND 1995
(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 April 30, 1996, and January 31, 1996,
and the results of its operations and cash flows for the three months ended
April 30, 1996 and 1995. The consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1996. Results for interim periods are not necessarily indicative
of those to be expected for the year.
(2) SUMMARY OF ACCOUNTING PRINCIPLES
Effective February 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." The adoption
of SFAS No. 121 did not have a material effect on the Company's financial
statements.
During 1995, the Financial Accounting Standards Board issued Statement No.
123, "Accounting for Stock-Based Compensation". Effective for fiscal years
beginning after December 15, 1995, SFAS No. 123 encourages companies to
include the fair value of any stock awards issued as compensation expense
within their income statements. Companies that choose to remain with
Accounting Principles Board Opinion No. 25 (which uses the intrinsic value
method to account for stock awards) must disclose pro forma net income and
earnings per share as if the fair value of the award had been included as
compensation expense. The Company anticipates remaining with the intrinsic
value method.
(3) INVENTORIES
The major classes of inventory are as follows:
APRIL 30, JAN. 31,
1996 1996
-------- -------
Raw materials........................................ $ 21.4 $ 19.7
Work-in-progress..................................... 13.2 13.5
Finished goods....................................... 17.9 25.7
------ ------
Total....................................... $ 52.5 $ 58.9
====== ======
(4) COMMITMENTS AND CONTINGENCIES
At April 30, 1996, management believes that the Company was in compliance
with its various financial covenants. Management expects that the Company will
remain in compliance with its financial covenants in all material respects
through the period ending April 30, 1997. See Note (5) Subsequent Events for
additional disclosure regarding future contingencies.
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.
6
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HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED APRIL 30, 1996 AND 1995
(UNAUDITED)
(MILLIONS OF DOLLARS UNLESS OTHERWISE STATED)
(5) SUBSEQUENT EVENTS
On March 28, 1996, Hayes and Holdings entered into a definitive merger
agreement (the "Merger Agreement"), pursuant to which (i) Holdings common stock
will be converted into 3,125,000 shares of newly issued common stock of the
Company (the "New Common Stock") and 1,150,000 warrants of the Company (the
"Warrants") with each Warrant entitling the holder thereof to purchase one
share of New Common Stock at a price of $48.00 during the period commencing on
the fourth anniversary of the effective time of the Merger and ending on the
seventh anniversary thereof, (ii) Motor Wheel will become a wholly owned
subsidiary of Hayes and (iii) each outstanding share of common stock of Hayes
will be converted into the right to receive $28.80 in cash and 1/10th of one
share of New Common Stock (collectively, the "Merger"). It is anticipated that
substantially all of Hayes' and Motor Wheel's existing indebtedness will be
refinanced in connection with the Merger. The Merger and the related
transactions are expected to be financed with (i) senior secured credit
facilities (the "Credit Agreement") consisting of term loan facilities (the
"Term Loan Facilities") and a revolving credit facility (the "Revolving Credit
Facility"), (ii) new senior subordinated debt and (iii) new equity investments
(collectively, the "Financing"). In connection with the Merger, Hayes has
commenced a tender offer (the "Debt Tender") to repurchase all $100 million
principal amount of its 9 1/4% Senior Notes due 2002 (the "Hayes Senior Notes")
and Motor Wheel intends to redeem all $125 million principal amount of its
11 1/2% Senior Notes due 2000 (the "Motor Wheel Senior Notes") pursuant to their
terms (the "Motor Wheel Redemption"). The Merger, the Financing, the Debt
Tender and the Motor Wheel Redemption are hereinafter collectively referred to
as the "Transactions." Also, in connection with the Merger, the Company
intends to adopt a new stock option plan, providing for the granting to certain
officers and key employees of stock options to purchase shares in an aggregate
amount not to exceed 10% of the shares of common stock of the surviving
corporation.
In accordance with generally accepted accounting principles, the
transactions contemplated by the Merger Agreement will result in the carryover
of the Company's assets and liabilities at their historical basis. The Company
will account for the Merger with Holdings as a purchase. In connection with the
Merger and related new debt borrowings, all of Holdings' outstanding debt is
expected to be refinanced.
