<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 1-11592
HAYES LEMMERZ INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
13-3384636
(IRS EMPLOYER IDENTIFICATION NO.)
38481 HURON RIVER DRIVE
ROMULUS, MICHIGAN 48174
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (734) 941-2000
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ]
THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF SEPTEMBER 12, 1998,
WAS 30,179,985 SHARES.
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<PAGE> 2
HAYES LEMMERZ INTERNATIONAL, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations....................... 3
Consolidated Balance Sheets................................. 4
Consolidated Statements of Cash Flows....................... 5
Notes to Consolidated Financial Statements.................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 18
Item 2. Changes in Securities....................................... 18
Item 3. Defaults upon Senior Securities............................. 18
Item 4. Submission of Matters to a Vote of Security-Holders......... 18
Item 5. Other Information........................................... 18
Item 6. Exhibits and Reports on Form 8-K............................ 18
Signatures............................................................. 19
</TABLE>
UNLESS OTHERWISE INDICATED, REFERENCES TO THE "COMPANY" MEAN HAYES LEMMERZ
INTERNATIONAL, INC., AND ITS SUBSIDIARIES AND REFERENCE TO A FISCAL YEAR MEANS
THE COMPANY'S YEAR ENDED JANUARY 31 OF THE FOLLOWING YEAR (E.G., FISCAL 1998
MEANS THE PERIOD BEGINNING FEBRUARY 1, 1998, AND ENDING JANUARY 31, 1999). THIS
REPORT CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT TO THE FINANCIAL
CONDITION, RESULTS OF OPERATIONS, AND BUSINESS OF THE COMPANY. THESE FORWARD
LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES. NO ASSURANCE CAN BE
GIVEN THAT ANY OF SUCH MATTERS WILL BE REALIZED. FACTORS THAT MAY CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD LOOKING
STATEMENTS INCLUDE, AMONG OTHERS, THE FOLLOWING POSSIBILITIES: (1) COMPETITIVE
PRESSURE IN THE COMPANY'S INDUSTRY INCREASES SIGNIFICANTLY; (2) GENERAL ECONOMIC
CONDITIONS ARE LESS FAVORABLE THAN EXPECTED; (3) THE COMPANY'S DEPENDENCE ON THE
AUTOMOTIVE INDUSTRY (WHICH HAS HISTORICALLY BEEN CYCLICAL); (4) CHANGES IN THE
FINANCIAL MARKETS AFFECTING THE COMPANY'S FINANCIAL STRUCTURE AND THE COMPANY'S
COST OF CAPITAL AND BORROWED MONEY; AND (5) THE UNCERTAINTIES INHERENT IN
INTERNATIONAL OPERATIONS AND FOREIGN CURRENCY FLUCTUATIONS. THE COMPANY HAS NO
DUTY UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 TO UPDATE THE
FORWARD LOOKING STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-Q AND THE COMPANY
DOES NOT INTEND TO PROVIDE SUCH UPDATES.
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 31, JULY 31,
------------------ ------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales............................................... $383.0 $277.9 $796.9 $528.1
Cost of goods sold...................................... 321.1 231.1 662.9 443.3
------ ------ ------ ------
Gross profit.......................................... 61.9 46.8 134.0 84.8
Marketing, general and administration................... 16.8 12.5 32.0 21.4
Engineering and product development..................... 5.6 2.6 10.0 4.9
Amortization of intangibles............................. 4.2 2.8 8.1 5.1
Other income............................................ (1.4) (1.1) (2.1) (1.8)
Equity in earnings of unconsolidated subsidiaries....... (0.4) -- (1.0) --
------ ------ ------ ------
Earnings from operations.............................. 37.1 30.0 87.0 55.2
Interest expense, net................................... 22.8 21.8 47.0 40.2
------ ------ ------ ------
Earnings before taxes on income, minority interest and
extraordinary loss................................. 14.3 8.2 40.0 15.0
Income tax provision.................................... 6.0 3.5 16.8 6.4
------ ------ ------ ------
Earnings before minority interest and extraordinary
loss............................................... 8.3 4.7 23.2 8.6
Minority interest....................................... 0.8 -- 1.0 0.1
------ ------ ------ ------
Earnings before extraordinary loss.................... 7.5 4.7 22.2 8.5
Extraordinary loss, net of tax of $6.0 (Note 6)......... (8.3) -- (8.3) --
------ ------ ------ ------
Net income (loss)..................................... $ (0.8) $ 4.7 $ 13.9 $ 8.5
====== ====== ====== ======
Per share information (Note 3):
Earnings before extraordinary loss...................... $ 0.25 $ 0.20 $ 0.74 $ 0.37
Extraordinary loss, net of tax.......................... (0.28) -- (0.28) --
------ ------ ------ ------
Basic net income (loss) per share....................... $(0.03) $ 0.20 $ 0.46 $ 0.37
====== ====== ====== ======
Basic average shares outstanding (in thousands)......... 30,124 24,075 30,107 23,246
====== ====== ====== ======
Earnings before extraordinary loss...................... $ 0.23 $ 0.20 $ 0.68 $ 0.37
Extraordinary loss, net of tax.......................... (0.25) -- (0.25) --
------ ------ ------ ------
Diluted net income (loss) per share..................... $(0.02) $ 0.20 $ 0.43 $ 0.37
====== ====== ====== ======
Diluted average shares outstanding (in thousands)....... 32,916 24,075 32,668 23,246
====== ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
1998 1998
-------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1.6 $ 23.1
Receivables (less allowance of $4.3 million at July 31,
1998 and January 31, 1998)............................. 166.3 217.8
Inventory (Note 2)........................................ 168.9 131.5
Prepaid expenses and other................................ 15.0 10.0
-------- --------
Total current assets................................. 351.8 382.4
-------- --------
Property, plant and equipment:
