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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 1998
COMMISSION FILE NUMBER: 1-11592
HAYES LEMMERZ INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 13-3384636
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION) 48174
38481 HURON RIVER DRIVE, ROMULUS, MICHIGAN (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (734) 941-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
9 1/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2007
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
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 23, 1998 (BASED ON THE CLOSING PRICE OF THE REGISTRANT'S
COMMON STOCK REPORTED ON THE THE NEW YORK STOCK EXCHANGE ON SUCH DATE) WAS
APPROXIMATELY $298 MILLION.
THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF APRIL 24, 1998 WAS
30,090,845 SHARES.
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HAYES LEMMERZ INTERNATIONAL, INC.
FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PART I
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 13
Item 3. Legal Proceedings........................................... 14
Item 4. Submission of Matters to a Vote of Security Holders......... 15
Executive Officers of Registrant............................ 16
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 17
Item 6. Selected Financial Data..................................... 18
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 18
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk...................................................... 23
Item 8. Consolidated Financial Statements and Supplementary Data.... 23
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 23
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 23
Item 11. Executive Compensation...................................... 23
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 23
Item 13. Certain Relationships and Related Transactions.............. 23
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 24
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THIS ANNUAL REPORT ON FORM 10-K 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,
INCLUDING STATEMENTS UNDER THE CAPTIONS "BUSINESS" AND "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." 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 ANNUAL REPORT ON FORM 10-K AND THE COMPANY
DOES NOT INTEND TO PROVIDE SUCH UPDATES.
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PART I
ITEM 1. BUSINESS
GENERAL
As used herein, the term "Company" shall mean Hayes Lemmerz International,
Inc. (formerly known as Hayes Wheels International, Inc.) and its direct and
indirect subsidiaries on a combined basis after giving effect to the acquisition
of Lemmerz Holding GmbH ("Lemmerz"), which occurred on June 30, 1997.
The Company is the world's largest manufacturer of automotive wheels,
supplying approximately 30% and 22% of the automotive wheels in North America
and Europe, respectively, and also is the largest global supplier of wheels to
original equipment manufacturers (OEMs) of passenger cars, light trucks and
commercial highway vehicles. The Company is also a leading producer of
automotive brake products in North America. The Company's principal customers
for wheel and brake products consist of every major OEM in North America, Europe
and Japan, including General Motors, Ford, Chrysler (the three of which
comprised approximately 53% of the Company's 1997 net sales), BMW, Renault,
Fiat, Volkswagen, Porsche, Mercedes-Benz, Audi, Volvo, Citroen, Peugeot, Skoda,
Seat, Toyota, Mazda, Nissan, Honda, Mitsubishi, Suzuki and Isuzu. The Company
also has over 300 commercial highway vehicle customers in North America and
Europe, including Trailmobile, Dana/Mack, Mercedes-Benz, Iveco, Strick, Great
Dane Trailers, Freightliner, PACCAR, Volvo/GM, Renault and Western Star. The
Company also produces a variety of non-wheel and non-brake cast aluminum
products for the automotive, heating equipment and general machinery industries.
Sales of automotive wheel and brake products comprised approximately 81% of the
Company's net sales in fiscal 1997 (73% wheels and 8% brake components), with
the remaining 19% comprised of commercial highway wheel and brake products (16%)
and non-wheel and non-brake aluminum castings (3%).
The Company is the #1 or #2 independent manufacturer of its primary
products in the markets in which it competes. The following table sets forth the
Company's estimated pro forma combined market position in North America and
Europe in 1997:
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MARKET POSITION
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NORTH AMERICA
Automotive Steel Wheels -- Including Production by OEMs... #1
Automotive Cast Aluminum Wheels........................... #2
Automotive Fabricated Aluminum Wheels..................... #1
Automotive Full-Face Cast (FFC(TM)) Wheels................ #1
Automotive Brake Rotors and Drums -- Excluding Production
by OEMs................................................ #2
Commercial Highway Wheels................................. #2
Commercial Highway Brake Hubs and Drums................... #1
EUROPE
Automotive Steel Wheels -- Including Production by OEMs... #2
Automotive Cast Aluminum Wheels........................... #1
Commercial Highway Wheels................................. #2
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The Company has been active in developing strategic alliances around the
world. These include strategic manufacturing joint ventures in Mexico, Brazil,
Venezuela, Portugal, Canada, India, Turkey, Thailand and South Africa. The
Company also maintains technical relationships in Thailand and Colombia and a
sales and engineering office in Japan.
The Company considers its operations to be operating principally in two
geographic areas (North America and Europe). The financial information required
by geographic area for the years ended January 31, 1998, 1997 and 1996 is
included in note 14 of the Company's Consolidated Financial Statements filed
herewith, commencing at page F-1.
A significant trend toward the use of lighter, more highly-styled wheels
for passenger cars and light trucks has increased the demand for and the use of
aluminum wheels. Aluminum wheel growth is primarily
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attributable to the weight advantage of aluminum wheels, which helps OEMs meet
government-imposed fuel economy standards and the aesthetics of styled cast
aluminum wheels. Aluminum wheel penetration (new vehicle installations) in North
America has increased from approximately 3% in 1980 to approximately 50% in
1997. The Company estimates that such penetration will reach approximately 55%
to 60% over the next several years due primarily to new aluminum wheel product
innovations, including fabricated aluminum wheels and FFC(TM) aluminum wheels.
Aluminum wheel penetration in Europe in 1997 was approximately 25% and continues
to display a similar growth pattern as that experienced in North America. The
Company is well-positioned to continue to increase sales of its aluminum wheels
given the new, but rapidly growing, fabricated aluminum wheel and FFC(TM) wheel
designs where the Company is the only significant manufacturer.
Raw materials and component parts used in the Company's manufacturing
operations are those commonly used in such operations and adequate supplies are
available. The Company is generally not dependent on long-term supply contracts
and has available to it alternate sources for its raw materials and component
parts.
The Company is dedicated to the continued development of new and improved
wheels and brake components and related products either through its own
world-class engineering capabilities or joint ventures with other parties. These
new designs include full-faced styled steel wheels, light-weight steel wheels,
light-weight fabricated aluminum wheels, FFC(TM) wheels, clad-covered wheels and
Centrifuse(R) brake drums. The Company's North American Wheel and Brake
Engineering, Design, and Advanced Research and Development Groups are located in
Romulus, Michigan. The Company also has significant design, engineering,
research and development capabilities in Europe at its Konigswinter, Germany;
and Dello, Italy facilities. The Company believes that it is the world leader in
advanced research for wheel and brake technology. The Company also believes that
with its manufacturing and technological expertise in aluminum wheels that the
commercial highway market also has significant growth potential. The Company has
also developed a number of innovative non-wheel cast aluminum products for
passenger cars, heavy trucks, heating equipment and the general machinery and
electronics industries.
Supported by computer-aided design and manufacturing, as well as
finite-element analysis tools, the Company investigates 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 the wheels, salt-spray and other environmental tests are conducted on coated
wheels.
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 significant 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 also grants
patent and trademark licenses to others throughout the world and receives
royalties under most of these licenses. The "Hayes" and "Lemmerz" names are
registered in countries in North and South America, Europe, Asia and Africa.
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. In
1992, 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 its sole stockholder as an extraordinary
dividend and the Company consummated an initial public offering of its common
stock. On July 2, 1996, the Company consummated a series of transactions (the
"Motor Wheel Transactions") pursuant to which: (i) Motor Wheel Corporation
("Motor Wheel") became a
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wholly owned subsidiary of Hayes; (ii) Hayes' common stock was recapitalized
with each share of common stock then outstanding being exchanged for 1/10th
share of common stock, par value $0.01 per share (the "Common Stock") and $28.80
in cash (the "Recapitalization"); and (iii) Joseph Littlejohn & Levy Fund II,
L.P. ("JLL Fund II) and certain other investors acquired ownership of
approximately 76.6% of the Common Stock. Lemmerz was founded in 1919 at its
current site in Konigswinter, Germany and was the leading full-line wheel
supplier in Europe. On June 30, 1997, the Company acquired Lemmerz for $200
million in cash and five million shares of Series A Preferred Stock, which, upon
receipt of stockholder approval on October 22, 1997, automatically converted
into five million shares of Common Stock (the "Lemmerz Acquisition"). On
November 12, 1997, following stockholder approval, the Company changed its name
to "Hayes Lemmerz International, Inc."
INDUSTRY
Wheels for passenger cars and light trucks are generally made of steel or
aluminum, which offer OEMs a range of design options for the vehicles. 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 stylized
full-faced steel wheels, with a clear, color 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 stylized and more expensive than steel
wheels, and can be single-piece cast aluminum wheels, fabricated aluminum wheels
or FFC(TM) wheels, which are made from two separate pieces (a fabricated
aluminum rim and a cast aluminum 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 both fabricated steel and one-piece cast aluminum wheels.
Based on published vehicle production statistics, the Company estimates
that in 1997 approximately 27 million one-piece cast aluminum automotive wheels
where manufactured in North America. The Company estimates that it sold
approximately 27% of the aluminum wheels manufactured in North America in 1997.
In Western Europe, the Company estimates that approximately 14 million cast
aluminum wheels were manufactured in 1997, of which approximately 27% were sold
by the Company.
The Company estimates that in 1997 approximately 43 million steel passenger
car and light truck wheels, including 14 million steel wheels manufactured by
the OEMs for their own use, were manufactured in North America. During 1997, the
Company believes that it sold approximately 51% of the independently
manufactured steel wheels and approximately 35% of all steel wheels manufactured
in North America. The Company estimates that in 1997 approximately 70 million
steel passenger car and light truck wheels, including 15 million steel wheels
manufactured by the OEMs for their own use, were manufactured in Western Europe,
of which approximately 21% were sold by the Company.
OEMs typically specify the features of the wheel, whether steel or
aluminum, which will be used for a particular model either as standard or
optional equipment. Among the features specified by OEMs are weight, styling and
pricing requirements. 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. OEMs
typically specify a supplier of a particular wheel design more than two years
before the time of initial 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 then
designates a specific supplier for a particular wheel that meets the OEMs' cost,
quality, styling and engineering specifications for particular vehicle models.
The duration of the designation is dependent upon the life cycle of the vehicle
model. Suppliers that design, engineer, manufacture and conduct quality control
testing are generally referred to as Tier I suppliers ("Tier I Suppliers"). The
Company believes that because of its world-class engineering capabilities and
full product line, early involvement in the design and engineering of new wheel
and brake products as a Tier I Supplier affords it a competitive advantage in
securing new business and provides customers a significant cost reduction
through coordination of design, development and manufacturing processes. As a
result of the lengthy approval and launch process, combined with the continued
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designation of a particular supplier for the life of the vehicle model,
increases or decreases in sales to a particular OEM and corresponding changes in
market share normally occur over an extended period of time.
In fitting with its status as a full-line global wheel supplier, the
Company continues to offer its customers a wide range of products including,
among others, a base steel wheel for low cost, a stylized and chromed steel
wheel for a bright appearance, a light-weight steel wheel (which is
approximately 15% lighter than traditional steel wheels), a cast aluminum wheel
for high styling, a fabricated aluminum wheel (which is 50% lighter than
traditional steel wheels) for low weight, a clad-covered wheel for a bright
appearance at a significantly lower cost than a fully-chromed wheel, a truck
wheel with an outside valve hole for use on heavy trucks with disc brakes and
finally, an FFC(TM) two-piece aluminum wheel, which provides both high styling
and lighter weight. The Company believes this breadth of product offering and
manufacturing capability enhances its ability to support a full vehicle platform
with any wheel designed by its customers.
North American OEMs generally manufacture passenger cars and light trucks with
drum-brakes on the rear axle and disc brakes on the front axle, although disc
brakes are increasingly being used on rear axles for high performance vehicles
and vehicles incorporating anti-lock brake systems. OEMs offer anti-lock brake
systems as optional equipment on certain vehicle models and as standard
equipment on higher priced vehicle models. The Company manufactures automotive
brake components consisting primarily of composite metal drums, full cast drums
and cast iron hubs for drum-type brakes and cast iron rotors for disc brakes.
The Company's brake components have been incorporated into anti-lock brake
systems offered by its OEM customers. In addition to the OEM market for
automotive brake components, a growing service market exists for brake rotors
due to the high wear-out rate which is experienced with this product. As a
result, the automotive industry is facing a demand for brake rotors in excess of
manufacturing capacity.
General Motors, Ford, Volkswagen and other OEMs continue to outsource
component manufacturing. Wheel and brake component manufacturing is not
strategic to these companies and outsourcing has increased in response to
competitive pressures on OEMs to improve quality and reduce capital outlays,
production costs, overhead and inventory levels. The Company believes that it is
well positioned to benefit from any future outsourcing opportunities.
In the commercial highway vehicle market, the Company sells wheels, rims
and brake products to OEMs (including replacement parts sold through original
equipment servicers) and aftermarket distributors. Commercial highway wheels,
rims, brake components, and wheel hub and brake drum assemblies are installed
principally on trucks, trailers and buses. In the commercial highway market,
sales to OEMs are attributable to either having the product designated as
standard equipment by the OEM or obtaining fleet specifications where purchasers
of commercial highway vehicles specify the component parts to be utilized on
vehicles manufactured for their fleets.
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. 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.
Most of the Company's manufacturing facilities have received such quality
awards.
The automotive industry has adopted new standards for quality ratings
commonly known as QS 9000 or ISO 9001, as to which all of the OEMs require
compliance. The Company's Gainesville, Georgia location was the first wheel
plant in North America to qualify for this rating. All of the Company's
worldwide facilities (including its majority owned joint ventures) have received
QS 9000 and/or ISO 9001 registration in compliance with all of its customers'
requirements.
While the Company's business is not seasonal in the traditional sense, July
(in North America), August (in Europe) and December are usually lower volume
months. This is because OEMs typically perform model changeovers or take
vacation shutdowns during the summer and assembly plants are typically closed
for a period from shortly before Christmas to after New Year's Day.
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The Company competes for sales of its cast aluminum wheels, fabricated
steel wheels, fabricated aluminum wheels and brake components on the basis of
cost, delivery, quality and service. As a large portion of the Company's
business consists of sales to GM, Ford and Chrysler (in the aggregate,
approximately 53% of the Company's fiscal 1997 total sales), the loss of a
significant portion of the Company's sales to any of these OEMs could have a
material adverse impact on the Company. The Company has been doing business with
each of these OEMs for many years, and sales are composed of a number of
different products and of different models or types of the same products and are
made to individual divisions of such OEMs. In addition, the Company supplies
products to those customers in both North America and Europe which reduces the
Company's reliance on any single market.
CAST ALUMINUM WHEELS
The Company's cast aluminum wheels are produced in North America and Europe
and are sold in North America, Europe and Japan.
NORTH AMERICA
The Company has five cast aluminum manufacturing facilities in North
America, which are located in Howell, Michigan; Gainesville, Georgia;
Huntington, Indiana; La Mirada, California; and Somerset, Kentucky. At these
facilities, 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 1997, the Company supplied approximately 27%
of the cast aluminum wheels purchased in North America (this percentage includes
aluminum wheels produced by Aluminum Wheel Technology, Inc., a joint venture
formerly owned 50% by the Company of which the remaining 50% was acquired in the
first quarter of fiscal 1998). 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 manufacturing
of cast aluminum wheels. In 1997, the Company believes approximately 50% of
passenger cars and light trucks in North America used cast aluminum wheels, up
from approximately 44% in 1996.
Customers. In fiscal 1997, approximately 91% 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 5% of
its cast aluminum wheels to Nissan and Isuzu in Japan and sold approximately 4%
to Japanese transplants in the United States. The Company owns 100% of Hayes
Lemmerz Japan Limited, a Japanese corporation that provides sales, engineering
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 aluminum wheels. One-piece
aluminum wheels comprise the bulk of the Company's current sales. The Company
introduced its first high volume FFC(TM) two-piece aluminum wheel in 1997. This
two-piece design offers 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 with which it 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 infra-red 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
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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 in the North American cast aluminum wheel market is Superior
Industries International, Inc., which the Company estimates had approximately a
35% share of the North American market in 1997, as compared with the Company's
share of approximately 27%. Other aluminum wheel manufacturers that account for
the remaining market share include Wheeltek, a subsidiary of Amcast Industrial,
American Racing Equipment, Alcoa, Reynolds Metals and several foreign suppliers
operating in the United States.