Consummation of the Merger is subject to various conditions, including: (i)
receipt of approval of the Merger Agreement by the stockholders of the Company
and Holdings; (ii) effectiveness of a Registration Statement; (iii) receipt of
the requisite financing; and (iv) satisfaction of certain other conditions.
7
<PAGE> 8
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 1996 COMPARED TO THE THREE MONTHS ENDED APRIL 30,
1995
The Company's net sales for the first quarter of fiscal 1996 decreased by
$3.5 million or 2% compared to the first quarter of fiscal 1995. These results
were due to the strike at General Motors resulting in a sales reduction of
approximately $12 million, largely offset by increased volume at other
customers in North America. Management believes that, excluding the effects of
such strike, the Company's first quarter 1996 net sales would have been higher
than its net sales for the first quarter of 1995, in spite of lower industry
production volumes during the first quarter of 1996. Management believes that
substantially all of such strike-reduced sales will be realized during the
remainder of fiscal 1996. During the last half of fiscal 1995, the Company
launched significant new programs that resulted in increased sales in the first
quarter of 1996.
The Company's gross profit for the first quarter of fiscal 1996 decreased
to $22.6 million or 14.5% of net sales compared to $26.6 million or 16.7% of
net sales for the first quarter of fiscal 1995. The decrease in margin
percentage is attributable to production losses resulting from the General
Motors strike and an equipment issue in March 1996 associated with the
fabricated aluminum line at the Romulus, Michigan facility. The Company has
resolved this production issue while meeting all delivery requirements with
no quality issues.
Engineering and product development expenses increased $0.5 million in the
first quarter of fiscal 1996 as compared to the first quarter of fiscal 1995.
This increase is the result of reduced customer recovery on engineering
expenses relating to the timing of new programs.
Other (income) expense for the first quarter of fiscal 1996 improved $0.7
million from the same period in fiscal 1995. This improvement is due primarily
to timing of the sales of molds in the Company's European operations and the
timing of receipt of royalties from one of the Company's technology licensees.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company provided $5.5 million in cash from operations during the first
quarter of fiscal 1996 an improvement of $14.3 million from the same period in
fiscal 1995. In the first quarter of fiscal 1995, the Company experienced high
working capital usage due to increased sales volume. The improvement between
1995 and 1996 represents a smaller increase in working capital, primarily
accounts receivable, for the first quarter of fiscal 1996 due to lower sales.
Capital expenditures for the quarter amounted to $23.4 million. These
capital expenditures included the acquisition of machinery and equipment
primarily for additional production capacity at our North American facilities
to meet future customer requirements for fabricated aluminum and FFM wheels.
The Company anticipates that total capital expenditures for fiscal 1996 will be
approximately $68.0 million.
The Company is a party to an unsecured credit agreement providing (a) a
two-year term facility of $80 million, which expires and converts to a four-
year term loan on March 31, 1997, and (b) a five-year revolving facility of
$100 million, including unused capacity for letters of credit totaling $8
million, which expires on March 31, 2000, at which time all loans outstanding
thereunder are payable in full. As of April 30, 1996, the Company had available
borrowing capacity under this agreement of $157.1 million, including unused
letters of credit totaling $5.1 million. The Company has also established other
daily unsecured lines of credit. As of April 30, 1996, there was $32.2 million
outstanding under these lines. The Company also has outstanding $100,000,000
principal amount of 9 1/4% Senior Notes due 2002. It is expected that all of
the indebtedness described in this paragraph will be refinanced, as described
below, when the Merger, described in Note 5 to the Notes to Financial
Statements, is consummated.
At April 30, 1996, management believes that the Company was in compliance
with its various financial covenants under the agreements pursuant to which it
may currently borrow money. Management expects that the Company will remain in
material compliance with these as long as such agreements remain in effect.