Land...................................................... 22.3 15.6
Buildings................................................. 181.0 154.7
Machinery and equipment................................... 744.1 622.3
-------- --------
947.4 792.6
Accumulated depreciation.................................. (156.9) (122.2)
-------- --------
Net property, plant and equipment.................... 790.5 670.4
Goodwill and other assets................................... 751.4 706.1
-------- --------
Total assets......................................... $1,893.7 $1,758.9
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank borrowings........................................... $ 40.7 $ 23.6
Current portion of long-term debt......................... 7.8 14.4
Accounts payable and accrued liabilities.................. 372.4 334.9
-------- --------
Total current liabilities............................ 420.9 372.9
Noncurrent liabilities:
Long-term debt............................................ 893.4 882.6
Pension and other long-term liabilities................... 334.8 301.5
Deferred income taxes..................................... 50.3 34.8
Minority interest......................................... 12.1 5.6
-------- --------
Total noncurrent liabilities......................... 1,290.6 1,224.5
Commitments and Contingencies (Note 7):
Stockholders' equity:
Preferred stock, 25,000,000 shares authorized, none issued
or outstanding......................................... -- --
Common stock, par value $0.01 per share:
Voting -- authorized 99,000,000 shares; and outstanding
27,530,959 at July 31, 1998 and 27,439,419 at January
31, 1998.............................................. 0.3 0.3
Nonvoting -- authorized 5,000,000; and outstanding,
2,649,026 at July 31, 1998 and January 31, 1998....... -- --
Additional paid in capital................................ 236.8 229.4
Accumulated deficit....................................... (37.0) (50.8)
Accumulated other comprehensive income (Note 3)........... (17.9) (17.4)
-------- --------
Total stockholders' equity........................... 182.2 161.5
-------- --------
Total liabilities and stockholders' equity.................. $1,893.7 $1,758.9
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(MILLIONS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JULY 31,
------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................. $ 13.9 $ 8.5
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Depreciation.............................................. 32.7 23.1
Amortization of intangibles and debt issue costs.......... 11.5 7.7
Increase in deferred taxes................................ 8.5 --
Increase in minority interest............................. 3.2 --
Equity in earnings of subsidiaries........................ (1.0) --
Extraordinary loss........................................ 14.4 --
Changes in operating assets and liabilities:
Decrease in receivables................................ 2.8 13.4
Increase in inventories................................ (15.8) (13.9)
Decrease in prepaid expenses and other................. 1.4 5.1
Decrease in accounts payable and accrued liabilities... (2.4) (31.5)
Decrease in other long-term liabilities................ (15.9) (21.2)
------- -------
Cash provided by (used for) operating activities..... 53.3 (8.8)
------- -------
Cash flows from investing activities:
Acquisition of property, plant and equipment.............. (56.4) (27.4)
Purchase of businesses, net of cash received.............. (21.4) (197.5)
Proceeds from assumption of future commitments in
acquisition............................................ 12.0 --
Purchase of minority interest............................. (50.8) --
Other, net................................................ (11.7) (5.9)
------- -------
Cash used for investing activities..................... (128.3) (230.8)
------- -------
Cash flows from financing activities:
Increase (decrease) in short-term bank borrowings......... (27.3) 1.3
Increase (decrease) in long-term and bank revolving
loans.................................................. 99.8 (205.6)
Repayment of term debt.................................... (100.5) --
Proceeds from accounts receivable securitization.......... 78.7 --
Stock options exercised................................... 1.7 --
Proceeds from issuance of long term debt.................. -- 500.0
Fees paid to issue long term debt......................... 1.3 (17.0)
------- -------
Cash provided by financing activities.................. 53.7 278.7
------- -------
Effect of exchange rate changes on cash and cash
equivalents............................................... (0.2) 0.9
------- -------
Increase (decrease) in cash and cash equivalents.......... (21.5) 40.0
Cash and cash equivalents at beginning of year.............. 23.1 47.5
------- -------
Cash and cash equivalents at end of period.................. $ 1.6 $ 87.5
======= =======
Supplemental data:
Cash paid for interest.................................... $ 51.6 $ 56.9
Cash paid for income taxes................................ $ 2.9 $ 0.9
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JULY 31, 1998 AND 1997
(UNAUDITED)
(MILLIONS OF DOLLARS UNLESS OTHERWISE STATED)
(1) BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared by
management and in the opinion of management, contain all adjustments, consisting
of normal recurring adjustments, necessary to present fairly the financial
position of the Company as of July 31, 1998, and January 31, 1998, and the
results of its operations for the three and six months ended July 31, 1998, and
1997 and cash flows for the six months ended July 31, 1998, and 1997. The
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the fiscal year ended January 31, 1998. Results
for interim periods are not necessarily indicative of those to be expected for
the year.