EUROPE
The Company has four cast aluminum manufacturing facilities in Europe,
which are located in Barcelona, Spain; Dello, Italy; Campiglione Fenile, Italy;
and Hoboken, Belgium. At these facilities, 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 its share of the European market for
cast aluminum wheels was approximately 27% for fiscal 1997. Substantially all of
the Company's European cast aluminum wheels were sold to Mercedes-Benz, BMW,
Opel, Fiat, Volkswagen, Porsche, Peugeot, Renault, Nissan, Volvo and Ford of
Europe. In 1997, the Company believes approximately 25% of passenger cars and
light trucks in Europe used cast aluminum wheels, up from approximately 23% in
1996.
Manufacturing. Engineering, research and development for the Company's
European cast aluminum wheel operations is currently performed at the Company's
Dello, Italy and Hoboken, Belgium facilities.
The Company maintains substantial capability in Europe to style and design
cast aluminum wheels for sale to particular OEMs. The Company offers its OEM
customers various Company-generated styles and sizes 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. In Europe, the Company believes that its interaction with its
customers through computer-aided design offers 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 new products
such as fabricated aluminum wheels and FFC(TM) wheels.
Competition. The cast aluminum wheel market 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 and the remaining producers will increase their
market shares. 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.
The Company's primary competitors in the European cast aluminum wheel
market for passenger cars are Ronal, Amcast Speedline and Alloy Wheel
International. These competitors have market shares ranging from 9% to 18% each.
FABRICATED WHEELS
The Company's fabricated steel and fabricated aluminum wheels are produced
and sold in North America and Europe.
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NORTH AMERICA
At its manufacturing facilities in Sedalia, Missouri and Bowling Green,
Kentucky, 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 1900s, the Company has manufactured more steel
wheels in North America than any other manufacturer.
The Company's fabricated wheel products, including fabricated aluminum
wheels, chromed, full-face steel wheels, and clad-covered wheels, have been well
received by its customers. The Company believes that new contracts obtained in
1996 and 1997 relating to these new products have positioned this group for
significant future growth. Currently the Company produces fabricated aluminum
wheels for both Ford and General Motors, including a full-faced, styled version
for the Ford F150 truck.
The Company believes that the North American steel wheel market will remain
significant because OEMs will 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 promotion programs. The Company continues to explore
other avenues of growth for steel wheels, including further penetration into
that portion of the market currently served by OEM wheel manufacturers.
Customers. The Company estimates that its share of the North American
market for steel wheels for fiscal 1997 was approximately 35% (including wheels
manufactured by OEMs). Approximately 79% of the Company's steel wheels were sold
to General Motors, Ford and Chrysler in fiscal 1997.
In 1995, the Company and General Motors entered into a contract for the
supply of steel wheels which will initially extend through the 2000 model year.
Under certain circumstances, this contract may be extended or terminated. The
Company also has a long term supply contract with Ford.
Manufacturing. The Company's fabricated steel and fabricated aluminum
wheels are manufactured by a continuous in-line process, thus enhancing quality
standardization and reducing work-in-process inventory. Although tooling is
relatively expensive for steel wheels, a particular style is likely to be run
for a customer in high volume over a long period, lowering the unit production
cost.
As a result of the Motor Wheel Transactions, the Company had four
fabricated steel wheel manufacturing facilities. In 1996, the Company decided to
consolidate its fabricated steel wheel production into two facilities due to the
reduction in demand for steel wheels resulting from the growing demand for
aluminum wheels in North America. Production continues in the Bowling Green,
Kentucky and Sedalia, Missouri facilities. The former Motor Wheel facility in
Mendota, Illinois was closed in the fourth quarter of fiscal 1996 and the
Company's Romulus, Michigan facility was closed in the third quarter of fiscal
1997. The Company believes that consolidating production from four facilities
into two will allow the Company to optimize capacity utilization and thereby
reduce costs.
Competition. The Company's primary non-OEM competitors in the North
American steel wheel market for passenger cars and light trucks are Meritor
Automotive, Accuride, Topy and Central Manufacturing Company. The Company
estimates that the competitors held a combined share of approximately 32% of the
steel wheel market in 1997 while the OEMs together accounted for 33% of the
market in 1997. The Company believes that it is well-positioned to maintain its
market share of steel wheels at General Motors, Ford and Chrysler against
non-OEM competition.
The Company remains vulnerable to increased sourcing of steel wheels by
General Motors and Ford to their respective wheel operations, which may win
contracts based on factors other than quality, price and efficiency. General
Motors and Ford supplied approximately 65% of their steel wheel needs in each of
1996 and 1997. 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 capture
market share from the OEMs. Neither General Motors nor Ford has production
capability for stylized
9
<PAGE> 10
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 Europe, the Company has four fabricated wheel manufacturing facilities,
which are located in Konigswinter, Germany; Manresa, Spain; Manisa, Turkey; and
Ostrava, Czech Republic, where it designs, manufactures and distributes a
full-line of fabricated steel wheels for sale to both OEMs and the aftermarket
of the automotive industry throughout Europe. The Company's operations in Turkey
are operated as a joint venture, with the Company owning 68% and Inci Holding
A.S. owning the remaining 32%. This joint venture was established to provide the
growing Turkish automobile industry with quality steel wheels.
During fiscal 1997, Hayes Lemmerz Autokola, a.s. ("Autokola"), originally
formed in October 1993 by the Company and Nova Hut a.s. ("Nova Hut") as a joint
venture in Eastern Europe, became a wholly-owned subsidiary of the Company when
the Company (which previously owned 58% of the equity of Autokola) acquired the
remaining 42% of Autokola from Nova Hut. Autokola manufactures fabricated steel
and fabricated aluminum wheels in Ostrava, Czech Republic. Autokola currently
has capacity to produce 5.0 million fabricated steel and fabricated aluminum
wheels annually, and since fiscal 1996, Autokola has been shipping wheels to
GM-Opel in Germany.
Customers. On a pro forma basis, the Company supplied approximately 21% of
the automotive steel wheels manufactured in Europe in 1997. The Company's
principal customers include BMW, Opel, Mercedes-Benz, Ford, Nissan, Volkswagen,
Peugeot, Citroen, Renault, Toyota, Mitsubishi and Volvo. In Eastern Europe,
Autokola's principal customer is Skoda, the national automobile manufacturer of
the Czech Republic, for which it is the sole supplier of steel wheels.
Manufacturing. The Company's steel wheel manufacturing facilities have a
combined production capacity of 22 million steel wheels for passenger cars and
light trucks. The Konigswinter, Germany facility has state-of-the-art, automated
production equipment and extensive research and development facilities. The
Company's lightweight steel wheel, which is approximately 15% lighter than a
traditional steel wheel, was developed and is manufactured at the Konigswinter
facility. The Company's Manresa, Spain facility has developed a specialty niche
in wheels for light trucks, recreational vehicles and vans. The Manisa, Turkey
facility produces wheels for the Turkish market and exports both OEM and
aftermarket wheels to Western Europe. It benefits from lower labor rates and has
enough available manufacturing space to double the plant's manufacturing
capacity from 1.5 million to 3.0 million wheels. In addition to these
manufacturing facilities, Autokola has completed a new paint facility and
installed new fabricated aluminum and steel wheel rim and assembly lines. 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. The Company's principal non-OEM competitors for the sale of
passenger car and light truck steel wheels include Michelin Kronprinz,
Dunlop-Topy and Fergat. Ford and VW together produced approximately 18% of all
passenger car and light truck steel wheels in Europe during 1997.
AUTOMOTIVE BRAKE COMPONENTS
The Company manufactures automotive brake components consisting primarily
of composite metal drums and full cast drums for drum-type brakes and cast iron
rotors for disc brakes. Sales of automotive brake products accounted for
approximately 8% of the Company's net sales for fiscal 1997.
Customers. In fiscal 1997, the Company sold substantially all of its
automotive brake components to Chrysler, Ford and Nissan.
Manufacturing. The Company currently has two manufacturing facilities in
North America which produce brake components. These facilities include Homer,
Michigan and a 75% owned subsidiary in Monterey, Mexico. Prior to the Motor
Wheel Transactions, Motor Wheel had announced that as a result of maximizing
manufacturing capacity and minimizing non-competitive costs, the Ypsilanti,
Michigan plant
10
<PAGE> 11
would be closed. The plant was closed during the second quarter of fiscal 1997.
Existing production was transferred to the remaining two facilities.
The Company's brake components are considered to be among the highest
quality components in the industry with parts per million quality statistics
significantly better than industry averages. The Company continues to use its
technological superiority to develop innovative new component designs addressing
weight and warranty issues.
Competition. The principal non-OEM competitors of the Company for the sale
of automotive brake components include Lucas Varity, Bosch, American Axle and
Racini. The Company believes that Lucas Varity and Bosch supply brake drums and
rotors as well as anti-lock brake systems, while American Axle and Racini are
suppliers of brake rotors and drums. General Motors is also a significant
manufacturer of automotive brake components, installed primarily on General
Motors' vehicles.
COMMERCIAL HIGHWAY PRODUCTS
The Company's commercial highway vehicle wheels and brakes are produced and
sold in North America and Europe.
NORTH AMERICA
The Company manufactures disc wheels and demountable rims for commercial
highway vehicles. The Company also manufactures two-piece take-apart wheels for
certain special applications, the most significant of which is for the High
Mobility Multiple Purpose Wheeled Vehicle (the "Hummer") produced by AM General
Corporation. The Company manufactures brake components for commercial highway
vehicles consisting of conventional full cast iron brake drums and Centrifuse(R)
brake drums. These different types of brake drums can also be assembled together
with iron or aluminum hubs and sold as a unit. The Centrifuse(R) drums are
manufactured using a proprietary process to fuse iron to a steel jacket to
combine the advantages of iron and steel to produce a lighter and stronger brake
drum. The Company has achieved a significant market share for this product which
is supplied to OEMs almost exclusively as a result of fleet specifications.
Sales of commercial highway products accounted for approximately 13% of the
Company's net sales for fiscal 1997.
Approximately 500,000 commercial highway trucks and trailers were sold in
North America in 1997. Of this market, the Company supplied approximately 21% of
the wheels and 27% of the hubs and drums sold in North America.
Customers. The Company's largest customers for commercial highway wheels
and rims include Trailmobile, Strick and Great Dane Trailers, while its largest
customers for commercial highway brake components include Freightliner
Corporation, PACCAR and Dana Corporation. Sales to OEMs and original equipment
servicers (OES), and warehouse distributors and others constituted approximately
67% and 33%, respectively, of the Company's commercial highway net sales for
fiscal 1997.
Manufacturing. The Company has two manufacturing facilities which produce
components for the commercial highway market. The Akron, Ohio facility produces
wheels and rims and the Berea, Kentucky facility produces brake components.
Competition. The Company competes for sales of commercial highway wheels,
rims and brake components on the basis of cost, delivery, quality and service.
The Company spends a considerable amount of effort obtaining fleet
specifications where purchasers of commercial highway vehicles specify to the
OEMs the components to be used. The principal competitors of the Company for the
sale of commercial highway wheels and rims include Accuride and Alcoa. The
Company believes that Accuride predominantly supplies steel wheels, but also
supplies aluminum wheels, while Alcoa supplies aluminum wheels. The principal
competitors of the Company for the sale of commercial highway hubs and drums are
Gunite, Webb and Dayton Walther.
11
<PAGE> 12
EUROPE
The Company manufactures steel truck and trailer wheels for sale to OEMs of
commercial highway vehicles in Europe at its Konigswinter, Germany facility. In
addition, the Company produces wheels for the forklift truck market. Recently,
the Company underlined its leadership in both product and process technology by
launching the first truck wheel with an outside valve hole. Management believes
there is a growing need for this product due to the increase in penetration of
disc brakes on heavy trucks.
Customers. The Company supplied approximately 25% on a pro forma basis of
the heavy truck steel wheels sold in Western Europe in 1997. The Company's
principal customers for steel wheels for commercial highway vehicles include
Mercedes-Benz, Renault, Iveco, Volvo, Leyland/DAF, Western Star, Kogel and
Carjobull.
Manufacturing. The Company believes that the Company's Konigswinter,
Germany facility has the most technologically advanced truck wheel manufacturing
line in the world. At this facility, the Company produces a variety of tubeless
and tube-type wheels for commercial highway vehicles, as well as a variety of
steel wheels for forklift trucks. The facility's total annual capacity for all
of these products is 1.7 million wheels.
Competition. The Company's principal competitors for the sale of commercial
highway wheels in Europe include Michelin Kronprinz and Gianetti. Michelin
Kronprinz has approximately 50% of this market.
OTHER PRODUCTS
The Company has two non-wheel and non-brake aluminum casting operations,
which are operated by the Company's 91% owned subsidiary called Metaalgieterij
Giesen B.V. ("MGG"). MGG is comprised of two facilities which utilize sand-cast,
low pressure and high-pressure aluminum casting processes. The sand casting
process uses specially designed patterns to create sand molds into which molten
aluminum is poured. Sand casting allows MGG to produce complicated pieces in
small quantities. The complexity and low volume makes it too costly to
manufacture these items using permanent mold casting, such as is used to produce
cast aluminum wheels. MGG manufactures a variety of products, including heat
exchangers used in gas-fired boilers, intake manifolds and aluminum housings for
automotive and heavy truck applications, and a variety of aluminum products for
the general machinery and electronics industries. From these facilities, the
Company supplies approximately 50% of the cast aluminum heat exchangers for use
in gas-fired boilers for the commercial and residential markets in Europe. The
Company expects this market to nearly double over the next five years.
In North America, the Company's aftermarket division sells passenger car,
light truck and trailer wheels and other automotive products, such as brake
controllers. The Company maintains warehouses in Dallas, Texas and Howell,
Michigan for this purpose. In the aftermarket, the Company competes with a
multitude of manufacturers depending upon the product and market.
The Company also began a tire and wheel assembly operation in Brussels,
Belgium in 1997. The Company supplies balanced tire and wheel assemblies to a
Volkswagen assembly plant on a just-in-time basis. The Company believes that
this is a potential growth market as OEMs continue to out-source non-strategic
processes.
INVESTMENTS
The Company has additional interests, to the extent described below, in the
following businesses located 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., an
aluminum and steel wheel manufacturer in Mexico;
(iii) a 49% interest in Hayes Wheels do Brasil, Ltda., a manufacturer
of aluminum wheels in Brazil;
12
<PAGE> 13
(iv) a 49% interest in Continental Lemmerz (Portugal) -- Componente
para Automoveis, Lda., a tire and wheel assembly operation in
Portugal;
(v) a 47% interest in Borlem S.A. Empreendimentos Industriais, a steel
and aluminum wheel manufacturer in Brazil;
(vi) a 25% interest in Reynolds-Lemmerz Industries, a cast aluminum
wheel manufacturer in Canada;
(vii) a 25% interest in Kalyani-Lemmerz Ltd., a commercial highway
steel wheel manufacturer in India;
(viii) a 25% interest in Jantas Jant Sanayi ve Ticaret A.S., a
commercial highway steel wheel manufacturer in Turkey;
(ix) a 25% interest in Siam Lemmerz Co., Ltd., a cast aluminum wheel
manufacturer in Thailand; and
(x) a 35% interest in Automotive Overseas Investments (Pty) Ltd., a
cast aluminum wheel manufacturer in South Africa (acquired during
the first quarter of fiscal 1998).
In addition, the Company has technical assistance agreements with ATP, a
wheel manufacturer in Thailand, and with Colombiana de Frenos S.A. (Cofre), a
steel and aluminum wheel manufacturer in Colombia.
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 periodically incurs capital expenditures in
order to upgrade its pollution control mechanisms and to comply with applicable
laws. 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 "-- Legal Proceedings."
EMPLOYEES
At April 30, 1998, approximately 12% of the Company's employees in the
United States were represented by UAW or USW. Collective bargaining agreements
with the UAW or USW affecting these employees expire at various times through
2002 and 2003. 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, bargaining agreements are often made on a
local basis. These agreements expire at various times through 1998. Additional
agreements are often made with the facility Works Council on an individual basis
covering miscellaneous topics of local concern. There are no company-wide or
industry-wide bargaining units in the United States. The Company considers its
employee relations to be satisfactory. See "-- Properties" for a listing of
employees by location.