8
<PAGE> 9
Approximately $902.0 million (which amount has been estimated assuming the
Merger and related transactions occurred as of April 30, 1996) is expected to be
required to finance the transactions contemplated by the Merger Agreement
(including the cash consideration in the merger of $28.80 per share of the
Company's common stock to be paid to the holders thereof and the refinancing of
the Company's and Holdings' existing indebtedness). The Company and Holdings
currently anticipate that such transactions will be funded by (a) the proceeds
of the sale by the Company for $200 million of 200,000 shares of its Series A
Preferred Stock, par value $0.01 per share (which will be converted, into
6,250,000 shares of New Common Stock in connection with the merger)
and warrants, each warrant entitling the holder thereof to purchase one
share of the New Common Stock at $48.00 per share, commencing on the fourth
anniversary of the Effective Time of the Merger and ending on the seventh
anniversary thereof, (b) approximately $452.0 million of bank borrowings by the
Company pursuant to senior secured credit facilities with a group of banks led
by Canadian Imperial Bank of Commerce and Merrill Lynch Capital Corporation,
which facilities will provide for aggregate commitments of up to $645.0 million
and (c) the proceeds of the public offering by the Company of $250 million of
senior subordinated notes. The Company and Holdings are currently arranging
such financing and, if such financing is obtained on the terms currently
contemplated, the Company and Holdings believe that it will be sufficient to
fund the transactions contemplated by the Merger Agreement and to provide for
the surviving corporation's expected working capital needs. The Company and
Holdings expect that the terms of the financing, which include certain operating
and financial restrictions, and the increased indebtedness and higher leverage
ratio of the Company following the Merger, may have the effect of reducing the
flexibility of the Company to respond to changing business and economic
conditions, as well as limiting capital expenditures. The Company expects that
amounts borrowed in connection with such financing will be repaid from cash flow
generated by the Company's operations. If the Merger is consummated, the
declaration of regular quarterly dividends will be discontinued.
In the event that the Merger is not consumated, during the next five
years, the Company believes that its cash requirements for working capital,
capital expenditures, dividends (if any), interest and debt repayments will be
met through internally generated funds and utilization of available borrowing
sources.
9
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security-Holders
None.
10
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Item 5. Other Information
First Quarter Pro Forma Combined Condensed Financial Data
The Unaudited Pro Forma Combined Statement of Operations of the Company for
the three months ended April 30, 1996 (the "Pro Forma Statements of
Operations") and the Unaudited Pro Forma Combined Balance Sheet of the Company
as of April 30, 1996 (the "Pro Forma Balance Sheet" and, together with the Pro
Forma Statement of Operations, the "Pro Forma Financial Statements") have
been prepared to illustrate the estimated effect of the Transactions and the
Holdings 1995 Recapitalization. The Pro Forma Financial Statements do not
reflect any expected cost savings from the Motor Wheel plant closures and
capacity rationalizations that have been completed or are substantially underway
(the "Motor Wheel Restructuring") or synergies that are expected to result from
the Transactions. The Pro Forma Statement of Operations give pro forma effect
to the Transactions and the Holdings 1995 Recapitalization as if they had
occurred on February 1, 1996. The Pro Forma Balance Sheet gives pro forma
effect to the Transactions as if they had occurred on April 30,1996. The Pro
Forma Financial Statements do not purport to be indicative of the results of
operations or financial position of the Company that would have actually been
obtained had such transactions and the Holdings 1995 Recapitalization been
completed as of the assumed dates and for the period presented, or which may be
obtained in the future. The pro forma adjustments are described in the
accompanying notes and are based upon available information and certain
assumptions that Hayes and Holdings management believe are reasonable.