(2) INVENTORIES
The major classes of inventory are as follows:
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
1998 1998
-------- -----------
<S> <C> <C>
Raw materials............................................... $ 53.4 $ 40.9
Work-in-progress............................................ 45.1 37.6
Finished goods.............................................. 70.4 53.0
------ ------
Total..................................................... $168.9 $131.5
====== ======
</TABLE>
(3) SUMMARY OF NEW ACCOUNTING PRONOUNCEMENTS
During 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share" ("EPS"), which changes the calculation of earnings per share to be more
consistent with countries outside of the United States. In general, the
statement requires two calculations of earnings per share to be disclosed, basic
EPS and diluted EPS. Basic EPS is computed using only the weighted average
shares outstanding, while diluted EPS is computed considering the dilutive
effect of options and warrants.
Net income per share information has been computed using the new standard
for all periods presented. Shares outstanding for the three and six months ended
July 31, 1998 and 1997, were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 31, JULY 31,
------------------ ------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average shares outstanding....................... 30,124 24,075 30,107 23,246
Dilutive effect of options and warrants................... 2,792 -- 2,561 --
------ ------ ------ ------
Diluted shares outstanding................................ 32,916 24,075 32,668 23,246
====== ====== ====== ======
</TABLE>
During 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for the reporting and display of
comprehensive income. Comprehensive income is defined as all changes in a
Company's net assets except changes resulting from transactions with
shareholders. It differs from net income in that certain items currently
recorded to equity would be a part of comprehensive income. Comprehensive income
must be reported in a financial statement with the cumulative total presented as
a component of equity. This statement was adopted by the Company effective
February 1, 1998.
6
<PAGE> 7
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE AND SIX MONTHS ENDED JULY 31, 1998 AND 1997
(UNAUDITED)
(MILLIONS OF DOLLARS UNLESS OTHERWISE STATED)
(3) SUMMARY OF NEW ACCOUNTING PRONOUNCEMENTS -- (CONTINUED)
The components of comprehensive income for the six months ended July 31,
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
JULY 31, JULY 31,
1998 1997
-------- --------
<S> <C> <C>
Net income.................................................. $13.9 $ 8.5
Cumulative translation adjustments.......................... (0.5) (1.9)
----- -----
Total comprehensive income............................. $13.4 $ 6.6
===== =====
</TABLE>
(4) ACQUISITIONS
In February 1998, the Company purchased the remaining 50% equity in its
aluminum wheel joint venture in Somerset, Kentucky, Aluminum Wheel Technology,
Inc. ("Alumitech").
On March 4, 1998 the Company acquired 35% of the automotive wheel business
of Automotive Overseas Investments Limited, an organization which owns and
operates N.F. Die Casting (Pty) Ltd. ("N.F. Die"), a producer of cast aluminum
wheels for the automotive industry in South Africa. The Company exercised its
right to purchase an additional 16% of the operations on July 14, 1998
increasing its total interest in N.F. Die to 51%.
On May 19, 1998, the Company purchased an additional 50.7% of the common
equity and 46.2% of the preferred equity in its joint venture in Brazil, Borlem
S.A. Emprendimentos Industriais ("Borlem"). This purchase increases the
Company's ownership of Borlem to 98.7% of the common equity and 87.0% of the
preferred equity, with the remaining shares being publicly held.
On June 10, 1998, the Company acquired 100% of the common stock of MIN-CER,
S.A. de C.V. ("MIN-CER"), Mexico's largest heavy-duty hub, drum and wheel
manufacturer.
On August 14, 1998, the Company acquired an additional 60% of the equity in
its joint venture Kalyani Lemmerz Limited in India. This transaction increased
the Company's ownership equity from 25% to 85%.
The following unaudited pro forma financial data illustrates the estimated
effects as if the above mentioned acquisitions had been completed as of the
beginning of the periods presented, after including the impact of certain
adjustments, such as amortization, depreciation, interest expense and the
related income tax effects.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
---------------- ----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales....................................................... $414.3 $412.8 $871.8 $820.3
Net income (loss)........................................... $ (1.1) $ 4.2 $ 12.4 $ 8.3
Basic net income (loss) per share........................... $(0.04) $ 0.14 $ 0.41 $ 0.28
Diluted net income (loss) per share......................... $(0.03) $ 0.13 $ 0.38 $ 0.25
</TABLE>
The pro forma results are not necessarily indicative of the actual results
as if the transactions had been in effect for the entire periods presented. In
addition, they are not intended to be a projection of future results and do not
reflect, among other things, any synergies that might have been achieved from
combined operations.
7
<PAGE> 8
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE AND SIX MONTHS ENDED JULY 31, 1998 AND 1997
(UNAUDITED)
(MILLIONS OF DOLLARS UNLESS OTHERWISE STATED)
(5) ACCOUNTS RECEIVABLE SECURITIZATION
In April 1998, the Company entered into a three-year trade securitization
agreement pursuant to which the Company and certain of its subsidiaries sold,
and will continue to sell on an ongoing basis, a portion of their accounts
receivable to a special purpose entity ("Funding Co."), which is wholly owned by
the Company. Accordingly, the Company and such subsidiaries, irrevocably and
without recourse, transferred and will transfer substantially all of their U.S.
dollar denominated trade accounts receivable to Funding Co. Funding Co. then
sold and will sell such trade accounts receivable to an independent issuer of
receivable-backed commercial paper. The trade receivable securitization
agreement was accounted for as a sale of receivables in accordance with FASB No.
125 "Accounting for Transfers and Servicing of Financial Assets &
Extinguishments of Liabilities." The Company has collection and administrative
responsibilities with respect to all the receivables which were and will be
sold.