ITEM 2. PROPERTIES
The Company operates eleven major manufacturing facilities in North
America, and has its headquarters in Romulus, Michigan. Total North American
manufacturing space exceeds 3.0 million square feet. Within Europe, the Company
operates ten manufacturing facilities with approximately 3.2 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 in both North America and Europe to meet current demand
for all of its products. To meet projected demand for fabricated aluminum wheels
and FFC(TM) wheels in North America and Europe, the Company expects to continue
upgrading and expanding its current manufacturing facilities.
13
<PAGE> 14
The Company's manufacturing and research facilities are as follows:
<TABLE>
<CAPTION>
OWNED OR
LOCATION EMPLOYEES USE LEASED
-------- --------- --- --------
<S> <C> <C> <C>
Romulus, MI.......................... 230 Headquarters and R&D Leased
Howell, MI........................... 335 Cast Aluminum Wheels Owned
Gainesville, GA...................... 230 Cast Aluminum Wheels Owned
Huntington, IN....................... 440 Cast Aluminum Wheels Owned
La Mirada, CA........................ 540 Cast Aluminum Wheels Leased
Somerset, KY......................... 440 Cast Aluminum Wheels Owned
Sedalia, MO.......................... 770 Fabricated Wheels Owned
Bowling Green, KY.................... 185 Fabricated Wheels Leased
Homer, MI............................ 190 Automotive Brake Components Owned
Monterey, Mexico..................... 90 Automotive Brake Components Leased
Akron, OH............................ 190 Commercial Highway Wheels Owned
Berea, KY............................ 170 Commercial Highway Brake Owned
Components
Barcelona, Spain..................... 165 Cast Aluminum Wheels Owned
Dello, Italy......................... 350 Cast Aluminum Wheels and R&D Owned
Campiglione Fenile, Italy............ 120 Cast Aluminum Wheels Leased
Ostrava, Czech Republic.............. 570 Fabricated Wheels Owned
Konigswinter, Germany................ 1,300 Fabricated Wheels (Automotive and Owned
Commercial Highway) and R&D
Manresa, Spain....................... 440 Fabricated Wheels Owned
Manisa, Turkey....................... 120 Fabricated Wheels Owned
Hoboken, Belgium..................... 800 Cast Aluminum Wheels, Non-Wheel Owned
Castings and R&D
Tegelen, Netherlands................. 400 Non-Wheel Castings and R&D Owned
Brussels, Belgium.................... 20 Tire and Wheel Assembly Owned
</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. Except as described below, 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.
The Company is a party to two lawsuits, Joseph Golden et al. v Kelsey-Hayes
Company et al. and Richard Helwig et al. v Kelsey-Hayes Company, each of which
was brought in 1995 in the U.S. District Court for the Eastern District of
Michigan, pursuant to which salaried and union pensioners and their surviving
spouses have alleged that the Company breached its welfare benefit plans when
the Company amended such plans in 1992 and 1994. Although the Company denies all
substantive allegations of the plaintiffs in these lawsuits and is vigorously
defending these cases, in the event that these lawsuits are determined adversely
to the Company, the Company could be required to incur material costs to
maintain the pre-amendment terms of the Company's welfare benefit plans and to
reimburse the plaintiffs in these lawsuits for costs incurred by them since the
date of such amendments.
The Company is a party to a patent infringement action, Lacks Incorporated
v Hayes Wheels International, Inc., et al. brought in March 1997 in the U.S.
District Court for the Eastern District of Michigan, regarding certain
proprietary processes which it uses and upon which it has patents. Although the
Company denies all substantive allegations of the plaintiff in this lawsuit and
is vigorously defending this case, in the event that this lawsuit is determined
adversely to the Company and the Company is unable to collect upon the
indemnification rights which it has against a co-defendant in this lawsuit, this
lawsuit could have a material adverse effect on the consolidated operations and
financial condition of the Company.
14
<PAGE> 15
Under the Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, as amended ("CERCLA", the Company currently has potential
environmental liability arising out of both its wheel and non-wheel businesses
at twelve (12) Superfund sites (the "Sites"). Of the Sites, nine (9) Sites were
related to the operations of Motor Wheel prior to the divestiture of that
business by The Goodyear Tire & Rubber Co. ("Goodyear"). In connection with the
1986 purchase of Motor Wheel by MWC Holdings, Inc. ("Holdings"), Goodyear agreed
to retain all liabilities relating to these Sites and to indemnify and hold the
Company harmless with respect thereto. Goodyear has acknowledged this
responsibility and is presently representing the interests of the Company with
respect to all matters relating to these nine (9) Sites.
As a result of activities which took place at the Company's Howell,
Michigan facility prior to its acquisition by the Company, the State of Michigan
is performing, under CERCLA, a remedial investigation/feasibility study of PCB
contamination at such facility, and in the adjacent South Branch of the
Shiawasee River. Under the terms of a consent judgment entered into in 1981 by
Cast Forge, Inc. ("Cast Forge") (the previous owner of this property) and the
State of Michigan, any additional PCB cleanup which may be required is the
financial responsibility of the State of Michigan, and not of Cast Forge or its
successors or assigns (including the Company). The federal Environmental
Protection Agency (the "EPA") has concurred in the consent judgment.
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 the remaining two
(2) Sites. The Company's potential liability at each of these Sites is not
currently anticipated to be material.
The Company also has potential environmental liability at two state-listed
sites in Michigan. Of these, one is covered under the indemnification agreement
with Goodyear described above. The Company is presently working with the
Michigan Department of Environmental Quality to resolve its liability with
respect to the remaining state listed site, for which no significant costs are
anticipated.
In addition to the Sites, the Company has potential environmental liability
at five (5) Superfund sites arising out of businesses presently operated by
Kelsey-Hayes. Kelsey-Hayes has assumed and agreed to indemnify the Company with
respect to any liabilities associated with these sites. Kelsey-Hayes has
acknowledged this responsibility and is presently representing the interests of
the Company with respect to these sites.
Kelsey-Hayes, 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 divested businesses. See "Item 13.
Certain Relationships and Related Transactions," below.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
15
<PAGE> 16
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, directors or persons
nominated for such positions and there is no arrangement or understanding
between any of the executive officers 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>
Ranko "Ron" Cucuz..... Chief Executive Officer 54 October Chairman of the Board of Directors
1992 of the Company since July, 1996;
Director of the Company since
October 1992; Group President of the
wheels division of the Company,
August 1992 to October 1992.
Giancarlo Dallera..... Vice President -- 51 October Chief Executive Officer and Chairman
President, European 1992 of the Board of Hayes Lemmerz,
Aluminum Wheels S.p.A., Hayes Lemmerz Barcelona S.A.
and Hayes Lemmerz Belgie N.V. since
June 1997; Managing Director,
Director and General Manager of
Hayes Lemmerz, S.p.A., since April
1990, 1985 and 1981, respectively.
Managing Director of Hayes Lemmerz
Barcelona, S.A., since October 1992
Klaus Junger.......... Vice President -- 42 June 1997 Executive Vice President Finance of
President, European Lemmerz, June 1993 to June 1997;
Fabricated Wheels Managing Director of Hayes Lemmerz
Holding GmbH since June 1997 and of
Hayes Lemmerz Werke KGaA from May
1995 to June 1997; Group Director
Finance of Lemmerz Werke KGaA, July
1990 to June 1993
Larry Karenko......... Vice President -- Human 47 October Federal Mogul Corporation: Group
Resources 1994 Human Resources Manager, Chassis
Products Operation, August 1993 to
October 1994; Group Human Resources
Manager, Powertrain Products
Operation, August 1992 to August
1993.
Ronald L.
Kolakowski.......... Vice President -- 51 November Plant Manager, Sedalia Plant, June
President, North 1995 1993 to October 1995. Vice
American Aluminum President, U.S. Operations for Acco
Wheels Controls Group -- Babcock
Industries, January 1990 to May
1993.
William S. Linski..... Vice President -- 51 November Chairman, Supervisory Board of
President, North 1993 Autokola since October 1993. Vice
American Fabricated President, Oper-
Wheels ations -- Fabricated Wheels, October
1992 to October 1993.
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
DATE OF
NAME TITLE AGE APPOINTMENT EXPERIENCE
---- ----- --- ----------- ----------
<S> <C> <C> <C> <C>
Michael C. McGrath.... Vice President -- 52 February Vice President and General Manager,
President, Commercial 1994 Kelsey-Hayes Parts Division,
Highway and Aftermarket February 1990 to January 1994
Services Division
Daniel M. Sandberg.... Vice President -- 38 March 1994 Director of Autokola since Decem-
International ber 1996. Director of Hayes Lemmerz,
Operations, General S.p.A. since September 1994.
Counsel and Secretary Executive Vice President and General
Counsel, Kelter-Thorner, Inc.,
October 1990 to March 1994. General
Counsel and Secretary, Meadowdale
Foods, Inc., prior to October 1990.
William D. Shovers.... Vice President -- Chief 44 February Director of Autokola since October
Financial Officer 1993 1993. Director of Hayes Lemmerz,
S.p.A. since February 1993; Vice
President -- Finance, Monroe
Equipment Co., a division of Ten-
neco Automotive Co., November 1989
to January 1993.
</TABLE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company had 30,090,845 shares of Common Stock outstanding and 102
record holders as of April 21, 1998. The Company's shares are traded on the The
New York Stock Exchange ("NYSE") under the symbol "HAZ". Set forth below are the
high and low sales prices for the Company's Common Stock as reported on the NYSE
(and prior to December 18, 1997, the Nasdaq National Market System) for each
quarterly period since July 2, 1996, the date of the Recapitalization. All
prices were restated to reflect the 2-for-1 stock split effected in the form of
a 100% stock dividend paid on January 6, 1997, to stockholders of record on
December 20, 1996.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL YEAR ENDED JANUARY 31, 1998
Quarter ended January 31, 1998............................ 33.750 23.750
Quarter ended October 31, 1997............................ 37.750 30.500
Quarter ended July 31, 1997............................... 32.000 21.000
Quarter ended April 30, 1997.............................. 24.500 18.750
FISCAL YEAR ENDED JANUARY 31, 1997
Quarter ended January 31, 1997............................ 22.750 16.625
Quarter ended October 31, 1996............................ 16.875 13.875
July 2, 1996 through July 31, 1996........................ 16.000 14.750
</TABLE>
Since the Motor Wheel Transactions and the Recapitalization, the Company
has not paid dividends on its Common Stock and does not intend to pay dividends
in the foreseeable future.
17
<PAGE> 18
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data with
respect to the Company for the five fiscal years ended January 31, 1998. The
information set forth below should be read in conjunction with the Company's
Consolidated Financial Statements and Notes to Consolidated Financial Statements
filed herewith, beginning at page F-1.
<TABLE>
<CAPTION>
(AMOUNTS IN MILLIONS, EXCEPT SHARE AMOUNTS) YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31,
1994 1995 1996 1997 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................................ $428.2 $537.6 $611.1 $ 778.2 $1,269.8
Depreciation and amortization............ 24.8 29.6 32.7 47.6 71.2
Interest expense, net.................... 13.6 13.4 15.0 48.5 90.4
Earnings (loss) before cumulative effect
of changes in accounting principles
and extraordinary loss................ 24.6 29.9 28.4 (65.5) 31.4
Cumulative effect of change in accounting
principles............................ (24.6) -- -- -- --
Extraordinary loss....................... -- -- -- 7.4 --
------ ------ ------ -------- --------
Net income (loss)........................ $ -- $ 29.9 $ 28.4 $ (72.9) $ 31.4
====== ====== ====== ======== ========
BALANCE SHEET DATA:
Total assets............................. $527.6 $589.6 $633.9 $1,183.1 $1,758.9
Long-term debt........................... 104.0 112.7 129.0 710.2 897.0
Stockholders' equity (deficit)........... 184.8 216.4 245.4 (41.1) 161.5
COMMON STOCK DATA:
Basic net income (loss) before cumulative
effect of change in accounting
principles and extraordinary loss..... $ 0.70 $ 0.85 $ 0.81 $ (2.36) $ 1.19
Cumulative effect of change in accounting
principles............................ (0.70) -- -- -- --
Extraordinary loss, net of tax........... -- -- -- (0.27) --
------ ------ ------ -------- --------
Basic net income (loss) per share........ $ -- $ 0.85 $ 0.81 $ (2.63) $ 1.19
====== ====== ====== ======== ========
Diluted net income (loss) per share...... $ -- $ 0.85 $ 0.81 $ (2.63) $ 1.12
====== ====== ====== ======== ========
Dividends declared per share............. $ 0.03 $ 0.03 $ 0.03 $ 0.015 --
Average shares outstanding (in
thousands)............................ 35,148 35,148 35,148 27,703 26,512
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Sales of the Company's wheels and brake components produced in North
America are directly affected by the overall level of passenger car, light truck
and commercial highway vehicle 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 1997 Compared to Fiscal 1996
The Company's net sales for fiscal 1997 were $1,269.8 million, an increase
of $491.6 million or 63.2% as compared to net sales for fiscal 1996. This
increase was due to the additional sales contributed by Motor Wheel which was
acquired effective July 2, 1996, the additional sales contributed by Lemmerz
which was acquired effective June 30, 1997, increased volume in both the North
American and European Aluminum Wheel groups and increased sales in the
Commercial Highway business. This increase was partially offset by lower selling
prices due to the pass through of lower raw material costs, the negative effects
of strikes at General Motors and Chrysler Corporation and lower exchange rates
in Europe.
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<PAGE> 19
The Company's gross profit for fiscal 1997 increased to $216.1 million or
17.0% of net sales as compared to $103.0 million or 13.2% of net sales for
fiscal 1996. The increase in margin was due to the increased revenues, strong
productivity in all the Company's European operations and the North American
Aluminum Wheel group and positive results related to the capacity
rationalization programs in the North American Fabricated Wheels group. Gross
profit in the second quarter of fiscal 1996 included the write-down of certain
assets and inefficiencies in former Motor Wheel facilities that were either
being prepared for closure or were undergoing major restructurings.
Marketing, general and administrative expenses were $52.5 million or 4.1%
of net sales for fiscal 1997 as compared to $28.8 million or 3.7% of net sales
for fiscal 1996, an increase of $23.7 million. This increase was due to
additional costs as a result of both the Motor Wheel Transactions and the
Lemmerz Acquisition. The Company believes marketing, general and administrative
costs will improve as a percent of net sales due to savings recognized as a
result of the Motor Wheel Transactions synergies and the expected savings to be
realized as a result of the Lemmerz Acquisition.
Engineering and product development costs increased by $4.5 million in
fiscal 1997 as compared to fiscal 1996, however, these costs remained at 0.9% of
net sales. The Company believes that engineering and product development costs
as a percent of net sales will improve even as engineering and product
development expenses increase to successfully launch new products.
Amortization of intangible assets increased by $5.6 million to $12.7
million in fiscal 1997. This increase was due to the increased goodwill
recognized as a result of the Motor Wheel Transactions and the Lemmerz
Acquisition.
Other income increased by $6.3 million in fiscal 1997 versus fiscal 1996.
This increase was due to the recognition of a gain on the sale of the Company's
Romulus, Michigan facility and the receipt of approximately $1.0 million as a
favorable settlement related to litigation involving a property owned by Motor
Wheel prior to the Motor Wheel Transactions.
In fiscal 1996, nonrecurring charges of $115.4 million consisted of a
one-time charge for the closing of the Company's Romulus, Michigan facility of
$109.0 million, elimination of $2.9 million of deferred costs resulting from a
previous patent infringement suit with Motor Wheel and $3.5 million of stock
compensation recorded in conjunction with the payout of the management stock
option plan. The Company did not incur any nonrecurring charges in fiscal 1997.
Interest expense was $90.4 million for fiscal 1997, an increase of $41.9
million over fiscal 1996. This increase was due to the increase in debt as a
result of the Motor Wheel Transactions, the recapitalization of the Company and
the Lemmerz Acquisition.
The extraordinary loss for bond defeasance in fiscal 1996 represented the
redemption premium and unamortized debt issue costs related to the 9 1/4% Senior
Notes due 2002, of which $98.5 million principal amount was retired as part of
the Company's recapitalization. The Company did not incur any extraordinary
items in fiscal 1997.
