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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 1996 COMMISSION FILE NUMBER: 1-11592
HAYES WHEELS INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION
OF INCORPORATION OR ORGANIZATION)
13-3384636
(I.R.S. EMPLOYER IDENTIFICATION NO.)
38481 HURON RIVER DRIVE, ROMULUS, MICHIGAN
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
48174
(ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (313) 941-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS
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COMMON STOCK, PAR VALUE $.01 PER SHARE
NAME OF EACH EXCHANGE
ON WHICH REGISTERED
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NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
9 1/4% SENIOR NOTES DUE NOVEMBER 15, 2002
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 / /
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. /X/
THE AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT AS OF APRIL 15, 1996 (BASED ON THE CLOSING PRICE OF THE REGISTRANT'S
COMMON STOCK REPORTED ON THE NEW YORK STOCK EXCHANGE COMPOSITE TAPE ON SUCH
DATE), WAS APPROXIMATELY $284 MILLION.
THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF APRIL 15, 1996, WAS
17,574,000 SHARES.
DOCUMENTS INCORPORATED BY REFERENCE
NONE.
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HAYES WHEELS INTERNATIONAL, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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PART I
Item 1. Business. ............................................................... 1
Item 2. Properties. ............................................................. 8
Item 3. Legal Proceedings. ...................................................... 8
Item 4. Submission of Matters to a Vote of Security Holders. .................... 9
Supplemental Information
Executive Officers of the Registrant. ................................... 9
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters. .............................................................. 12
Item 6. Selected Financial Data. ................................................ 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations. ........................................................ 13
Item 8. Consolidated Financial Statements and Supplementary Data. ............... 16
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure. ........................................................... 16
PART III
Item 10. Directors and Executive Officers of the Registrant. ..................... 17
Item 11. Executive Compensation. ................................................. 18
Item 12. Security Ownership of Certain Beneficial Owners and Management. ......... 23
Item 13. Certain Relationships and Related Transactions. ......................... 25
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. ........ 28
Signatures. ........................................................................ 30
</TABLE>
THIS ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN FORWARD LOOKING STATEMENTS
WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. ANY
STATEMENTS CONTAINED HEREIN THAT ARE NOT STATEMENTS OF HISTORICAL FACT MAY BE
DEEMED TO BE FORWARD LOOKING STATEMENTS, INCLUDING, WITHOUT LIMITATION,
STATEMENTS INDICATING THAT THE COMPANY OR ITS MANAGEMENT "BELIEVES,"
"CONSIDERS," "ANTICIPATES," "PLANS" OR "EXPECTS" A SPECIFIED RESULT OR EVENT TO
OCCUR OR A SPECIFIED ACTION TO BE TAKEN, OR ANY OTHER STATEMENTS BY THE COMPANY
OR MANAGEMENT RESPECTING THE FUTURE. THE MATTERS REFERRED TO IN SUCH FORWARD
LOOKING STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT MAY CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE SET FORTH IN SUCH STATEMENTS, MAY CAUSE
SPECIFIED EVENTS NOT TO OCCUR OR MAY PREVENT SPECIFIED ACTIONS FROM BEING TAKEN
(OR IF TAKEN, MAY AFFECT THEIR INTENDED OR EXPECTED RESULTS); THESE RISKS AND
UNCERTAINTIES INCLUDE, WITHOUT LIMITATION, CHANGES IN ECONOMIC CONDITIONS,
CHANGES IN CUSTOMER PLANS AND COMMITMENTS, THE COMPANY'S DEPENDENCE ON THE
AUTOMOTIVE INDUSTRY (WHICH HAS HISTORICALLY BEEN CYCLICAL), THE PRICING AND
AVAILABILITY OF EQUIPMENT AND MATERIALS, TECHNOLOGICAL DEVELOPMENTS, THE
COMPETITIVE NATURE OF THE COMPANY'S BUSINESS, CHANGES IN THE FINANCIAL MARKETS
AFFECTING THE COMPANY'S FINANCIAL STRUCTURE AND THE COMPANY'S COST OF CAPITAL
AND BORROWED MONEY, THE RESTRICTIONS TO BE IMPOSED UPON THE SURVIVING
CORPORATION UNDER ITS SENIOR SECURED CREDIT FACILITIES FOLLOWING THE MERGER (AS
DEFINED HEREIN), THE UNCERTAINTIES INHERENT IN INTERNATIONAL OPERATIONS AND
FOREIGN CURRENCY FLUCTUATIONS. IN ADDITION, THESE FORWARD LOOKING STATEMENTS MAY
BE SIGNIFICANTLY AFFECTED IF THE MERGER IS CONSUMMATED. THE COMPANY HAS NO DUTY
UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 TO UPDATE THE FORWARD
LOOKING STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-K AND THE COMPANY DOES NOT
PLAN TO PROVIDE SUCH UPDATES.
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PART I
ITEM 1. BUSINESS.
GENERAL
Hayes Wheels International, Inc. and subsidiaries (collectively, the
"Company," unless the context requires otherwise) is a world leader in the
manufacture, design and supply of wheels to original equipment manufacturers
("OEMs") of passenger cars and light trucks. On March 28, 1996, the Company
entered into an Agreement and Plan of Merger (the "Merger Agreement") with MWC
Holdings, Inc. ("Holdings"), pursuant to which Holdings will merge with and into
the Company (the "Merger"), with the Company as the surviving corporation (the
"Surviving Corporation"). By virtue of the Merger, each outstanding share of the
Company's Common Stock ("Common Stock") will be converted into the right to
receive $28.80 in cash and one-tenth of one share of the common stock of the
Surviving Corporation. Consummation of the Merger is subject to the satisfaction
of a number of conditions, including stockholder approvals, regulatory approvals
and receipt of requisite financing. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations"; "Item 12. Security
Ownership of Certain Beneficial Owners and Management -- Changes in Control";
and Note 17 of the Notes to Consolidated Financial Statements in the financial
statements filed herewith. Except to the extent specified, the information in
this Annual Report on Form 10-K does not give effect to the Merger.
The Company considers its operations to constitute a single segment
operating in two geographic areas (North America and Europe). Certain
information concerning the Company's operating data and identifiable assets by
geographic area for the three years ended January 31, 1996, 1995 and 1994
("Fiscal 1995," "Fiscal 1994" and "Fiscal 1993", respectively) is contained in
Note 15 of the Notes to the Consolidated Financial Statements in the financial
statements filed herewith. The Company believes that it is the largest
independent supplier of fabricated steel and fabricated aluminum wheels in North
America, the largest supplier of cast aluminum wheels in Europe and the second
largest supplier of cast aluminum wheels in North America. The Company operates
in Europe through a wholly owned subsidiary in Italy and a 45% owned joint
venture in the Czech Republic.
The Company competes directly with other independent wheel manufacturers
and also with OEM captive wheel manufacturers. The Company estimates that,
during Fiscal 1995, it supplied approximately 23% of cast aluminum wheels
purchased by OEMs in North America and approximately 15% of cast aluminum wheels
purchased by OEMs in Europe. Of its North American production of cast aluminum
wheels during Fiscal 1995, the Company sold approximately 9% to Japanese
manufacturers operating in North America ("Japanese Transplants") and exported
approximately 6% to OEMs in Japan. During Fiscal 1995, the Company estimates
that it produced approximately 39% of all fabricated steel wheels purchased by
OEMs in North America, excluding wheels purchased by OEMs from their captive
wheel manufacturers, and approximately 28% of such wheels, when purchases from
captive suppliers are included.
In Fiscal 1995, approximately 60% of the Company's consolidated net sales
were attributable to cast aluminum wheels (approximately 77% of which sales were
made in North America, and approximately 23% of which were made in Europe) and
approximately 40% were attributable to fabricated steel and fabricated aluminum
wheels (all of which wheels were made in the United States). The Company's cast
aluminum wheels made in the United States are sold to General Motors, Ford,
Chrysler, Japanese Transplants and are also exported to automobile manufacturers
in Japan. The Company's Japanese customers include Nissan, Isuzu and Mazda. The
Company manufactures cast aluminum wheels in Italy and Spain for sale to various
automobile manufacturers in Europe, including BMW, Fiat, Ford of Europe, Renault
and Porsche. The Company's fabricated wheels are currently produced in the
United States for North American manufacturers (principally General Motors, Ford
and Chrysler). The Company derived approximately 80% of its revenues from sales
made to General Motors, Ford and Chrysler in Fiscal 1995. The loss of all or a
substantial portion of these sales could have a material adverse effect on the
Company's business.
Substantially all of the Company's wheels are produced for sale to OEMs
that manufacture passenger cars and light trucks. A portion of the remainder of
its wheels are produced for sale in the aftermarket as replacement parts that
are sold to the service systems of OEMs and their dealers and to other
customers. The Company also supplies cast aluminum motorcycle wheels to BMW in
Europe.
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Raw materials and component parts used in the Company's manufacturing
operations are those commonly used in such operations, of which adequate
supplies are available. The Company is generally not dependent on long-term
supply contracts and has available to it alternate sources for raw materials and
component parts.
The Company is dedicated to the continued development of new and improved
wheels and related products either through its own engineering efforts or joint
ventures with other parties, including styled steel wheels, light-weight
fabricated aluminum wheels, Full Face Modular ("FFM(R)") wheels and clad-covered
wheels. The Company's North American wheel engineering, design, and advanced
research and development groups are located in Romulus, Michigan. All research,
development and engineering relating to the Company's European aluminum wheel
operations is conducted at its Dello, Italy, facility.
Supported by computer-aided design and manufacturing, as well as
finite-element analysis tools, the Company is investigating specific wheel
designs for lighter-weight wheels that help reduce overall vehicle weight and
provide more attractive styling variations. To ensure that new, lighter-weight
products are sufficiently durable to meet vehicle requirements, the Company
performs fatigue tests that put prototype wheels through the equivalent of
thousands of miles of road use before they reach the manufacturing stage. To
ensure longevity of wheels, salt-spray and other environmental tests are
conducted on coated wheels.
During Fiscal 1995, Fiscal 1994 and Fiscal 1993, the Company spent
approximately $2.3 million, $2.2 million and $1.8 million, respectively, on
research and development.
The Company owns numerous patents and trademarks and has patent licenses
from others relating to its products and manufacturing methods. The Company also
grants patent and trademark licenses to others throughout the world and receives
royalties under most of these licenses. While the Company does not consider any
particular patent or group of patents to be essential to its business as a
whole, it considers its patents to be of some significance to the conduct of its
business in certain product areas. In addition, the Company relies on
proprietary data and processes, including trade secrets and know-how, and
depends, to some extent, on such information remaining confidential.
The Company's business originated with Hayes Wheel, founded in 1908 by
Clarence Hayes, and K.H. Wheel Company, founded in 1909 by John Kelsey and John
Herbert, which produced wooden-spoked wheels for automobiles such as Henry
Ford's Model T. These companies merged in 1927 to form Kelsey-Hayes Wheel
Corporation, which was reorganized in 1933 into Kelsey-Hayes Wheel Company, to
which the Company succeeded by virtue of a merger in 1986. Varity Corporation
("Varity") acquired the Company in 1989 through the acquisition of K-H
Corporation ("K-H"), which was then the sole stockholder of the Company. In
December 1992, the Company consummated an initial public offering of its Common
Stock (the "IPO"). Varity continues to own, indirectly through K-H, 46.3% of the
outstanding Common Stock of the Company. As a result, Varity is able to exert
substantial influence in connection with the election of the Board of Directors
of the Company and any matters submitted to the holders of Common Stock of the
Company for determination by vote. In connection with the Merger Agreement,
Varity has entered into a Stock Option Agreement with Holdings (the "Stock
Option Agreement") pursuant to which Varity has caused K-H to grant to Holdings
an option, exercisable upon the occurrence of certain events, to purchase all
shares of the Company's Common Stock owned by Varity through K-H at a price of
$32.00 per share or such higher price as is paid in the Merger to the Company's
stockholders. Moreover, pursuant to the Stock Option Agreement, K-H has granted
to certain directors of Holdings a proxy to vote such shares of Common Stock for
approval and adoption of the Merger Agreement and against any proposal or
transaction which could prevent or delay the consummation of the transactions
contemplated by the Merger Agreement.
Prior to the IPO, the non-wheel businesses and assets of the Company,
particularly its automotive brake systems business and assets, were transferred
to, and certain liabilities related thereto were assumed by, a wholly owned
subsidiary of the Company, Kelsey-Hayes Company ("Kelsey-Hayes"), the capital
stock of which was then transferred by the Company to K-H as an extraordinary
dividend (the "Reorganization"). Kelsey-Hayes has agreed to indemnify the
Company for certain liabilities related to the transferred businesses and
assets. The Company has agreed to indemnify Kelsey-Hayes for certain liabilities
related to the businesses and assets retained by the Company. See "Item 13.
Certain Relationships and Related Transactions", below.
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INDUSTRY
Wheels for passenger cars and light trucks are generally made of steel or
aluminum. Steel and aluminum offer OEMs a range of options. Steel wheels, which
are heavier than aluminum wheels, are generally low-cost, high-volume production
items that consist of two separate pieces (a rim and a center) welded together.
The Company also manufactures more expensive styled full-faced steel wheels,
with clear, colored or chrome finish. "Full-faced" refers to a design approach
in which the styling effect is obtained by forming the entire face of the wheel
into a one-piece styled design that is then welded onto a partial rim assembly
to form a complete wheel. Aluminum wheels are generally lighter in weight, more
readily styled and more expensive than steel wheels and are manufactured by the
Company as single-piece cast aluminum wheels, fabricated aluminum or FFM(R)
wheels, which are made from two separate pieces (a fabricated rim and a cast
center) welded together. The Company's fabricated aluminum wheels are similar in
design to fabricated steel wheels. Though not as highly styled as cast aluminum
wheels, they are lighter in weight than fabricated steel wheels.
OEMs typically specify the features of a wheel, whether steel or aluminum,
which will be used for a particular model, either as standard equipment or as an
option. Among the features specified by OEMs are weight, style, color and
finish. The OEM will ordinarily designate one supplier of a particular wheel for
a vehicle model, although a particular vehicle model may utilize a number of
different wheels produced by one or more suppliers. The process of being
designated as a supplier of a particular wheel often occurs several years before
initial vehicle production. A potential supplier must first develop a wheel
design based on styling and engineering specifications provided by the OEM.
After a comprehensive engineering and feasibility review, the OEM will then
designate a specific supplier for a particular wheel that meets the OEM's cost,
quality and engineering specifications for particular vehicle models. Once
regular production begins on a particular wheel model, the life-of-the-wheel
design is dependent upon the life cycle of the vehicle model. As a result of the
lengthy development process, combined with the typical OEM practice of
maintaining a particular supplier for the life of a wheel model, increases or
decreases in sales to a particular OEM and corresponding changes in market share
normally occur over an extended period of time.
The Company continues to offer its customers a wide range of products
including a low-cost base steel wheel, a styled chromed steel wheel, a highly
styled cast aluminum wheel, a low-weight fabricated aluminum wheel and finally,
an FFM(R), two-piece aluminum wheel which provides both high styling and lighter
weight. The Company believes that its depth of product offering and
manufacturing capability enhance its ability to support a full vehicle platform
with any wheel desired by a customer.
In an effort to increase the quality of the vehicles they produce, OEMs
continue to increase the quality demands on their component suppliers. Each OEM
has a structured program and rating system for quality and grants awards to
suppliers for achieving the standards imposed by these systems. Examples include
Ford's Q-l, General Motors' Targets for Excellence and Chrysler's QE and
Pentastar. Once a supplier receives a quality award, the supplier retains the
award level, subject to continuing favorable review by the OEM. The Company
endeavors to meet and exceed the quality demands of the OEMs. All of the
Company's manufacturing facilities have received quality awards.
Recently, the domestic automotive industry has adopted new standards for
quality ratings. These are collectively referred to as "QS 9000". Each of the
"Big Three" OEMs have required compliance with these standards by December 31,
1997. The Company's Gainesville, Georgia location is the first wheel plant in
the United States to qualify for this rating. All of the Company's other plants
are endeavoring to obtain this rating.
While the Company's business is not seasonal in the traditional sense, July
and December are usually lower volume months because OEMs typically perform
model changeovers during July and assembly plants are closed for the period
beginning shortly before Christmas and ending after New Years Day.
CAST ALUMINUM WHEELS
The Company's cast aluminum wheels are produced in the United States and
Europe and are sold in North America, Europe and Japan.
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NORTH AMERICA
At four manufacturing facilities in the United States, the Company designs,
manufactures and distributes a full line of cast aluminum wheels to OEMs in the
passenger car and light truck segments of the automotive industry. In Fiscal
1995, the Company believes that it supplied approximately 23% of the cast
aluminum wheels purchased in North America. With the exception of a limited
number of cast aluminum wheels manufactured by Ford in New Zealand and aluminum
wheels manufactured by Toyota and Volkswagen, there is no significant OEM
captive manufacturing of cast aluminum wheels. The Company believes that
approximately 43% of passenger cars and light trucks manufactured in North
America in 1995 used cast aluminum wheels, up from approximately 41% in 1994.
Customers. In Fiscal 1995, approximately 85% of the Company's total cast
aluminum wheel production was sold to General Motors, Ford and Chrysler for use
on vehicles produced in North America. The Company exported approximately 6% of
its cast aluminum wheels to Nissan, Isuzu and Mazda in Japan and sold
approximately 9% to Japanese Transplants in the United States. The Company owns
60% and Nippon Light Metal Co., Ltd. owns 40% of Nippon Western Pacific, a
Japanese corporation that provides sales and service support for the Company in
the Japanese wheel market.
Supplier relationships with the OEMs are critical. The Company believes
that it has excellent relationships with its customers and is continually
working to strengthen these relationships.
Manufacturing. In manufacturing cast aluminum wheels, the Company uses both
gravity casting and low pressure casting. The Company has emphasized cost
control and product quality in its manufacturing processes and facilities.
The Company manufactures one-piece and two-piece wheels. One-piece wheels
comprise the bulk of the Company's current sales. The Company introduced its
innovative Street Smart Modular(R) two-piece wheel in 1987, and more recently,
the FFM(R) two-piece wheel. These two-piece designs offer OEMs even greater
weight savings without sacrificing styling.
To enhance wheel design and reduce development lead-time, the Company
utilizes computer-aided design, has direct computer links to customers and
provides OEMs with engineering and manufacturing support. The Company utilizes a
computer-aided manufacturing system that gathers key data to control cast
aluminum wheel manufacturing to continually improve product quality and cost.
The Company also utilizes other manufacturing techniques to reduce
manufacturing process time and improve product quality. An example is
Lok-Alloy(R), the Company's patented infrared heat treating process that changes
the manufacturing of cast aluminum wheels from a traditional batch process to a
modern synchronous process. Lok-Alloy(R) reduces work-in-process inventory and
material handling, minimizes labor costs and improves quality. Lok-Alloy(R) also
reduces the total time to produce a wheel from three to five days to three to
five hours. The Company has implemented this process at its Gainesville, Georgia
facility.
Competition. The Company believes that its capabilities as a cost-effective
supplier of cast aluminum wheels meeting OEM requirements enable it to compete
effectively with other aluminum wheel manufacturers. The Company's primary
competitor for sales of cast aluminum wheels in North America is Superior
Industries International, Inc., which the Company estimates sold approximately
38% of all cast aluminum wheels sold in North America in Fiscal 1995, as
compared with the Company's sales of approximately 23%. Other aluminum wheel
manufacturers, including Wheeltek, Inc., a subsidiary of Amcast Industrial
Corp., American Racing Equipment, Inc., Reynolds Metals Co., Aluminum Wheels
Technology, Inc. and several foreign suppliers operating in the United States,
account for most of the remaining sales.