(6) EXTRAORDINARY LOSS
During the second quarter of fiscal 1998, the Company entered into a second
amended and restated credit agreement dated June 12, 1998 (the "Second Amended
and Restated Credit Agreement"). Pursuant to the Second Amended and Restated
Credit Agreement, a syndicate of lenders agreed to lend to the Company up to
$100 million in the form of a senior secured term loan facility and up to $400
million in the form of a senior secured revolving credit facility. This
agreement amended and restated the credit agreement dated June 30, 1997 and
thereby (a) eliminated (and repaid the outstanding principal balance of) certain
of the then existing senior secured term loan facilities under the prior credit
agreement and (b) increased the revolving credit facility to $400 million. In
connection with this early repayment of the term loan facilities, the Company
recorded an extraordinary loss writing off the remaining deferred financing
costs associated with the term debt which was repaid.
(7) COMMITMENTS AND CONTINGENCIES
Management believes that at July 31, 1998, the Company was in compliance
with the various covenants under the agreements pursuant to which it has or may
borrow money. Management expects that the Company will remain in compliance with
these covenants in all material respects through the period ending July 31,
1999.
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.
(8) GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS
In connection with the Company's merger with MWC Holdings, Inc., on July 2,
1996, and as part of the financing thereof, the Company issued and sold $250
million in aggregate principal amount of its 11% senior subordinated notes due
2006 (the "11% Notes") in a public offering. The 11% Notes are general unsecured
obligations of the Company, subordinated in right of payment to all existing and
future senior indebtedness of the Company, and are guaranteed by certain of the
Company's domestic subsidiaries.
In connection with the Company's acquisition of Lemmerz Holding GmbH on
June 30, 1997 (the "Lemmerz Acquisition"), the Company issued and sold $400
million in aggregate principal amount of its 9 1/8% senior subordinated notes
due 2007 (the "9 1/8% Notes") in two offerings under Rule 144A of the Securities
Act. The 9 1/8% Notes are general unsecured obligations of the Company, ranking
pari passu with
8
<PAGE> 9
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE AND SIX MONTHS ENDED JULY 31, 1998 AND 1997
(UNAUDITED)
(MILLIONS OF DOLLARS UNLESS OTHERWISE STATED)
(8) GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS -- (CONTINUED)
the 11% Notes and are guaranteed by certain of the same domestic subsidiaries of
the Company as guaranteed the 11% Notes.
The following condensed consolidating financial information presents:
(1) Condensed consolidating financial statements as of July 31, 1998,
and January 31, 1998, and for the six-month periods ended July 31, 1998,
and 1997, of (a) Hayes Lemmerz International, Inc., the parent, (b) the
guarantor subsidiaries, (c) the nonguarantor subsidiaries and (d) the
Company on a consolidated basis, and
(2) Elimination entries necessary to consolidate Hayes Lemmerz
International, Inc., the parent, with the guarantor and nonguarantor
subsidiaries.
Investments in foreign subsidiaries are accounted for by the parent on the
equity method (domestic subsidiaries are accounted for by the parent on the cost
method) for purposes of the consolidating presentation. The principle
elimination entries eliminate investments in subsidiaries and intercompany
balances and transactions.
9
<PAGE> 10
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE AND SIX MONTHS ENDED JULY 31, 1998 AND 1997
(UNAUDITED)
(MILLIONS OF DOLLARS UNLESS OTHERWISE STATED)
(8) GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JULY 31, 1998
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales.............................. $133.6 $335.8 $331.6 $(4.1) $796.9
Cost of goods sold..................... 117.7 282.5 266.8 (4.1) 662.9
------ ------ ------ ----- ------
Gross profit........................... 15.9 53.3 64.8 -- 134.0
Marketing, general and
administration....................... 4.4 10.3 17.3 -- 32.0
Engineering and product development.... 1.4 2.8 5.8 -- 10.0
Amortization of intangibles............ 0.6 4.1 3.4 -- 8.1
Other income (expense)................. (0.2) 0.2 (2.1) -- (2.1)
Equity in earnings of unconsolidated
subs................................. (1.0) -- -- -- (1.0)
------ ------ ------ ----- ------
Earnings from operations............... 10.7 35.9 40.4 -- 87.0
Interest expense, net.................. 20.5 23.2 3.3 -- 47.0
------ ------ ------ ----- ------
Earnings (loss) before taxes on income,
minority interest and extraordinary
loss................................. (9.8) 12.7 37.1 -- 40.0
Income tax provision................... 3.7 5.3 7.8 -- 16.8
------ ------ ------ ----- ------
Earnings (loss) before minority
interest and extraordinary loss...... (13.5) 7.4 29.3 -- 23.2
Minority interest...................... -- 0.2 0.8 -- 1.0
------ ------ ------ ----- ------
Earnings (loss) before extraordinary
loss................................. (13.5) 7.2 28.5 -- 22.2
Extraordinary loss, net of tax......... 8.3 -- -- -- 8.3
------ ------ ------ ----- ------
Net income (loss)...................... $(21.8) $ 7.2 $ 28.5 $ -- $ 13.9
====== ====== ====== ===== ======
</TABLE>
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JULY 31, 1997
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales.............................. $182.9 $276.1 $70.5 $(1.4) $528.1