Fiscal 1996 Compared to Fiscal 1995
The Company's net sales for fiscal 1996 increased by $167.1 million or
27.0% as compared to fiscal 1995. This increase was attributable to the
additional sales contributed by Motor Wheel which was acquired effective July 2,
1996 and increased volume in North America. These results were partially offset
by the General Motors strikes during the first, third and fourth quarters and
lower selling prices due to the pass-through of lower aluminum prices.
The Company's gross profit for fiscal 1996 increased to $103.0 million or
13.2% of net sales, compared with $97.7 million or 16.0% of net sales for fiscal
1995. The decrease in margin percentage was attributable to: (i) the write-down
of certain assets during the second quarter; (ii) inefficiencies in former Motor
Wheel plants that are either being prepared for or are undergoing major
restructuring; and (iii) production losses resulting from the General Motor
strikes.
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<PAGE> 20
Marketing, general and administrative expenses were $6.2 million higher for
fiscal 1996 as compared with fiscal 1995. However, these costs decreased from
4.9% of net sales for fiscal 1995 to 4.6% of net sales for the current year due
to synergies being recognized as a result of the consolidation of the Hayes
Wheels and Motor Wheel headquarters.
Engineering and product development expenses increased $2.5 million for
fiscal 1996 versus fiscal 1995. This increase is due to additional engineering
and product development costs related to new product lines acquired as a result
of the merger and a decrease in recovery on engineering expenses related to the
timing of new programs.
Other income increased by $3.0 million for fiscal 1996 versus fiscal 1995.
This increase is due to the recognition of a gain on the sale of the Company's
7.0% equity investment in Central Manufacturing Company located in Kentucky,
sale of molds and low pressure machines in the Company's European operations and
effects of currency exchange on transactions.
Nonrecurring charges of $115.4 million consisted of a one-time charge for
the closing of the Company's Romulus, Michigan facility of $109.0 million,
elimination of $2.9 million of deferred costs resulting from a previous patent
infringement suit with Motor Wheel and $3.5 million of stock compensation
recorded in conjunction with the payout of the management stock option plan. The
Romulus plant closure consisted of three main areas; (i) $63 million related to
the writedown of assets to their estimated realizable value based on the decline
in the steel wheel market since 1989 and the merger with Motor Wheel. This
reserve reflects the writedown of excess land, buildings and equipment to fair
value, as well as the writedown of certain tooling and goodwill; (ii) $25
million for estimated employee costs associated with pension and postretirement
benefits. As a result of the current contract related to the closing, additional
employees qualify for retirement benefits necessitating additional pension and
retiree medical liabilities; and (iii) $21 million for estimated termination
benefits, costs to shutdown the facility and other miscellaneous costs.
Interest expense increased to $48.5 million for fiscal 1996, an increase of
$33.5 million from fiscal 1995. This change was primarily caused by increased
debt as a result of the acquisition of Motor Wheel and the recapitalization of
the Company and higher bank fees and interest rates associated with this new
debt.
The extraordinary loss for bond defeasance represented the redemption
premium and unamortized debt issue costs related to the 9 1/4% Senior Notes due
2002, of which $98.5 million principal amount was retired as part of the
Company's recapitalization.
Capital Resources and Liquidity
The Company's operations provided $94.7 million in cash during fiscal 1997,
an increase of $23.5 million over fiscal 1996. This increase was due to improved
operating results and an increase in the Company's deferred tax liability
resulting from net operating loss carryforwards in many of the Company's
worldwide operations.
Capital expenditures for fiscal 1997 were $90.9 million. These capital
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(TM) wheels. The Company anticipates capital expenditures for
fiscal 1998 will be approximately $112 million relating principally to new
vehicle platforms, cost reduction programs and maintenance.
The Company is party to an amended credit agreement dated June 30, 1997
(the "Amended Credit Agreement") with Canadian Imperial Bank of Commerce
("CIBC") and Merrill Lynch Capital Corporation ("Merrill Capital"), as managing
agents. Pursuant to the Amended Credit Agreement, after giving effect to the
Lemmerz Transactions, among other things, a syndicate of lenders have agreed to
lend to the Company up to $470.5 million in the form of a senior secured term
loan facility, such aggregate amount being allocated among (i) a Tranche A-1
Term Loan facility in an aggregate principal amount of up to $173.0 million,
(ii) a Tranche A-2 term Loan Facility in an aggregate principal amount of up to
$100 million, (iii) a Tranche B Term Loan facility in an aggregate principal
amount of up to $109.0 million and (iv) a Tranche C Term Loan
20
<PAGE> 21
facility in an aggregate principal amount of up to $88.5 million, and up to $270
million in the form of a senior secured revolving credit facility. Such term
loan facilities and revolving facility are guaranteed by the Company and all of
its existing and future material domestic subsidiaries. Such term loan
facilities and revolving facility 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 material domestic
subsidiaries and 65% of the shares of certain of the Company's existing and
future foreign subsidiaries. As of January 31, 1998, there was $196.4 million
outstanding under the term loan facilities and $231.7 million available under
the revolving facility.
In connection with the Motor Wheel Transactions, the Company issued and
sold $250 million in principal amount of 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. The Company also retired $98.5 million
principal amount of its 9 1/4% Senior Notes due 2002 and Motor Wheel redeemed
all of its 11 1/2% Senior Notes due 2000 ($125 million principal amount) and
repaid and terminated its revolving credit facility.
In connection with the Lemmerz Acquisition, the Company issued and sold
$400 million in principal amount of 9 1/8% Senior Subordinated Notes due 2007
(the "9 1/8% Notes") in two offerings under Rule 144A of the Securities Act
which closed June 30, 1997 ($250 million aggregate principal amount, the
proceeds of which were used to finance the Lemmerz Acquisition and refinance
certain indebtedness under the Amended Credit Agreement) and July 22, 1997 ($150
million aggregate principal amount, the proceeds of which were used to refinance
certain indebtedness under the Amended Credit Agreement). The 9 1/8% Notes are
general unsecured obligations of the Company ranking pari passu with the 11%
Notes and are guaranteed by certain of the same domestic subsidiaries of the
Company as guaranteed the 11% Notes. In connection with the Lemmerz Acquisition,
the Amended Credit Agreement and the issuance of the 9 1/8% Notes, the Company
also retired $200 million principal amount of existing term debt under the
Amended Credit Agreement and retired $55 million of outstanding obligations of
Lemmerz.
At January 31, 1998, the Company was in compliance with the various
covenants under the agreements pursuant to which it may borrow money. Management
expects that the Company will remain in material compliance with these covenants
through the period ending January 31, 1999.
The Company's liquidity needs arise primarily from principal and interest
payments under the outstanding indebtedness, and from the funding of capital
expenditures. Principal and interest payments under the Amended Credit Agreement
and interest payments on the 11% Notes and the 9 1/8% Notes will represent
significant liquidity requirements for the Company. With respect to the $196.4
million of indebtedness outstanding under Term Loan Facilities, the Company is
required to make scheduled principal payments of approximately $2.9 million in
1998, $12.4 million in 1999, $20.5 million in 2000, $25.6 million in 2001 and an
aggregate of $135.0 million thereafter. The Revolving Credit Facility will
mature in July 2003. The loans under the Amended Credit Agreement bear interest
at floating rates based upon the interest rate option elected by the Company. In
addition, the Company will have scheduled principal payments under other term
loans of approximately $11.5 million in 1998, $10.7 million in 1999, $9.1
million in 2000, $3.7 million in 2001 and an aggregate of $15.0 million
thereafter.
The Company believes that cash generated from operations, together with
amounts available under the Revolving Credit Facility and any other available
financing sources, will be adequate to permit the Company to meet its debt
service obligations, capital expenditure program requirements, ongoing operating
costs and working capital needs, although no assurance can be given in this
regard. The Company's future operating performance and ability to service or
refinance the 11% Notes and the 9 1/8% Notes and to repay, extend or refinance
the Amended Credit Agreement will be subject to future economic conditions and
to financial, business and other factors, many of which are beyond the Company's
control.
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<PAGE> 22
Other Matters
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 adjusts the sales prices of its aluminum wheels
every three months, if necessary, to reflect fully any increase or decrease in
the price of aluminum. As a result, the Company's net sales of aluminum wheels
are adjusted, although gross profit per wheel is not materially affected.
Aluminum prices remained relatively stable during fiscal 1997. 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. Pricing and purchasing practices are
similar in Europe, but opportunities to recover increased material costs from
customers are more limited than in the United States. These arrangements
typically relate on average up to 50% of the Company's production needs for the
next three to six months.
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 average rates prevailing
during the period) have been affected by the translation values, particularly
those of the Italian lira, Spanish peseta, German mark and Belgian franc. Such
translation adjustments are reported as a separate component of stockholders'
equity. As a result of the Lemmerz Acquisition, an increased percentage of the
Company's revenues are derived from foreign sales (approximately 40% of total
revenues). As a result, foreign exchange rate fluctuations could have an
increased impact on the Company's reported results of operations. However, due
to the self-sustaining nature of the Company's foreign operations (which
maintain their own credit facilities, enter into borrowings and swap agreements
and incur costs in their respective local currencies), the Company believes it
can effectively manage the effect of these currency fluctuations. In addition,
in order to further hedge against such currency rate fluctuations, the Company
has entered into certain foreign currency swap arrangements.
The Company's net sales are continually affected by pressure from its major
customers to reduce prices. The Company's emphasis on reduction of production
costs, increased productivity and improvement of production facilities has
enabled the Company to respond to this pressure.
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 a date 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.
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 in 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 will be adopted by the Company in the
first quarter of fiscal 1998.
During 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
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<PAGE> 23
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 fiscal 1998.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is submitted in the Company's Consolidated
Financial Statements and Notes to Consolidated Financial Statements filed
herewith, beginning at page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information responsive to this Item regarding the directors of the Company
is contained in the Company's definitive Proxy Statement on Schedule 14A for its
Annual Meeting of Stockholders to be held on June 11, 1998 (the "Proxy
Statement"), under the caption "Proposal 1 -- Election of Class 2 Directors,"
which information is incorporated herein by reference. Information regarding the
officers of the Company responsive to this Item 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."
ITEM 11. EXECUTIVE COMPENSATION
The response to this Item is contained in the Proxy Statement under the
captions "Proposal 1 -- Election of Class 2 Directors -- Compensation of
Directors and Related Matters" and "Executive Compensation," which information
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this Item is contained in the Proxy Statement under the
caption "Security Ownership of Certain Beneficial Owners and Management," which
information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Board of Directors of the Company has 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
million or more) is approved by a majority of the Company's directors who are
not employees of or otherwise associated with significant shareholders of the
Company.
Certain additional information regarding this Item is contained in the
Proxy Statement under the caption "Executive Compensation -- Certain Related
Transactions," which information is incorporated herein by reference.
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<PAGE> 24
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 Statements of Operations for the years ended January 31,
1998, 1997 and 1996
(3) Consolidated Balance Sheets at January 31, 1998 and 1997
(4) Consolidated Statements of Changes in Stockholders' Equity (Deficit)
for the years ended January 31, 1998, 1997 and 1996
(5) Consolidated Statements of Cash Flows for the years ended January 31,
1998, 1997 and 1996
(6) Notes to Consolidated Financial Statements
2. Financial Statement Schedules for fiscal 1997, 1996 and 1995
Schedule II Valuation and Qualifying Accounts. All other 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>
(E) 2.1 Agreement and Plan of Merger, dated as of March 28, 1996,
between the Company and MWC Holdings, Inc. ("Holdings").
(H) 2.2 Purchase Agreement, dated as of June 6, 1997, among the
Company, Cromodora Wheels S.p.A., Lemmerz Holding GmbH and
the shareholders of Lemmerz Holding GmbH
(F) 3.1 Restated Certificate of Incorporation of the Company and
Certificate of Correction thereof.
(F) 3.2 Amended and Restated By-Laws of the Company.
(F) 3.3 Certificate of Merger of Holdings into the Company, filed
with the Secretary of State of Delaware on July 2, 1996.
(K) 3.4 Certificate of Amendment to Restated Certificate of
Incorporation of the Company
(A) 4.1 Reference is made to Exhibits 3.1 and 3.2.
(B) 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.
(B) 4.3 Form of Senior Note issued pursuant to the Indenture filed
as Exhibit 4.2 hereto.
(F) 4.4 First Supplemental Indenture, dated as of June 20, 1996, to
the Indenture filed as Exhibit 4.2.
(F) 4.5 Second Supplemental Indenture, dated as of June 26, 1996, to
the Indenture filed as Exhibit 4.2.
(E) 4.6 Form of Subscription Agreement between the Company and the
New Investors.
(I) 4.7 Indenture, dated as of June 30, 1997, among the Company, as
issuer, certain subsidiaries, as guarantors, and The Bank of
New York as Trustee
(J) 4.8 Registration Rights Agreement, dated as June 30, 1997, among
the Company, certain subsidiaries, CIBC Wood Gundy
Securities Corp., Merrill Lynch Pierce Fenner & Smith
Incorporated, Bear, Stearns & Co. Inc., Morgan Stanley & Co.
Inc. and Salomon Brothers Inc.
(J) 4.9 Indenture, dated as of July 22, 1997, among the Company, as
issuer, certain subsidiaries, as guarantors, and The Bank of
New York as Trustee
</TABLE>
24
<PAGE> 25
<TABLE>
<S> <C> <C>
(J) 4.10 Registration Rights Agreement, dated as July 22, 1997, among
the Company, certain subsidiaries, CIBC Wood Gundy
Securities Corp. and Merrill Lynch Pierce Fenner & Smith
Incorporated.
(A) 10.1 Management Services Agreement between the Company and K-H
Corporation ("K-H").
(A) 10.2 Tax Sharing Agreement among the Company, Kelsey-Hayes
Company and K-H.
(B) 10.3 Conveyance and Transfer Agreement, dated as of December 15,
1992, between the Company and Kelsey-Hayes Company.
(A) 10.4 Lease Agreement between the Company and K-H Corporation.
(A) 10.5 Michigan Workers' Compensation Claims Payment Guarantee
between the Company and Kelsey-Hayes Company.
(A) 10.6* 1992 Incentive Stock Option Plan.
(A) 10.7* Long-Term Savings Plan.
(A) 10.8 Non-competition Agreement between the Company and Varity
Corporation.
(A) 10.9* Employment Agreement, dated February 1, 1993, between Hayes
Wheels, S.p.A. and Giancarlo Dallera.
(B) 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").
(C) 10.11 Amendment No. 1, dated August 17, 1993, to the Joint Venture
Agreement.
(C) 10.12 Amendment No. 2, dated October 26, 1993, to the Joint
Venture Agreement.
(C) 10.13 Project Funds Agreement, dated November 12, 1993, between
Hayes Wheels Autokola NH, a.s. ("Autokola"), the Company and
International Finance Corporation ("IFC").
(C) 10.14 Fee Clawback Agreement, dated November 12, 1993, between
Autokola, the Company and IFC.
(C) 10.15 Subordination Agreement, dated November 12, 1993, between
Autokola, NH, the Company and IFC.
(C) 10.16 Investment Agreement, dated November 12, 1993, between
Autokola and IFC.
(A) 10.17* Employee Benefits Agreement.
(D) 10.18* Severance Agreements, each dated November 6, 1995, between
the Company and its officers and certain employees.
(E) 10.21 Registration Rights Agreement, dated as of March 28, 1996,
among the Company, Varity Corporation and K-H Corporation.
(F) 10.22 Form of Indemnification Agreement between the Company and
each of its directors (filed as Exhibit B to the
Stockholders' Agreement filed as Exhibit 2.2).
(G) 10.23* First Amendment to Employment Agreement, dated June 6, 1996,
between Hayes Wheels, S.p.A. and Giancarlo Dallera.
(H) 10.24 Consulting Agreement, dated as of June 6, 1997, between the
Company and H.K.L., L.L.C.
(H) 10.25 Consulting Agreement, dated as of June 6, 1997, between the
Company and Horst Kukwa-Lemmerz
(I) 10.26 Amended and Restated Stockholders' Agreement, dated as of
June 30, 1997, among the Company, Joseph Littlejohn & Levy
Fund II, L.P., Chase Equity Associates, CIBC WG Argosy
Merchant Fund 2, L.L.C., Nomura Holding America, Inc. and
TSG Capital Fund II, L.P. and the shareholders of Lemmerz
Holding GmbH
(I) 10.27 Amended and Restated Credit Agreement, dated as of June 30,
1997, among the Company, the several banks and financial
institutions from time to time parties thereto, Canadian
Imperial Bank of Commerce, Merrill Lynch Capital Corporation
and Dresdner Bank A.G.