EUROPE
At its three manufacturing facilities in Europe, the Company designs,
manufactures and distributes a full line of cast aluminum wheels to OEMs in the
passenger car and light truck segments of the European automotive industry.
Customers. The Company estimates that it sold approximately 15% of all cast
aluminum wheels sold in Europe in Fiscal 1995. Approximately 84% of its European
cast aluminum wheels were sold to BMW, Fiat, Ford of Europe, Renault and Porsche
in that year.
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Manufacturing. All of the engineering, research and development for the
Company's European cast aluminum wheel operations is performed at its Dello,
Italy facility.
The Company has implemented standardization of processes, tooling and dies
at its three existing European plants to provide flexibility by enabling the
interchange of production among the plants at reduced overhead costs. The
Company is also implementing other programs in Europe to reduce product cost and
improve quality.
The Company maintains substantial capability in Europe to style and design
cast aluminum wheels for particular OEMs. The Company offers its OEM customers
various Company-generated styles each year. The Company has also established
direct computer links with several customer locations in Europe to streamline
the design and approval process and reduce product development lead-time. The
Company believes that its interaction with its European customers through
computer-aided design offers it a competitive advantage. In addition, the
Company is actively introducing its new weight and cost saving technologies to
the European car makers. Pressure for better fuel consumption and lower vehicle
weight are driving European car producers to seek lighter-weight products such
as fabricated aluminum wheels and FFM(R) wheels.
In 1988, the Company acquired its Campiglione, Italy aluminum wheel
operation from Fiat and entered into a five-year contract with Fiat to supply at
least 50% of Fiat's aluminum wheel requirements. The Company has not negotiated
an extension of this agreement or a new agreement with Fiat but management
believes that the Company will retain this business because it continues to
deliver wheels at competitive cost and of higher quality than its competitors.
The Company leases the plant at which these operations are conducted (excluding
equipment) from Fiat on a year-to-year basis.
Competition. The Company's primary competitors for European sales of cast
aluminum wheels for passenger cars are Ronal AG, Speedline S.p.A., Lemmerz GmbH,
Alloy Wheel International Ltd. and Kronprinz (Mannesmann AG). The Company
believes that these competitors accounted for sales ranging from 6% to 13% each.
Management estimates that the Company sold 15% of all cast aluminum wheels sold
in Europe in Fiscal 1995.
Sales of cast aluminum wheels in Europe remains more fragmented than in
North America, with numerous producers possessing varying levels of financial
resources and market positions. The current installation rate of cast aluminum
wheels in Europe is significantly lower than in North America. As a result of
anticipated consolidations of small local manufacturers across the European
community and the expected increasing demand for cast aluminum wheels among
consumers and OEMs in Europe, the Company believes that, over the next several
years, the number of cast aluminum wheel manufacturers in Europe is likely to
decline. As a result of its position in Europe and its advanced engineering and
technology, the Company believes that it is well positioned to meet these
changes in the European market.
FABRICATED WHEELS
NORTH AMERICA
At its manufacturing facilities in Sedalia, Missouri, and Romulus,
Michigan, the Company designs, manufactures and distributes a full line of
fabricated steel and fabricated aluminum wheels for sale to OEMs in the
passenger car and light truck segments of the automotive industry. Having
commenced production in the early 1900's, the Company has manufactured more
steel wheels in North America than any other manufacturer.
Revenues and unit sales in the Fabricated Wheel Group in North America
increased in 1995 from prior year levels primarily due to its introduction of
new products and increased sales. The Company's new products, and particularly
its fabricated aluminum wheels, have been well received by its customers.
Management believes that new contracts obtained in 1994 and 1995 relating to
these new products have positioned this group for significant future growth.
The Company believes that its sales of steel wheels in North America will
remain significant as long as OEMs continue to specify less costly steel wheels
for more moderately priced passenger cars and light trucks and for most spare
wheels. The rate of installation of steel or aluminum wheels for any model year
may be affected by OEM promotional programs. The Company continues to explore
other avenues of growth for steel
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wheels, including increasing its competition with OEM captive wheel
manufacturers for business with the OEMs.
Customers. The Company estimates that its share of total North American
sales of steel wheels to OEMs for Fiscal 1995 was approximately 28% (including
wheels sold by OEM captive wheel manufacturers). Approximately 95% of the
Company's steel wheels sold in North America were sold to General Motors, Ford
and Chrysler in Fiscal 1995.
Manufacturing. The Company's fabricated steel and aluminum wheels are
manufactured by a continuous in-line process, thus enhancing quality
standardization and reducing work-in-process inventory. Although tooling for
steel wheels is relatively expensive, a particular style is likely to be run for
a customer in high volume over a long period, lowering the unit production cost.
The basic steel wheel is black and consists of a center piece welded to a rim.
At its world-class Sedalia facility, the Company produces large quantities
of steel wheels on a cost-efficient basis. At its Romulus facility, the Company
produces lower-volume, more specialized steel wheels with shorter manufacturing
runs. The Company also manufactures light-weight fabricated aluminum wheels and
has obtained significant contracts for Model Years 1996, 1997 and 1998 for this
product line.
Competition. The Company's primary noncaptive competitors in the North
American steel wheel market for passenger cars and light trucks are Fumigalli (a
Brazilian subsidiary of Rockwell International), Topy, Accuride and Motor Wheel
Corporation. The Company estimates that OEM captive wheel manufacturers together
accounted for 30% of the market in 1995. The Company believes that it is
well-positioned to maintain its sales level at General Motors, Ford and Chrysler
against noncaptive competition.
The Company remains vulnerable to increased sourcing of steel wheels by
General Motors and Ford from their respective captive wheel manufacturers, which
may win contracts based on factors other than quality, price and efficiency.
General Motor's captive manufacturer supplied approximately 45% of its steel
wheel needs in 1995 and 1994. In both 1995 and 1994, Ford's captive manufacturer
supplied approximately 65% of its steel wheel needs. The Company believes,
however, that, with OEMs becoming increasingly sensitive to the cost of their
products, and with new products such as styled steel and fabricated aluminum
wheels, it will be able to compete with OEM captive wheel manufacturers on a
basis more like that on which it competes with other outside suppliers. Neither
General Motors nor Ford has production capability for styled steel wheels or
fabricated aluminum wheels. The Company continues to work with both General
Motors and Ford on proposals to outsource their current in-house production of
steel wheels.
EUROPE
In October 1993, the Company and Nova Hut a.s. ("Nova Hut"), established a
joint venture company, named Hayes Wheels Autokola NH, a.s. ("Autokola") to
manufacture fabricated steel and fabricated aluminum wheels in the Czech
Republic. The Company initially acquired a 45% interest in the joint venture
company, with the right (but not the obligation) to increase its interest to 60%
at any time. The Company and Nova Hut have granted Autokola the exclusive right
to sell its products in the Czech Republic, the Slovak Republic, Poland,
Romania, Croatia, Serbia and the other republics of the territory formerly
comprising Yugoslavia, Albania, Bulgaria, Russia and the other republics of the
territory formerly comprising the Soviet Union, and Hungary. The Company has
signed a marketing assistance agreement for sales outside the exclusive
territories and a technical assistance agreement with Autokola, under which it
has licensed its wheel patents and other technical information to Autokola and
has agreed to furnish Autokola with technical assistance. The Company will
receive fees and commissions under the former agreement and license fees and
royalties under the latter.
At the inception of the joint venture, Autokola had capacity to produce 1.5
million base steel wheels annually. Subsequently, its capacity has been
increased to 4.5 million fabricated steel and fabricated aluminum wheels.
Autokola has received purchase orders from European OEMs which has resulted in
the introduction of the Company's fabricated steel and fabricated aluminum
wheels into that market, commencing in the 1996 model year.
Customers. Autokola's principal customer is now Skoda, the national
automobile manufacturer of the Czech Republic, for which it is the sole supplier
of wheels. Sales related to the increased capacity relate
6
<PAGE> 9
primarily to Opel and BMW. As Autokola's increased capacity is utilized, it is
expected that the percentage of sales to Skoda will be reduced.
Manufacturing. Subsequent to the joint venture, Autokola completed a new
paint facility and installed a new fabricated aluminum wheel rim and assembly
line and a steel wheel rim and assembly line. This equipment is state-of-the-art
and was required to meet the volume and quality demands of Skoda and Autokola's
new Western European customers.
Competition. Prior to the joint venture, during which period the Czech
Republic had been a centrally controlled state economy, Autokola had no
competition as sole supplier to Skoda for steel wheels. In the future,
Autokola's competition may come from Western European companies as well as
former Eastern Bloc companies.
INVESTMENTS
The Company has additional interests, to the extent described below, in the
following wheel manufacturing entities throughout the world:
(i) a 49% interest in Hayes Wheels de Venezuela, C.A., a steel wheel
manufacturer in Venezuela;
(ii) a 40% interest in Hayes Wheels de Mexico, S.A. de C.V. (formerly
named Kelsey-Hayes de Mexico, S.A. de C.V.), an aluminum and steel wheel
manufacturer in Mexico;
(iii) a 30% interest in Cromodora S.p.A., an Italian cast aluminum
wheel producer supplying the independent after-market; and
(iv) a 7% interest in Central Manufacturing Company, a joint venture
in Kentucky, which manufactures steel wheels for Japanese Transplants, the
other partners of which include Central Motor Wheel of Japan, a leading
Japanese wheel manufacturer, and Toyota of America.
In addition, the Company has a technical assistance agreement with ATP, a
wheel manufacturer in Thailand.
ENVIRONMENTAL COMPLIANCE
The Company, like most other manufacturing companies, is subject to and is
required from time to time to take action at its facilities to comply with
federal, state, local and foreign laws and regulations relating to pollution
control and protection of the environment. In this regard, the Company maintains
an ongoing compliance program to anticipate, and if necessary correct,
environmental problems. The Company spent approximately $0.6 million for
environmental compliance and cleanup projects in Fiscal 1995. The Company
believes that its 1996 and 1997 expenditures for environmental compliance,
including potential expenditures for compliance with the permitting and other
requirements of the federal Clean Air Act, will not exceed a total of $3
million. In addition, under the Company's cleanup program, commenced in 1990 and
scheduled to be completed in the fiscal year ending January 31, 1999, the
Company anticipates spending approximately $1.5 million in each of the fiscal
years ending January 31, 1997, 1998 and 1999. The Company believes it is in
material compliance with applicable federal, state, local and foreign laws and
regulations relating to pollution control and protection of the environment. See
"Item 3. Legal Proceedings."
EMPLOYEES
Approximately 20% of the Company's employees in the United States at
January 31, 1996 were represented by the United Auto Workers ("UAW"). Collective
bargaining agreements with the UAW affecting these employees expire in 1997 and
1998. As is common in many European jurisdictions, substantially all of the
Company's employees in Europe are covered by country-wide collective bargaining
agreements. In Europe, additional bargaining agreements are often made on a
local basis. These agreements expire at various times through 1997. There are no
Company-wide or industry-wide bargaining units in the United States. The Company
considers its employee relations to be satisfactory. See "Item 2. Properties"
for a listing of employees by location.
7
<PAGE> 10
ITEM 2. PROPERTIES.
The Company operates six major manufacturing facilities in the United
States and has its headquarters in Romulus, Michigan. Total United States
manufacturing space exceeds 2.0 million square feet. Outside the United States,
the Company operates three manufacturing facilities with approximately 0.5
million square feet in the aggregate. The Company believes that its plants are
adequate and suitable for the manufacturing of products for the markets in which
it sells. Moreover, the Company believes that it maintains adequate production
capacity at its manufacturing facilities to meet current product demand for cast
aluminum wheels and steel wheels in North America and aluminum wheels in Europe
and that such capacity will be sufficient to meet projected product demand. To
meet projected demand for fabricated aluminum wheels in North America, the
Company expects to continue upgrading and expanding its current manufacturing
facilities.
The Company leases a part of its headquarters facility to Kelsey-Hayes. See
"Item 13. Certain Relationships and Related Transactions", below. The Company's
manufacturing and research facilities are as follows:
<TABLE>
<CAPTION>
LOCATION EMPLOYEES USE OWNED OR LEASED
- ----------------------------- --------- ---------------------------------- ---------------
<S> <C> <C> <C>
Romulus, MI 700 Fabricated, Headquarters and R & D Owned
Howell, MI 290 Cast Aluminum Owned
Gainesville, GA 250 Cast Aluminum Owned
Huntington, IN 450 Cast Aluminum Owned
Sedalia, MO 480 Fabricated Owned
La Mirada, CA 590 Cast Aluminum Leased
Barcelona, Spain 70 Cast Aluminum Owned
Dello, Italy 290 Cast Aluminum and R & D Owned
Campiglione Fenile, Italy 90 Cast Aluminum Leased
</TABLE>
ITEM 3. LEGAL PROCEEDINGS.
In the ordinary course of its business, the Company is a party to
litigation involving its operations and products, which may include allegations
as to safety and design. Management believes that the outcome of this litigation
will not have a material adverse effect on the consolidated operations or
financial condition of the Company.
In September and October 1995, the Company, Varity and the directors of the
Company were named as defendants in five lawsuits brought in the Court of
Chancery, County of New Castle, State of Delaware. These lawsuits were
consolidated under the caption In re Hayes Wheels International, Inc.
Shareholders Litigation,Cons. C.A. No. 14565 (the "Action"). The Action was
brought as a purported class action on behalf of an alleged class consisting of
the non-Varity public stockholders of the Company, and alleged that Varity and
the defendant directors had breached their fiduciary duties to the public
stockholders in connection with the making of the Varity proposal and the
response of the Company to such proposal. The complaints in the Action further
alleged that the price proposed by Varity was grossly unfair and inadequate, and
sought, as relief, among other things, an injunction against consummation of the
proposed acquisition by Varity and damages in an unspecified amount. The Action
was voluntarily dismissed, without prejudice, by the plaintiffs, pursuant to a
stipulation executed in early April 1996.
The Company has received notice of potential environmental liability
arising out of both its wheel and non-wheel businesses (including certain
divested businesses) at fourteen Superfund sites (the "Sites") under the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended ("CERCLA"). Also, the Company has received notice of potential
environmental liability at one state-listed site. The Company has entered into
settlements with various government agencies and the other parties identified by
the applicable agency as "potentially responsible parties" to resolve its
liability with respect to three of the Sites, all of which are associated with
the wheel business. While the Company remains potentially liable under CERCLA to
the federal and certain state governments with respect to the Sites, it believes
that its maximum financial exposure will be less than $2.6 million. In addition,
pursuant to the Reorganization, Kelsey-Hayes assumed and agreed to indemnify the
Company with respect to any liabilities arising out of or associated with twelve
of the Sites, thereby reducing the Company's potential exposure.
8
<PAGE> 11
In March 1995 the Company received from the U.S. EPA a request for
information under CERCLA regarding the Shiawassee River Site, located in Howell,
Michigan. The Company is in the process of responding to that information
request. The Company understands that the hazardous substances of concern are
PCBs, which reportedly were used at the Company's manufacturing facility in
Howell, Michigan prior to its acquisition of that facility in 1981. The State of
Michigan is performing a remedial investigation/feasibility study. The Company
understands that, with respect to the remedy that the State reportedly expects
will be selected, the State's preliminary estimate is that the costs of
implementing such remedy will range from $10 to $15 million. The Company further
understands that the State expects that implementation of the remedy will not
commence for several years and that, once commenced, it will require three to
five years to implement fully. The Company believes that, pursuant to a 1981
consent judgment between the Company's subsidiary that owns the Howell facility
and the State of Michigan, the State has retained some or all of the
responsibility for cleanup of this site. Moreover, at the time the Company
acquired the corporation that owns the Howell manufacturing facility, the
Company received an indemnity against liability arising from the prior use of
PCBs at that facility from Multifastener Corp., one of the stockholders in that
corporation. Multifastener Corp. has to date honored its indemnity obligations.
However, Multifastener is a small corporation and no assurance can be given that
it will continue to honor its obligations. If the State takes the position that
it has not retained liability for the cleanup at this site, and if Multifastener
Corp. should fail to honor all or part of its indemnity obligations with respect
to cleanup at this site, then in the event that the Company were required to
participate in cleanup efforts mandated by the U.S. EPA or the State, the
Company's expenses with respect to cleanup of this site potentially could have a
material adverse effect on the consolidated operations or financial condition of
the Company.
K-H, and in certain cases the Company, may remain liable with respect to
environmental cleanup costs in connection with certain divested businesses
relating to aerospace, heavy duty truck components and farm implements, under
Federal and state laws and under agreements with purchasers of these divested
businesses. The Company believes, however, that such costs in the aggregate will
not have a material adverse effect on the consolidated operations or financial
condition of the Company and, in any event, Kelsey-Hayes has assumed and agreed
to indemnify the Company with respect to any liabilities arising out of or
associated with these businesses. See "Item 13. Certain Relationships and
Related Transactions", below.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
SUPPLEMENTAL INFORMATION
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets out the names and ages of each of the executive
officers of the Company, their present positions, the date on which they were
appointed to such positions and their business experience during the past five
years. All positions shown are with the Company or its subsidiaries unless
otherwise indicated. All executive officers are elected by the Board of
Directors of the Company and serve at its pleasure. There are no family
relationships among any of the executive officers and there is no arrangement or
9
<PAGE> 12
understanding between any executive officer and any other person pursuant to
which he was selected as an officer.
<TABLE>
<CAPTION>
DATE OF
NAME TITLE AGE APPOINTMENT EXPERIENCE
- ------------------------ ---------------- --- ----------- ------------------------------------
<S> <C> <C> <C> <C>
John E. Utley........... Chairman of the 55 October Senior Vice President of Varity
Board of 1992 since March 1994, Chairman of the
Directors; Board of Directors and Chief
Director Executive Officer of K-H, Chairman
of the Board of Directors of the
Company as it existed prior to the
Reorganization. Vice Chairman of the
Board of Directors of K-H and Vice
President -- Strategic Planning for
the Company as it existed prior to
the Reorganization, December 1989 to
August 1992. Director of Walbro
Corp. since 1993.
Ranko "Ron" Cucuz....... President and 52 October Group President of the wheels
Chief 1992 division of the Company as it
Executive existed prior to the Reorganization,
Officer; August 1992 to October 1992.
Director President, Steel Wheel Business Unit
(renamed Fabricated Wheels), June
1991 to October 1992. President and
Chief Executive Officer of the
Automotive Mechanical Cable Controls
Group of Acco Babcock Industries,
September 1987 to June 1991.
Giancarlo Dallera....... Vice President 50 October Managing Director, Hayes Wheels,
-- President, 1992 S.p.A., since April 1990. Director
European and General Manager of Hayes Wheels,
Aluminum S.p.A. since 1985 and 1981,
Wheels respectively. Managing Director of
Hayes Wheels de Espana, S.A. since
October 1992. President of
Cromodora, S.p.A.
Ronald L. Kolakowski.... Vice President 49 November From June 1993 to October 1995,
-- President, 1995 Plant Manager, Sedalia Plant. Vice
North American President, U.S. Operations for Acco
Aluminum Controls Group -- Babcock
Wheels Industries, January 1990 - May 1993.
William S. Linski....... Vice President 49 November Chairman, Supervisory Board of Auto-
-- President, 1993 kola since October 1993. Vice
Fabricated President, Operations -- Fabricated
Wheels Wheels from October 1992 to October
1993; Plant Manager, Sedalia Plant
August 1988 - October 1992.