Cost of goods sold..................... 152.0 234.1 58.6 (1.4) 443.3
------ ------ ----- ----- ------
Gross profit........................... 30.9 42.0 11.9 -- 84.8
Marketing, general and
administration....................... 7.7 10.3 3.4 -- 21.4
Engineering and product development.... 1.5 2.8 0.6 -- 4.9
Amortization of intangibles............ 1.2 3.9 -- 5.1
Other income........................... (0.6) (0.1) (1.1) -- (1.8)
------ ------ ----- ----- ------
Earnings from operations............... 21.1 25.1 9.0 -- 55.2
Interest expense, net.................. 17.6 20.8 1.8 -- 40.2
Equity in earnings of consolidated
subsidiaries......................... (4.8) -- -- 4.8 --
------ ------ ----- ----- ------
Earnings before taxes on income and
minority interest.................... 8.3 4.3 7.2 (4.8) 15.0
Income tax provision................... 0.8 2.5 3.1 -- 6.4
------ ------ ----- ----- ------
Earnings (loss) before minority
interest............................. 7.5 1.8 4.1 (4.8) 8.6
Minority interest...................... -- (0.1) -- 0.2 0.1
------ ------ ----- ----- ------
Net income............................. $ 7.5 $ 1.9 $ 4.1 $(5.0) $ 8.5
====== ====== ===== ===== ======
</TABLE>
10
<PAGE> 11
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE AND SIX MONTHS ENDED JULY 31, 1998 AND 1997
(UNAUDITED)
(MILLIONS OF DOLLARS UNLESS OTHERWISE STATED)
(8) GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF JULY 31, 1998
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents........... $ -- $ 0.2 $ 1.4 $ -- $ 1.6
Receivables......................... 0.9 9.0 156.4 -- 166.3
Inventories......................... 39.3 51.8 77.8 -- 168.9
Prepaid expenses and other.......... 0.8 4.2 10.2 (0.2) 15.0
------- ------- ------ ------- --------
Total current assets........... 41.0 65.2 245.8 (0.2) 351.8
Property, plant and equipment......... 161.8 387.7 397.9 -- 947.4
Accumulated depreciation............ (7.4) (102.4) (47.1) -- (156.9)
------- ------- ------ ------- --------
Net property, plant and
equipment................... 154.4 285.3 350.8 -- 790.5
Goodwill and other assets............. 788.5 310.5 319.2 (666.8) 751.4
------- ------- ------ ------- --------
Total assets................... $ 983.9 $ 661.0 $915.8 $(667.0) $1,893.7
======= ======= ====== ======= ========
Current liabilities:
Bank borrowings..................... $ 2.7 $ -- $ 38.0 $ -- $ 40.7
Current portion of long-term debt... -- -- 7.8 -- 7.8
Account payable and accrued
liabilities...................... 54.5 116.6 201.5 (0.2) 372.4
------- ------- ------ ------- --------
Total current liabilities...... 57.2 116.6 247.3 (0.2) 420.9
Noncurrent liabilities:
Long-term debt...................... 854.4 -- 39.0 -- 893.4
Pension and other long-term
liabilities...................... 89.7 91.8 157.8 (4.5) 334.8
Deferred income taxes............... (5.1) 19.9 35.5 -- 50.3
Minority interest................... -- 0.4 11.6 0.1 12.1
Parent loans........................ (206.1) 222.7 (16.6) -- --
------- ------- ------ ------- --------
Total noncurrent liabilities... 732.9 334.8 227.3 (4.4) 1,290.6
Stockholders' equity:
Common stock........................ 0.3 -- -- -- 0.3
Additional paid-in capital.......... 251.8 108.7 279.1 (402.8) 236.8
Retained earnings (accumulated
deficit)......................... (48.6) 100.9 172.9 (262.2) (37.0)
Accumulated other comprehensive
income........................... (9.7) -- (10.8) 2.6 (17.9)
------- ------- ------ ------- --------
Total stockholders' equity..... 193.8 209.6 441.2 (662.4) 182.2
------- ------- ------ ------- --------
Total liabilities and stockholders'
equity.............................. $ 983.9 $ 661.0 $915.8 $(667.0) $1,893.7
======= ======= ====== ======= ========
</TABLE>
11
<PAGE> 12
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE AND SIX MONTHS ENDED JULY 31, 1998 AND 1997
(UNAUDITED)
(MILLIONS OF DOLLARS UNLESS OTHERWISE STATED)
(8) GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
JANUARY 31, 1998
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............ $ 4.6 $ 0.1 $ 18.4 $ -- $ 23.1
Receivables.......................... 36.3 63.0 118.5 -- 217.8
Inventories.......................... 32.9 43.2 55.4 -- 131.5
Prepaid expenses and other........... 1.5 3.3 5.4 (0.2) 10.0
------- ------ ------ ------- --------
Total current assets.............. 75.3 109.6 197.7 (0.2) 382.4
Property, plant and equipment:......... 156.6 320.6 315.4 -- 792.6
Accumulated depreciation............. 1.5 (85.9) (37.8) -- (122.2)
------- ------ ------ ------- --------
Net property, plant and
equipment....................... 158.1 234.7 277.6 -- 670.4
Goodwill and other assets.............. 752.2 303.6 300.8 (650.5) 706.1
------- ------ ------ ------- --------
Total assets...................... $ 985.6 $647.9 $776.1 $(650.7) $1,758.9
======= ====== ====== ======= ========
Current liabilities:
Bank borrowings...................... $ -- $ -- $ 23.6 $ -- $ 23.6
Current portion of long-term debt.... 2.9 -- 11.5 -- 14.4
Accounts payable and accrued
liabilities....................... 71.5 128.4 135.2 (0.2) 334.9
------- ------ ------ ------- --------
Total current liabilities......... 74.4 128.4 170.3 (0.2) 372.9
Noncurrent liabilities:
Long-term debt....................... 841.9 -- 40.7 -- 882.6
Pension and other long-term
liabilities....................... 83.6 85.4 135.4 (2.9) 301.5
Deferred income taxes................ (7.5) 17.9 24.4 -- 34.8
Minority interest.................... -- 0.2 5.3 0.1 5.6