(L) 10.28* Managing Director's Service Agreement, dated September 25,
1997, between Hayes Lemmerz Holding GmbH and Klaus Junger
</TABLE>
25
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<TABLE>
<S> <C> <C>
(L) 12 Computation of Ratios.
(L) 22.1 Subsidiaries of the Company.
(L) 23 Consent of KPMG Peat Marwick LLP.
(G) 24 Powers of Attorney.
(L) 27 Financial Data Schedule.
</TABLE>
- ---------------
LEGEND FOR EXHIBITS
(A) 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.
(B) 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.
(C) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended October 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, 1995, filed with the SEC.
(E) Incorporated by reference from the Company's Current Report on Form 8-K,
dated March 28, 1996, filed with the SEC.
(F) Incorporated by reference from the Company's Current Report on Form 8-K,
dated July 2, 1996, filed with the SEC.
(G) Incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal Year Ended January 31, 1997, filed with the SEC.
(H) Incorporated by reference from the Company's Current Report on Form 8-K,
dated June 6, 1997, filed with the SEC.
(I) Incorporated by reference from the Company's Current Report on Form 8-K,
dated June 30, 1997, filed with the SEC.
(J) Incorporated by reference from the Company's Registration Statement No.
333-34319 on Form S-4, filed with the SEC on August 24, 1997, as amended.
(K) Incorporated by reference from the Company's Registration Statement on Form
8-A, filed with the SEC on November 14, 1997.
(L) Filed herewith.
* 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, 1998.
26
<PAGE> 27
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 24th day of April, 1998.
HAYES LEMMERZ 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/ RANKO CUCUZ Chairman of the Board of
- ------------------------------------------------ Directors; Chief Executive Officer
Ranko Cucuz and Director April 24, 1998
/s/ WILLIAM D. SHOVERS Vice President -- Finance and
- ------------------------------------------------ Chief Financial Officer April 24, 1998
William D. Shovers
/s/ D. N.VERMILYA Corporate Controller and Chief
- ------------------------------------------------ Accounting Officer April 24, 1998
D. N. Vermilya
/s/ CLEVELAND A. CHRISTOPHE* Director April 24, 1998
- ------------------------------------------------
Cleveland A. Christophe
/s/ TIMOTHY J. CLARK* Director April 24, 1998
- ------------------------------------------------
Timothy J. Clark
/s/ ANDREW R. HEYER* Director April 24, 1998
- ------------------------------------------------
Andrew R. Heyer
/s/ HORST KUKWA-LEMMERZ* Director April 24, 1998
- ------------------------------------------------
Horst Kukwa-Lemmerz
/s/ PAUL S. LEVY* Director April 24, 1998
- ------------------------------------------------
Paul S. Levy
/s/ JEFFREY LIGHTCAP* Director April 24, 1998
- ------------------------------------------------
Jeffrey Lightcap
/s/ WIENAND MEILICKE* Director April 24, 1998
- ------------------------------------------------
Wienand Meilicke
</TABLE>
27
<PAGE> 28
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JOHN S. RODEWIG* Director April 24, 1998
- ------------------------------------------------
John S. Rodewig
/s/ DAVID YING* Director April 24, 1998
- ------------------------------------------------
David Ying
*By /s/ PATRICK B. CAREY
- -----------------------------------------------
Patrick B. Carey
Attorney-in-fact
</TABLE>
28
<PAGE> 29
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
HAYES LEMMERZ INTERNATIONAL, INC.
Independent Auditors Report................................. F-2
Consolidated Statements of Operations....................... F-3
Consolidated Balance Sheets................................. F-4
Consolidated Statements of Changes in Stockholders' Equity
(Deficit)................................................. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 30
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Hayes Lemmerz International, Inc.
We have audited the accompanying consolidated balance sheets of Hayes Lemmerz
International, Inc. and subsidiaries as of January 31, 1998 and 1997, and the
related consolidated statements of operations, changes in stockholders' equity
(deficit), and cash flows for each of the years in the three year period ended
January 31, 1998. 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 Lemmerz
International, Inc. and subsidiaries as of January 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three year-period ended January 31, 1998, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
Detroit, Michigan
February 27, 1998
F-2
<PAGE> 31
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31, JANUARY 31,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net sales................................................... $1,269.8 $ 778.2 $611.1
Cost of goods sold.......................................... 1,053.7 675.2 513.4
-------- ------- ------
Gross profit........................................... 216.1 103.0 97.7
Marketing, general and administration....................... 52.5 28.8 27.1
Engineering and product development......................... 11.7 7.2 4.7
Amortization of intangible assets........................... 12.7 7.1 2.6
Equity in loss of unconsolidated subsidiaries............... 4.5 2.5 --
Other income, net........................................... (10.8) (4.5) (1.5)
Nonrecurring charges (Note 10).............................. -- 115.4 3.6
-------- ------- ------
Earnings (loss) from operations........................ 145.5 (53.5) 61.2
Interest expense, net....................................... 90.4 48.5 15.0
-------- ------- ------
Earnings (loss) before taxes on income, minority
interest and extraordinary loss...................... 55.1 (102.0) 46.2
Income tax (benefit) provision (Note 6)..................... 23.2 (36.7) 17.8
-------- ------- ------
Earnings (loss) before minority interest and
extraordinary loss................................... 31.9 (65.3) 28.4
Minority Interest........................................... 0.5 0.2 --
-------- ------- ------
Earnings (loss) before extraordinary loss.............. 31.4 (65.5) 28.4
Extraordinary loss, net of tax of $4.9 (Note 7)............. -- 7.4 --
-------- ------- ------
Net income (loss)...................................... $ 31.4 $ (72.9) $ 28.4
======== ======= ======
Basic net income (loss) per share:
Income (loss) before extraordinary loss................ $ 1.19 $ (2.36) $ 0.81
Extraordinary loss, net of tax......................... -- (0.27) --
-------- ------- ------
Basic net income (loss) per share........................... $ 1.19 $ (2.63) $ 0.81
======== ======= ======
Diluted net income (loss) per share......................... $ 1.12 $ (2.63) $ 0.81
======== ======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 32
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
ASSETS 1998 1997
------ ----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 23.1 $ 47.5
Receivables (less allowance of $4.3 million at January 31,
1998 and $2.2 million at January 31, 1997)............. 217.8 145.2
Inventories (Note 3)...................................... 131.5 82.9
Prepaid expenses and other................................ 10.0 13.9
-------- --------
Total current assets................................... 382.4 289.5
Property, plant and equipment:
Land...................................................... 15.6 20.1
Buildings................................................. 154.7 98.0
Machinery and equipment................................... 622.3 515.2
-------- --------
792.6 633.3
Accumulated depreciation.................................. (122.2) (146.9)
-------- --------
Net property, plant and equipment...................... 670.4 486.4
Goodwill and other assets (Note 4).......................... 706.1 407.2
-------- --------
Total assets.............................................. $1,758.9 $1,183.1
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
- ------------------------------------------------------------
Current liabilities:
Bank borrowings (Note 7).................................. $ 23.6 $ 5.6
Current portion of long-term debt (Note 7)................ 14.4 23.9
Accounts payable and accrued liabilities (Notes 5 and
11).................................................... 334.9 244.8
-------- --------
Total current liabilities.............................. 372.9 274.3
Noncurrent liabilities:
Long-term debt, net of current portion (Note 7)........... 882.6 686.3
Deferred income taxes (Note 6)............................ 34.8 --
Minority interest......................................... 5.6 8.3
Pension and other long-term liabilities (Notes 9 and
10).................................................... 301.5 255.3
-------- --------
Total noncurrent liabilities........................... 1,224.5 949.9
Commitments and contingencies (Notes 7, 8, 9 10 and 11)
Stockholders' equity (deficit) (Note 13):
Preferred Stock, 25,000,000 shares authorized, none issued
or outstanding......................................... -- --
Common stock, par value $0.01 per share:
Voting -- authorized 99,000,000; issued and
outstanding, 27,439,419 at January 31, 1998 and
22,241,492 at January 31, 1997........................ 0.3 0.2
Nonvoting -- authorized 5,000,000; issued and
outstanding, 2,649,026 at January 31, 1998 and 149,026
at January 31, 1997................................... -- --
Additional paid-in capital................................ 229.4 43.6
Accumulated deficit....................................... (50.8) (82.2)
Cumulative translation adjustment......................... (17.4) (0.5)
Pension liability adjustment.............................. -- (2.2)
-------- --------
Total stockholders' equity (deficit)................... 161.5 (41.1)
-------- --------
Total liabilities and stockholders' equity (deficit)... $1,758.9 $1,183.1
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 33
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED JANUARY 31, 1998, 1997, 1996
(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 TOTAL
------ ----- ---------- --------- ----------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 31,
1995..................... 35,148,000 $ 0.4 $ 198.3 $ 22.3 $ (2.2) $(2.4) $216.4
Cash dividends ($0.03 per
share)................... -- -- -- (1.1) -- -- (1.1)
Net income................. -- -- -- 28.4 -- -- 28.4
Translation adjustment..... -- -- -- -- 1.9 -- 1.9
Pension adjustment......... -- -- -- -- -- (0.2) (0.2)
----------- ----- ------- ------ ------ ----- ------
Balance, January 31,
1996..................... 35,148,000 0.4 198.3 49.6 (0.3) (2.6) 245.4
Cash dividends ($0.03 per
share)................... -- -- -- (0.5) -- -- (0.5)
Net loss................... -- -- -- (72.9) -- -- (72.9)
Translation adjustment..... -- -- -- -- (0.2) -- (0.2)
Pension adjustment......... -- -- -- -- -- 0.4 0.4
Exercise of options........ 125,718 -- 2.0 -- -- -- 2.0
Recapitalization........... (12,883,200) (0.2) (156.7) (58.4) -- -- (215.3)
----------- ----- ------- ------ ------ ----- ------
Balance, January 31,
1997..................... 22,390,518 0.2 43.6 (82.2) (0.5) (2.2) (41.1)
Net income................. -- -- -- 31.4 -- -- 31.4
Translation adjustment..... -- -- -- -- (16.9) -- (16.9)
Pension adjustment......... -- -- -- -- -- 2.2 2.2
Repurchase of common
stock.................... (20,100) -- (0.6) -- -- -- (0.6)
Exercise of options........ 151,102 -- 2.2 -- -- -- 2.2
Lemmerz Acquisition........ 5,000,000 0.1 108.7 -- -- -- 108.8
Equity offering............ 2,566,925 -- 75.5 -- -- -- 75.5
----------- ----- ------- ------ ------ ----- ------
Balance, January 31,
1998..................... 30,088,445 $ 0.3 $ 229.4 $(50.8) $(17.4) $ -- $161.5
=========== ===== ======= ====== ====== ===== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 34
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31, JANUARY 31,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $ 31.4 $ (72.9) $ 28.4
Adjustments to reconcile net income (loss) to net cash
provided by operations:
Depreciation and tooling amortization................ 51.7 36.6 26.6
Amortization of intangibles.......................... 19.5 11.0 6.1
Increase (decrease) in deferred taxes................ 27.3 (31.5) 7.7
Nonrecurring charges................................. -- 115.4 3.6
Equity in losses of unconsolidated subsidiaries...... 4.5 2.5 --
Extraordinary loss................................... -- 12.3 --
Changes in operating assets and liabilities:
(Increase) decrease in receivables................... (18.3) 3.3 (14.5)
(Increase) decrease in inventories................... (1.8) 4.4 (1.9)
(Increase) decrease in prepaid expenses and other.... 5.6 1.9 (2.4)
Increase in accounts payable and accrued
liabilities........................................ 23.8 15.9 2.9
Decrease in other long-term liabilities.............. (49.0) (27.7) (11.6)
------- ------- ------
Cash provided by operating activities........... 94.7 71.2 44.9
Cash flows from investment activities:
Acquisition of property, plant and equipment......... (90.9) (71.4) (43.4)
Purchase of businesses, net of cash.................. (228.0) -- --
Net cash acquired with joint venture investment...... -- 5.0 --
Investment in joint venture.......................... -- -- (3.2)
Other, net........................................... (8.0) 1.3 (5.8)
------- ------- ------
Cash used in investment activities.............. (326.9) (65.1) (52.4)
Cash flows from financing activities:
Decrease in foreign bank borrowings and loans........ (14.3) (4.1) (6.4)
Retirement of long term debt......................... -- (106.4) --
Retirement of acquired long term debt................ -- (137.7) --
Proceeds from issuance of long term debt............. 500.0 673.5 --
Common stock repurchase.............................. -- (506.1) --
Proceeds from equity infusions, net of costs......... 77.1 185.4 --
Dividends paid to stockholders....................... -- (0.5) (1.1)
Fees paid to issue long term debt.................... (17.0) (35.0) --
Increase (decrease) in bank revolving loan and other
domestic loans..................................... (339.2) (29.5) 16.3
------- ------- ------
Cash provided by financing activities........... 206.6 39.6 8.8
Effect of exchange rate changes on cash and cash
equivalents............................................. 1.2 -- --
------- ------- ------
Increase (decrease) in cash and cash
equivalents................................... (24.4) 45.7 1.3
Cash and cash equivalents at beginning of year............ 47.5 1.8 0.5
------- ------- ------
Cash and cash equivalents at end of year.................. $ 23.1 $ 47.5 $ 1.8
======= ======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 35
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
------------------------------------
(1) ORGANIZATION
Description of Business
Unless otherwise indicated, references to "Company" mean Hayes Lemmerz
International, Inc. and its subsidiaries and references to fiscal year means the
Company's year ended January 31 of the following year (e.g., "fiscal 1997"
refers to the period beginning February 1, 1997 and ending January 31, 1998,
"fiscal 1996" refers to the period beginning February 1, 1996 and ending January
31, 1997 and "fiscal 1995" refers to the period beginning February 1, 1995 and
ending January 31, 1996).
The Company designs, engineers and manufactures steel and aluminum wheels
and brake components, principally to original equipment manufacturers ("OEMs")
of passenger cars, light trucks and commercial highway vehicles worldwide. The
Company's products include one-piece cast aluminum wheels, fabricated aluminum
wheels, fabricated steel wheels, full-faced cast aluminum wheels, clad covered
wheels and brake drums, hubs and rotors.
Acquisitions
On June 30, 1997, the Company completed the acquisition of Lemmerz Holding
GmbH ("Lemmerz") in exchange for payment to the shareholders of Lemmerz of (i)
$200 million in cash and (ii) a total of five million shares of the Company's
Series A Convertible Participating Preferred Stock, par value $0.01 per share,
which, upon receipt of stockholder approval on October 22, 1997, automatically
converted into five million shares of the Company's common stock (the "Lemmerz
Acquisition"). As a result of the Lemmerz Acquisition, Lemmerz become a
subsidiary of the Company. At the Company's annual shareholders meeting held on
October 22, 1997, the Company formally approved the change of its name to Hayes
Lemmerz International, Inc.
The Lemmerz Acquisition was accounted for by the purchase method of
accounting with the results of Lemmerz included from the acquisition date. The
fair value of the assets acquired, including goodwill, was $650.0 million and
liabilities assumed was $330.9 million. Goodwill and other intangibles of $242.4
million are being amortized over a 40-year life on a straight-line basis.
In October, 1996, the Company exercised its right to increase its ownership
in Hayes Wheels Autokola NH a.s. ("Autokola) from 45% to 58% in consideration
for a cash contribution of $6.0 million. As a result of the increased ownership,
financial results for Autokola have been included in the consolidated financial
statements of the Company since November, 1996. In November 1997, the Company
purchased the remaining 42% ownership of Autokola from Nova Hut for $13.0
million.
On July 2, 1996, the Company consummated a merger between MWC Holdings,
Inc. ("Holdings") and the Company, pursuant to which, among other things,
Holdings was merged with and into the Company, with the Company as the surviving
corporation (the "Motor Wheel Merger"). As a result of the Motor Wheel Merger,
Motor Wheel Corporation ("Motor Wheel"), a wholly owned subsidiary of Holdings,
became a wholly owned subsidiary of the Company.