William D. Shovers...... Vice President 42 February Director of Autokola since October
-- Chief 1993 1993. Director of Hayes Wheels,
Financial S.p.A. since February 1993. Vice
Officer and President -- Finance, Monroe Auto
Principal Equipment Company, a subsidiary of
Accounting Tenneco, Inc., November 1989 to
Officer January 1993.
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
DATE OF
NAME TITLE AGE APPOINTMENT EXPERIENCE
- ------------------------ ---------------- --- ----------- ------------------------------------
<S> <C> <C> <C> <C>
Daniel M. Sandberg...... Vice President 36 March 1994 Director of Hayes Wheels, S.p.A.
-- Secretary since September 1994. Executive Vice
and General President and General Counsel,
Counsel Kelter-Thorner, Inc., October 1990 -
March 1994. General Counsel and
Secretary, Meadowdale Foods, Inc.,
September 1988 to September 1990.
Larry Karenko........... Vice President 46 October Federal Mogul Corporation: Group
-- Human 1994 Human Resources Manager, Chassis
Resources Products Operation, August 1993 to
October 1994, Group Human Resources
Manager, Powertrain Products
Operation, August 1992 to August
1993, Division Human Resources
Manager, Precision Forged Products
Division, June 1986 to August 1992.
John A. Salvette........ Treasurer 40 February Director, Investor Relations and
1995 Business Planning, May 1993 -
January 1995; Group Controller,
North American Aluminum Wheel
Business, May 1990 - April 1993.
</TABLE>
11
<PAGE> 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company had 17,574,000 shares of Common Stock outstanding and 130
record holders as of April 15, 1996. Of these shares, 9,430,000 are freely
tradable without restriction and 8,144,000 are "restricted securities" as that
term is defined under Rule 144 promulgated under the Securities Act of 1933, as
amended (the "Securities Act"). All of the restricted shares are held indirectly
by Varity through K-H, and are eligible for sale in the public market, subject
to compliance with the limitations of Rule 144 or pursuant to a registration
statement that complies with the requirements of the Securities Act. All of the
shares indirectly held by Varity are subject to an option, granted pursuant to
the Stock Option Agreement, under which Holdings may, upon the occurrence of
certain events, purchase these shares. See "Item 12. Security Ownership of
Certain Beneficial Owners and Management -- Changes in Control", below.
The Company's Common Stock is traded over the New York Stock Exchange under
the symbol "HAY". Set forth below are the high and low sales prices for the
Company's Common Stock as reported in The Wall Street Journal and dividends paid
per share for each fiscal quarter in Fiscal 1995 and Fiscal 1994:
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW PER SHARE
------- ------- ---------
<S> <C> <C> <C>
Fiscal 1995
Quarter ended January 31, 1996.................. $26.750 $22.625 $.015
Quarter ended October 31, 1995.................. 27.250 20.250 .015
Quarter ended July 31, 1995..................... 24.500 16.750 .015
Quarter ended April 30, 1995.................... 20.250 14.250 .015
Fiscal 1994
Quarter ended January 31, 1995.................. $23.625 $15.625 $.015
Quarter ended October 31, 1994.................. 27.250 21.000 .015
Quarter ended July 31, 1994..................... 30.125 24.750 .015
Quarter ended April 30, 1994.................... 35.500 25.250 .015
</TABLE>
Since March 2, 1993, the Company's Board of Directors has declared
quarterly dividends of $0.015 per share of Common Stock. If the Merger Agreement
is consummated, the declaration of dividends will be discontinued. For further
discussion of dividends, see "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Capital Resources and
Liquidity."
ITEM 6. SELECTED FINANCIAL DATA.
The following table (in millions, except share amounts) sets forth selected
consolidated financial data with respect to the Company for the five fiscal
years ended January 31, 1996. The information set forth below should be read in
conjunction with the Consolidated Financial Statements and Notes thereto filed
herewith.
All financial data presented, including the following summary consolidated
financial data, do not reflect information with respect to the Company's
non-wheel businesses and assets, particularly the automotive brake systems
business and assets, which were part of the Company during the fiscal year ended
January 31, 1992
12
<PAGE> 15
but which, prior to the IPO, were transferred to (and certain liabilities
relating thereto were assumed by) Kelsey-Hayes.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY JANUARY JANUARY JANUARY JANUARY
31, 1992 31, 1993 31, 1994 31, 1995 31, 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................ $398.9 $408.7 $428.2 $537.6 $611.1
Depreciation and amortization........ 18.2 18.5 20.0 24.0 26.6
Interest expense..................... 33.7 33.8 13.6 13.4 15.0
Earnings (loss) before cumulative
effect of changes in accounting
principles........................ (6.3) 3.6 24.6 29.9 28.4
Cumulative effect of change in
accounting principles............. -- -- (24.6) -- --
------ ------ ------ ------ ------
Net income (loss).................... $ (6.3) $ 3.6 $ -- $ 29.9 $ 28.4
====== ====== ====== ====== ======
BALANCE SHEET DATA:
Total assets......................... $475.4 $499.9 $527.6 $589.6 $633.9
Long-term debt....................... 242.5 101.0 102.7 111.4 128.9
Stockholders' equity................. 60.0 191.9 184.8 216.4 245.4
COMMON STOCK DATA:
Earnings (loss) before cumulative
effect of change in accounting
principles........................ $(0.77) $ 0.40 $ 1.40 $ 1.70 $ 1.62
Cumulative effect of change in
accounting principles............. -- -- (1.40) -- --
------ ------ ------ ------ ------
Earnings (loss) per share............ $(0.77) $ 0.40 $ -- $ 1.70 $ 1.62
====== ====== ====== ====== ======
Dividends declared per share......... -- -- $ .06 $ .06 $ .06
Average shares outstanding
(in thousands).................... 8,144 9,101 17,574 17,574 17,574
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
On March 28, 1996, the Company entered into the Merger Agreement with
Holdings. (See "Item 1. Business -- General".) Holdings is a holding company,
substantially all of the assets of which consist of the capital stock of its
wholly owned subsidiary, Motor Wheel Corporation, an Ohio corporation ("Motor
Wheel"). If the Merger is consummated, Motor Wheel will become a wholly owned
subsidiary of the Surviving Corporation.
Motor Wheel is a leading designer and producer of wheels and brakes for the
automotive and commercial highway markets. Motor Wheel supplies automotive steel
wheels and brakes primarily to OEMs located in North America, including Ford,
General Motors and Chrysler, as well as foreign manufacturers in North America.
In addition, Motor Wheel exports styled steel wheels to Toyota in Japan. Motor
Wheel supplies wheels, rims and brake components for commercial highway vehicles
to a large number of North American truck, trailer and bus manufacturers.
Through Aluminum Wheels Technology, Inc., an unconsolidated corporate joint
venture that is 50% owned by Motor Wheel, Motor Wheel also participates in the
automotive aluminum wheel market.
If the Merger is consummated, the respective businesses of the Company and
Motor Wheel will be combined. The results of operations of the combined entity
may not be comparable to the results of operations of the Company prior to the
Merger.
Except to the extent specified herein, the following discussion does not
take the Merger into account.
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<PAGE> 16
RESULTS OF OPERATIONS
Sales of the Company's wheels produced in the United States are directly
affected by the overall level of passenger car and light truck production of
North American OEMs, while sales of its wheels in Europe are directly affected
by the overall vehicle production in Europe. The North American and European
automotive industries are sensitive to the overall strength of their respective
economies.
Fiscal 1995 Compared to Fiscal 1994
The Company's net sales for Fiscal 1995 increased by $73.5 million or 13.7%
as compared with Fiscal 1994. This increase was due to significant increased
unit volume in Europe, higher selling prices resulting from the pass through of
increased aluminum and steel costs and a shift in the Company's steel wheel
sales mix toward more highly styled full-face wheels.
The Company's gross profit for Fiscal 1995 increased to $97.7 million or
16% of net sales, compared with $96.2 million or 17.9% of net sales for the same
period in Fiscal 1994. The decrease in margin percentage is attributable to: (1)
higher selling prices with the profit level remaining unchanged, as a result of
the pass through of increased aluminum and steel costs, (2) plant capacity
additions resulting in higher support costs that were not fully absorbed due to
softer customer demand, (3) customer delays of new product launches and (4) the
impact of a strike at the Company's Howell, Michigan facility.
Marketing, general and administrative expenses increased $1.1 million for
Fiscal 1995 as compared to Fiscal 1994. However these costs decreased from 5.3%
of net sales for Fiscal 1994 to 4.9% of net sales for the current period.
During the fourth quarter of Fiscal 1995, the Company recognized
non-recurring charges of $3.6 million. These charges include a $1.4 million
provision associated with the restructuring of the North American Aluminum
Wheels Group and $2.2 million of charges associated with Varity's proposal to
purchase the Company's outstanding publicly held shares not owned by Varity for
$25.00 per share; this proposal was made public on September 27, 1995, and
withdrawn on February 5, 1996.
Interest expense increased to $15.0 million for Fiscal 1995, an increase of
$1.6 million over the same period of Fiscal 1994. This change was due primarily
to (1) higher short term borrowing rates in the United States, (2) an increase
in borrowing levels to support working capital needs and (3) higher bank fees
associated with the Company's United States bank facility, which was increased
in March 1995.
Fiscal 1994 Compared to Fiscal 1993
The Company's net sales for Fiscal 1994 increased by $109.4 million or 26%
as compared with Fiscal 1993. This increase was attributable to increased sales
of cast aluminum and fabricated wheels in North America, primarily due to
increased light vehicle sales in North America and other new business, primarily
wheels for the Ford Windstar, the Chevrolet S-10, the GMC Sonoma and the
Chrysler Neon.
The Company's gross profit for Fiscal 1994 increased by 14.8% to $96.2
million or 17.9% of net sales, compared with $83.8 million or 19.6% of net sales
for Fiscal 1993. The decrease in margin percentage is attributable to higher
launch costs associated with strong sales volumes and a time lag in the
Company's ability to recover increased aluminum and steel costs from certain
customers, partially offset by a decrease in postretirement healthcare expense.
Marketing, general and administrative expenses in Fiscal 1994 were $28.6
million, a $2.3 million increased over 1993. However, these costs decreased from
7.1% of net sales for Fiscal 1993 to 6.3% for Fiscal 1994. The increase in
expenses was due primarily to an increase in product liability costs. In
November 1993, the Company incurred an increase in its premiums for product
liability insurance. The policy period for this insurance starts November 1 of
each year and ends on October 31 of the following year; therefore, approximately
$3.0 million was included in the income statement for the year ended January 31,
1995. This premium increase was the result of the large cash settlement
disclosed in the Company's results for the first quarter of Fiscal 1993.
14
<PAGE> 17
Other (income) expense for Fiscal 1994 decreased $1.5 million from Fiscal
1993 due to a gain recognized on the sale of an interest in an affiliate for
$1.6 million in Fiscal 1993. Other income consisted primarily of royalty and
miscellaneous income and expense.
The Company's provision for taxes on income increased $2.4 million for
Fiscal 1994 compared to Fiscal 1993. This increase was due to higher pre-tax
income partially offset by lower tax rates in Europe.
Results for Fiscal 1993 included the cumulative effect of changes in
accounting principles resulting from the adoption of the following new
accounting standards: Statement of Financial Accounting Standards ("SFAS") No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions,"
SFAS No. 109, "Accounting for Income Taxes" and SFAS 112, "Employers' Accounting
for Postemployment Benefits." The adoption of SFAS No. 106 and SFAS No. 112
resulted in net after-tax charges to income of $24.6 million or $1.40 per share.
The adoption of SFAS No. 109 had an immaterial effect on the consolidated
financial statements. The adoption of the accounting standards for
postretirement and postemployment benefits has had no effect on cash flows as
the Company has continued to follow its policy of paying such benefits as
incurred.
Capital Resources and Liquidity
The Company's operations provided $44.9 million in cash during Fiscal 1995,
an increase of $22.5 million over the same period of Fiscal 1994. This increased
cash flow is attributable primarily to a smaller increase in inventory and
receivables than in Fiscal 1994. During Fiscal 1994, the Company built inventory
as a safety net against a lack of capacity in order to meet customer
requirements. The lack of capacity was alleviated during Fiscal 1995, allowing
the company to carry only slightly more inventory despite a 22% increase in
sales. The accounts receivable increase was smaller than in Fiscal 1994, which
included an unfavorable change in credit terms to a major customer.
Capital expenditures for Fiscal 1995 amounted to $43.4 million. These
capital expenditures included plant capacity additions in the Company's North
American cast and fabricated aluminum facilities. The Company anticipates that
capital expenditures for the fiscal year to end January 31, 1997, will be in
excess of $68.0 million to facilitate future wheel programs.
The Company is party to a credit agreement providing for a two-year term
facility of $80 million, which expires and converts to a four-year term loan
March 31, 1997, and a five year unsecured revolving facility of $100 million,
including unused capacity for letters of credit totalling $8 million, which
expires March 31, 2000, at which time all loans outstanding thereunder are
payable in full. As of January 31, 1996, the Company had available borrowing
capacity under this agreement of $156.9 million, including unused capacity for
letters of credit of $4.9 million. The Company has also established other daily
unsecured lines of credit. As of January 31, 1996, $8.6 million was outstanding
under these lines. The Company also has outstanding $100,000,000 principal
amount of 9 1/4% Senior Notes due 2002. If the Merger is consummated, it is
expected that all of the indebtedness described in this paragraph will be
refinanced, as described below.
At January 31, 1996, the Company was in compliance with the various
covenants under the agreements pursuant to which it may currently borrow money.
Management expects that the Company will remain in material compliance with
these covenants as long as such agreements remain in effect.
Approximately $909.1 million 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) and to provide for the Surviving Corporation's
working capital needs following the Merger. 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 to certain investors 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 the common stock of the Surviving Corporation in
connection with the Merger) and warrants to purchase shares of the common stock
of the Surviving Corporation 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 $459.1 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 million
and (c) the proceeds of the public offering by the Company of approximately $250
million of senior subordinated notes. The Company and Holdings are currently
arranging
15
<PAGE> 18
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 such terms will include significant operating and financial
restrictions. 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 cash dividends will be discontinued.
Absent the Merger, during the next five years, the Company believes that
its cash requirements for working capital, capital expenditures, dividends,
interest and debt repayments will be met through internally generated funds and
utilization of available borrowing sources.
The Company does not believe that sales of its products are materially
affected by inflation, although there can be no assurance that such an effect
will not occur in the future. In accordance with industry practice, the costs or
benefits of fluctuations in aluminum prices are passed through to customers. In
the United States, the Company attempts to adjust the sales prices of its
aluminum wheels every quarter, if necessary, to reflect fully any increase or
decrease in the price of aluminum. A general decline in aluminum prices in
Fiscal 1993 and higher prices in Fiscal 1994 (approximately 70% increase) was
passed through to the Company's customers. As a result, the Company's net
selling prices for aluminum wheels were adjusted, although gross profit per
wheel was not affected. During Fiscal 1995, prices of aluminum declined
slightly. From time to time, the Company enters into futures contracts or
purchase commitments solely to hedge against possible aluminum price changes
that may occur between the dates of aluminum wheel price adjustments. These
purchase commitments typically relate on average to 50% of the Company's
production needs for the next three to six months. Pricing and purchasing
practices in Europe are similar, but opportunities to recover increased material
costs from customers are more limited than in the United States.
The value of the Company's consolidated assets and liabilities located
outside the United States (which are translated at period end exchange rates)
and income and expenses (which are translated using rates prevailing during the
period) have been affected by the translation values, particularly those of the
Italian lira and Spanish peseta. Such translation adjustments are reported as a
separate component of stockholders' equity. Foreign exchange rate fluctuations
have historically not had a significant impact on the Company's reported results
of operations.
The Company's net sales are continually affected by pressure from its major
customers to reduce prices. The Company believes that its emphasis on reduction
of production costs, increased productivity and improvement of production
facilities will enable it to respond to this pressure.
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, Statement 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.
On March 31, 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of." This Statement provides guidance for
recognition and measurement of impairment of long-lived assets, certain
identifiable intangibles and goodwill related both to assets to be held and used
and assets to be disposed of. The Company intends to adopt this Statement as of
the first quarter of the current fiscal year and anticipates that the effect of
such adoption will be immaterial.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this Item is submitted in the financial statements filed
herewith, beginning at page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
16
<PAGE> 19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following sets forth certain information with respect to the directors
of the Company:
JOHN E. UTLEY, age 55, has been Chairman of the Board of Directors and a
Director of the Company since October 1992. Since March 1994, he has served as
Senior Vice President of Varity. From August 1992 to March 1994, he served as
Chairman and Chief Executive Officer of K-H, and since March 1994 as its non-
executive Chairman. He served as Chairman of the Board of Directors of the
Company as it existed prior to the Reorganization, and, from August 1992 to May
1993, served as a Director of the four wholly owned United States subsidiaries
of the Company that manufacture cast aluminum wheels (the "Aluminum Wheel
Subsidiaries"). He served as Vice Chairman of the Board of Directors of K-H and
as Vice President Strategic Planning for the Company as it existed prior to the
Reorganization from November 1989 to August 1992. Mr. Utley also serves as
Chairman of the Compensation Committee. Mr. Utley has been a director of Walbro
Corp., which is a publicly traded company, since 1993.
RANKO ("RON") CUCUZ, age 52, was elected President and Chief Executive
Officer and a Director of the Company in October 1992. He also serves as
Chairman of the Management Board of Hayes Wheels Autokola NH, a.s., the
Company's Czech joint venture, and as a director of Hayes Wheels, S.p.A. (Italy)
and FPS Kelsey-Hayes, S.A. (Spain), the Company's wholly owned subsidiaries, and
serves as Chairman of each of the Aluminum Wheel Subsidiaries. From August 1992
to October 1992, Mr. Cucuz served as Group President of the Wheels Division of
the Company as it existed prior to the Reorganization. Previously, Mr. Cucuz was
President, Steel Wheels (renamed Fabricated Wheels) Business Unit from June 1991
to October 1992. Prior to assuming that position, Mr. Cucuz was employed by ACCO
Babcock Industries from 1976 to 1991, serving as President and Chief Executive
Officer of its Automotive Mechanical Cable Controls Group from September 1987 to
June 1991.
J. ANTHONY GILROY, age 59, has been a Director of the Company since
December 1994. He served as Group Chief Executive, Perkins Group of Varity from
February 1989 to November 1994, when he became Chief Operating Officer of
Varity. He serves as a member of the Compensation Committee.
JOHN S. RODEWIG, age 62, has been a Director of the Company since December
1992. He served as President of Eaton Corporation and its Chief Operating
Officer -- Vehicle Components from 1992 until his retirement on January 1, 1996.
He served as President of the Truck Components Group of Eaton Corporation from
1991 to 1992. Mr. Rodewig also serves as Chairman of the Board of Directors of
Eaton Limited (United Kingdom). He also serves as a director of FKI plc and AP
Parts International. He is Chairman of the Company's Audit Committee and a
member of its Compensation Committee.
KENNETH L. WAY, age 56, has been a Director of the Company since December
1992. He has served as Chairman and Chief Executive Officer of Lear Corporation,
a publicly traded company, since September 1988. He serves on the Audit
Committee.
There are no arrangements or understandings between any director and any
other person pursuant to which he was selected a director.
Certain information respecting the officers of the Company appears at the
end of Part I of this Annual Report on Form 10-K under the caption
"Supplementary Information -- Executive Officers of the Registrant".