11
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HAYES WHEELS INTERNATIONAL, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(IN MILLION OF DOLLARS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA (A)(B)(C)
---------------------------------------- -------------------------------------
COMPANY HOLDINGS
THREE MONTHS ENDED THREE MONTHS ENDED ADJUSTMENTS COMBINED
APRIL 30, 1996 MARCH 31, 1996
-------------------------------------------------------------------------------
(SEE NOTE 1)
<S> <C> <C> <C> <C>
Net sales $156.2 $79.6 -- 235.8
Cost of goods sold 133.6 73.5 (2.1)(D) 205.0
----- ----- ----- -----
Gross profit 22.6 6.1 2.1 30.8
Marketing, general and administration 7.8 4.1 (0.5)(E) 11.4
Engineering and product development costs 1.8 1.3 (0.4)(E) 2.7
Other expense (income), net (0.5) 0.6 -- 0.1
----- ----- ----- -----
Earnings (loss) from operations 13.5 0.1 3.0 16.6
Interest expense 3.6 4.3 9.9 (F) 17.8
----- ----- ----- -----
Earning (loss) before taxes on income 9.9 (4.2) (6.9) (1.2)
Income tax provision (benefit) 3.8 -- (4.3)(G) (0.5)
----- ----- ----- -----
Net income (loss) $6.1 ($4.2) ($2.6) ($0.7)
----- ----- ----- -----
Earnings (loss) per share (H) $0.35 ($3,843) ($0.63)
OPERATING AND OTHER DATA:
EBITDA (1) (H) $22.3 $5.5 $1.6 $29.4
Depreciation and amortization 8.8 4.5 (1.4) 11.9
Capital expenditures, tooling and dunnage 23.4 2.5 -- 25.9
Cash interest expense 3.4 4.1 -- 7.5
SELECTED RATIOS:
Ratio of earning to fixed charges (I) 3.3 -- -- -- (J)
PRO FORMA RECONCILIATION OF EBITDA
Earnings (loss) from operations $13.5 $0.1 $3.0 $16.6
Add: Non-cash other expense (income), net -- 0.9 -- 0.9
depreciation and amortization 8.8 4.5 (1.4) 11.9
----- ----- ----- -----
EBITDA (H) $22.3 $5.5 $1.6 $29.4
Cash flow provided from (used by):
Operations 5.5 (5.9) (3.6) (4.0)
Investing activity (26.9) (2.5) -- (29.4)
Financing activity 20.4 7.3 -- 27.7
</TABLE>
(1). EBITDA represents the sum of income before interest expense, preferred
dividends of subsidiary and income taxes, plus depreciation and amortization,
nonrecurring charges, and other non-cash income and expense. EBITDA should not
be construed as a substitute for income from operations, net income, or cash
flow from operating activities, for the purpose of analyzing the Company's
operating performance, financial position and cash flows. The Company has
presented EBITDA because it is commonly used by investors to analyze and
compare companies on the basis of operating performance and to determine a
company's ability to service debt.
12
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NOTE (1): NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(DOLLARS IN MILLIONS)
(A) The Company's first quarter 1996 results were significantly affected by the
17-day General Motors strike during February of this year. Management
believes that, excluding the effects of such strike, the Company's first
quarter 1996 net sales would have been higher than its net sales for the
first quarter of 1995, in spite of lower industry production volumes
during the first quarter of 1996. Management believes that substantially
all of such strike-reduced sales will be realized during the remainder of
fiscal 1996.
(B) The Pro Forma Statement of Operations assumes that the Transactions and
the Holdings 1995 Recapitalization occurred on February 1, 1996. For
purposes of the Pro Forma Statement of Operations for the three months
ended April 30, 1996, Holdings' historical statement of operations for the
three months ended March 31, 1996 was combined with the Company historical
statement of operations for the three months ended April 30, 1996.
(C) The Company expects to incur a $8.0 million premium to repurchase its
$100 million of Senior Notes outstanding, to write off $3.5 million of
deferred debt issuance costs, to write-off $2.5 million of deferred
licensing fees to Holdings and to expense $3.1 million of nonrecurring
costs in conjunction with the settlement of outstanding Company management
stock options. These costs and their tax impact have not been included in
the Pro Forma Statement of Operations because they are nonrecurring.
Holdings expects to incur a $7.2 million premium associated with the
redemption of its $125 million principal amount of Senior Notes
outstanding and to write off deferred debt issuance costs of $2.8 million
which are recorded as liabilities under purchase accounting in the Pro
Forma Balance Sheet at April 30, 1996.
(D) The acquisition of Holdings will be accounted for by the purchase method
of accounting. Under purchase accounting, the total purchase price will
be allocated to the tangible and intangible assets and liabilities of
Holdings based upon their respective fair values as of
13
<PAGE> 14
the closing date based upon valuations and other studies which are not yet
available. A preliminary allocation of the purchase price has been made to
major categories of assets and liabilities in the accompanying Pro Forma
Financial Statements based on available information. The actual allocation
of purchase price and the resulting effect on income from operations may
differ significantly from the pro forma amounts included herein. These pro
forma adjustments represent the Company and Holdings management's
preliminary determination of purchase accounting adjustments and are based
upon available information and certain assumptions that Hayes and Holdings
believe to be reasonable. Consequently the amounts reflected in the Pro
Forma Balance Sheet are subject to change, and the final amounts may differ
substantially. The following presents the effects of the purchase
adjustments and adjustments to reflect adoption of the Company's accounting
policies and pension and post-retirement benefit cost assumptions on the
Pro Forma Statement of Operations:
<TABLE>
Cost of sales
-------------
<S> <C>
Depreciation $(2.8)
Reduction in postretirement benefit costs (0.7)
Amortization of intangible assets and goodwill 1.4
-----
Total decrease $(2.1)
</TABLE>
The adjustments for estimated pro forma depreciation and amortization of
intangible assets and goodwill are based on their estimated fair values.