The Company acquired Holdings for a total purchase price of approximately
$105.4 million, which included (i), the issuance of 6,250,000 shares of new
common stock, and (ii) 2,300,000 warrants. The merger was accounted for under
the purchase method of accounting with the results of operations of Motor Wheel
included in the accompanying financial statements from the date of the Motor
Wheel Merger. The fair value of the assets acquired, including goodwill, was
$420.8 million and liabilities assumed was $315.4 million. Goodwill and other
intangibles of $224.5 million are being amortized over a 40-year life on a
straight-line basis.
F-7
<PAGE> 36
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
------------------------------------
(1) ORGANIZATION -- (CONTINUED)
On August 28, 1997, the Company completed the acquisition of the assets of
Bosch Braking Systems Corporation's heavy-duty hub and drum and medium- and
heavy-duty steel wheel businesses for $17.5 million
Debt and Equity Offerings
Effective August 26, 1997, the Company issued and sold to the public
2,566,925 shares of common stock at a price of $31.50 per share. The net
proceeds to the Company of such sale of shares were $29.925 per share after
giving effect to the underwriting discount and commissions, which proceeds were
used to repay existing indebtedness of the Company. Concurrently with the
Company's offering, certain stockholders of the Company sold 1,779,502 shares of
common stock at a price of $31.50 per share ($29.925 per share after giving
effect to the underwriting discount and commissions).
In connection with the Lemmerz Acquisition, the Company entered into an
amended and restated credit agreement dated June 30, 1997, under which the
Company increased its term loan facilities to $470.5 million and its revolving
credit facility to $270.0 million. Additionally the Company issued and sold $400
million 9 1/8% Senior Subordinated Notes due in 2007 (the "9 1/8% Notes"). See
Note 7 for additional disclosure.
On December 6, 1996, the Company's Board of Directors declared a stock
split to be effected in the form of a stock dividend, which resulted in the
issuance of one additional share of the Company's common stock for every
outstanding share of common stock. All share information included in the
accompanying financial statements and footnote information has been adjusted to
reflect the effect of such stock split.
Immediately prior to the Motor Wheel Merger and as part of the financing
thereof, the Company issued and sold to certain new investors (i) an aggregate
of 200,000 shares of Preferred Stock, which upon consummation of the Motor Wheel
Merger were converted into an aggregate of 12,500,000 shares of new common
stock, and (ii) 300,000 warrants, in exchange for aggregate cash consideration,
net of related costs, of $185.4 million (the "Recapitalization"). The Company
also issued new long-term debt totaling $673.5 million which was utilized along
with the equity infusion to (i) retire $106.4 million principal amount plus
redemption premium of the Company's 9 1/4% Senior Notes due 2002; (ii) retire
all existing senior debt of Motor Wheel at the time of the acquisition; and
(iii) repurchase 31,633,200 shares of the Company's common stock. The Company
also suspended the payment of cash dividends effective with the
Recapitalization.
Unaudited Pro Forma Data
The following unaudited pro forma financial data illustrates the estimated
effects as if the Motor Wheel Merger and Recapitalization, the Lemmerz
Acquisition, issuance of 9 1/8% Notes and the equity offering had been completed
as of the beginning of the periods presented, after including the impact of
certain adjustments,
F-8
<PAGE> 37
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
------------------------------------
(1) ORGANIZATION -- (CONTINUED)
such as amortization, depreciation, interest expense and the related income tax
effects (dollars in millions, except per share amounts):
<TABLE>
<CAPTION>
UNAUDITED
-----------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31, JANUARY 31,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net sales...................................... $1,455.9 $1,373.0 $1,427.4
Earnings (loss) from operations................ 160.9 (11.9) 111.7
Net income (loss).............................. 34.1 (79.7) 4.5
Diluted net income (loss) per common share..... $1.07 $(2.65) $0.15
</TABLE>
The pro forma results are not necessarily indicative of the actual results
if the transactions had been in effect for the entire period 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.
(2) SUMMARY OF SIGNIFICANT 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
joint ventures 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, 1998, 1997 and 1996, respectively, were not material to the
consolidated financial statements of the Company.
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, which were approximately 68 percent and 48 percent
of inventories at January 31, 1998 and 1997, 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.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation 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:
<TABLE>
<S> <C>
Buildings................................................... 25 years
Machinery and equipment..................................... 12 to 14 years
</TABLE>
Expenditures for maintenance, repairs and minor replacements of $45.7
million, $28.1 million and $22.8 million for the years ended January 31, 1998,
1997 and 1996, respectively, were charged to expense as incurred.
F-9
<PAGE> 38
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
------------------------------------
(2) SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES -- (CONTINUED)
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 straight line
basis over a five year period or the estimated useful life, whichever is
shorter.
Goodwill
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over 40 years.
Recoverability is reviewed whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. Recoverability is then
determined by comparing the undiscounted net cash flows of the assets to which
the goodwill applies to the net book value of those assets, including goodwill.
Research and Development Costs
Research and development costs are expensed as incurred. Amounts expensed
during the years ended January 31, 1998, 1997 and 1996, were approximately $2.9
million, $3.1 million and $2.3 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. The fair value of fixed rate debt,
interest rate cap agreements and cross-currency interest rate swap agreements is
discussed in Note 7.
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 interest rate cap agreements to minimize the
impact of increases in interest rates. The costs of interest rate cap agreements
are included in interest expense ratably over the lives of the agreements. The
unamortized costs of the cap agreements are included in other assets and
approximate fair value.
The Company has global operations and enters into forward exchange
contracts to hedge certain of its foreign currency commitments. Gains and losses
from changes in exchange rates on these contracts are deferred and recognized in
income when the hedged transaction is settled. The Company also uses cross-
currency interest rate swap agreements to hedge a portion of the Company's net
investments in foreign subsidiaries. Related foreign exchange gains and losses
on the notional principal amount are included in the cumulative translation
adjustment component of stockholders' equity.
F-10
<PAGE> 39
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
------------------------------------
(2) SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES -- (CONTINUED)
Foreign Currency Translation
Translation of assets and liabilities of subsidiaries denominated in
foreign currencies 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 Stockholders'
Equity. Foreign currency gains and losses resulting from transactions in foreign
currencies 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
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
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.
Environmental Compliance and Remediation
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. 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. Costs for environmental
compliance and remediation are not material to the consolidated financial
statements as of January 31, 1998, 1997 and 1996.
F-11
<PAGE> 40
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
------------------------------------
(2) SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES -- (CONTINUED)
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,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash paid for interest....................... $ 84.3 $ 40.0 $13.8
Cash paid for income taxes................... 8.5 7.7 12.0
Non-cash financing activity:
Acquisition of Motor Wheel................. -- 105.4 --
Acquisition of Lemmerz..................... 108.8 -- --
</TABLE>
Postretirement and Postemployment Benefits
The Company accounts for postretirement benefits other than pensions using
an accrual basis method of accounting recognizing the cost of these benefits
over an employee's active working career. The Company will continue its policy
of paying postretirement benefits as they become due.
Impairment of Assets
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of" on February 1, 1996. This Statement
requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The adoption of SFAS No. 121
did not have a material effect on the Company's consolidated financial
statements.
Stock-Based Compensation
Prior to February 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
February 1, 1996, the Company adopted SFAS No. 123 Accounting for Stock-Based
Compensation, which allows entities to continue to apply the provisions of APB
Opinion No. 25, however requires disclosures of pro forma net income and pro
forma earnings per share as if employee stock option grants made in 1995 and
future years were treated as compensation expense using the fair-value-based
method defined in SFAS No, 123. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions
of SFAS No. 123. See Note 13.
Earnings per Share
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
F-12
<PAGE> 41
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
------------------------------------
(2) SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES -- (CONTINUED)
computed using only the weighted average shares outstanding, while diluted EPS
is computed considering the dilutive effect of options and warrants.
Net income (loss) per share information has been computed using the new
standard for all periods presented. Shares outstanding for the years ended
January 31, 1998, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Weighted average shares outstanding................... 26,512 27,703 35,148
Dilutive effect of options and warrants............... 1,620 -- --
------ ------ ------
Diluted shares outstanding............................ 28,132 27,703 35,148
====== ====== ======
</TABLE>
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.
Generally assets and liabilities which are subject to estimation and
judgement include asset valuation reserves, pension and post retirement costs,
restructuring reserves, self insurance accruals and environmental remediation
accruals. Management does not believe that the ultimate settlement of any such
assets or liabilities will materially affect the Company's financial position or
future results of operations.
(3) INVENTORIES
The major classes of inventory are as follows (millions of dollars):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1998 1997
----------- -----------
<S> <C> <C>
Raw materials............................................ $ 40.9 $32.0
Work-in-process.......................................... 37.6 21.1
Finished goods........................................... 53.0 29.8
------ -----
Total.................................................. $131.5 $82.9
====== =====
</TABLE>
(4) GOODWILL AND OTHER ASSETS
Goodwill and other assets consist of the following (millions of dollars):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1998 1997
----------- -----------
<S> <C> <C>
Goodwill and other intangibles........................... $557.9 $328.4
Unamortized debt issuance costs.......................... 40.6 29.5
Deferred tax assets...................................... 45.3 18.0
Other.................................................... 62.3 31.3
------ ------
Total.................................................. $706.1 $407.2
====== ======
</TABLE>
Goodwill and other intangibles are presented net of accumulated
amortization of $48.5 million and $35.8 million at January 31, 1998 and 1997,
respectively.
F-13
<PAGE> 42
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
------------------------------------
(5) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following (millions
of dollars):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1998 1997
----------- -----------
<S> <C> <C>
Accounts payable......................................... $241.1 $160.8
Employee costs........................................... 39.2 24.1
Accrued interest......................................... 7.6 7.4
Other accrued liabilities................................ 47.0 52.5
------ ------
Total.................................................. $334.9 $244.8
====== ======
</TABLE>
(6) TAXES ON INCOME
The components of pre-tax income (loss) are as follows (millions of
dollars):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31, JANUARY 31,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
United States................................. $23.6 $(127.6) $34.6
Foreign....................................... 31.5 13.3 11.6
----- ------- -----
$55.1 $(114.3) $46.2
===== ======= =====
</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,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal and State........................... $(5.6) $(15.8) $ 4.5
Foreign..................................... 12.1 4.1 4.0
----- ------ -----
6.5 (11.7) 8.5
Deferred:
Federal and State........................... 15.5 (29.3) 9.4
Foreign..................................... 1.2 (0.6) (0.1)
----- ------ -----
16.7 (29.9) 9.3
Less: Extraordinary items (Note 7)............ -- 4.9 --
----- ------ -----
Taxes on income excluding extraordinary
items.................................... $23.2 $(36.7) $17.8
===== ====== =====
</TABLE>
F-14
<PAGE> 43
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
------------------------------------
(6) TAXES ON INCOME -- (CONTINUED)
A reconciliation of federal income tax computed at the statutory 35% 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,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Federal taxes computed at statutory rate.................... $19.3 $(40.0) $16.2
Increase (decrease) resulting from:
Unrecognized tax benefit from net operating loss
carryforwards.......................................... 0.8 0.8 1.2
Tax benefit from foreign sales corporation................ -- -- (0.5)
Expiring foreign net operating loss....................... -- -- 0.7
Effective tax rate differential on earnings of
consolidated foreign affiliates........................ 4.0 (0.8) (0.4)
Permanent differences resulting from purchase
accounting............................................. 1.9 2.3 0.9
Change in valuation allowance for foreign NOL
carryforward/deferred tax asset........................ (0.8) (0.8) (1.9)
Effect of change in tax rates on deferred tax balance..... (3.0) -- --
All other items........................................... 1.0 (3.1) 1.6
----- ------ -----
Income tax expense (benefit)........................... $23.2 $(41.6) $17.8
===== ====== =====
</TABLE>
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,
1998 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Nondeductible accrued liabilities...................... $ 90.8 $103.1
Net operating loss and tax credit carryforwards........ 57.0 24.3
Pension................................................ 12.8 9.0
Other.................................................. 2.6 --
Inventory.............................................. 2.5 --
------- ------
Total gross deferred tax assets..................... 165.7 136.4
Less valuation allowance............................... (19.9) (19.7)
------- ------
Net deferred tax assets............................. 145.8 116.7
Deferred tax liabilities:
Fixed assets, principally due to differences in
depreciation........................................ (102.8) (90.9)
Intangibles............................................ (25.8) (7.8)
Inventory.............................................. (3.5) --
All other items........................................ (3.2) --
------- ------
Total gross deferred tax liabilities................ (135.3) (98.7)
------- ------
Net deferred tax asset (liabilities)................ $ 10.5 $ 18.0
======= ======
</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 which expire through the year 2012. The subsequent recognition of
tax benefits
F-15
<PAGE> 44
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
------------------------------------
(6) TAXES ON INCOME -- (CONTINUED)
relating to the valuation allowance will be reported in the consolidated
statement of operations $(9.7) million or as a reduction of goodwill $(10.0)
million as opportunities to utilize these carryforwards become more certain.
The Company has domestic operating loss carryforwards of approximately
$101.9 million expiring in years 2005 through 2012, foreign net operating loss
carryforwards of approximately $10.9 million which may be carried forward
indefinitely, and alternative minimum and other tax credits of approximately $18
million.
(7) BANK BORROWINGS AND LONG-TERM DEBT
Bank borrowings consist of short-term notes of the Company's foreign
subsidiaries.
Long-term debt consists of the following (millions of dollars):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1998 1997
----------- -----------
<S> <C> <C>
Bank Term Notes............................................. $196.4 $423.5
Other domestic loans maturing through 2002 weighted average
interest rates of 7.4% and 6.5% at January 31, 1998 and
1997...................................................... 1.8 0.7
Various foreign bank and government loans maturing through
2006, weighted average interest rates of 6.2% and 8.8% at
January 31, 1998 and 1997................................. 51.1 34.5
9 1/8% Senior Subordinated Notes due 2007................... 396.2 --
11% Senior Subordinated Notes due 2006...................... 250.0 250.0
9 1/4% Senior Subordinated Notes due November 15, 2002...... 1.5 1.5
------ ------
897.0 710.2
Less current portion........................................ 14.4 23.9
------ ------
$882.6 $686.3
====== ======
</TABLE>
The Company amended and restated its Credit Agreement, dated as of July 2,
1996, on June 30, 1997. The amendment provided for additional revolving credit
capacity, Tranche A-2 term borrowing denominated in German Deutschemarks ("DEM")
and a term extension of one year. The Credit Agreement provides senior bank
financing, consisting of the following at January 31, 1998 (millions of
dollars):
<TABLE>
<S> <C>
Revolving credit facility, including up to $100 million of
letters of credit, available through July 31, 2003........ $270.0
Tranche A-1 Term Notes, maturing through July 31, 2003...... 27.0
Tranche A-2 Term Notes, maturing through July 31, 2003...... 95.9
Tranche B Term Notes, maturing through July 31, 2004........ 40.6
Tranche C Term Notes, maturing through July 31, 2005........ 32.9
------
$466.4
======
</TABLE>
Borrowings on these facilities bear interest at one of the following rates
as selected by the Company: (i) the rate per annum equal to the British Bankers'
Association London interbank offered rates ("LIBOR" and "DMBO" in the case of
USD and DEM, respectively) plus the applicable margin or (ii) the CIBC Alternate
Base Rate ("ABR"), plus the applicable margin. The CIBC ABR is defined as the
highest of
F-16
<PAGE> 45
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
------------------------------------
(7) BANK BORROWINGS AND LONG-TERM DEBT -- (CONTINUED)
(i) the CIBC prime rate or (ii) the Federal Funds rate plus 1/2% or (iii) a
certificate of deposit-based rate plus 1%. The applicable margins under each of
the loans as of January 31, 1998 are as follows:
<TABLE>
<CAPTION>
ABR LIBOR
----- -----
<S> <C> <C>
Revolving Credit............................................ 1.25% 2.25%
Tranche A-1................................................. 1.25% 2.25%
Tranche A-2................................................. N/A 2.25%
Tranche B................................................... 1.25% 2.75%
Tranche C................................................... 1.25% 3.00%
</TABLE>
At January 31, 1998 the Company was paying interest on the Term Loans at
average LIBOR-based interest rates of 8.67% and average DMBO-based interest
rates of 5.84%.
The Company pays a commitment fee on the unused portion of the revolving
credit facility which was at a rate of 0.5% at January 31, 1998. The Company had
available revolver borrowing capacity under the Credit Agreement of $231.7
million, including unused letters of credit totaling $61.7 million as of January
31, 1998.