17
<PAGE> 20
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY OF COMPENSATION FOR FISCAL 1995
The following summary compensation table sets forth certain information
concerning compensation for services in all capacities awarded to, earned by or
paid to the Company's Chief Executive Officer and the four other most highly
compensated executive officers (the "Named Executive Officers") for Fiscal 1995,
Fiscal 1994 and Fiscal 1993.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------- ---------------------
AWARDS PAYOUTS
OTHER ---------- -------
ANNUAL SECURITIES LTIP ALL OTHER
FISCAL SALARY BONUS COMPENSATION UNDERLYING PAYOUTS COMPENSATION
NAME YEAR ($) ($) ($) OPTIONS(1) ($) ($)(2)
- ------------------------------------ ------ -------- -------- ------------ ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cucuz, Ranko........................ 1995 322,000 -- -- 42,250 -- 3,918
CEO, President 1994 244,000 109,941
1993 221,667 137,646
Dallera, Giancarlo(3)............... 1995 215,000 -- -- 17,800 -- --
Vice President -- President, 1994 182,927 88,960
European Aluminum Wheels 1993 183,377 131,195
Linski, William S................... 1995 165,000 -- -- 14,700 -- 3,119
Vice President -- Fabricated Wheels 1994 135,000 52,563
1993 109,944 53,758
Sandberg, Daniel M.(4).............. 1995 147,000 -- -- 6,100 -- 3,084
Vice President -- General Counsel 1994 114,457 26,404
and Secretary
Shovers, William D.................. 1995 190,000 -- -- 16,900 -- 3,129
Vice President -- Finance and 1994 172,000 70,902
Chief Financial Officer 1993 160,438 97,881
</TABLE>
- ---------------
(1) Shares of the Company's Common Stock.
(2) Matching contributions accrued under the Company's Retirement Savings Plan.
(3) Mr. Dallera's salary is paid in Italian Lire and his bonus is paid in United
States dollars. The U.S. Dollar amount for Mr. Dallera's salary was
translated from Italian Lire using the exchange rate of 1 Lira = 0.00064
U.S. Dollar.
(4) Mr. Sandberg became an employee of the Company on March 28, 1994, and
received no compensation from the Company in Fiscal 1993.
18
<PAGE> 21
OPTION GRANTS IN FISCAL 1995
The following table set forth certain information respecting grants of
options during Fiscal 1995:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL RATES
NUMBER OF OF STOCK PRICE
SECURITIES PERCENT OF PER SHARE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERM(1)
NAME OF OPTIONEE AND OPTIONS TO EMPLOYEES OR BASE EXPIRATION -------------------------
TYPE OF OPTION(2) GRANTED(3) IN FISCAL 1995 PRICE DATE 5% 10%
- --------------------------- ---------- --------------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cucuz, Ranko
Premium.................. 42,250 31.77 $18.375 5/11/05 $214,490 $1,237,292
FMV...................... -- -- -- -- -- --
Dallera, Giancarlo
Premium.................. 10,900 8.20 18.375 5/11/05 55,336 319,207
FMV...................... 6,900 5.19 18.375 5/11/05 35,029 202,067
Linski, William S.
Premium.................. 9,000 6.77 18.375 5/11/05 45,690 263,565
FMV...................... 5,700 4.29 18.375 5/11/05 28,937 166,294
Sandberg, Daniel M.
Premium.................. 3,750 2.82 18.375 5/11/05 19,038 109,918
FMV...................... 2,350 1.77 18.375 5/11/05 11,930 68,820
Shovers, William D.
Premium.................. 10,350 7.78 18.375 5/11/05 52,544 303,100
FMV...................... 6,550 4.92 18.375 5/11/05 33,252 191,817
</TABLE>
- ---------------
(1) Values are reported net of the option's exercise price, but before taxes
associated with exercise. These values are calculated using assumed rates
of appreciation prescribed by the Securities and Exchange Commission.
(2) "FMV" denotes options which were granted at an exercise price equal to the
closing market price per share of Common Stock on the trading day
immediately prior to their grant date and which become cumulatively
exercisable in thirds on the first, second and third anniversaries of their
grant date or, if earlier, on the date on which the Premium Option granted
on the same date becomes exercisable. Although Premium Options have the
same exercise price as the FMV Options, they will not become exercisable
for 9 years after their grant date or, if earlier, on the business day
after the closing price for Common Stock, as reported on the New York Stock
Exchange, shall have equalled or exceeded $27.21 for 10 consecutive trading
days. All of the above options became exercisable on April 12, 1996, by
reason of such trading price having exceeded $27.21 for 10 consecutive
trading days. See also Note 3 to the following table.
(3) All options were granted on May 12, 1995.
AGGREGATE OPTION EXERCISES IN FISCAL 1995
AND JANUARY 31, 1996 OPTION VALUE(1)
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
SHARES AT JANUARY 31, 1996 JANUARY 31, 1996
ACQUIRED ON EXERCISABLE/ EXERCISABLE/
NAME EXERCISE VALUE REALIZED UNEXERCISABLE UNEXERCISABLE(2)(3)
- ----------------------------------- ----------- -------------- -------------------- -------------------
<S> <C> <C> <C> <C>
Cucuz, Ranko....................... -- -- 70,750/100,650 --/--
Dallera, Giancarlo................. -- -- 24,900/47,350 --/--
Linski, William S.................. -- -- 16,750/37,050 --/--
Sandberg, Daniel M................. -- -- 3,750/16,600 --/--
Shovers, William D................. -- -- 25,950/44,550 --/--
</TABLE>
- ---------------
(1) No stock appreciation rights have been granted in connection with any stock
options.
(2) No options were in-the-money on January 31, 1996.
(3) If the Merger is consummated, all outstanding options will become
immediately exercisable and the holders thereof will have the right to
receive either $32 less the exercise price of each such option or the right
to receive an option for an equal number of shares of the common stock of
the Surviving Corporation.
19
<PAGE> 22
PENSION PLAN
The Company maintains a defined benefit pension plan covering all persons
who were United States salaried employees of the Company and its subsidiaries on
or before December 31, 1994. Pension income at normal retirement age is
calculated by averaging the participant's highest consecutive 60 months of
compensation out of the final 120 months of compensation and providing 1% of the
first $7,800 thereof and 1 1/3% of the remainder for each of the first 30 years
of service, and 1/2% and 2/3% of such compensation, respectively, for each of
the next 10 years of service. Benefits under the Company's pension plan are
limited by restrictions imposed by the Internal Revenue Code of 1986, as amended
(the "Code"). Prior to the IPO, the eligible United States salaried employees of
the Company participated in a pension plan sponsored by K-H. K-H is transferring
the assets and liabilities of its plan relating to participants employed in the
Company's wheel business to the Company's pension plan, in accordance with the
requirements of the Employee Retirement Income Security Act of 1974, as amended.
Effective January 1, 1995, (1) certain provisions of the plan that had frozen
final average compensation for purposes of the plan as of December 31, 1991,
were rescinded, (2) no new participants may enter the plan and (3) for purposes
of calculating benefits payable under the plan, no additional service may be
credited under the plan; however, service continues to be credited under the
plan for vesting purposes and to determine eligibility for retirement benefits
under the plan. In addition, increases in compensation will be recognized under
the plan for purposes of determining pensions.
The following table illustrates the annual pension benefits payable from
the Company's defined benefit pension plan to a person in the specified earnings
and years of service classifications at normal retirement date.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------------------------
COVERED COMPENSATION 10 15 20 25 30 35
-------------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
$ 50,000............. $ 6,407 $ 9,610 $12,813 $16,017 $19,220 $20,822
100,000............. 13,073 19,610 26,147 32,683 39,220 42,488
150,000............. 19,740 29,610 39,480 49,350 59,220 64,155
200,000............. 19,740 29,610 39,480 49,350 59,220 64,155
250,000............. 19,740 29,610 39,480 49,350 59,220 64,155
300,000............. 19,740 29,610 39,480 49,350 59,220 64,155
350,000............. 19,740 29,610 39,480 49,350 59,220 64,155
400,000............. 19,740 29,610 39,480 49,350 59,220 64,155
</TABLE>
Base salary is the only compensation upon which benefits under this plan are
determined.
All of the individuals named in the Summary Compensation Table, except Mr.
Dallera, are participants in the pension plan described above, and each had
covered compensation and years of service as set forth below:
<TABLE>
<CAPTION>
COVERED YEARS OF
NAME COMPENSATION SERVICE
-------------------------------------------------------- ------------ --------
<S> <C> <C>
Cucuz, Ranko............................................ $150,000 4
Linski, William S....................................... 150,000 3
Sandberg, Daniel M...................................... 147,000 2
Shovers, William D...................................... 150,000 3
</TABLE>
The covered compensation amounts set forth in the above table differ from the
amounts set forth in the Summary Compensation Table because of limitations
contained in the Code on compensation permitted to be used for pension plan
purposes.
The Pension Plan Table shows amounts that are payable in the form of a
straight-life annuity; such amounts are not subject to offset for Social
Security or any other payments.
Effective January 1, 1995, the Company adopted a defined contribution
pension plan for its United States salaried employees, under which, the Company
contributes to a retirement account for each eligible employee 5% of his
compensation up to the amount of the Social Security wage base ($61,200 in 1995)
plus 8% of his
20
<PAGE> 23
compensation over the amount of the Social Security wage base. Compensation, for
purposes of this plan, includes salary, bonus and commissions, but is limited to
a maximum of $150,000 under provisions of the Code. The retirement account is
invested at the direction and risk of the employee, who is entitled, subject to
certain vesting requirements, to the contents of his account when his employment
terminates at retirement or otherwise. The Company does not assure the employee
of the amount of his retirement benefit or the value of this account at any
time.
COMPENSATION OF DIRECTORS
Directors receive an annual retainer of $20,000 plus $1,000 for each Board
or committee meeting attended, except that Directors who are Company employees
(Mr. Cucuz) or Varity employees (Messrs. Gilroy and Utley) do not receive any
annual retainer or attendance fees. Directors are also reimbursed for expenses
incurred in attending Board and/or committee meetings.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS.
The Company, through its wholly owned subsidiary Hayes Wheels, S.p.A. ("HWI
Italy"), entered into an employment agreement with Mr. Dallera, dated February
1, 1993, that provides for his employment as General Manager of HWI Italy at an
initial base salary which automatically increases annually following increases
in an index commonly used to determine the cost of living increases for senior
managers in Italy. For Fiscal 1995, Mr. Dallera's base salary was $215,000
(translated from Italian Lire at the rate of 1 Lira = 0.00064 US Dollar). Under
this agreement, Mr. Dallera is entitled to all HWI Italy employee benefits; his
annual bonus, however, is based upon the criteria established for the other
executive officers of the Company. The agreement expires by its terms on April
30, 1998, or in the event of Mr. Dallera's death.
The Company entered into separate agreements (the "Company Severance
Agreements") with nine executive officers and three other employees of the
Company (the "Covered Individuals"), including Messrs. Cucuz, Dallera, Linski,
Sandberg and Shovers on or about November 6, 1995, pursuant to which, upon a
change of control of the Company (as defined therein), each Covered Individual,
including Covered Individuals whose employment with the Company is terminated in
anticipation of a change of control, is entitled to an immediate payment of all
earned but unpaid compensation, including any unpaid bonuses for previous fiscal
years and a pro rata bonus payment (based on Highest Compensation (as defined
below) and the greater of normative bonus percentage and estimated projected
bonus percentage) for the current fiscal year under any bonus plan for which he
is then eligible.
In addition, the Company Severance Agreements provide that each Covered
Individual whose employment with the Company is terminated (i) by the Company
upon a change of control or in anticipation of a change of control, (ii) by the
Company, other than for cause or as a result of death or disability, within
three years following a change of control or (iii) voluntarily by such Covered
Individual, within three years following a change of control, because of a
change in the material terms of his employment, such as compensation or
responsibilities, is entitled to a lump sum cash payment, payable within 30 days
of such termination, in the aggregate amount of: (a) for all Covered
Individuals, earned but unpaid compensation, less any payment previously made in
respect of such amount, (b) for all Covered Individuals, the product of the
individual's Highest Compensation, his highest normative bonus percentage in the
immediately preceding three fiscal years and the fraction of the current fiscal
year expired at the time of such termination, less any payments previously made
in respect of such amounts upon such change of control, (c) with respect to
eight Covered Individuals (including the five currently most highly compensated
executive officers) three times, with respect to one Covered Individual two
times and with respect to three Covered Individuals one times the sum of (x) the
individual's Highest Compensation and (y) the product of his Highest
Compensation and his highest normative bonus percentage in the immediately
preceding three fiscal years, (d) 20% of Highest Compensation with respect to
three Covered Individuals, 40% of Highest Compensation with respect to one
Covered Individual and with respect to eight Covered Individuals (including the
five currently most highly compensated executive officers), the greater of 60%
of the individual's Highest Compensation and $100,000 and (e) for all Covered
Individuals, an amount equal to any accrued but unvested account balances as of
the date of termination and the actuarial present value of any accrued but
unvested benefits other than account balances that as a result of termination
are forfeited under any qualified or nonqualified Company retirement or pension
plan. The Company Severance Agreements also provide that each such Covered
Individual is also
21
<PAGE> 24
entitled to have the Company (i) continue for at least three years for eight
Covered Individuals (including the five currently most highly compensated
executive officers), at least two years for one Covered Individual and at least
one year for three Covered Individuals, all welfare benefit programs, such as
medical and life, provided by the Company and its affiliated companies, (ii) for
eight Covered Individuals (including the five currently most highly compensated
executive officers), timely pay or provide any other amounts, including
reimbursable expenses incurred prior to the date of termination, or benefits
required or permitted under any plan, program, policy, practice, contract or
agreement of the Company and its affiliated companies (subject to limitations),
(iii) provide the title to the individual's Company automobile for eight Covered
Individuals (including the five currently most highly compensated executive
officers), or make a cash payment equal to the value of such automobile in
certain cases and (iv) for all Covered Individuals, provide key executive level
outplacement services.
The Company Severance Agreements define Highest Compensation as twelve
times a Covered Individual's highest monthly cash compensation (not including
any bonus), whether current or deferred, at any time during the period
commencing on the first day of the calendar month containing the 365th day prior
to the day a change of control occurs and ending on the date of the termination
of such Covered Individual's employment with the Company.
The Company Severance Agreements also contain provisions regarding
termination of employment upon disability, death, and other certain
circumstances. In addition, if any payments or benefits paid to the Covered
Individuals under the Company Severance Agreements or any other plan,
arrangement or agreement with the Company are subject to the federal excise tax
on excess parachute payments or any similar state or local tax, or any interest
or penalties are incurred with respect thereto, the Company will pay to the
Covered Individuals an additional amount so that the net amount retained by the
Covered Individuals after deduction or payment of those taxes will be as if no
such tax, interest or penalty were imposed.
The Merger will constitute a change of control under the Company Severance
Agreements. Consequently, the Covered Individuals will be entitled to certain
cash payments at the Effective Time, even if they are not terminated. These cash
payments consist of payment of all earned but unpaid compensation, including any
unpaid bonus for previous fiscal years and a pro rata bonus payment (generally
based upon such Covered Individuals' Highest Compensation (as defined above) and
the greater of the normative bonus percentage and the estimated projected bonus
percentage for the current fiscal year under any bonus plan for which he is
eligible. See "Item 12. Security Ownership of Certain Beneficial Owners and
Management -- Changes in Control".
22
<PAGE> 25
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The names and ownership positions of stockholders who, to the knowledge of
the Company (based on filings with the Securities and Exchange Commission (the
"Commission")), were the beneficial owners of more than 5% of the outstanding
Common Stock on April 15, 1996, and certain other information are set forth in
the following table:
<TABLE>
<CAPTION>
NUMBER OF SHARES WITH
-------------------------
NAME AND ADDRESS AGGREGATE VOTING DISPOSITIVE PERCENT
OF BENEFICIAL OWNER SHARES OWNED POWER POWER OF CLASS(1)
- --------------------------------------------- ------------ --------- ----------- -----------
<S> <C> <C> <C> <C>
Varity Corporation(2)(3)..................... 8,144,000 8,144,000 8,144,000 46.3
672 Delaware Avenue
Buffalo, NY 14029
MWC Holdings, Inc.(3)(4)..................... 8,144,000 8,144,000 8,144,000 46.3
2501 Woodlake Circle
Okemos, MI 48864
The Capital Group, Inc.(5)................... 1,055,700 508,000 1,055,700 6.0
333 South Hope Street
Los Angeles, CA 90071
</TABLE>
- ---------------
(1) Percentages are calculated on the basis of the number of outstanding shares
as of April 15, 1996, excluding Common Stock held by or for the account of
the Company or its subsidiaries, pursuant to the rules of the Commission.
(2) In reliance on information contained in the Schedule 13G of Varity, dated
February 16, 1993. These shares are owned indirectly by Varity through K-H.
(3) Varity has granted to Holdings an option, exercisable upon the occurrence of
certain events, pursuant to the Stock Option Agreement. In the event that
such option is exercised, Varity will cease to own any, and Holdings will
acquire all, of the shares of Common Stock owned by Varity. If such option
is exercised, the New Investors (as that term is defined below under the
caption "Changes in Control"), will have the right to purchase from
Holdings their pro rata portion of such shares. See "Item 1. Business --
General". Pursuant to the Stock Option Agreement, K-H has granted a proxy
to certain directors of Holdings to vote K-H's shares of Common Stock for
approval and adoption of the Merger Agreement and against any proposal or
transaction that could prevent or delay the consummation of the
transactions contemplated by the Merger Agreement.
(4) In reliance on information contained in the Schedule 13D of Holdings, dated
March 28, 1996.
(5) In reliance on information contained in the Schedule 13G of The Capital
Group, Inc., dated February 2, 1996.
23
<PAGE> 26
SECURITY OWNERSHIP OF MANAGEMENT AND THE BOARD OF DIRECTORS
The following table sets forth, as of April 15, 1996, the beneficial
ownership (as defined by the Commission) of the Company's Common Stock (the only
class of equity securities outstanding) by each of the Directors and the named
executive officers of the Company and by the Directors and executive officers of
the Company as a group:
<TABLE>
<CAPTION>
NUMBER OF
NAME OF BENEFICIAL OWNER SHARES(1)(2)
-------------------------------------------------------------------- ------------
<S> <C>
Cucuz, Ranko........................................................ 174,926
Dallera, Giancarlo.................................................. 68,450
Gilroy, J. Anthony(3)............................................... --
Linski, William S................................................... 51,075
Rodewig, John S..................................................... 300
Sandberg, Daniel M.................................................. 19,692
Shovers, William D.................................................. 69,300
Utley, John E.(3)................................................... 1,000
Way, Kenneth L...................................................... 200
All Directors and Executive Officers as a Group (12 Persons)........ 413,632
</TABLE>
- ---------------
(1) Includes the following shares of Common Stock issuable upon the exercise of
options which are exercisable within 60 days of April 15, 1996, and shares
of Common Stock purchased under the Company's Retirement Savings Plan (the
"Savings Plan"):
<TABLE>
<CAPTION>
ISSUABLE UPON PURCHASED UNDER
NAME EXERCISE OF OPTIONS SAVINGS PLAN
------------------------------------------------ ------------------- ---------------
<S> <C> <C>
Cucuz, Ranko.................................... 171,400 726
Dallera, Giancarlo.............................. 68,450 --
Linski, William S............................... 50,650 425
Sandberg, Daniel M.............................. 19,100 92
Shovers, William D.............................. 66,500 --
All Directors and Executive Officers as a
Group......................................... 403,250 2,082
</TABLE>
- ---------------
(2) In each case, except as to "All Directors and Officers as a Group", less
than 1% of the outstanding shares of Common Stock.