Parent loans......................... (212.5) 219.7 (7.2) -- --
------- ------ ------ ------- --------
Total noncurrent liabilities...... 705.5 323.2 198.6 (2.8) 1,224.5
Stockholders' equity:
Common stock......................... 0.3 -- -- -- 0.3
Additional paid-in capital........... 246.9 104.5 272.9 (394.9) 229.4
Retained earnings (accumulated
deficit).......................... (30.6) 91.7 144.4 (256.3) (50.8)
Accumulated other comprehensive
income............................ (10.9) 0.1 (10.1) 3.5 (17.4)
------- ------ ------ ------- --------
Total stockholders' equity........... 205.7 196.3 407.2 (647.7) 161.5
Total liabilities and stockholders'
equity............................... $ 985.6 $647.9 $776.1 $(650.7) $1,758.9
======= ====== ====== ======= ========
</TABLE>
12
<PAGE> 13
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE AND SIX MONTHS ENDED JULY 31, 1998 AND 1997
(UNAUDITED)
(MILLIONS OF DOLLARS UNLESS OTHERWISE STATED)
(8) GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JULY 31, 1998
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flow provided by (used for)
operating activities................ $ (1.8) $(15.0) $ 70.1 $ -- $ 53.3
Cash flows from investing activities:
Acquisition of property, plant &
equipment........................ (5.8) (23.8) (26.8) -- (56.4)
Purchase of businesses, net of cash
received......................... (20.8) -- (0.6) -- (21.4)
Proceeds from assumption of future
commitments in acquisition....... 12.0 -- -- -- 12.0
Purchase of minority interest....... -- -- (50.8) -- (50.8)
Other, net.......................... (26.4) 13.5 1.2 -- (11.7)
------- ------ ------ ------ -------
Cash flow used for investing
activities..................... (41.0) (10.3) (77.0) -- (128.3)
Cash flows from financing activities:
Decrease in short-term bank
borrowings....................... -- (26.5) (0.8) -- (27.3)
Increase (decrease) in long-term and
bank revolving loans............. 110.0 (8.0) (2.2) -- (101.2)
Repayment on term debt.............. (100.5) -- -- -- 100.5
Net proceeds under accounts
receivable securitization
program.......................... 78.7 -- -- -- 78.7
Stock options exercised............. 1.7 -- -- -- 1.7
Fees paid to issue long term debt... 1.3 -- -- -- 1.3
------- ------ ------ ------ -------
Cash provided by (used for)
financing activities........... 91.2 (34.5) (3.0) -- 53.7
Increase (decrease) in parent
advances............................ (53.0) 59.9 (6.9) -- --
Effect of exchange rates on cash and
cash equivalents.................... -- -- (0.2) -- (0.2)
------- ------ ------ ------ -------
Net increase (decrease) in cash and
cash equivalents.................... (4.6) 0.1 (17.0) -- (21.5)
Cash and cash equivalents at beginning
of year............................. 4.6 0.1 18.4 -- 23.1
------- ------ ------ ------ -------
Cash and cash equivalents at end of
period.............................. $ -- $ 0.2 $ 1.4 $ -- $ 1.6
======= ====== ====== ====== =======
</TABLE>
13
<PAGE> 14
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE AND SIX MONTHS ENDED JULY 31, 1998 AND 1997
(UNAUDITED)
(MILLIONS OF DOLLARS UNLESS OTHERWISE STATED)
(8) GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JULY 31, 1997
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flow provided by (used for)
operating activities................ $ (13.0) $ 7.6 $ 1.4 $(4.8) $ (8.8)
Cash flows from investing activities:
Acquisition of property, plant &
equipment........................ (7.8) (9.8) (9.8) -- (27.4)
Purchase of business, net of cash
received......................... (197.5) -- -- -- (197.5)
Other, net.......................... (3.9) 10.2 (12.2) -- (5.9)
------- ------ ------ ----- -------
Cash flow used for investing
activities..................... (209.2) 0.4 (22.0) -- (230.8)
Cash flows from financing activities:
Increase in short-term bank
borrowings....................... -- -- 1.3 -- 1.3
Decrease in long-term & bank
revolving loans.................. (202.9) -- (2.7) -- (205.6)
Proceeds from issuance of long term
debt............................. 500.0 -- -- -- 500.0
Fees paid to issue long term debt... (17.0) -- -- -- (17.0)
------- ------ ------ ----- -------
Cash provided by (used for)
financing activities........... 280.1 -- (1.4) -- 278.7
Increase (decrease) in parent
advances............................ (89.3) (12.1) 96.6 4.8 --
Effect of exchange rates on cash and
cash equivalents.................... -- -- 0.9 -- 0.9
------- ------ ------ ----- -------
Net increase (decrease) in cash and
cash equivalents.................... (31.4) (4.1) 75.5 -- 40.0
Cash and cash equivalents at beginning
of year............................. 41.2 (0.6) 6.9 -- 47.5
------- ------ ------ ----- -------
Cash and cash equivalents at end of
period.............................. $ 9.8 $ (4.7) $ 82.4 $ -- $ 87.5
======= ====== ====== ===== =======
</TABLE>
14
<PAGE> 15
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended July 31, 1998 Compared to Three Months Ended July 31, 1997
The Company's net sales for the second quarter of fiscal 1998 were $383.0
million, an increase of 38% as compared to net sales for the second quarter of
fiscal 1997. This increase was due to the additional sales contributed by
Lemmerz, which was acquired effective June 30, 1997, sales contributed by the
recent acquisitions of Alumitech, Borlem and MIN-CER and higher sales in all of
our European businesses and the Automotive Brake and Commercial Highway
businesses in North America. These increases were partially offset by the
negative impact of the GM strike.