The Credit Agreement and certain foreign bank borrowings contain financial
covenants. The Company was in compliance with such covenants at January 31,
1998. The Credit Agreement is secured by a first priority lien on substantially
all of the properties and assets of the Company and its domestic subsidiaries,
now owned or acquired later, including a pledge of all of the shares of certain
of the Company's existing and future domestic subsidiaries and 65% of the shares
of certain of the Company's existing and future foreign subsidiaries.
In connection with the Lemmerz Acquisition, the Company issued the 9 1/8%
Notes in principal amount of $250 million on June 30, 1997 and $150 million on
July 22, 1997. The 9 1/8% Notes are shown in the consolidated balance sheet net
of the foreign exchange translation impact of the related cross-currency
interest rate swap agreements. The 9 1/8% Notes are redeemable at the Company's
option at specified prices, in whole or in part, at any time on or after July
15, 2002. The 9 1/8% Notes are guaranteed by the Company's material domestic
subsidiaries but are subordinated to the Credit Agreement. The Company believes
that as of January 31, 1998, the market value of the 9 1/8% Notes exceed their
recorded value by approximately 5 percent.
In connection with the Motor Wheel Merger and Recapitalization, the Company
commenced an offer to repurchase its 9 1/4% Senior Notes, of which substantially
all were tendered. Accordingly the Company recorded an extraordinary loss of
$12.3 million ($7.4 million, net of tax) related to the early retirement of
debt. The extraordinary loss was comprised of a prepayment penalty and a
write-off of deferred debt issuance costs. The 11% Senior Subordinated Notes
(the "11% Notes") were issued on July 2, 1996. The 11% Notes are redeemable at
the Company's option at specified prices, in whole or in part, at any time on or
after July 15, 2001. The 11% Notes are guaranteed by the Company's domestic
subsidiaries but are subordinated to the Credit Agreement. The Company believes
that as of January 31, 1998, the market value of the 11% Notes exceeds their
recorded value by approximately 12 percent.
Principal repayments on long-term debt and bank borrowings during the next
five years ending January 31 are as follows (millions of dollars): 1999-$14.4;
2000-$23.1; 2001-$29.6; 2002-$29.3; 2003-$31.9 and thereafter-$765.7.
The Company maintained interest rate hedge agreements with the objective of
managing interest costs and exposure to changing interest rates. The Credit
Agreement requires the Company to provide interest rate protection on a portion
of the related outstanding indebtedness. Strategies for achieving the Company's
F-17
<PAGE> 46
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
------------------------------------
(7) BANK BORROWINGS AND LONG-TERM DEBT -- (CONTINUED)
objectives have resulted in the Company maintaining interest rate cap agreements
covering floating rate indebtedness at January 31, 1998. Various agreements have
been entered into with several banks and, on average, provide protection against
LIBOR rates higher than 6.67%, for an average of 1.3 years. Premiums paid for
these cap agreements are amortized to interest expense over the term of the
agreement. The unamortized costs of the cap agreements are included in other
assets and approximate fair value. The notional amount of interest rate cap
agreements do not represent amounts exchanged by the parties and are not a
measure of the Company's exposure to credit or market risks. The amounts
exchanged are calculated on the basis of the notional amounts and the other
terms of the cap agreements. Notional amounts are not included in the
consolidated balance sheet.
On June 30, 1997, the Company entered into cross-currency interest rate
swap agreements to hedge a portion of its net investment in Lemmerz (financed,
in part, by the issuance of the 9 1/8% Notes). Under terms of the agreements,
the Company will swap DEM 172.9 million for USD $100 million in five years based
on the exchange rate on the day the contract became effective. In addition, the
contracts provide for the Company to make semi-annual interest payments at an
average rate of 7.53% on the DEM 172.9 million, while receiving semi-annual
interest payments of 9.125% on the USD $100 million. The Company has the
unilateral right to unwind the swaps early. While it is not the Company's
intention to terminate the above financial instrument, the fair value was
estimated by obtaining quotes from brokers which represented the amount that the
Company would receive if the agreement was terminated at the balance sheet date.
This fair value indicated that termination of the foreign currency swap
agreement would have resulted in a gain of $3.5 million as of January 31, 1998.
(8) LEASES
The Company leases certain production facilities and equipment under
agreements expiring from 1999 to 2003 and later years. 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, 1998 (millions of dollars):
<TABLE>
<CAPTION>
YEAR ENDING JANUARY 31:
-----------------------
<S> <C>
1999................................................... $14.1
2000................................................... 11.4
2001................................................... 10.1
2002................................................... 8.9
2003 and later years................................... 17.2
-----
Total minimum payments required........................ $61.7
=====
</TABLE>
Rent expense was $17.0 million, $13.9 million and $7.8 million for the
years ended January 31, 1998, 1997 and 1996, respectively.
In addition, the Company is committed under an operating lease for a
remaining term of 5 1/2 years for the former Motor Wheel corporate office. The
annual lease commitment of $0.7 million is offset by a sub-lease agreement for
the same term in the same amount.
F-18
<PAGE> 47
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
------------------------------------
(9) PENSION PLANS AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The components of net pension cost included in operating results for the
years ended January 31, 1998, 1997 and 1996 are as follows (millions of
dollars):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31, JANUARY 31,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Service cost.................................. $ 0.4 $ 1.5 $ 0.8
Interest on projected benefit obligation...... 14.0 8.9 5.1
Actual return on plan assets.................. (17.1) (10.4) (5.0)
Net amortization and deferral................. 3.7 3.8 3.1
------ ------ -----
Net pension cost............................ $ 1.0 $ 3.8 $ 4.0
====== ====== =====
Discount rate................................. 7.00% 7.50% 7.50%
Assumed rate of return........................ 9.00% 9.00% 9.00%
</TABLE>
The following table sets forth the plans' funded status (millions of
dollars):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1998 1997
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested employees......................................... $ 256.9 $ 151.2
Nonvested employees...................................... 6.3 9.4
------- -------
Accumulated benefit obligation........................... 263.2 160.6
Projected benefit obligation............................. 269.8 163.9
Plan assets at fair value (principally listed stocks and
bonds)................................................. (156.2) (125.8)
------- -------
Projected benefit obligation in excess of plan assets.... 113.6 38.1
Unrecognized net losses.................................. (4.0) (5.5)
Unrecognized prior service cost.......................... (2.1) (3.9)
Adjustment required to recognize minimum liability....... -- 6.7
------- -------
Accrued pension cost................................... $ 107.5 $ 35.4
======= =======
</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
salary defined contribution plan.
In connection with the Motor Wheel Merger in July 1996, the Company was
required to contribute $10 million and $4 million to the Company and Motor Wheel
pension plans, respectively, as part of an agreement with the Pension Benefit
Guaranty Corporation ("PBGC"). Under this agreement, the Company is required to
provide contributions to the plans of $13 million and $11 million as of June 30,
1998 and 1999, respectively. To secure these contributions, the Company provided
the PBGC with an irrevocable letter of credit for the benefit of the PBGC in the
amount of $14 million. The letter of credit will be reduced to $5 million after
the Company contributes $10 million as of June 30, 1998 to the Company's plans.
Once all of the required contributions are made, the letter of credit will be
canceled.
F-19
<PAGE> 48
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
------------------------------------
(9) PENSION PLANS AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS -- (CONTINUED)
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 $4.6
million, $2.7 million and $2.7 million for the years ended January 31, 1998,
1997 and 1996, respectively.
The Company provides comprehensive medical and group life insurance
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.
For the year ended January 31, 1998, 1997 and 1996, the components of
postretirement benefits expense (income) were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31, JANUARY 31,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Service cost (benefits earned during the
period)...................................... $0.2 $ 0.4 $ 0.3
Interest cost on accumulated postretirement
benefit obligations.......................... 9.2 5.0 2.6
Net amortization............................... 0.3 (3.7) (4.1)
---- ----- -----
Total........................................ $9.7 $ 1.7 $(1.2)
==== ===== =====
Discount rate.................................. 7.00% 7.50% 7.50%
</TABLE>
At January 31, 1998 and 1997, the recorded actuarial liabilities for these
postretirement benefits are as follows:
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1998 1997
----------- -----------
<S> <C> <C>
Retirees.................................................. $ 92.2 $ 96.1
Fully eligible active participants........................ 14.8 21.7
Other active participants................................. 18.5 10.5
------ ------
Subtotal................................................ 125.5 128.3
Unamortized gains (losses)................................ (9.5) 9.9
------ ------
Total................................................... $116.0 $138.2
====== ======
</TABLE>
The assumed health care cost trend was 5.5% for fiscal 1997 and 7.0% for
fiscal 1996. The Company estimates an increase in the assumed health care cost
trend rate of 1% per year would increase the accumulated postretirement benefit
obligation as of January 31, 1997 by $0.9 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, 1998 and 1997.
The anticipated workforce reductions resulting from closure of the Romulus
Plant resulted in the recognition of $18.0 million of net curtailment loss in
fiscal 1996 related to both pension and postretirement benefits.
Certain of the Company's European subsidiaries provide benefits to their
employees through unfunded retirement arrangements. At January 31, 1998 and
1997, $5.0 million and $4.7 million, respectively, were accrued for such
obligations.
F-20
<PAGE> 49
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
------------------------------------
(10) NONRECURRING CHARGES
On January 9, 1997, the Company announced that it was ceasing manufacturing
operations at its fabricated wheel facility in Romulus, Michigan and
consolidating such manufacturing operations into other fabricated wheel
facilities of the Company. This action was based on the continued decline in the
market for fabricated steel wheels and the merger with Motor Wheel which added
fabricated steel wheel manufacturing capacity to the Company's operations. In
connection with the closure, certain property, plant and equipment have become
idle and disposed of, other excess assets disposed of and the service of
approximately 450 active employees has been terminated. These actions were fully
implemented by the end of calendar year 1997. The Company recorded a charge
totaling $109.0 million for the fiscal year ended January 31, 1997 which
consisted of $63.0 million to writedown assets to estimated realizable values;
$25.0 million for pension and postretirement benefits; and $21.0 million for
termination benefits and other exit costs. The amounts charged against the
reserve during fiscal 1997 did not differ materially from the amounts
established at January 31, 1997, except for a gain of approximately $5.1 million
recognized in a sale of property included in other income. At January 31, 1998,
$7.2 million of the plant closure reserve was reflected as a current accrued
liability and $24.1 million was included in other long-term liabilities on the
accompanying consolidated balance sheet.
In connection with the Motor Wheel Merger, the Company recorded
nonrecurring charges of $6.4 million. These charges consist of the elimination
of $2.9 million of deferred costs resulting from a previous patent infringement
suit with Motor Wheel and $3.5 million of stock compensation recorded in
conjunction with the payout of the management stock option plan. In addition,
the Company assumed plant closure liabilities of Holdings of $27.4 million
relating to actions undertaken by Holdings in fiscal 1995 and 1994 to close
manufacturing operations in its automotive wheel and brake businesses. As of
January 31, 1998, $10.9 million of these liabilities remain on the balance sheet
of the Company.
During the fourth quarter of fiscal 1995, 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 Varity's proposal to purchase
the Company's outstanding shares not owned by Varity (at the time the owner of
46.3% of the Company's outstanding common stock), which proposal was made on
September 27, 1995, and withdrawn on February 5, 1996.
(11) CONTINGENCIES
Various lawsuits, claims and proceedings have been or may be instituted or
asserted against the Company, including those pertaining to environmental,
product liability, patent infringement, and employee benefit matters. While the
amounts claimed may be substantial, the ultimate liability cannot now be
determined because of the considerable uncertainties that exist. Therefore, it
is possible that results of operations or liquidity in a particular period could
be materially affected by certain contingencies. However, based on facts
currently available, management believes that the disposition of matters that
are pending or asserted will not have a material adverse effect on the financial
position of the Company.
Approximately 12% of the Company's domestic employees are covered under
collective bargaining agreements. These agreements expire at various times
through 2003. 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, bargaining agreements are often made on a
local basis and expire at various times throughout 1998. Based on management's
experience, negotiation of new contracts is anticipated without work stoppages.
F-21
<PAGE> 50
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
------------------------------------
(12) INVESTMENTS IN UNCONSOLIDATED AFFILIATES
The Company holds the following investments which are accounted for under
the equity method.
(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., an
aluminum and steel wheel manufacturer in Mexico;
(iii) a 49% interest in Hayes Wheels do Brasil, Ltda., a manufacturer
of aluminum wheels in Brazil;
(iv) a 49% interest in Continental Lemmerz (Portugal) -- Componente
para Automoveis, Lda., a tire and wheel assembly operation in
Portugal;
(v) a 47% interest in Borlem S.A. Empreendimentos Industriais, a steel
and aluminum wheel manufacturer in Brazil;
(vi) a 25% interest in Reynolds-Lemmerz Industries, a cast aluminum
wheel manufacturer in Canada;
(vii) a 25% interest in Kalyani-Lemmerz Ltd., a commercial highway
steel wheel manufacturer in India;
(viii) a 25% interest in Jantas Jant Sanayi ve Ticaret A.S., a
commercial highway steel wheel manufacturer in Turkey; and
(ix) a 25% interest in Siam Lemmerz Co. Ltd., a cast aluminum wheel
manufacturer in Thailand.
The aggregate financial position and results of operations for these
entities as of, and for the twelve months ended January 31, 1998, 1997 and 1996,
respectively, were not material to the consolidated financial statements of the
Company.
(13) STOCK OPTION PLAN
In 1992, the Company adopted the Hayes Wheels International, Inc. 1992
Stock Incentive Plan (the "1992 Plan"), under which 1,000,000 shares of Common
Stock were available for issuance with respect to awards granted to officers,
management and other key employees of the Company. In connection with the Motor
Wheel Merger and Recapitalization, certain of the stock options were exercised
with the remainder becoming vested. At January 31, 1998, 301,100 options were
exercisable at a price of $10.00, 161,900 options were exercisable at a price of
$19.94 and 7,500 options were exercisable at a price of $19.69. At January 31,
1998, there were no shares available for issuance under this plan.
At the time of the Recapitalization, the Company established the Hayes
Wheels International, Inc. 1996 Stock Option Plan (the "1996 Plan"), under which
3,000,000 shares of Common Stock were made available for issuance with respect
to stock option awards granted to officers, management and other key employees
of and consultants to the Company. Option grants under the 1996 Plan are
approved by the Compensation Committee of the Board of Directors and are subject
to such terms and conditions as are established by the Compensation Committee at
the time it approves such grants. The exercise prices of options granted under
the 1996 Plan in fiscal 1996 and fiscal 1997 were $16 and $32 per share,
respectively, representing the Common Stock's fair market value on the date of
grant. All the option grants which, as of January 31, 1998, were outstanding
under the 1996 Plan are divided into tranches (each, a "Tranche") of an equal
number of options. The options in each such Tranche vest when both a time
condition and a price condition tied to the price of
F-22
<PAGE> 51
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
------------------------------------
(13) STOCK OPTION PLAN -- (CONTINUED)
the Company's Common Stock have been met. In addition, notwithstanding such
conditions to vesting, the options currently outstanding under the 1996 Plan
become exercisable on certain dates (which dates are currently in all cases at
least eight years after the option grant date) if the employee to whom they were
granted is then still an employee of the Company. At January 31, 1998, 370,348
options were exercisable at a price of $16.00 per share and 15,584 options were
exercisable at a price of $32.00 per share.
Also, in connection with the Motor Wheel Merger, 150,702 options with an
exercise price of $2.05 were granted to a former shareholder of Holdings. These
options were exercised on August 26, 1997.