(3) Mr. Gilroy and Mr. Utley serve as officers of Varity, which owns 46.3% of
the Common Stock of the Company; each of them disclaims any beneficial
ownership thereof. See "Item 12. Security Ownership of Certain Beneficial
Owners and Management -- Security Ownership of Certain Beneficial Owners".
As of April 15, 1996, all Directors and executive officers as a group, were
deemed beneficially to own approximately 2.4% of the outstanding Common Stock.
CHANGES IN CONTROL
Pursuant to the Merger Agreement, each share of Company Common Stock
outstanding at the effective time of the Merger (the "Effective Time") will be
converted into the right to receive $28.80 and one-tenth of one share of the
common stock of the Surviving Corporation ("Surviving Corporation Common
Stock"). In connection with the Merger Agreement, the Company has entered into
subscription agreements, dated as of March 28, 1996 (the "Subscription
Agreements"), with certain investors, pursuant to which, subject to certain
conditions, such investors (the "New Investors") have agreed to purchase
immediately prior to the Effective Time, for an aggregate purchase price of $200
million, 200,000 shares of newly authorized Series A Preferred stock, par value
$.01 per share, of the Company, which will be converted into an aggregate of
6,250,000 shares of Surviving Corporation Common Stock upon consummation of the
Merger, and 150,000 warrants, each warrant entitling the holder thereof to
purchase one share of common stock, par value $.01 per share, of the Surviving
Corporation Common Stock at a price of $48.00 during the period commencing on
the fourth anniversary of the Effective Time and ending on the seventh
anniversary of the Effective Time (the "Warrants"). If the Merger is
consummated, 15.8% of the Surviving Corporation Common Stock will be owned by
former holders of Company Common Stock and 84.2% will be owned by the
24
<PAGE> 27
New Investors and former holders of Holdings common stock, in each case without
giving effect to the Warrants or currently existing options under the Company's
1992 Stock Incentive Plan.
As a condition and in consideration of Holdings' entering into the Merger
Agreement, Varity, K-H, and Holdings have entered into the Stock Option
Agreement, pursuant to which K-H has granted to Holdings an option to purchase
all of the 8,144,000 shares of Company Common stock now owned by K-H (the
"Varity Shares"), representing approximately 46.3% of the outstanding shares of
Company Common Stock, at a price of $32.00 per share or such higher price as may
be paid to holders of Company Common stock in the Merger. The option will become
exercisable if (a) Varity or K-H breaches certain terms of the Stock Option
Agreement, (b) a third party, other than Holdings, (1) proposes, or consummates
(A) a merger or other business combination with the Company or (B) a tender
offer or other acquisition for or (2) obtains an option for at least 15% of the
outstanding shares of Company Common stock or for material assets of the
Company, (c) the Company enters into an agreement, with a party other than
Holdings, for the Company's liquidation, dissolution, recapitalization, merger,
sale of substantial assets or equity or other similar transaction or (d) the
Board of Directors of the Company publicly withdraws, or modifies, or fails to
reconfirm upon request by Holdings, its recommendation of the Merger. The option
will terminate upon the earliest of (a) the effective time of the Merger, (b)
five business days after the termination of the Merger Agreement in accordance
with its terms, but simultaneously with such termination if Holdings is not
entitled to certain termination fees under the Merger Agreement, (c) a material
alteration of or supplement to the Merger Agreement without the consent of
Varity and K-H, (d) Holdings' failure to terminate the Merger Agreement under
certain circumstances in violation of the provisions of the Stock Option
Agreement and (e) 12:01 a.m. on August 16, 1996. If the option is exercised, the
New Investors will have the right, pursuant to a letter agreement, to purchase
from Holdings their pro rata portion of the Varity Shares. Pursuant to the Stock
Option Agreement, Varity and K-H have granted, subject to certain conditions,
directors of Holdings, the irrevocable proxy to vote the Varity Shares in favor
of the Merger and related agreements and actions and against any agreement or
action which might hinder the Merger.
The foregoing discussion respecting the terms of the Merger Agreement and
the other agreements executed and delivered in connection therewith is qualified
in its entirety by reference to such agreements, which are exhibits to this
report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On December 16, 1992, the non-wheel businesses and assets of the Company,
particularly its automotive brake systems business and assets, were transferred
to, and the liabilities related thereto were assumed by, Kelsey-Hayes (which was
then a wholly owned subsidiary of the Company), the capital stock of which was
transferred by the Company to K-H as an extraordinary dividend (the
"Reorganization"). Pursuant to the terms of the agreement providing for the
transfer, Kelsey-Hayes agreed to indemnify the Company for substantially all
liabilities related to the transferred businesses and assets; however, the
Company retains residual liability with respect to certain matters (the direct
liability with respect to which Kelsey-Hayes assumed). The Company agreed to
indemnify Kelsey-Hayes for substantially all liabilities related to the
businesses and assets retained by the Company pursuant to the Reorganization. In
connection and contemporaneously with the Reorganization, the Company entered
into a number of agreements with certain affiliates, as follows:
Non-Competition Agreement. The Company entered into a Non-Competition
Agreement with Varity. The agreement prohibits Varity and its other
affiliates (excluding Kelsey-Hayes de Mexico S.A. de C.V ("KHDM")) from
directly or indirectly engaging in any business competitive with the
automotive wheel systems business of the Company, in its current or planned
future markets. Varity also agreed first to offer the Company any business
opportunities of which Varity is apprised or which Varity initiates that
relate to the automotive wheel systems business of the Company, prior to
availing itself of such opportunity. Varity and the Company also agreed not
to divulge to any third parties or appropriate for its own use confidential
or proprietary information concerning one another's respective businesses.
The term of the Non-Competition Agreement extends until the latest of (i)
the date that the Management Services Agreement (described below) is
terminated; (ii) the date that Varity and its affiliates, in the aggregate,
shall be the beneficial owners of less than thirty percent (30%) of the
outstanding voting stock of the Company; and (iii) the date that is five
years after the date of the Non-Competition Agreement.
25
<PAGE> 28
Management Services Agreement. The Company entered into a Management
Services Agreement with K-H, pursuant to which K-H agreed to provide a
variety of management services, including, but not limited to, accounting,
financial, marketing, legal, tax, environmental, insurance, property,
management and human resource services. In exchange for these services, the
Company agreed to pay a designated monthly fee (initially $873,500)
calculated to cover the direct and indirect costs of the services,
including salary and other administrative costs and expenses, subject to
periodic increases based on the consumer price index for the geographic
area in which the Company's headquarters is located, as reported by the
United States Department of Labor Statistics. Historically, the Company
reimbursed K-H for its payment for the services described above, including
direct costs for services rendered by third parties (i.e., auditing,
consulting, insurance, etc.) for the benefit of the Company. Effective in
Fiscal 1993, the Company and K-H adjusted the designated monthly fee to
exclude such direct costs, which are now billed separately to the Company
by the third party providing the service and the designated monthly fee was
substantially reduced. The Company has, when it has deemed it advantageous,
increased its in-house staff and reduced its reliance upon services
rendered by K-H under the Management Services Agreement. As a result, the
designated monthly fee has been reduced such that, for Fiscal 1995, it
averaged approximately $30,000. The Company expects that the designated
monthly fee will be further reduced during Fiscal 1996. The Management
Services Agreement has an indefinite term, but may be terminated by either
the Company or K-H upon six months' prior written notice or sooner upon
mutual agreement.
Tax Sharing Agreement. Varity, K-H, Kelsey-Hayes and the Company also
entered into a Tax Sharing Agreement. The purpose of the Tax Sharing
Agreement is, in general, to allocate income tax liabilities among the
Company, Varity, K-H and Kelsey-Hayes for taxable periods prior to or
including the completion of the IPO on December 23, 1992 (the "Effective
Date"). In general, pursuant to the Tax Sharing Agreement, the Company is
responsible for (i) all additional taxes paid by the affiliated group of
corporations of which Varity is the common parent in respect of its federal
consolidated and any state or local consolidated, combined or unitary
income tax return for the current year which are attributable solely to the
Company or one or more of its subsidiaries being included in such return
(but not including additional taxes resulting from the inclusion of items
attributable to businesses other than the wheel business); (ii) taxes in
respect of state or local consolidated, combined or unitary income tax
returns, relating to future taxable periods in which the Company or one of
its subsidiaries is included along with Varity or one of its subsidiaries
in an amount equal to the taxes that would have been incurred by the
Company or its applicable subsidiary if Varity or its subsidiary had not
been included in such returns; and (iii) all taxes in respect of other
state or local income tax returns of the Company and its subsidiaries for
taxable periods ending on or after the Effective Date (but not including
income taxes resulting from the inclusion of items attributable to
businesses other than the wheel business for any year which begins before
the Effective Date). If by reason of the inclusion of the Company or one of
its subsidiaries in a state or local consolidated, combined or unitary
income tax return which also includes Varity or one of its subsidiaries and
which is filed for a taxable period beginning after the Reorganization, the
taxes of Varity or its subsidiaries reflected in the return are actually
reduced, then Varity will pay to the Company an amount equal to such
reduction. In general, if there is an adjustment, in respect of a taxable
period ending on or prior to the Effective Date, to a consolidated federal
income tax return or to a state or local consolidated, combined or unitary
or separate income tax return in which the Company or one of its
subsidiaries are included, K-H, Kelsey-Hayes and Varity are responsible for
any deficiencies and entitled to receive any refunds resulting from such
adjustment (except for adjustments attributable to income taxes for which
the Company is responsible as described above), provided that the Company
is required to pay K-H an amount equal to any actual reduction in the
income tax liability of the Company or its subsidiaries for any taxable
period beginning after the Effective Date resulting from such adjustment.
In addition, Varity, K-H and Kelsey-Hayes are responsible for any income
taxes resulting to the Company from (i) the transfer of property and
associated liabilities to Kelsey-Hayes in the Reorganization, (ii) the
distribution by the Company of the shares of Kelsey-Hayes to K-H in the
Reorganization and (iii) the IPO; provided that the Company is required to
pay K-H an amount equal to any actual reduction in the income tax liability
of the Company or its subsidiaries for any taxable period beginning after
the Effective Date resulting therefrom. In general, if there is an
adjustment to a state or local consolidated, combined or unitary income tax
return in which Varity or one of its subsidiaries and the Company or one of
its
26
<PAGE> 29
subsidiaries are included, with respect to a taxable period beginning after
the Effective Date, the Company will be responsible for the portion of any
resulting deficiency and shall be entitled to the portion of any resulting
refund which is attributable to the Company or its subsidiaries.
Michigan Workers' Compensation Claims Payment Guarantee. The Company
and Kelsey-Hayes entered into a Michigan Workers' Compensation Claims
Payment Guarantee, pursuant to which each party agreed to be jointly and
severally liable for all claims, awards, settlements or judgments of
employees, employed in the State of Michigan, of the Company and
Kelsey-Hayes arising out of events occurring prior to the Reorganization
pursuant to relevant workers' compensation statutes.
Lease. The Company entered into a lease agreement with K-H whereby the
Company leased portions of its Romulus, Michigan facilities to K-H. K-H, in
turn, subleased a portion of these facilities to Kelsey-Hayes. The lease
agreement had an initial term of one year and was subject to automatic
renewal for successive one-year terms unless terminated, on six months'
notice, by either K-H or the Company at the end of any renewal term. The
lease agreement provided for an initial rental, based on the area rented
and the nature of the space, which was adjustable annually pursuant to the
provisions of the lease agreement; the Company believes that such initial
rents approximated market values for similar properties in the Greater
Detroit, Michigan region when the lease was entered into. For Fiscal 1995,
adjusted rentals accrued under the lease agreement aggregated approximately
$1 million. The lease agreement was terminated on December 31, 1995.
Kelsey-Hayes currently occupies a portion of the premises on a
month-to-month basis.
Since the year beginning November 1, 1994, the Company has maintained
liability coverage for the fiduciaries of its pension and other employee benefit
plans under an insurance policy purchased and maintained by Varity and covering
Varity and certain of its affiliates, including the Company. The Company
believes, in light of data which it has reviewed respecting premiums for the
insurance which it has purchased from or through Varity, that the premiums
charged or allocated to the Company by Varity or its subsidiary were and are
appropriate.
The Company and Kelsey-Hayes were parties to an agreement under which,
among other things, the Company provided services to the automotive wheel
systems business conducted by KHDM, which also conducted an automotive brake
business. The Company received $400,000 as an annual fee under this agreement.
This Agreement was terminated in December 1995. In late 1995, KHDM was
reorganized into two corporations, one of which operated KHDM's automotive brake
business and the other of which operated KHDM's automotive wheel systems
business ("Wheelco") and in each of which Kelsey-Hayes owned 40% of the
outstanding shares. In December 1995, the Company acquired all of Kelsey-Hayes'
shares in Wheelco.
Mr. Dallera is the President of and a 35% stockholder in Cromodora S.p.A.,
an Italian corporation in which the Company, indirectly through FPS, owns a 30%
interest.
On October 11, 1995, Mr. Kolakowski signed a promissory note in favor of
the Company, under which the Company extended an $80,000 bridge loan in
connection with his purchase of a primary residence upon his relocation to
Romulus. The loan was repaid in full on April 16, 1996.
Prior to the Reorganization, the Board of Directors of the Company adopted
a resolution providing that the Company will not enter into any transaction with
or pay any fee to an affiliate or associate (as such terms are defined under
Rule 12b-2 under the Exchange Act) of the Company (other than any subsidiary or
associate of the Company in which no direct or indirect parent company of the
Company has any interest otherwise than through the Company), unless (i) the
transaction or fee is as fair to the Company as would be the case if such
transaction or fee had been negotiated on an arm's-length basis with an
unaffiliated third party and (ii) the transaction or fee (if the value or cost
thereof to the Company is $10.0 million or more) is approved by a majority of
the Company's Independent Directors.
27
<PAGE> 30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
The following documents are filed as part of this report:
(a) 1. Financial Statements
The following financial statements of the Registrant are filed herewith as
part of this report:
(1) Independent Auditors' Report
(2) Consolidated Balance Sheets at January 31, 1996 and 1995
(3) Consolidated Statements of Operations for the years ended January 31,
1996, 1995 and 1994
(4) Consolidated Statements of Changes in Stockholders' Equity for the
years ended January 31, 1996, 1995 and 1994
(5) Consolidated Statements of Cash Flows for the years ended January 31,
1996, 1995 and 1994
(6) Notes to Consolidated Financial Statements
2. Financial Statement Schedules for Fiscal 1995, 1994 and 1993
None. These schedules are omitted because the information required to be
contained therein is disclosed elsewhere in the financial statements or the
amounts involved are not sufficient to require submission or the schedule is
otherwise not required to be submitted.
3. Exhibits
<TABLE>
<S> <C> <C>
(G) 2.1 Agreement and Plan of Merger, dated as of March 28, 1996, between the Company and
MWC Holdings, Inc.
(B) 3.1 Restated Certificate of Incorporation of the Company.
(B) 3.2 By-Laws of the Company.
(B) 4.1 Reference is made to Exhibits 3.1 and 3.2.
(C) 4.2 Indenture dated as of November 15, 1992 between the Company and Manufacturers and
Traders Trust Company, as Trustee ($100,000,000 principal amount of 9 1/4% Senior
Notes due 2002), including all exhibits thereto.
(C) 4.3 Form of Senior Note issued pursuant to the Indenture filed as Exhibit 4.2 hereto.
(E) 4.4 Credit Agreement dated as of December 15, 1992, and amended and restated as of
November 30, 1993, June 10, 1994 and March 24, 1995, between the Company, the
Subsidiary Guarantors (as defined therein), the Banks named on the signature
pages thereof, The Chase Manhattan Bank (National Association) as Agent, and the
Bank of Nova Scotia, as Co-Agent.
(G) 4.5 Form of Subscription Agreement between the Company and the New Investors.
(B) 10.1 Management Services Agreement between the Company and K-H Corporation ("K-H").
(B) 10.2 Tax Sharing Agreement among the Company, Kelsey-Hayes Company and K-H.
(C) 10.3 Conveyance and Transfer Agreement between the Company and Kelsey-Hayes Company,
dated as of December 15, 1992.
(B) 10.4 Lease Agreement between the Company and K-H Corporation.
(B) 10.5 Michigan Workers' Compensation Claims Payment Guarantee between the Company and
Kelsey-Hayes Company.
(B) 10.6* 1992 Incentive Stock Option Plan.
(B) 10.7* Long-Term Savings Plan.
(B) 10.8 Non-competition Agreement between the Company and Varity Corporation.
(B) 10.9* Employment Contract, dated February 1, 1993, between Hayes Wheels, S.p.A. and
Giancarlo Dallera.
(C) 10.10 Joint Venture Agreement (the "Joint Venture Agreement"), dated as of February 16,
1993, by and between the Company and Nova Hut a.s. ("NH").
</TABLE>
28
<PAGE> 31
<TABLE>
<S> <C> <C>
(D) 10.11 Amendment No. 1, dated August 17, 1993, to the Joint Venture Agreement.
(D) 10.12 Amendment No. 2, dated October 26, 1993, to the Joint Venture Agreement.
(D) 10.13 Project Funds Agreement, dated November 12, 1993, between Hayes Wheels Autokola
NH, a.s., ("Autokola") NH, the Company and International Finance Corporation
("IFC").
(D) 10.14 Fee Clawback Agreement, dated November 12, 1993, between Autokola, the Company
and IFC.
(D) 10.15 Subordination Agreement, dated November 12, 1993, between Autokola, NH, the
Company and IFC.
(D) 10.16 Investment Agreement, dated November 12, 1993, between Autokola and IFC.
(B) 10.17* Employee Benefits Agreement.
(F) 10.18* Severance Agreements, each dated November 6, 1995, between the Company and its
officers and certain employees.
(G) 10.21 Stock Option Agreement, dated as of March 28, 1996, by and among Varity
Corporation, K-H Corporation and MWC Holdings, Inc.
(G) 10.22 Registration Rights Agreement, dated as of March 28, 1996, among the Company,
Varity Corporation and K-H Corporation.
(A) 12 Computation of Ratios.
(A) 22 Subsidiaries of the Company.
(A) 23 Consent of KPMG Peat Marwick LLP.
(A) 24 Powers of Attorney.
(A) 27 Financial Data Schedule.
</TABLE>
- -------------------------
LEGEND FOR EXHIBITS
(A) Filed herewith.
(B) Incorporated by reference from the Company's Registration Statement No.
33-53780 on Form S-l, filed with the SEC on October 27, 1992, as amended.
(C) Incorporated by reference from the Company's Annual Report on Form 10-K for
the Fiscal Year Ended January 31, 1993, filed with the SEC.
(D) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended October 31, 1993, filed with the SEC.
(E) Incorporated by reference from the Company's Annual Report on Form 10-K for
the Fiscal Year Ended January 31, 1995, filed with the SEC.
(F) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended October 31, 1995, filed with the SEC.
(G) Incorporated by reference from the Company's Current Report on Form 8-K,
dated March 28, 1996.
* Denotes a compensatory plan, contract or arrangement.
The Company will furnish to any stockholder a copy of the above exhibits
upon the written request of such stockholder and the payment to the Company of
the reasonable expenses incurred by the Company in furnishing such copy.
(b) Reports on Form 8-K
The Company filed no Current Reports on Form 8-K with the SEC during the
quarter ended January 31, 1996.