Property, plant and equipment is expected to be depreciated over estimated
useful lives. Holdings currently depreciates the $217 million of
historical cost of its assets over a composite life of 14 years resulting
in $4.5 million of quarterly depreciation, accumulated depreciation of
$140.2 million and a net book value of $77 million. Upon consummation of
the Transactions, the fair value of assets acquired is estimated to be $97
million. This amount will be depreciated over 25 years for buildings and
12 years for equipment, consistent with Hayes' depreciation policy for used
equipment and Hayes' estimate of the remaining economic life of the assets.
($1.7 of depreciation for the quarter) Other intangible assets and goodwill
are expected to be amortized over their estimated useful lives, not to
exceed 40 years. For pro forma purposes, a 35 year composite amortization
life has been used.
(E) As part of its Restructuring, Holdings permanently terminated
approximately 50 corporate positions and eliminated certain salaries and
related costs associated with its Okemos, Michigan corporate
headquarters. The savings related to the elimination of these salaries
and related costs are as follows:
<TABLE>
<S> <C>
Marketing, general and administrative $ (0.5)
Engineering and product development (0.4)
------
Total savings $ (0.9)
</TABLE>
(F) Reflects adjustments for the additional interest expense assuming the
transactions occurred on February 1, 1996. The change in interest
expense, in addition to amortization of deferred financing costs, reflect
changes in long term borrowings and their rates expected to be in effect
as of the Closing Date as follows:
<TABLE>
<CAPTION>
Pro Forma
Interest
Amount Rate Expense
------- -------- --------
<S> <C> <C> <C>
Revolving Credit Facility $ 27.0 8.50% $ 0.6
Term debt A 200.0 8.50% 4.2
Term debt B 125.0 9.00% 2.8
Term debt C 100.0 9.50% 2.4
Senior subordinated debt 250.0 10.50% 6.6
Existing European debt 1.3 11.50% -
Unused revolver commitment 0.3
Administrative fee 0.1
------
$ 17.0
Amortization of capitalized financing fees 0.8
------
Total pro forma interest expense $ 17.8
Less:
Historical Holdings interest expense (4.3)
Historical Hayes interest expense (3.6)
------
Total historical interest expense (including amortization of
financing fees) (7.9)
------
Total pro forma interest expense adjustment $9.9
------
</TABLE>
The Company estimates that an increase or decrease in interest rates on
floating rate debt of 0.125 percent would increase or decrease interest
expense by $143,750. The Company anticipates entering into interest rate
caps or swaps with respect to a portion of the floating rate debt to
mitigate the effect of interest rate fluctuations.
(G) Adjustments to reflect income tax effects assuming a combined effective
state and federal statutory income tax rate of 39%.
14
<PAGE> 15
(H) The historical financial statements of Hayes and Holdings include various
nonrecurring charges and other charges and cost savings related to the
implementation of the Motor Wheel Restructuring which has been implemented
and is currently underway, the effects of which have not been included in
the Pro Forma Combined Statement of Operations. The effect of these
nonrecurring items on the pro forma combined statement of operations is as
follows:
Pro forma combined net loss $(0.7)
Supplemental adjustments:
Plant consolidation cost savings (1) 6.6
Tax effect of supplemental adjustments @39% (2.6)
-----
Supplemental pro forma combined net income $ 3.3
-----
EBITDA reconcilation:
Pro forma combined EBITDA $29.4
Plant consolidation cost savings (1) 6.6
-----
Supplemental pro forma combined EBITDA $36.0
Ratio of Supplemental pro forma combined EBITDA
to cash interest expense 2.1x
(1) Holdings has specifically identified additional reductions in cost of
sales related to the consolidation and work force
rationalization plans announced during 1994 and 1995. Holdings
anticipates realizing significant cost savings related to reduced
labor costs, head count reductions, and the elimination of redundant
fixed overhead costs resulting from the closure of certain facilities
and the transfer of production to other Holdings' facilities. In
1994, Holdings recorded provisions related to plant closure matters
associated with its production facilities in Lansing, Michigan and
Luckey, Ohio. In 1995, Holdings recorded additional provisions
totaling $33.0 million related to plant closures of its Mendota,
Illinois and Ypsilanti, Michigan facilities. This plant closure
provision has been reflected as a non recurring charge in Holdings'
historical financial statements. The foregoing plant closure
provisions are expected to be funded from the future cash flow of
Holdings or, following the merger, the future cash flow of the
Company. The primary cost savings related to the four plant closures
for the quarter which are not already reflected in Holdings'
historical financial statements are summarized below:
Net payroll and benefit reductions $4.7
Manufacturing fixed cost reductions 1.9
-------
Total savings $6.6
-------
Manufacturing fixed cost reductions include utilities, repairs and
maintenance, property taxes and other direct costs associated with the
closed facilities.