The Company's gross profit for the second quarter of fiscal 1998 increased
to $61.9 million or 16.2% of net sales as compared to $46.8 million or 16.8% of
net sales for the second quarter of fiscal 1997. This decrease in margin percent
was due exclusively to the negative impact of the GM strike. Excluding this
negative impact, gross profit would have been in excess of 17.6% of net sales
for the quarter.
Marketing, general and administrative expenses were $16.8 million or 4.4%
of net sales for the second quarter of fiscal 1998 as compared to $12.5 million
or 4.5% of net sales for the same period of fiscal 1997. This increase in costs
was attributable to additional costs incurred as a result of the Lemmerz
Acquisition. The Company believes that the marketing, general and administrative
expenses as a percent of net sales will continue to improve as the expected
savings are realized as a result of the Lemmerz Acquisition.
Engineering and product development costs were $5.6 million or 1.5% of net
sales for the second quarter of fiscal 1998 as compared to $2.6 million or 0.9%
of net sales for the second quarter of fiscal 1997. This increase in costs and
percent of net sales was attributable to additional costs incurred as a result
of the Lemmerz Acquisition and the negative impact of the GM strike. The Company
believes that engineering and product development costs as a percent of sales
will improve even as these costs increase to successfully develop new products
and as expected savings are realized as a result of the Lemmerz Acquisition.
Amortization of intangibles increased by $1.4 million to $4.2 million for
the second quarter of fiscal 1998. This increase is attributable to the
increased goodwill recognized as a result of the Lemmerz Acquisition and the
recent acquisitions of Alumitech, Borlem and MIN-CER.
The extraordinary loss for early extinguishment of debt represented the
write-off of the remaining deferred financing costs associated with the term
debt incurred in connection with both the Lemmerz Acquisition and the merger
with Motor Wheel. As a result of strong cash flow and significantly improved
credit position, the Company was able to restructure the senior credit facility
and fully repay certain of the outstanding term debt.
Six Months Ended July 31, 1998 Compared to Six Months Ended July 31, 1997
The Company's net sales for the first half of fiscal 1998 were $796.9
million, an increase of 51% as compared to net sales for the first half of
fiscal 1997. This increase was due to the additional sales contributed by
Lemmerz, which was acquired effective June 30, 1997, sales contributed by the
recent acquisitions of Alumitech, Borlem and MIN-CER and higher sales in all of
our European businesses and the Automotive Brake and Commercial Highway
businesses in North America. These increases were partially offset by the
negative impact of the GM strike.
The Company's gross profit for the first half of fiscal 1998 increased to
$134.0 million or 16.8% of net sales as compared to $84.8 million or 16.1% of
net sales for the first half of fiscal 1997. This increase in margin amount was
achieved due to the increased revenues and improved productivity in all of the
Company's businesses despite the negative impact of the GM strike.
15
<PAGE> 16
Marketing, general and administrative expenses were $32.0 million or 4.0%
of net sales for the first half of fiscal 1998 as compared to $21.4 million or
4.1% of net sales for the same period of fiscal 1997. This increase was
attributable to additional costs incurred as a result of the Lemmerz
Acquisition. The Company believes that the marketing, general and administrative
expenses as a percent of net sales will continue improve as the expected savings
are realized as a result of the Lemmerz Acquisition.
Engineering and product development costs were $10.0 million or 1.3% of net
sales for the first half of fiscal 1998 as compared to $4.9 million or 0.9% of
net sales for the first half of fiscal 1997. This increase in costs and percent
of net sales was attributable to additional costs incurred as a result of the
Lemmerz Acquisition and the negative impact of the GM strike. The Company
believes that engineering and product development costs as a percent of sales
will improve even as these costs increase to successfully develop new products
and as expected savings are realized as a result of the Lemmerz Acquisition.
Amortization of intangibles increased by $3.0 million to $8.1 million for
the first half of fiscal 1998. This increase is attributable to the increased
goodwill recognized as a result of the Lemmerz Acquisition and the recent
acquisitions of Alumitech, Borlem and MIN-CER.
Interest expense was $47.0 million for the first half of fiscal 1998, an
increase of $6.8 million over the same period of fiscal 1997. This increase was
due to the increase in debt as a result of the Lemmerz Acquisition and the
recent acquisitions of Alumitech, Borlem and MIN-CER.
The extraordinary loss for early extinguishment of debt represented the
write-off of the remaining deferred financing associated with the term debt
incurred in connection with both the Lemmerz Acquisition and the merger with
Motor Wheel. As a result of strong cash flow and significantly improved credit
position, the Company was able to restructure its senior credit facility and
fully repay certain of the outstanding term debt.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's operations provided $53.3 million in cash in the first six
months of fiscal 1998, an increase of $62.1 million over the same period of
fiscal 1997. This increase was due primarily to increased net income, improved
working capital management and decreased funding requirements to the Company's
pension plans.