29
<PAGE> 32
SIGNATURES
Pursuant to the requirements of Section 13 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, on the 23rd day of April 1996.
HAYES WHEELS INTERNATIONAL, INC.
/s/ WILLIAM D. SHOVERS
---------------------------------
William D. Shovers
Vice President -- Finance
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- ------------------------------------ --------------
<S> <C> <C>
/s/ JOHN E. UTLEY* Chairman of the Board of Directors; April 23, 1996
- ----------------------------------- Director
John E. Utley
/s/ RANKO CUCUZ* President and Chief Executive April 23, 1996
- ----------------------------------- Officer; Director
Ranko Cucuz
/s/ WILLIAM D. SHOVERS Chief Financial Officer; Principal April 23, 1996
- ----------------------------------- Accounting Officer
William D. Shovers
/s/ J. ANTHONY GILROY* Director April 23, 1996
- -----------------------------------
J. Anthony Gilroy
/s/ JOHN S. RODEWIG* Director April 23, 1996
- -----------------------------------
John S. Rodewig
/s/ KENNETH L. WAY* Director April 23, 1996
- -----------------------------------
Kenneth L. Way
*By BARRY J. MILLER
- -----------------------------------
Barry J. Miller
Attorney-in-fact
</TABLE>
30
<PAGE> 33
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY JANUARY JANUARY
31, 31, 31,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net sales................................................... $611.1 $537.6 $428.2
Cost of goods sold.......................................... 513.4 441.4 344.4
------ ------ ------
Gross profit........................................... 97.7 96.2 83.8
Marketing, general and administrative....................... 29.7 28.6 26.3
Engineering and product development......................... 4.7 5.1 4.0
Other income, net........................................... (1.5) (0.8) (2.3)
Nonrecurring charges (Note 11).............................. 3.6 -- --
------ ------ ------
Earnings from operations............................... 61.2 63.3 55.8
Interest expense, net....................................... 15.0 13.4 13.6
------ ------ ------
Earnings before taxes on income and cumulative effect
of changes in accounting principles.................. 46.2 49.9 42.2
Income tax provision (Note 7)............................... 17.8 20.0 17.6
------ ------ ------
Earnings before cumulative effect of changes in
accounting principles................................ 28.4 29.9 24.6
Cumulative effect of changes in accounting principles (Note
2)........................................................ -- -- 24.6
------ ------ ------
Net income............................................. $ 28.4 $ 29.9 $ --
====== ====== ======
Per share income:
Income before cumulative effect of changes in
accounting principles................................ $ 1.62 $ 1.70 $ 1.40
Cumulative effect of changes in accounting
principles........................................... -- -- $(1.40)
------ ------ ------
Primary................................................ $ 1.62 $ 1.70 $ --
====== ====== ======
Fully diluted.......................................... $ 1.62 $ 1.70 $ --
====== ====== ======
Weighted average shares outstanding (in thousands).......... 17,574 17,574 17,574
====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-1
<PAGE> 34
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(MILLIONS OF DOLLARS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
ASSETS 1996 1995
- ----------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................ $ 1.8 $ 0.5
Receivables (less allowance of $0.1 million at January 31, 1996 and
1995)............................................................. 109.6 92.7
Inventories (Note 3)................................................. 58.9 57.6
Prepaid expenses and other........................................... 9.9 6.8
------- -------
Total current assets.............................................. 180.2 157.6
Property, plant and equipment:
Land................................................................. 18.3 18.3
Buildings............................................................ 76.8 72.9
Machinery and equipment.............................................. 319.7 280.8
------- -------
414.8 372.0
Accumulated depreciation............................................. (110.4) (86.3)
------- -------
Net property, plant and equipment................................. 304.4 285.7
Goodwill and other assets (Note 4)..................................... 149.3 146.3
------- -------
Total assets......................................................... $ 633.9 $ 589.6
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank borrowings (Note 8)............................................. $ 4.1 $ 10.3
Current portion of long-term debt (Note 8)........................... 0.1 1.3
Accounts payable and accrued liabilities (Note 5).................... 125.5 118.9
------- -------
Total current liabilities......................................... 129.7 130.5
Noncurrent liabilities:
Long-term debt (Note 8).............................................. 128.9 111.4
Deferred income taxes (Note 7)....................................... 48.1 38.8
Pension and other long-term liabilities (Note 10).................... 81.8 92.5
------- -------
Total noncurrent liabilities...................................... 258.8 242.7
Commitments and contingencies (Notes 8, 9, 12 and 15)
Stockholders' equity (Notes 14 and 17):
Preferred Stock, 25,000,000 shares authorized; none issued or
outstanding...................................................... -- --
Common stock, par value $0.01 per share:
Authorized 50,000,000 shares;
Issued and outstanding, 17,574,000 at January 31, 1996 and
1995............................................................ 0.2 0.2
Additional paid in capital........................................ 198.5 198.5
Retained earnings................................................. 49.6 22.3
Cumulative translation adjustment................................. (0.3) (2.2)
Pension liability adjustment...................................... (2.6) (2.4)
------- -------
Total stockholders' equity...................................... $ 245.4 $ 216.4
------- -------
Total liabilities and stockholders' equity...................... $ 633.9 $ 589.6
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 35
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED JANUARY 31, 1996, 1995, 1994
(MILLIONS OF DOLLARS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------ ADDITIONAL RETAINED CUMULATIVE PENSION
PAR PAID-IN EARNINGS TRANSLATION LIABILITY
SHARES VALUE CAPITAL (DEFICIT) ADJUSTMENT ADJUSTMENT
---------- ----- ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 31, 1993............. 17,574,000 $0.2 $198.5 $ (5.4) $(1.4) $ --
Cash dividends ($0.06 per share)...... -- -- -- (1.1) -- --
Net income............................ -- -- -- -- -- --
Translation adjustment................ -- -- -- -- (2.1) --
Pension adjustment.................... -- -- -- -- -- (3.9)
---------- ---- ------ ------ ----- ------
Balance, January 31, 1994............. 17,574,000 0.2 198.5 (6.5) (3.5) (3.9)
---------- ---- ------ ------ ----- ------
Cash dividends ($0.06 per share)...... -- -- -- (1.1) -- --
Net income............................ -- -- -- 29.9 -- --
Translation adjustment................ -- -- -- -- 1.3 --
Pension adjustment.................... -- -- -- -- -- 1.5
---------- ---- ------ ------ ----- ------
Balance, January 31, 1995............. 17,574,000 0.2 198.5 22.3 (2.2) (2.4)
---------- ---- ------ ------ ----- ------
Cash dividends ($0.06 per share)...... -- -- -- (1.1) -- --
Net Income............................ -- -- -- 28.4 -- --
Translation adjustment................ -- -- -- -- 1.9 --
Pension adjustment.................... -- -- -- -- -- (0.2)
---------- ---- ------ ------ ----- ------
Balance, January 31, 1996............. 17,574,000 $0.2 $198.5 $ 49.6 $(0.3) $ (2.6)
========== ==== ====== ====== ===== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 36
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31, JANUARY 31,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income.............................................. $ 28.4 $ 29.9 $ --
Adjustments to reconcile net income to net cash provided
by operations:
Depreciation and tooling amortization................ 26.6 24.0 20.0
Amortization of intangibles.......................... 6.1 5.6 4.8
Cumulative effect of changes in accounting
principles......................................... -- -- 24.6
Increase in deferred taxes........................... 7.7 1.3 1.9
Changes in operating assets and liabilities:
Increase in receivables.............................. (14.5) (30.9) (12.3)
Increase in inventories.............................. (1.9) (13.1) (7.5)
Increase in prepaid expenses and other............... (2.4) (2.2) (2.2)
Increase in accounts payable and accrued
liabilities........................................ 6.5 12.4 14.7
Increase (decrease) in other long-term liabilities... (11.6) (4.6) 8.6
------ ------ ------
Cash provided by operating activities........... 44.9 22.4 52.6
Cash flows from investment activities:
Acquisition of property, plant and equipment......... (43.4) (39.9) (34.8)
Acquisition of minority interest..................... -- -- (0.2)
Acquisition of license............................... -- (0.7) (1.4)
Investment in joint venture.......................... (3.2) -- (3.4)
Plant start-up costs................................. -- -- (3.5)
Other, net........................................... (5.8) (0.3) (5.3)
------ ------ ------
Cash used for investment activities............. (52.4) (40.9) (48.6)
Cash flows from financing activities:
Increase (decrease) in foreign bank borrowings and
loans.............................................. (6.4) 6.0 (14.6)
Increase in bank revolving loan and other domestic
loans.............................................. 16.3 8.6 --
Dividends paid to shareholders....................... (1.1) (1.1) (1.1)
------ ------ ------
Cash provided by (used for) financing
activities.................................... 8.8 13.5 (15.7)
Effect of exchange rate changes on cash and cash
equivalents............................................. -- 0.2 --
------ ------ ------
Increase (decrease) in cash and cash
equivalents................................... 1.3 (4.8) (11.7)
Cash and cash equivalents at beginning of year............ 0.5 5.3 17.0
------ ------ ------
Cash and cash equivalents at end of year.................. $ 1.8 $ 0.5 $ 5.3
====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 37
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
------------------------------------
(1) ORGANIZATION
Organization
Hayes Wheels International, Inc. and subsidiaries (the "Company")
manufactures, designs and supplies wheels, principally to original equipment
manufacturers ("OEMs") of passenger cars and light trucks throughout North
America and Europe. The Company's products include cast aluminum wheels,
fabricated aluminum and fabricated steel wheels, clad covered wheels and other
wheels, of various designs.
On December 23, 1992, the Company consummated an initial public offering of
its common stock and its 9 1/4% Senior Notes due November 15, 2002 (the "IPO").
Prior to the IPO, the Company was a wholly owned subsidiary of K-H Corporation
("K-H"), a wholly owned subsidiary of Varity Corporation ("Varity"). Subsequent
to the IPO, Varity has continued to own, indirectly through K-H, 46.3% of the
common stock of the Company.
(2) SUMMARY OF ACCOUNTING PRINCIPLES
Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company
and its majority owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. The Company's investments in
Hayes Wheels Autokola NH, a.s. ("Autokola"), a 45% owned joint venture in the
Czech Republic, Hayes Wheels de Mexico S.A. de C.V. (formerly named Kelsey-Hayes
de Mexico, S.A. de C.V.), a 40 % owned joint venture in Mexico, and Hayes Wheels
de Venezuela, C.A., a 49% owned joint venture in Venezuela, are accounted for
under the equity method. Financial position and results of operations for these
entities as of, and for the twelve months ended, January 31, 1996, were not
material to the Consolidated Financial Statements of the Company. The Company
also has two minor investments which are carried at cost and are not deemed
material.
Revenue Recognition
Sales are recorded when products are shipped to customers.
Inventories
Inventories are stated at the lower of cost or market, with cost determined
by the last in, first out (LIFO) method for a portion of domestic inventories.
Cost for other inventories, including foreign, which were approximately 62
percent and 66 percent of inventories at January 31, 1996 and 1995,
respectively, are stated using the first in, first out (FIFO) or average cost
method. Cost includes the cost of materials, direct labor and the applicable
share of manufacturing overhead.
During the fourth quarter of Fiscal 1994, the Company changed its method of
accounting for a portion of its aluminum inventories from the LIFO method to the
FIFO method. Management believes the FIFO method will produce a better matching
of current costs and current revenues due to cost pass through arrangements with
customers.
The effect of retroactively applying the change in accounting had no
material impact on retained earnings at February 1, 1993 or on net income for
the years ended January 31, 1995 and 1994.
F-5
<PAGE> 38
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
------------------------------------
(2) SUMMARY OF ACCOUNTING PRINCIPLES -- (CONTINUED)
Property, Plant and Equipment
Additions to property, plant and equipment are recorded at cost.
Depreciation of facilities is generally provided on a straight-line basis at
rates which are designed to write off the assets over their estimated useful
lives, principally as follows:
Buildings.................................................25 years
Machinery and equipment.............................12 to 14 years
Expenditures for maintenance, repairs and minor replacements of $22.8
million, $18.5 million and $17.6 million for the years ended January 31, 1996,
1995 and 1994, respectively, were charged to expense as incurred.
Special Tooling
Expenditures made to meet special tooling requirements are capitalized.
Special tooling which is reimbursable by the customer is classified as either a
current asset or noncurrent asset, depending upon the expected time of
reimbursement. Special tooling which is not reimbursable by the customer is
classified as a noncurrent asset and is charged to expense on a pro rata basis
over its estimated useful life.
Goodwill
Goodwill is amortized on a straight-line basis over 40 years.
Recoverability is reviewed annually or sooner if events or changes in
circumstances indicate that the carrying amount may exceed fair value.
Recoverability is then determined by comparing the undiscounted net cash flows
of the assets to which the goodwill applies to the net book value including
goodwill of those assets.
Capitalization of Start-Up Costs
Costs associated with the start-up of new plants and production lines
incorporating new manufacturing processes are deferred and amortized over the
lesser of the life of the initial products produced at the location or five
years. Capitalization ends and amortization commences at the time revenue is
recognized from product shipments. Deferrals are evaluated on an on-going basis
for future recoverability.
During fiscal 1993, the Company opened a new cast aluminum wheel facility
in Gainesville, Georgia. The Gainesville facility became operational in the
fourth quarter of fiscal 1993. Total costs capitalized in starting this facility
were $3.5 million. Amortization of these amounts during 1994 and 1995 totalled
$0.7 million, respectively. The net remaining amount is reflected in "Goodwill
and Other Assets" on the accompanying balance sheet (Note 4).
Research and Development Costs
Research and development costs are expensed as incurred. Amounts expensed
during the years ended January 31, 1996, 1995 and 1994, were approximately $2.3
million, $2.2 million and $1.8 million, respectively.
Financial Instruments
The carrying amounts of cash and cash equivalents, receivables, and
accounts payable and accrued liabilities approximate fair value because of the
short maturity of these instruments. The carrying amount of bank borrowings,
variable rate long-term debt, and other liabilities approximate market value, as
interest rates vary with market rates.
F-6
<PAGE> 39
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
------------------------------------
(2) SUMMARY OF ACCOUNTING PRINCIPLES -- (CONTINUED)
In accordance with industry practice, the costs or benefits of fluctuations
in aluminum prices are passed through to customers. Futures contracts and
purchase commitments are entered into by the Company, from time to time, to
hedge its exposure to future increases in aluminum prices that may occur between
the dates of aluminum wheel price adjustments. Outstanding contracts represent
future commitments and are not included in the Consolidated Balance Sheet.
Substantially all of such contracts mature within a period of three months.
Gains or losses resulting from the liquidation of futures contracts are
recognized in the income statement currently as part of costs of goods sold.
The Company has entered into an interest rate swap agreement to reduce the
impact of interest rate changes on a portion of its debt. The agreement involves
an exchange of floating rate for fixed rate interest payments without the
exchange of the underlying notational amount. The notational amount of such
agreement is used to measure the interest to be paid or received and does not
represent the amount of exposure to loss. The amount to be paid or received from
the interest rate swap is charged or credited to interest expense over the life
of the agreement.
Foreign Currency Translation
Translation of assets and liabilities of subsidiaries denominated in
foreign currencies, other than those located in highly inflationary countries,
are translated at the rate of exchange in effect on the balance sheet date;
income and expenses are translated at the average rates of exchange prevailing
during the year. The related translation adjustments are reflected in the
cumulative translation adjustment section of the Stockholders' Equity. Foreign
currency gains and losses resulting from transactions and the translation of
financial statements of subsidiaries in highly inflationary countries are
included in results of operations.
Pensions
The Company has trusteed noncontributory pension plans covering
substantially all domestic employees and funds at least the minimum required by
the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
Taxes on Income
Effective February 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." There was no
cumulative effect as a result of adopting SFAS 109. Prior to its adoption, the
Company accounted for income taxes in conformity with SFAS No. 96, "Accounting
for Income Taxes." Statement No. 109 requires the asset and liability method of
accounting for income taxes similar to the method required by Statement No. 96.
Deferred taxes continue to be recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to future years
between the financial statement carrying amounts and the tax basis of existing
assets and liabilities.
Statement No. 109 requires that deferred tax assets be recognized for
deductible temporary differences and operating loss and tax credit carryforwards
if it is more likely than not that a tax benefit will be realized in future
years. Statement No. 96, in contrast, limited the recognition of deferred tax
assets to benefits that would offset deferred tax liabilities or that could be
realized through the recovery of income taxes paid in the current or prior
periods. No provision is necessary for future United States taxes on the
undistributed portion of the Company's equity in earnings of foreign affiliates,
since it is anticipated that the unremitted earnings will be permanently
invested for growth and expansion.
F-7
<PAGE> 40
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
------------------------------------
(2) SUMMARY OF ACCOUNTING PRINCIPLES -- (CONTINUED)
Environmental Compliance and Remediation
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations and do not contribute to current or future revenue
generation, are expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable and the costs can be reasonably
estimated. Estimated costs are based upon enacted laws and regulations, existing
technology and the most probable method of remediation. The costs determined are
not discounted and exclude the effects of inflation and other societal and
economic factors. Where the cost estimates result in a range of equally probable
amounts, the lower end of the range is accrued. Amount accrued for environmental
compliance and remediation are not material to the Consolidated Financial
Statements as of January 31, 1996 and 1995.
Statement of Cash Flows
For purposes of reporting cash flows, the Company considers all investments
with an original maturity of three months or less to be cash equivalents. The
following is additional information to the Consolidated Statements of Cash Flows
(millions of dollars):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31, JANUARY 31,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Cash paid for interest........................ $ 13.8 $ 12.8 $ 12.6
Cash paid for income taxes.................... 12.0 21.4 7.4
Non-cash investing and financing transactions:
Promissory note issued for acquisition of
land and building........................ -- -- 2.5
Assets transferred to joint venture......... 0.4 -- 4.8
</TABLE>
Postretirement and Postemployment Benefits
On February 1, 1993, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions." The adoption of
SFAS No. 106 changed the Company's prior practice of accounting for
postretirement benefits from a cash basis (except for certain retirees who
retired prior to and as a result of an acquisition, for which payments were
charged to reserves established in accordance with the purchase method of
accounting) to an accrual basis recognizing the cost of these benefits over an
employee's active working career. The transition obligation recorded by the
Company represents the portion of future retiree benefit costs related to
service already rendered by both active and retired employees, up to January 31,
1993 (net of remaining amounts recorded at the time of the acquisition mentioned
above). This one-time, non-cash charge was $36.8 million, partially offset by
$13.6 million of estimated tax benefits and is included within the cumulative
effect of changes in accounting principles in the Company's Consolidated
Statement of Operations. The Company will continue its policy of paying
postretirement benefits as they become due.
In addition, effective February 1, 1993, the Company changed its method of
accounting for postemployment benefits in accordance with SFAS No. 112,
"Employers' Accounting for Postemployment Benefits." The adoption of SFAS No.
112 resulted in a one-time, non-cash charge against earnings of $2.2 million,
partially offset by $0.8 million of estimated tax benefits. This charge is
included within the cumulative effect of changes in accounting principles in the
Company's Consolidated Statement of Operations.