The foregoing cost savings are not expected to be fully realized prior to
1997.
(I) For the purpose of computing this ratio, earnings consist of earnings
before taxes on income and fixed charges. Fixed charges consists of
interest expense, capitalized interest, amortization of deferred debt
issuance costs and one third of rental expense.
(J) On a pro forma combined basis for the quarter ended April 30, 1996,
earnings were insufficient to cover fixed charges by $1.2 million.
15
<PAGE> 16
HAYES WHEELS INTERNATIONAL, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
IN MILLIONS OF DOLLARS
<TABLE>
<CAPTION>
Company Holdings Pro Pro
April 30 March 31 Forma Forma
1996 1996 Adjustments Combined
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash $ 0.8 $ 0.3 $ 45.0 (A) $ 46.1
Trade accounts and Notes Receivable 113.4 32.0 145.4
Inventories 52.5 34.1 3.8 (B) 90.4
Other current assets 8.8 4.3 13.1
------ ------ ------ --------
CURRENT ASSETS 175.5 70.7 48.8 295.0
Property, Plant, and Equipment 320.9 76.9 20.0 (B) 417.8
Other noncurrent assets 39.6 16.7 (13.0) (B) 43.3
Deferred tax 0.0 0.0 35.6 (B) 35.6
Deferred financing costs 3.5 2.8 19.7 (A),(B),(C) 26.0
Goodwill 109.4 0.0 188.7 (B) 298.1
------ ------ ------ --------
TOTAL ASSETS $648.9 $167.1 $299.8 $1,115.8
====== ====== ====== ========
Current portion of debt and notes $ 1.3 $ 12.0 ($12.0) (D) $ 1.3
Trade accounts payable 76.8 28.5 105.3
Accrued liabilities 38.3 22.1 (6.7) (C) 53.7
New debt 0.0 0.0 27.0 (A) 27.0
------ ------ ------ --------
CURRENT LIABILITIES 116.4 62.3 8.3 187.3
Restructuring reserve--noncurrent 0.0 22.1 22.1
Pension and other LT liabilities 80.0 38.9 40.2 (B) 159.1
Other noncurrent liabilities 0.0
Deferred tax liability, net 48.9 0.0 48.9
Senior debt--less current portion 152.5 125.0 (277.5) (A),(F) 0.0
New senior debt 425.0 (A) 425.0
Subordinated debt 250.0 (A) 250.0
------ ------ ------ --------
TOTAL LIABILITIES 397.8 248.6 446.0 1,092.4
Paid in capital 198.5 30.5 60.0 (E),(F) 289.0
Preferred stock 0.0 0.0 0.0
Common stock 0.2 0.0 0.2
Retained earnings 55.6 (112.0) (206.2)(C),(F) (262.6)
FCTA and other (3.2) 0.0 (3.2)
------ ------ ------ --------
TOTAL EQUITY 251.1 (81.5) (146.2) 23.4
------ ------ ------ --------
TOTAL LIABILITIES AND EQUITY $648.9 $167.1 $299.8 $1,115.8
====== ====== ====== ========
</TABLE>
16
<PAGE> 17
NOTES TO THE PRO FORMA BALANCE SHEET
(A) Reflects the estimated sources and uses of funds for the Transaction as
follows:
<TABLE>
<S> <C>
Sources of Funds:
New investors' cash equity investment $ 200.0
Term loan facilities 425.0
Senior subordinated notes 250.0
Revolving credit facility 27.0
------
Total Sources $ 902.0
======
Uses of Funds:
Cash consideration $ 506.1
Refinance outstanding domestic indebtedness of the Company 152.5
Refinance outstanding obligations of Holdings 137.0
Estimated financing fees and interest rate cap 26.0
Estimated debt tender and call premiums 15.2
Estimated professional fees and expenses 15.0
Company and Holdings managment stock options 5.2
Working capital 45.0
-------
Total Uses $ 902.0
=======
</TABLE>
(B) The estimated purchase price and preliminary adjustments to
historical book value of Holdings as a result of the Transactions
are as follows:
Purchase price:
Estimated value of stock and warrants issued $104.0
Book value of net liabilities acquired 81.5
------