Capital expenditures for the first six months of fiscal 1998 were $56.4
million. These expenditures were primarily for additional machinery and
equipment to increase the production capacity at the Company's North American
and European Aluminum Wheel facilities to meet expected future customer
requirements for fabricated aluminum and FFC wheels. The Company anticipates
that capital expenditures for fiscal 1998 will be approximately $110 million
relating primarily to new vehicle platforms, cost reduction programs and
maintenance.
As of July 31, 1998, the Company was party to a second amended and restated
credit agreement dated June 12, 1998 (the "Second Amended and Restated Credit
Agreement") with Canadian Imperial Bank of Commerce ("CIBC") and Merrill Lynch
Capital Corporation ("Merrill Lynch"), as managing agents. Pursuant to the
Second Amended and Restated Credit Agreement, a syndicate of lenders agreed to
lend to the Company up to $100 million in the form of a senior secured term loan
facility and up to $400 million in the form of a senior secured revolving credit
facility. Such term loan and revolving facilities are guaranteed by the Company
and all of its existing and future material domestic subsidiaries. Such term
loan and revolving facilities are secured by a first priority lien in
substantially all of the properties and assets of the Company and its material
domestic subsidiaries, now owned or acquired later, including a pledge of all of
the shares of certain of the Company's existing and future foreign subsidiaries.
As of July 31, 1998 there was $100 million outstanding under the term loan
facility and $277 million available under the revolving facility.
In April 1998, the Company entered into a three-year agreement pursuant to
which the Company and certain of its subsidiaries sold, and will continue to
sell on an ongoing basis, a portion of their accounts receivables to a special
purpose entity ("Funding Co."), which is wholly owned by the Company.
Accordingly, the Company and such subsidiaries, irrevocably and without
recourse, transferred and will transfer
16
<PAGE> 17
substantially all of their U.S. dollar denominated trade accounts receivable to
Funding Co. Funding Co. then sold and will sell such trade accounts receivable
to an independent issuer of receivable-backed commercial paper. The Company has
collection and administrative responsibilities with respect to all the
receivables which are sold.
At July 1998, management believes that the Company was in compliance with
the various covenants under the agreements pursuant to which it has or may
borrow money. Management expects that the Company will remain in compliance with
these covenants in all material respects through the period ending July 31,
1999.
OTHER MATTERS
New Accounting Pronouncements
On June 30, 1997, the FASB issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information", which introduces the "management
approach" for segment reporting. This approach reflects management's
organization of the business segments and is consistent with how the Company and
its key decision-makers assess operating performance, make operating decisions
and allocate resources. This approach also considers the existence of managers
responsible for each business segment and how information is presented to the
Company's Board of Directors. The statement requires disclosures for each
segment that are similar to those currently required, with the adoption of
quarterly disclosure requirements, after initial year of application, and
geographic data by country. This statement will be adopted by the Company in its
January 31, 1999 consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The Statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate, and assess the effectiveness
of transactions that receive hedge accounting. Statement 133 is effective for
fiscal years beginning after June 15, 1999. The Company anticipates adopting
this standard in its fiscal year 2000 and does not anticipate a material impact
on the Company's financial position or results of operations when adopted.
Year 2000
The Company has conducted a comprehensive review of its computer systems
and related computer-controlled manufacturing and quality systems to identify
the systems that could be affected by the "Year 2000" issue and is developing an
implementation plan to resolve the issue. The Year 2000 problem is the result of
computer programs being written using two digits rather than four to define the
applicable year. Any of the Company's programs that have time-sensitive software
may recognize using "00" as the year 1900 rather than the year 2000. This could
result in a major system failure or miscalculations. The Company presently
believes that, with modifications to existing software and converting to new
software, the Year 2000 problem will not pose significant operational problems
for the Company's computer systems as so modified and converted, and, as such,
the Company believes that the cost of modification and conversion related to the
Year 2000 problem will not have a material adverse effect on the results of
operations or financial condition of the Company. However, if such modifications
and conversions are not completed timely, the Year 2000 problem may have a
material impact on the operations of the Company.
17
<PAGE> 18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
None.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HAYES LEMMERZ INTERNATIONAL, INC.
By: /s/ D. N. VERMILYA
------------------------------------
D. N. Vermilya
Corporate Controller and Chief
Accounting Officer
September 12, 1998
19
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<S> <C> <C>
27 Financial Data Schedule
</TABLE>
20
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> JUL-31-1998
<CASH> 1,600
<SECURITIES> 0
<RECEIVABLES> 166,300
<ALLOWANCES> 0
<INVENTORY> 168,900
<CURRENT-ASSETS> 351,800
<PP&E> 947,400
<DEPRECIATION> (156,900)
<TOTAL-ASSETS> 1,893,700
<CURRENT-LIABILITIES> 420,900
<BONDS> 0
0
0
<COMMON> 300
<OTHER-SE> 181,900
<TOTAL-LIABILITY-AND-EQUITY> 1,893,700
<SALES> 383,000
<TOTAL-REVENUES> 383,000
<CGS> 321,100
<TOTAL-COSTS> 321,100
<OTHER-EXPENSES> 24,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,800
<INCOME-PRETAX> 14,300
<INCOME-TAX> 6,000
<INCOME-CONTINUING> 7,500
<DISCONTINUED> 0
<EXTRAORDINARY> (8,300)
<CHANGES> 0
<NET-INCOME> (800)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.02)
</TABLE>