The Company has disclosed in the financial statements certain amounts
associated with estimated future postretirement benefits other than pensions and
characterized such amounts as "accumulated postretirement benefit," "actuarial
liabilities," "liabilities" or "transition obligations." Notwithstanding the
recording of such
F-8
<PAGE> 41
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
------------------------------------
(2) SUMMARY OF ACCOUNTING PRINCIPLES -- (CONTINUED)
amounts and the use of these terms, the Company does not admit or otherwise
acknowledge that such amounts or existing postretirement benefit plans of the
Company (other than pensions) represent legally enforceable liabilities of the
Company.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from those
estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
(3) INVENTORIES
The major classes of inventory are as follows (millions of dollars):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1996 1995
----------- -----------
<S> <C> <C>
Raw materials............................................ $19.7 $20.8
Work-in-process.......................................... 13.5 14.4
Finished goods........................................... 25.7 22.4
----- -----
Total............................................... $58.9 $57.6
===== =====
</TABLE>
(4) GOODWILL AND OTHER ASSETS
Goodwill and other assets consist of the following (millions of dollars):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1996 1995
----------- -----------
<S> <C> <C>
Goodwill................................................. $110.3 $115.3
Unamortized debt issuance costs.......................... 3.6 4.2
Investment in joint ventures............................. 13.0 9.1
Plant start-up costs, net of current portion............. 1.4 2.1
Receivable from sale of affiliate........................ 2.3 2.0
Other, including special tooling......................... 18.7 13.6
------ ------
Total............................................... $149.3 $146.3
====== ======
</TABLE>
Goodwill and other assets are presented net of accumulated amortization of
$27.3 million and $21.2 million at January 31, 1996 and 1995, respectively.
F-9
<PAGE> 42
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
------------------------------------
(5) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following (millions
of dollars):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1996 1995
----------- -----------
<S> <C> <C>
Accounts payable......................................... $ 86.8 $ 82.4
Employee costs........................................... 19.7 19.7
Accrued interest......................................... 2.1 2.0
Other accrued liabilities................................ 16.9 14.8
------- -------
Total............................................... $ 125.5 $ 118.9
======= =======
</TABLE>
(6) TRANSACTIONS WITH RELATED PARTIES
The Consolidated Statements of Operations include income and costs
associated with various agreements with K-H (see Note 1) and transactions with
various other joint ventures. The following is a summary of such items (millions
of dollars):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31, JANUARY 31,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
K-H Management Services....................... 0.4 1.3 3.7
Rents Charged to K-H.......................... (1.0) (1.4) (2.3)
K-H Distributorship Services.................. -- -- 1.2
Purchases from joint ventures................. 5.4 1.5 --
</TABLE>
The Consolidated Balance Sheets include amounts receivable from and payable
to K-H resulting from the transactions noted above. The amounts included in
accounts receivable were $1.8 million and $0.3 million at January 31, 1996 and
1995, respectively.
Under a Distributorship Agreement, pursuant to which K-H agreed to act as
distributor for certain of the Company's products to be sold in the aftermarket,
the Company paid K-H a commission of 8% of net sales made through K-H. The
Distributorship Agreement was terminated effective February 1, 1994 at which
time the Company assumed control over the distribution of its aftermarket
products.
In conjunction with the IPO, the Company entered into a Non-competition
Agreement with Varity. The agreement prohibits Varity and its other affiliates
(excluding Kelsey-Hayes de Mexico) from directly or indirectly engaging in any
business competitive with the automotive wheel systems business of the Company,
in its current or planned future markets. Varity also agreed to offer the
Company any business opportunities of which Varity is apprised or which Varity
initiates that relate to the automotive wheel systems business of the Company
prior to availing itself of such opportunity. Varity and the Company also agreed
not to divulge to any third parties or appropriate for its own use, confidential
or proprietary information concerning each other's respective businesses. The
term of Non-competition Agreement extends until the latest of (i) the date that
the K-H Management Services Agreement is terminated; (ii) Varity and its
affiliates, in the aggregate, shall be the beneficial owners of less than thirty
percent (30%) of the outstanding voting stock of the Company; and (iii) the date
that is five years after the date of the Non-competition Agreement.
F-10
<PAGE> 43
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
------------------------------------
(7) TAXES ON INCOME
The components of pre-tax income are as follows (millions of dollars):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31, JANUARY 31,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
United States.................................. $34.6 $42.8 $35.1
Foreign........................................ 11.6 7.1 7.1
----- ----- -----
$46.2 $49.9 $42.2
===== ===== =====
</TABLE>
The provision for taxes on income is summarized as follows (millions of
dollars):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31, JANUARY 31,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Current:
United States................................ $ 4.5 $15.0 $10.6
Foreign...................................... 4.0 2.2 1.5
----- ----- -----
8.5 $17.2 $12.1
Deferred:
United States................................ 9.4 $ 2.6 $ 4.0
Foreign...................................... (0.1) 0.2 1.5
----- ----- -----
9.3 2.8 5.5
----- ----- -----
Taxes on income......................... $17.8 $20.0 $17.6
===== ===== =====
</TABLE>
A reconciliation of Federal income tax computed at the statutory 35 percent
rate to the actual provision for taxes on income follows (millions of dollars):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31, JANUARY 31,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Federal taxes computed at statutory rate....... $16.2 $17.5 $14.8
Increase (decrease) resulting from:
Tax benefit from net operating loss
carryforwards............................. 1.2 -- (1.0)
Tax benefit from foreign sales corporation... (0.5) 2.4 --
Expiring foreign net operating loss.......... 0.7 -- --
Effective tax rate differential on earnings
of consolidated foreign affiliates........ (0.4) 1.4 1.2
Permanent differences resulting from purchase
accounting................................ 0.9 0.9 0.9
Consolidated foreign subsidiaries'
nondeductible operating losses............ -- -- 0.6
Change in valuation allowance for foreign NOL
carryforward/deferred tax asset........... (1.9) (2.4) (1.3)
Effect of change in tax rates on deferred tax
balance................................... -- -- 0.8
All other items.............................. 1.6 0.7 0.7
----- ----- -----
Taxes................................... $17.8 $20.0 $17.6
===== ===== =====
</TABLE>
F-11
<PAGE> 44
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
------------------------------------
(7) TAXES ON INCOME -- (CONTINUED)
Deferred tax assets (liabilities) result from differences in the basis of
assets and liabilities for tax and financial statement purposes. The cumulative
tax effect of the major items follows (millions of dollars):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Nondeductible accrued liabilities...................... $ 24.7 $ 27.2
Net operating loss and tax credit carryforwards........ 2.8 6.8
Pension................................................ 7.6 10.0
------- -------
Total gross deferred tax assets..................... 35.1 44.0
Less valuation allowance............................... (2.5) (3.7)
------- -------
Net deferred tax assets............................. $ 32.6 $ 40.3
------- -------
Deferred tax liabilities:
Fixed assets, principally due to differences in
depreciation........................................ (66.3) (66.7)
Intangibles............................................ (8.0) (8.5)
Inventory.............................................. (2.8) (3.1)
All other items........................................ (3.6) (0.8)
------- -------
Total gross deferred tax liabilities................ (80.7) (79.1)
------- -------
Net deferred tax liabilities........................ $ (48.1) $ (38.8)
======= =======
</TABLE>
The Company has recorded a valuation allowance to reflect the estimated
amount of deferred tax assets which may not be realized principally due to the
inability of a foreign subsidiary to fully utilize available net operating loss
carryforwards. The subsequent recognition of tax benefits relating to the
valuation allowance will be reported in the Consolidated Statement of Operations
as opportunities to utilize these carryforwards become more certain.
Kelsey-Hayes, a subsidiary of K-H Corporation, and the Company are party to
a Tax Sharing Agreement. In general, pursuant to the Tax Sharing Agreement, if
there is an adjustment, in respect of a taxable period ending on or prior to,
the Effective Date, to a consolidated Federal income tax return or to a state or
local consolidated, combined or unitary or separate income tax return in which
the Company or one of its subsidiaries are included, K-H and Kelsey-Hayes and
Varity are responsible for any deficiencies and entitled to receive any refunds
resulting from such adjustment (except for adjustments attributable to income
taxes for which the Company is responsible as describe above), provided that the
Company is required to pay K-H an amount equal to any actual reduction in the
income tax liability of the Company or its subsidiaries for any taxable period
beginning after the Effective Date resulting from such adjustments. In addition,
Varity, K-H and Kelsey-Hayes are responsible for any income taxes resulting to
the Company as a result of the spin off of its non-wheel business and the IPO.
F-12
<PAGE> 45
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
------------------------------------
(8) LONG-TERM DEBT AND BANK BORROWINGS
Long-term debt of the Company consists of the following (millions of
dollars):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1996 1995
----------- -----------
<S> <C> <C>
9 1/4% Senior Notes due November 15, 2002........... $ 100.0 $ 100.0
Bank revolving loan................................. 28.6 11.0
Other domestic loans maturing through 1995, weighted
average interest rate was 6% at January 31,
1995.............................................. -- 1.3
Various foreign bank and government loans maturing
through 2003, weighted average interest rate was
11.9% and 11.2% at January 31, 1996 and 1995,
respectively...................................... 0.4 0.4
------- -------
129.0 112.7
Less current portion................................ 0.1 1.3
------- -------
$ 128.9 $ 111.4
======= =======
</TABLE>
The Senior Notes provide for mandatory redemption through operation of
sinking fund payments on each of November 15, 1999, 2000 and 2001, each equal to
12.5% of the aggregate principal amount of the Senior Notes originally issued,
at 100% of the principal amount thereof plus accrued interest. The Senior Notes
are senior unsecured obligations of the Company. The Company believes that as of
January 31, 1996, the market value of the Senior Notes exceeds their recorded
value by approximately 6 to 8 percent.
The Company entered into a Third Amended and Restated Credit Agreement,
dated as of December 15, 1992, and amended and restated as of November 30, 1993,
June 10, 1994 and March 24, 1995, among the Company, the Subsidiary Guarantors
(as defined therein), the Banks (as defined therein), The Chase Manhattan Bank,
N.A. as Agent ("Chase"), and The Bank of Nova Scotia as Co-Agent (the "Third
Amended Credit Agreement").
The Third Amended Credit Agreement provides senior bank financing in the
amount of $180 million, consisting of a revolving credit facility of $100
million, including up to $8 million of letters of credit ("Facility A"), to be
used for working capital purposes, and a revolving credit facility of $80
million converting to a four year term loan ("Facility B"), to be used for both
working capital and capital expenditure purposes. Borrowings under the Third
Amended Credit Agreement are unsecured. Borrowings on these facilities bear
interest at one of the following rates as selected by the Company: (1) the rate
per annum equal to the London Interbank Offered Rate ("LIBOR") plus the LIBOR
margin, (2) the rate per annum that is the higher of the Federal Funds Rate plus
1/2% or the prime commercial lending rate of Chase, or (3) the rate quoted under
a competitive bid or set rate auction. In addition, the Company pays a facility
fee on the total commitment, whether utilized or not. The LIBOR margin and the
facility fee are variable depending on the Company's rating as determined by
rating agencies or an interest coverage ratio as defined in the agreement.
Facility A terminates on March 31, 2000 and all borrowings outstanding at that
time are payable in full. Any borrowings outstanding under Facility B as of
March 31, 1997 will convert to a four-year term loan, with repayment in sixteen
quarterly installments. As of January 31, 1996, the Company had available
borrowing capacity under the Third Amended Credit Agreement of $156.9 million,
including unused capacity for letters of credit totaling $4.9 million. The
Company has also established various other daily unsecured lines of credit. As
of January 31, 1996, there was $8.6 million outstanding on these lines.
Principal repayments during the next five years ending January 31 are as
follows (millions of dollars): 1997-$0.1; 1998-$1.6; 1999-$4.4; 2000-$18.4;
2001-$27.9 and thereafter-$76.6. The Company has guaranteed $0.3 million of debt
of a minority interest joint venture. Bank borrowings consist of short-term
notes of the Company's foreign subsidiaries.
F-13
<PAGE> 46
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
------------------------------------
(8) LONG-TERM DEBT AND BANK BORROWINGS -- (CONTINUED)
During the fourth quarter of Fiscal 1995, the Company entered into a three
year notational $10 million interest rate swap whereby the Company pays interest
at the three-month LIBOR rate and receives interest at a fixed rate of 5.96%.
Fair market value of this agreement was $(0.2) million at January 31, 1996.
(9) LEASES
The Company leases certain production facilities and equipment under
agreements expiring from 1997 to 2001. The following is a schedule of future
minimum rental payments required under operating leases that have initial or
remaining noncancelable lease terms in excess of one year as of January 31, 1996
(millions of dollars):
<TABLE>
<CAPTION>
YEAR ENDING JANUARY 31:
- -----------------------
<S> <C>
1997................................................................. $ 8.2
1998................................................................. 6.4
1999................................................................. 5.1
2000................................................................. 3.8
2001 and later years................................................. 11.1
-----
Total minimum payments required...................................... $34.6
=====
</TABLE>
Rent expense was $7.8 million, $6.0 million and $3.1 million for the years
ended January 31, 1996, 1995 and 1994, respectively.
(10) PENSION PLANS AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The components of net pension cost included in operating results for the
years ended January 31, 1996, 1995 and 1994 are as follows (millions of
dollars):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31, JANUARY 31,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Service cost.................................. $ 0.8 $ 1.1 $ 0.9
Interest on projected benefit obligation...... 5.1 4.7 4.8
Actual return on plan assets.................. (5.0) (1.6) (2.7)
Net amortization and deferral................. 3.1 (0.3) 0.6
----- ----- -----
Net pension cost............................ $ 4.0 $ 3.9 $ 3.6
===== ===== =====
Discount rate................................. 7.50% 8.25% 7.50%
Assumed rate of return........................ 9.00% 8.50% 8.25%
</TABLE>
F-14
<PAGE> 47
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
------------------------------------
(10) PENSION PLANS AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS --
(CONTINUED)
The following table sets forth the plans' funded status (millions of
dollars):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1996 1995
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested employees......................................... $ 56.5 $ 52.5
Nonvested employees...................................... 9.2 8.8
------ ------
Accumulated benefit obligation........................... 65.7 61.3
Projected benefit obligation............................. 67.6 63.2
Plan assets at fair value (principally listed stocks and
bonds)................................................. (38.0) (28.4)
------ ------
Projected benefit obligation in excess of plan assets.... 29.6 34.8
Unrecognized net losses.................................. (4.8) (4.1)
Unrecognized prior service cost.......................... (4.3) (4.8)
Adjustment required to recognize minimum liability....... 7.1 6.8
------ ------
Accrued pension cost................................ $ 27.6 $ 32.7
====== ======
</TABLE>
The Company's defined benefit pension plans generally provide benefits
based on years of service. The projected unit credit funding method was used.
Prior service costs and actuarial gains and losses are generally amortized over
the average remaining service period of active employees.
Effective January 1, 1995, the Company modified the defined benefit
Salaried Pension Plan to freeze credited service and remove salary caps that had
been instituted in 1991. Assumed rates of increase in future compensation levels
for the Salaried Pension Plan range from 5 percent to 6 percent. In conjunction
with this change, the Company increased the basic contribution of the existing
salaried defined contribution plan.
The Company provides pension benefits to substantially all domestic
employees. Certain of these plans include participants of both the Company and
Kelsey-Hayes. Accordingly, only the assets, liabilities and pension costs
related to the Company's participants in such combined plans have been included
above, as determined by the Company's actuary. The Company intends to transfer
the assets and liabilities related to Kelsey-Hayes participants to separate
Kelsey-Hayes' plans in accordance with ERISA requirements.
The Company also has contributory employee retirement savings plans
covering substantially all of its employees. The employer contribution is
determined at the discretion of the Company and totaled approximately $2.7
million, $0.9 million and $0.9 million for the years ended January 31, 1996,
1995 and 1994, respectively.
The Company provides comprehensive medical and group life benefits to
certain of its United States retirees who elect to participate in the Company's
medical and group life plans. The medical plan contributions are adjusted
periodically; the life insurance plan is non-contributory. During Fiscal 1994,
the Company entered into a labor agreement which capped the cost of retiree
health care effective February, 1997. The amounts shown below reflect the
effects of this capping.
F-15
<PAGE> 48
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
------------------------------------
(10) PENSION PLANS AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS --
(CONTINUED)
For the year ended January 31, 1996, 1995 and 1994, the components of
postretirement benefits expense (income) were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31, JANUARY 31,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Service cost (benefits earned during the
period)..................................... $ 0.3 $ 0.6 $0.7
Interest cost on accumulated postretirement
benefit obligations......................... 2.6 2.6 4.7
Net amortization.............................. (4.1) (3.8) --
------ ------ ----
Total.................................... $ (1.2) $ (0.6) $5.4
====== ====== ====
Discount rate................................. 7.50% 8.25% 7.50%
</TABLE>
At January 31, 1996 and 1995, the recorded actuarial liabilities for these
postretirement benefits are as follows:
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1996 1995
----------- -----------
<S> <C> <C>
Retirees................................................. $22.6 $20.1
Fully eligible active participants....................... 4.6 4.0
Other active participants................................ 10.2 9.1
----- -----
Subtotal............................................ $37.4 $33.2
Unamortized gains (losses)............................... 9.8 21.2
----- -----
Total............................................... $47.2 $54.4
===== =====
</TABLE>
The assumed health care cost trend was 8.0% (9.0% at January 31, 1995) and
was assumed to decrease by 1% per annum to an ultimate rate of 6%. This
assumption was modified in the case of the plan that was capped. The Company
estimates an increase in the assumed health care cost trend rate of 1 percentage
point per year would increase the accumulated postretirement benefit obligation
as of January 31, 1996 and 1995 by $0.1 million but would have no effect on the
aggregate of the service and interest components of postretirement benefit
expense for the year ended January 31, 1996 and 1995.
One of the Company's European subsidiaries provides benefits to its
employees through unfunded retirement arrangements. At January 31, 1996 and
1995, $4.4 million and $3.6 million, respectively, were accrued for such
obligations.
(11) NONRECURRING CHARGES
During the fourth quarter of the year ended January 31, 1996, the Company
recognized nonrecurring charges of $3.6 million. These charges include a $1.4
million provision associated with the restructuring of the North American
Aluminum Wheel Group and $2.2 million of charges associated with the Varity
Corporation proposal to purchase the Company's outstanding shares not owned by
Varity Corporation, which was made on September 27, 1995, and withdrawn on
February 5, 1996.
(12) 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.
F-16
<PAGE> 49
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
------------------------------------
(12) CONTINGENCIES -- (CONTINUED)
Kelsey-Hayes, and in some cases K-H, have agreed to indemnify the Company
for certain liabilities related to the spin off of businesses and assets from
K-H in connection with the IPO described in Note 1, including liabilities
related to certain divested businesses; however, the Company remains
contingently liable for certain liabilities in the event that Kelsey-Hayes were
unable to satisfy its obligations to pay such costs. Included among such
contingent liabilities are liabilities related to environmental clean-up costs
(including certain Superfund sites), medical and other welfare benefits, recall
and warranty costs, product liability claims and certain obligations under
defined benefit plans. However, K-H, principally a holding company, and
Kelsey-Hayes are each indebted to third parties, which may affect their ability
to pay certain contingent liabilities related to the business and assets
retained by the Company in connection with the spin off, if they were required
so to do.
On October 26, 1993, the Company consummated the transactions contemplated
by the Joint Venture Agreement, dated February 16, 1993, as amended, between the
Company and Nova Hut, a.s. ("Nova Hut"), respecting a joint venture in the Czech
Republic through Hayes Wheels Autokola NH, a.s., a Czech joint stock company,
which is owned 55% by Nova Hut and 45% by the Company. On November 12, 1993,
Autokola entered into an Investment Agreement with International Finance
Corporation ("IFC") under which it has borrowed 63,000,000 Deutsche Marks.
Autokola has pledged substantially all of its assets as collateral for these
borrowings.