Purchase price in excess of net liabilities acquired $185.5
======
Preliminary allocation of purchase price in excess of net liabilities acquired:
Increase in inventory to estimated fair value $ 3.8
Increase in property, plant and equipment to estimated fair value 20.0
Increase in pension and post retirement liabilities (40.2)
Increase in deferred tax assets 35.6
Estimated goodwill 188.7
Write-off of deferred financing asset (2.8)
Increase in accrued liabilities to reflect call premium and
settlement of management stock options (see (F) below) (9.3)
Adjustment to other noncurrent assets (10.3)
------
Total $185.5
======
(C) Represents one of the two adjustments to retained earnings:
Repurchase of common stock $(506.1)
Reversal of paid-in capital included in (E) below 198.5
Elimination of deferred licensing fee to Holdings (i) (2.7)
Deferred financing costs (ii) (3.5)
Estimated tender Premium (iii) (8.0)
Company management stock options (iv) (3.1)
Add: Tax effect related to items (i), (ii),
(iii) and (iv) 6.7
-------
Total $(318.2)
17
<PAGE> 18
(D) Transition proceeds will be used to repay the following obligations of
Holdings:
Estimated tender premium on debt and management stock options $ 9.3
Current portion of debt and notes 12.0
Senior Notes 125.0
------
Total $146.3
======
(E) Represents one of the two adjustments to the paid-in capital
account:
Elimination of paid-in capital $(198.5)
Increase in paid-in capital from issuance of
new common stock 200.0
Estimated professional fees and expenses (15.0)
-------
Total $ (13.5)
=======
(F) The adjustments to paid-in capital and retained earnings as a result of the
acquisition of Holdings as described in Note (B) is as follows (See Note(C)
and (E) for additional adjustments to paid-in capital and retained earnings
as a result of the Transactions):
Paid in Capital:
Elimination of Holdings paid-in capital $(30.5)
Value of common stock and warrants issued 104.0
------
Total 73.5
======
Retained Earnings:
Elimination of Holding's pre-business combination retained deficit $112.0
======
18
<PAGE> 19
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
-------------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated March 28, 1996
with respect to the Agreement and Plan of Merger dated as of March 28, 1996, by
and between Hayes Wheels International, Inc. and MWC Holdings, Inc.
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 WHEELS INTERNATIONAL, INC.
June 7, 1996 By: /s/ William D. Shovers
-----------------------------
William D. Shovers
Vice President--Chief Financial Officer
and Principal Accounting Officer
19
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Page
- ------- ----------- ----
<S> <C> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> APR-30-1996
<CASH> 800
<SECURITIES> 0
<RECEIVABLES> 113,400
<ALLOWANCES> 0
<INVENTORY> 52,500
<CURRENT-ASSETS> 175,500
<PP&E> 438,200
<DEPRECIATION> (117,300)
<TOTAL-ASSETS> 648,900
<CURRENT-LIABILITIES> 116,400
<BONDS> 0
0
0
<COMMON> 200
<OTHER-SE> 250,900
<TOTAL-LIABILITY-AND-EQUITY> 648,900
<SALES> 156,200
<TOTAL-REVENUES> 156,200
<CGS> 133,600
<TOTAL-COSTS> 133,600
<OTHER-EXPENSES> 9,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,600
<INCOME-PRETAX> 9,900
<INCOME-TAX> 3,800
<INCOME-CONTINUING> 6,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,100
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
</TABLE>