In connection with the Investment Agreement, the Company executed and
delivered various other agreements. Under a Project Funds Agreement, dated
November 12, 1993, among Autokola, Nova Hut, the Company and IFC, the Company
agreed to provide funds, if required, for the completion of the Project as
defined in, and to be funded by, the Investment Agreement, not to exceed
61,000,000 Deutsche Marks. The Project Funds Agreement will terminate when the
Project is completed and certain other conditions are satisfied, which the
Company believes will occur during 1997. Under a Fee Clawback Agreement among
Autokola, the Company and IFC, the Company agreed to return to Autokola after
completion of the Project certain fees (primarily fees for marketing assistance
and license fees) to the extent that Autokola requires them to service certain
portions of its indebtedness to IFC. Under a Subordination Agreement between
Autokola, Nova Hut, the Company and IFC, the Company agreed to subordinate
Sponsor Indebtedness, as defined therein (including certain present and future
indebtedness of Autokola to the Company and certain fees to be paid by Autokola
to the Company), to specified indebtedness of Autokola under the Investment
Agreement.
The union contract at one of the Company's plants is due to expire in
February 1997. Based on management's experience, negotiation of a new contract
is anticipated without a work stoppage. Union contracts covering approximately
14% of the Company's workforce are renewable in 1997.
(13) ACQUISITIONS AND DIVESTITURES
In Fiscal 1995, the Company increased its ownership in Ruedas de Venezuela,
C.A. to 49% at a cost of $1.4 million, which included capital equipment, tooling
and a cash contribution.
In Fiscal 1995, the Company also purchased a 40% interest in Kelsey-Hayes
de Mexico, S.A. de C.V. ("KHDM") from Varity Corporation's subsidiary,
Kelsey-Hayes Company. Prior to this purchase, KHDM spun off its non-wheel
business, leaving KHDM with only its wheel business. KHDM was then renamed Hayes
Wheels de Mexico, S.A. de C.V. Prior to this purchase, the Company received from
Kelsey-Hayes annual fees for services rendered to KHDM. Total investment by the
Company in Hayes Wheels de Mexico, S.A. de C.V. is $2.2 million.
In Fiscal 1994, the Company purchased a brake controller business from
Kelsey-Hayes Company. The purchase price of $2.0 million included inventory,
tooling and patents and was paid in cash.
F-17
<PAGE> 50
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
------------------------------------
(13) ACQUISITIONS AND DIVESTITURES -- (CONTINUED)
In Fiscal 1993, the Company purchased the remaining 10% interest in Hayes
Wheels de Espana, S.A. from an unrelated party at a cost of $0.2 million.
(14) STOCK INCENTIVE PLAN
Prior to the IPO, the Company adopted the Hayes Wheels International, Inc.
1992 Stock Incentive Plan (the "Plan"), under which up to 500,000 shares of
Common Stock are available for issuance with respect to awards granted to
officers, management and other key employees of the Company. Incentive stock
options, within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended, as well as non-qualified stock options, may be granted under the
Plan. Other awards denominated in the Common Stock of the Company may be made,
including stock appreciation rights, restricted stock, performance awards and
other stock-based incentive awards. Information with respect to the Plan is
summarized below:
<TABLE>
<CAPTION>
FAIR MARKET PREMIUM
VALUE OPTIONS OPTIONS
------------- -------
<S> <C> <C>
Outstanding at January 31, 1994......................... 28,050 84,100
Granted................................................. 19,600 100,300
Exercised............................................... -- --
------- -------
Outstanding at January 31, 1995......................... 47,650 184,400
Granted................................................. 35,100 97,900
Exercised............................................... -- --
Expired................................................. (10,000) (30,000)
------- -------
Outstanding at January 31, 1996......................... 72,750 252,300
======= =======
</TABLE>
At January 31, 1996, options for 154,400 shares were exercisable under the
plan. At that date, total shares of Common Stock available for granting of stock
options was 174,950.
Fair Market Value Options outstanding at January 31, 1996, become
exercisable three years from the date of grant and have a weighted average
exercise prices ranging from $18.38 to $31.88.
Premium Options issued on or after May 12, 1995, become exercisable at the
earlier of nine years after the date of grant or on the date following the tenth
day that the Company's stock price equals or exceeds a market price calculated
using a Black-Scholes Model applied to a market calculated average. The market
price under this model was $27.21 for premiums options issued in 1995. Premium
Options issued before May 12, 1995, vest one year from the date of grant and are
issued at an exercise price which, for 1994, was 35% higher than a market
calculated average. Premium Options outstanding at January 31, 1996 have a
weighted average exercise price ranging from $18.38 to $39.88.
F-18
<PAGE> 51
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
------------------------------------
(15) INFORMATION BY GEOGRAPHIC AREA
The Company operates principally in one segment -- the design, manufacture
and supply of wheels to original equipment manufacturers of automobiles and
light trucks. Operating data and identifiable assets by geographic area follow
(millions of dollars):
<TABLE>
<CAPTION>
EARNINGS BEFORE TAXES YEAR-END
REVENUE(1)(2) ON INCOME(3) IDENTIFIABLE ASSETS
--------------------------------------- --------------------------------------- -------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31,
1996 1995 1994 1996 1995 1994 1996 1995
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
United States..... $ 527.3 $ 474.9 $ 373.2 $ 48.4 $ 54.6 $ 45.5 $ 552.8 $ 516.3
Europe(4)......... 83.8 62.7 55.0 12.8 8.7 10.3 77.5 69.1
------- ------- ------- ------- ------- ------- ------- -------
Geographic area
totals.......... 611.1 537.6 428.2 61.2 63.3 55.8 630.3 585.4
General
corporate(5).... -- -- -- -- -- (24.6) 3.6 4.2
Interest
expense......... -- -- -- (15.0) (13.4) (13.6) -- --
------- ------- ------- ------- ------- ------- ------- -------
Consolidated
totals.......... $ 611.1 $ 537.6 $ 428.2 $ 46.2 $ 49.9 $ 17.6 $ 633.9 $ 589.6
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- -------------------------
(1) Transfers between geographic areas were not material.
(2) Sales were made to three major automotive customers each in amounts
exceeding 10 percent of total sales. Sales to one of these customers totaled
$197.6 million in fiscal 1995, $180.3 million in fiscal 1994 and $133.8
million in fiscal 1993. Sales to another customer totalled $161.0 million in
fiscal 1995, $130.5 million for fiscal 1994 and $102.0 million for fiscal
1993. Sales to a third major customer totaled $129.1 million in fiscal 1995,
$122.5 million for fiscal 1994 and $101.0 million for fiscal 1993.
(3) After adjustment for minority interest, Europe's result's for Fiscal 1993
include a gain of $1.6 million related to the sale of an affiliate.
(4) Europe includes only Italy and Spain.
(5) General corporate expenses include the one-time, non-cash charges for
adoption of SFAS 106 and SFAS 112. General corporate assets are unamortized
debt issuance costs.
(16) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following represents the Company's quarterly results (millions of
dollars, except per share amounts):
<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------------------------------------------------------
APRIL 30, JULY 31, OCTOBER 31, JANUARY 31, APRIL 30, JULY 31, OCTOBER 31, JANUARY 31,
1995 1995 1995 1996 1994 1994 1994 1995
--------- -------- ----------- ----------- --------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales.............. $ 159.7 $ 151.4 $ 157.9 $ 142.1 $ 133.0 $ 125.1 $ 140.3 $ 139.2
Gross profit........... 26.6 23.0 25.2 22.9 25.1 23.2 24.8 23.1
Net income............. 8.3 7.2 8.0 4.9 7.9 7.2 7.9 6.9
Net income per share... 0.47 0.41 0.46 0.28 0.45 0.41 0.45 0.39
</TABLE>
(17) SUBSEQUENT EVENT
On March 28, 1996, the Company entered into an agreement and plan of merger
(the "Merger Agreement") which provides for the recapitalization of the Company
and simultaneous merger with MWC Holdings, Inc. ("Holdings"). By virtue of the
merger, each share of the Company's Common Stock outstanding at the effective
time of the merger will be converted into $28.80 in cash and one-tenth of one
share of the common stock of the surviving corporation. The transactions
contemplated by the Merger Agreement are expected to be financed with proceeds
to be received from (i) the sale by the Company to certain investors of $200
million of Series A Preferred Stock, par value $0.01 per share, of the Company
(which will be converted into 6,250,000 shares of the common stock of the
Surviving Corporation upon consummation of the merger) and warrants to purchase
shares of the Company's new common stock at $48.00 per share commencing on the
fourth anniversary of the effective date of the merger and ending on the seventh
F-19
<PAGE> 52
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
------------------------------------
(17) SUBSEQUENT EVENT -- (CONTINUED)
anniversary thereof, (ii) borrowings of $459.1 million under a new credit
facility to be entered into by the Company and (iii) the proceeds of the public
offering of up to $250 million of subordinated debt. The Company will also
retire its existing bank credit agreement and offer to repurchase its
outstanding 9 1/4% Senior Notes due 2002. 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. 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.
The Merger Agreement provides for the merger of Holdings with and into the
Company, at which time the separate corporate existence of Holdings shall
thereupon cease and the Company will continue as the surviving corporation. The
Company will issue 3,125,000 new common shares plus warrants for all of the
outstanding shares of Holdings. Upon consummation of the merger, existing
holders of the Company's common stock will own approximately 15.8% of the shares
of the surviving corporation, common stock, without giving effect to the
warrants or any employee stock options. 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) expiration or termination of the applicable waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended;
(iii) effectiveness of a Registration Statement; (iv) receipt of the requisite
financing; and (v) satisfaction of certain other conditions.
F-20
<PAGE> 53
RESPONSIBILITIES FOR CONSOLIDATED FINANCIAL STATEMENTS
The Board of Directors and Stockholders
Hayes Wheels International, Inc.
The Consolidated Financial Statements of Hayes Wheels International, Inc. and
subsidiaries were prepared by management, which is responsible for their
integrity and objectivity. The statements have been prepared in conformity with
generally accepted accounting principles and, as such include amounts based on
judgments of management. Financial information in the Company's Annual Report on
Form 10-K is consistent with that in the Consolidated Financial Statements.
Management is further responsible for maintaining a system of internal
accounting controls, designed to provide reasonable assurance that the books and
records reflect the transactions of the companies and that its established
policies and procedures are carefully followed. From a stockholder's point of
view, perhaps the most important feature in the system of control is that it is
continually reviewed for its effectiveness, the careful selection and training
of qualified personnel, and a program of internal audit. KPMG Peat Marwick LLP,
an independent auditing firm, is engaged to audit the Consolidated Financial
Statements of Hayes Wheels International, Inc. and its subsidiaries and issue
reports thereon. The audit is conducted in accordance with generally accepted
auditing standards, which includes reviews of various aspects of the control
system and makes test checks of compliance. The Independent Auditors' Report
appears on the following page.
The Board of Directors, through the Audit Committee (which is comprised entirely
of non-employee Directors), is responsible for assuring that management fulfills
its responsibilities in the preparation of the Consolidated Financial
Statements. The Committee selects the independent auditors annually. In
addition, the Committee reviews the scope of the audits and the accounting
principles being applied in financial reporting. The independent auditors,
representatives of management, and the internal auditors meet regularly
(separately and jointly) with the Committee to review the activities of each to
ensure that each is properly discharging its responsibilities.
It is management's conclusion that the system of internal accounting controls at
January 31, 1996 provides reasonable assurance that the books and records
reflect the transactions of the companies and that its established policies and
procedures are complied with. To ensure complete independence, KPMG Peat Marwick
LLP has full and free access to meet with the Audit Committee, without
management representatives present, to discuss the results of the audit, the
adequacy of internal accounting controls, and the quality of the financial
reporting.
R. Cucuz W.D. Shovers
President and Chief Executive Officer Chief Financial Officer
F-21
<PAGE> 54
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Hayes Wheels International, Inc.
We have audited the accompanying consolidated balance sheets of Hayes Wheels
International, Inc. and subsidiaries as of January 31, 1996 and 1995, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the years in the three year period ended January 31,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Hayes Wheels
International, Inc. and subsidiaries as of January 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three year-period ended January 31, 1996, in conformity with generally accepted
accounting principles.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting in 1994 for certain inventory from the LIFO
method to the FIFO method. Also, as discussed in Note 2 to the consolidated
financial statements, the Company changed its methods of accounting effective
February 1, 1993, to adopt the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting
for Income Taxes, SFAS No. 106, Employers' Accounting for Postretirement
Benefits Other than Pensions and SFAS No. 112, Employers' Accounting for
Postemployment Benefits.
KPMG Peat Marwick LLP
February 23, 1996
except for Note 17,
which is as of
March 28, 1996.
F-22
<PAGE> 55
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------
<C> <S>
12 Computation of Ratios.
22 Subsidiaries of the Company.
23 Consent of KPMG Peat Marwick LLP.
24 Powers of Attorney.
27 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 12
HAYES WHEELS INTERNATIONAL, INC.
RATIOS OF EARNINGS TO FIXED CHARGES
(UNAUDITED)
(MILLIONS OF DOLLARS EXCEPT RATIOS)
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
JAN. 31, JAN. 31, JAN. 31, JAN. 31, JAN. 31,
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Earnings:
Earnings before taxes on income, minority interest
and cumulative effect of changes in accounting
principles...................................... $(2.5) $ 7.8 $42.2 $49.9 $46.2
Interest expense:
Bank borrowings and long-term debt................. 33.7 33.8 13.6 13.4 15.0
Rentals (1)........................................ 0.5 0.5 1.0 2.0 2.6
----- ----- ----- ----- -----
Earnings before interest expense, taxes on income,
minority interest and cumulative effect of changes
in accounting principles........................... $31.7 $42.1 $56.8 $65.3 $63.8
===== ===== ===== ===== =====
Fixed charges:
Bank borrowings and long-term debt................. $33.7 $33.8 $13.6 $13.4 $15.0
Rentals (1)........................................ 0.5 0.5 1.0 2.0 2.6
----- ----- ----- ----- -----
Total fixed charges............................. $34.2 $34.3 $14.6 $15.4 $17.6
===== ===== ===== ===== =====
Ratio of earnings to fixed charges................... 0.93 1.23 3.89 4.24 3.63
===== ===== ===== ===== =====
Coverage deficiency on fixed charges................. $2.50 N/A N/A N/A N/A
===== ===== ===== ===== =====
</TABLE>
- -------------------------
(1) Estimated interest component of rent expense.
<PAGE> 1
EXHIBIT 22
SUBSIDIARIES OF
HAYES WHEELS INTERNATIONAL, INC.
<TABLE>
<CAPTION>
JURISDICTION
OF PERCENTAGE
NAME OF SUBSIDIARY INCORPORATION OWNERSHIP
----------------------------------------------- -------------- ----------
<S> <C> <C>
Hayes Wheels International -- California,
Inc. ........................................ Delaware 100%
Hayes Wheels International -- Michigan,
Inc. ........................................ Michigan 100%
Hayes Wheels International -- Indiana, Inc. ... Delaware 100%
Hayes Wheels International -- Georgia, Inc. ... Delaware 100%
Hayes Wheels, S.p.A. .......................... Italy 100%
HWI (Europe), LTD. ............................ Delaware 100%
Hayes Wheels de Espana, S.A. .................. Spain 100%
Hayes Wheels International -- Mexico, Inc. .... Delaware 100%
Cromodora, S.p.A. ............................. Italy 30%
Hayes Wheels Autokola NH a.s. ................. Czech Republic 45%
Hayes Wheels de Venezuela, C.A. ............... Venezuela 49%
Hayes Wheels de Mexico, S.A. de C.V. .......... Mexico 40%
</TABLE>
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Hayes Wheels International, Inc.
We consent to incorporation by reference in the registration statements
(No. 33-80552 and 33-71708) on Form S-8 of Hayes Wheels International, Inc. of
our report dated February 23, 1996 except as to Note 17, which is as of March
28, 1996, related to the consolidated balance sheets of Hayes Wheels
International, Inc. and subsidiaries as of January 31, 1996 and 1995, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the years in the three-year period ended January 31, 1996,
which report appears in the January 31, 1996 annual report on Form 10-K of Hayes
Wheels International, Inc.
KPMG Peat Marwick LLP
Detroit, Michigan
April 19, 1996
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
THE UNDERSIGNED, being a member of the Board of Directors of HAYES
WHEELS INTERNATIONAL, INC., a Delaware corporation, does hereby nominate,
constitute and appoint DANIEL M. SANDBERG, the Secretary of the Corporation and
BARRY J. MILLER, the Assistant Secretary of the Corporation, and each of them,
as the true and lawful agent and attorney-in-fact of the undersigned, with
power to execute, in the name and on behalf of the undersigned, in his capacity
as a director of the Corporation, the Annual Report on Form 10-K of the
Corporation.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this nineteenth day of April 1996.
J. Anthony Gilroy
----------------------------
J. Anthony Gilroy
<PAGE> 2
POWER OF ATTORNEY
THE UNDERSIGNED, being a member of the Board of Directors of HAYES
WHEELS INTERNATIONAL, INC., a Delaware corporation, does hereby nominate,
constitute and appoint DANIEL M. SANDBERG, the Secretary of the Corporation and
BARRY J. MILLER, the Assistant Secretary of the Corporation, and each of them,
as the true and lawful agent and attorney-in-fact of the undersigned, with
power to execute, in the name and on behalf of the undersigned, in his capacity
as a director of the Corporation, the Annual Report on Form 10-K of the
Corporation.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this nineteenth day of April 1996.
John S. Rodewig
----------------------------
John S. Rodewig
<PAGE> 3
POWER OF ATTORNEY
THE UNDERSIGNED, being a member of the Board of Directors of HAYES
WHEELS INTERNATIONAL, INC., a Delaware corporation, does hereby nominate,
constitute and appoint DANIEL M. SANDBERG, the Secretary of the Corporation and
BARRY J. MILLER, the Assistant Secretary of the Corporation, and each of them,
as the true and lawful agent and attorney-in-fact of the undersigned, with
power to execute, in the name and on behalf of the undersigned, in his capacity
as a director of the Corporation, the Annual Report on Form 10-K of the
Corporation.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this nineteenth day of April 1996.
John E. Utley
----------------------------
John E. Utley
<PAGE> 4
POWER OF ATTORNEY
THE UNDERSIGNED, being a member of the Board of Directors of HAYES
WHEELS INTERNATIONAL, INC., a Delaware corporation, does hereby nominate,
constitute and appoint DANIEL M. SANDBERG, the Secretary of the Corporation and
BARRY J. MILLER, the Assistant Secretary of the Corporation, and each of them,
as the true and lawful agent and attorney-in-fact of the undersigned, with
power to execute, in the name and on behalf of the undersigned, in his capacity
as a director of the Corporation, the Annual Report on Form 10-K of the
Corporation.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this nineteenth day of April 1996.
Kenneth L. Way
----------------------------
Kenneth L. Way
<PAGE> 5
POWER OF ATTORNEY
THE UNDERSIGNED, being a member of the Board of Directors of HAYES
WHEELS INTERNATIONAL, INC., a Delaware corporation, does hereby nominate,
constitute and appoint DANIEL M. SANDBERG, the Secretary of the Corporation and
BARRY J. MILLER, the Assistant Secretary of the Corporation, and each of them,
as the true and lawful agent and attorney-in-fact of the undersigned, with
power to execute, in the name and on behalf of the undersigned, in his capacity
as a director of the Corporation, the Annual Report on Form 10-K of the
Corporation.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this nineteenth day of April 1996.
R. Cucuz
----------------------------
R. Cucuz
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