Information with respect to all stock options is summarized below:
<TABLE>
<CAPTION>
1992 1996
PLAN PLAN OTHER TOTAL
---- ---- ----- -----
<S> <C> <C> <C> <C>
Outstanding at January 31,
1996......................... 650,100 -- -- 650,100
Granted........................ 301,100 2,335,075 150,702 2,786,877
Exercised...................... (480,700) -- -- (480,700)
--------- --------- -------- ----------
Outstanding at January 31,
1997......................... 470,500 2,335,075 150,702 2,956,277
Granted........................ -- 253,668 -- 253,668
Exercised...................... -- (400) (150,702) (151,102)
Forfeited...................... -- (20,000) -- (20,000)
--------- --------- -------- ----------
Outstanding at January 31,
1998......................... 470,500 2,568,343 -- 3,038,843
========= ========= ======== ==========
</TABLE>
The Company applies APB Opinion 25 and related Interpretations in
accounting for stock options. Compensation cost charged against operations for
1996 was $3.5 million, which reflects the amounts paid in connection with the
exercise of certain of the stock options granted under the 1992 Plan. If
compensation cost had been determined based on the fair value at the grant dates
consistent with the method prescribed in SFAS No. 123, the Company's net
income(loss) and earnings per share would have been adjusted to the pro forma
amounts below:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net Income (loss):
As reported........................................ $31.4 $(72.9) $28.4
Pro forma.......................................... 28.4 (75.1) 28.2
Diluted earnings (loss) per share:
As reported........................................ $1.12 $(2.63) $0.81
Pro forma.......................................... 1.01 (2.73) 0.80
</TABLE>
The fair value of stock options granted in fiscal 1997, fiscal 1996 and
fiscal 1995 was estimated on the date of grant using the Black-Scholes
option-pricing model. The weighted average fair values and related assumptions
were:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Weighted average fair value................. $ 13.36 $ 9.32 $ 4.74
Expected volatility......................... 33.4% 41.2% 40.3%
Risk free interest rate..................... 6.5% 6.8% 6.2%
Expected lives.............................. 7.0 years 8.7 years 6.7 years
</TABLE>
Dividend yield for all grants was assumed to be insignificant.
F-23
<PAGE> 52
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
------------------------------------
(13) STOCK OPTION PLAN -- (CONTINUED)
At January 31, 1998, warrants, issued in conjunction with the Motor Wheel
Merger and Recapitalization, to purchase 2.6 million shares of common stock were
outstanding. Each warrant allows the holder thereof to acquire one share of
Common Stock for a purchase price of $24.00. The warrants are exercisable from
July 2, 2000 through July 2, 2003.
(14) INFORMATION BY GEOGRAPHIC AREA
The Company operates principally in one segment -- the design, manufacture
and supply of wheels and brake components to OEMs of automobiles, light trucks
and commercial highway vehicles. Operating data and identifiable assets by
geographic area follow (millions of dollars):
<TABLE>
<CAPTION>
EARNINGS (LOSS) BEFORE TAXES ON INCOME,
REVENUE(1) MINORITY INTEREST AND EXTRAORDINARY ITEMS
--------------------------------------- ------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31,
1998 1997 1996 1998 1997 1996
----------- ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
North America............ $ 912.2 $689.5 $527.3 $101.7 $ (67.8) $ 48.4
Europe(2)................ 357.6 88.7 83.8 43.8 14.3 12.8
-------- ------ ------ ------ ------- ------
Totals................. 1,269.8 778.2 611.1 145.5 (53.5) 61.2
General corporate........ -- -- -- -- -- --
Interest expense......... -- -- -- (90.4) (48.5) (15.0)
-------- ------ ------ ------ ------- ------
Consolidated totals...... $1,269.8 $778.2 $611.1 $ 55.1 $(102.0) $ 46.2
======== ====== ====== ====== ======= ======
<CAPTION>
YEAR-END
IDENTIFIABLE ASSETS
-------------------------
JANUARY 31, JANUARY 31,
1998 1997
----------- -----------
<S> <C> <C>
North America............ $ 973.2 $ 988.9
Europe(2)................ 745.1 164.7
-------- --------
Totals................. 1,718.3 1,153.6
General corporate........ 40.6 29.5
Interest expense......... -- --
-------- --------
Consolidated totals...... $1,758.9 $1,183.1
======== ========
</TABLE>
- ---------------
(1) Sales were made to three major automotive customers each in amounts
exceeding 10 percent of total sales. Sales to one of these customers totaled
$210.6 million in fiscal 1997, $185.3 million in fiscal 1996 and $197.6
million in fiscal 1995. Sales to another customer totaled $242.4 million in
fiscal 1997, $182.5 million for fiscal 1996 and $161.0 million for fiscal
1995. Sales to a third major customer totaled $230.0 million in fiscal 1997,
$205.4 million for fiscal 1996 and $129.1 million for fiscal 1995.
(2) Europe includes subsidiaries in Italy, Spain, the Czech Republic, Germany,
Belgium, the Netherlands and Turkey.
(3) General corporate assets are unamortized debt issuance costs.
(15) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following represents the Company's quarterly results (millions of
dollars, except share amounts):
<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------------------------------------------------------
JANUARY 31, OCTOBER 31, JULY 31, APRIL 30, JANUARY 31, OCTOBER 31, JULY 31, APRIL 30,
1998 1997 1997 1997 1997 1996 1996 1996
----------- ----------- -------- --------- ----------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales............... $371.9 $369.8 $277.9 $250.2 $222.3 $234.4 $165.3 $156.2
Gross profit............ 66.5 64.8 46.8 38.0 33.5 35.9 11.0 22.6
Net income (loss)....... 12.0 10.9 4.7 3.8 (66.8) 4.7 (16.9) 6.1
Basic net income (loss)
per share............. $ 0.40 $ 0.34 $ 0.20 $ 0.17 $(2.98) $ 0.21 $(0.54) $ 0.17
------ ------ ------ ------ ------ ------ ------ ------
Diluted net income
(loss) per share...... $ 0.38 $ 0.34 $ 0.20 $ 0.17 $(2.98) $ 0.21 $(0.54) $ 0.17
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
F-24
<PAGE> 53
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
------------------------------------
(16) GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS
In connection with the Motor Wheel Merger and as part of the financing
thereof, the Company issued and sold $250 million aggregate principal amount of
its 11% Notes due 2006 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. The Company also retired $98.5 million
principal amount of the Company's 9 1/4% Senior Notes due 2002 and Motor Wheel
redeemed all of its 11 1/2% Senior Notes due 2000 ($125 million principal
amount) and repaid and terminated its revolving credit facility.
In connection with the Lemmerz Acquisition, the Company issued and sold the
9 1/8% Notes in two offerings under Rule 144A of the Securities Act which closed
June 30, 1997 ($250 million in aggregate principal amount) and July 22, 1997
($150 million in aggregate principal amount). The 9 1/8% Notes are general
unsecured obligations of the Company, ranking pari passu with the 11% Notes and
are guaranteed by the same domestic subsidiaries of the Company as guaranteed
the 11% Notes. The proceeds of the 9 1/8% Notes were used to pay the cash
portion of the Lemmerz Acquisition purchase price and to retire $200 million
principal amount of existing term debt under the Amended Credit Agreement.
The following condensed consolidating financial information presents:
(1) Condensed consolidating financial statements as of January 31,
1998 and 1997 and for the twelve month periods ended January 31, 1998, 1997
and 1996, 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 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 principal
elimination entries eliminate investments in subsidiaries and intercompany
balances and transactions.
F-25
<PAGE> 54
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
------------------------------------
(16) GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JANUARY 31, 1998
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
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
======= ======= ====== ======= ========
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
Long-term debt, net of current
portion.............................. 841.9 -- 40.7 -- 882.6
Deferred income taxes.................. (7.5) 17.9 24.4 -- 34.8
Minority interest...................... -- 0.2 5.3 0.1 5.6
Pension and other long-term
liabilities.......................... 83.6 85.4 135.4 (2.9) 301.5
Parent loans........................... (212.5) 219.7 (7.2) -- --
------- ------- ------ ------- --------
Total noncurrent liabilities......... 705.5 323.2 198.6 (2.8) 1,224.5
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)
Cumulative translation adjustment...... (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 stockholder'
equity............................ $ 985.6 $ 647.9 $776.1 $(650.7) $1,758.9
======= ======= ====== ======= ========
</TABLE>
F-26
<PAGE> 55
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
------------------------------------
(16) GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JANUARY 31, 1997
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents............. $ 41.2 $ (0.6) $ 6.9 $ -- $ 47.5
Receivables........................... 51.0 62.9 31.3 -- 145.2
Inventories........................... 36.4 34.5 12.0 -- 82.9
Prepaid expenses and other............ 3.3 3.5 7.4 (0.3) 13.9
------- ------ ------ ------- --------
Total current assets................ 131.9 100.3 57.6 (0.3) 289.5
Property, plant and equipment......... 249.2 267.9 116.2 -- 633.3
Accumulated depreciation.............. (49.1) (67.1) (30.7) -- (146.9)
------- ------ ------ ------- --------
Net property, plant and equipment... 200.1 200.8 85.5 -- 486.4
Goodwill and other assets............. 345.8 323.9 12.6 (275.1) 407.2
------- ------ ------ ------- --------
Total assets........................ $ 677.8 $625.0 $155.7 $(275.4) $1,183.1
======= ====== ====== ======= ========
Bank borrowings....................... $ -- $ -- $ 5.6 $ -- $ 5.6
Current portion of long-term debt..... 17.4 -- 6.5 -- 23.9
Accounts payable and accrued
liabilities......................... 105.2 97.7 42.2 (0.3) 244.8
------- ------ ------ ------- --------
Total current liabilities........... 122.6 97.7 54.3 (0.3) 274.3
Long-term debt, net of current
portion............................. 658.3 -- 28.0 -- 686.3
Deferred income taxes................. (31.1) 18.0 13.1 -- --
Minority interest..................... -- 0.2 -- 8.1 8.3
Pension and other long-term
liabilities......................... 143.2 103.3 12.1 (3.3) 255.3
Parent loans.......................... (211.2) 208.0 3.2 -- --
------- ------ ------ ------- --------
Total noncurrent liabilities........ 559.2 329.5 56.4 4.8 949.9
Common stock.......................... 0.2 -- -- -- 0.2
Additional paid-in capital............ 43.5 104.5 33.5 (137.9) 43.6
Retained earnings (accumulated
deficit)............................ (44.5) 93.4 9.5 (140.6) (82.2)
Cumulative translation adjustment..... (1.0) (0.1) 2.0 (1.4) (0.5)
Pension liability adjustment.......... (2.2) -- -- -- (2.2)
------- ------ ------ ------- --------
Total stockholders' equity
(deficit)........................ (4.0) 197.8 45.0 (279.9) (41.1)
------- ------ ------ ------- --------
Total liabilities and stockholder'
equity (deficit)................. $ 677.8 $625.0 $155.7 $(275.4) $1,183.1
======= ====== ====== ======= ========
</TABLE>
F-27
<PAGE> 56
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
------------------------------------
(16) GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
AS OF JANUARY 31, 1998
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............................. $ 354.6 $546.4 $370.0 $(1.2) $1,269.8
Cost of goods sold.................... 288.1 463.5 303.3 (1.2) 1,053.7
------- ------ ------ ----- --------
Gross profit........................ 66.5 82.9 66.7 -- 216.1
Marketing, general and
administration...................... 11.5 21.0 20.0 -- 52.5
Engineering and product development... 1.4 6.1 4.2 -- 11.7
Amortization of intangibles........... 1.6 7.9 3.2 -- 12.7
Equity in loss of unconsolidated
subsidiaries........................ 5.1 -- (0.6) -- 4.5
Other income, net..................... (10.5) 3.9 (4.2) -- (10.8)
------- ------ ------ ----- --------
Earnings from operations............ 57.4 44.0 44.1 -- 145.5
Interest expense, net................. 43.3 41.6 5.5 -- 90.4
Equity in earnings of consolidated
subsidiaries........................ (5.0) -- -- 5.0 --
------- ------ ------ ----- --------
Earnings before taxes on income and
minority interest................ 19.1 2.4 38.6 (5.0) 55.1
Income tax provision.................. 5.2 4.1 13.9 -- 23.2
------- ------ ------ ----- --------
Earnings before minority interest... 13.9 (1.7) 24.7 (5.0) 31.9
Minority interest..................... -- -- 0.4 0.1 0.5
------- ------ ------ ----- --------
Net income.......................... $ 13.9 $ (1.7) $ 24.3 $(5.1) $ 31.4
======= ====== ====== ===== ========
</TABLE>
F-28
<PAGE> 57
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
------------------------------------
(16) GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
AS OF JANUARY 31, 1997
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............................. $ 264.9 $424.9 $91.5 $(3.1) $ 778.2
Cost of goods sold.................... 239.8 363.5 75.0 (3.1) 675.2
------- ------ ----- ----- -------
Gross profit........................ 25.1 61.4 16.5 -- 103.0
Marketing, general and
administration...................... 6.2 17.5 5.1 -- 28.8
Engineering and product development... 2.7 3.3 1.2 -- 7.2
Amortization of intangibles........... 1.6 5.5 -- 7.1
Equity in loss of unconsolidated
subsidiaries........................ 2.5 -- -- -- 2.5
Other income, net..................... (0.7) (0.4) (3.4) -- (4.5)
Nonrecurring charges.................. 115.4 -- -- -- 115.4
------- ------ ----- ----- -------
Earnings (loss) from operations..... (102.6) 35.5 13.6 -- (53.5)
Interest expense, net................. 21.7 25.7 1.1 -- 48.5
Equity in earnings of consolidated
subsidiaries........................ (7.2) -- -- 7.2 --
------- ------ ----- ----- -------
Earnings (loss) before taxes on
income, minority interest and
extraordinary loss............... (117.1) 9.8 12.5 (7.2) (102.0)
Income tax (benefit) provision........ (46.8) 4.5 5.6 -- (36.7)
------- ------ ----- ----- -------
Earnings (loss) before minority
interest and extraordinary
loss............................. (70.3) 5.3 6.9 (7.2) (65.3)
Minority interest..................... -- -- -- 0.2 0.2
------- ------ ----- ----- -------
Earnings (loss) before extraordinary
loss............................. (70.3) 5.3 6.9 (7.4) (65.5)
Extraordinary loss, net of tax........ 7.4 -- -- -- 7.4
------- ------ ----- ----- -------
Net income (loss)................... $ (77.7) $ 5.3 $ 6.9 $(7.4) $ (72.9)
======= ====== ===== ===== =======
</TABLE>
F-29
<PAGE> 58
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
------------------------------------
(16) GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
AS OF JANUARY 31, 1996
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales.......................... $249.9 $280.5 $83.8 $(3.1) $611.1
Cost of goods sold................. 206.5 242.3 67.7 (3.1) 513.4
------ ------ ----- ----- ------
Gross profit..................... 43.4 38.2 16.1 -- 97.7
Marketing, general and
administration................... 8.3 13.0 5.8 -- 27.1
Engineering and product
development...................... 2.3 1.6 0.8 -- 4.7
Amortization of intangibles........ 0.4 2.2 -- -- 2.6
Other (income) expense, net........ 6.8 -- (9.9) 1.6 (1.5)
Nonrecurring charges............... 3.6 -- -- -- 3.6
------ ------ ----- ----- ------
Earnings from operations......... 22.0 21.4 19.4 (1.6) 61.2
Interest expense, net.............. 1.3 7.7 6.0 -- 15.0
Equity in earnings of consolidated
subsidiaries..................... (5.7) -- -- 5.7 --
------ ------ ----- ----- ------
Earnings before taxes on
income........................ 26.4 13.7 13.4 (7.3) 46.2
Income tax provision............... 6.8 5.2 5.8 -- 17.8
------ ------ ----- ----- ------
Net income....................... $ 19.6 $ 8.5 $ 7.6 $(7.3) $ 28.4
====== ====== ===== ===== ======
</TABLE>
F-30
<PAGE> 59
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
------------------------------------
(16) GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
AS OF JANUARY 31, 1998
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows provided by (used in)
Operating activities............ $ (19.4) $ 38.5 $ 80.7 $(5.1) $ 94.7
Cash flows from investing
activities:
Acquisition of property, plant
and equipment................ (30.0) (30.9) (30.0) -- (90.9)
Purchase of businesses, net of
cash......................... (228.0) -- -- -- (228.0)
Other, net...................... 21.1 (18.6) (10.5) -- (8.0)
------- ------ ------ ----- -------
Cash used in investing
activities................... (236.9) (49.5) (40.5) -- (326.9)
Cash flows from financing
activities:
Decrease in foreign bank
borrowings and loans......... -- -- (14.3) -- (14.3)
Proceeds from issuance of long
term debt.................... 500.0 -- -- -- 500.0
Equity offering................. 77.1 -- -- -- 77.1
Fees paid to issue long term
debt......................... (17.0) -- -- -- (17.0)
Decrease in bank revolving loan
and other domestic loans..... (339.2) -- -- -- (339.2)
------- ------ ------ ----- -------
Cash provided by (used in)
financing activities....... 220.9 -- (14.3) -- 206.6
Increase (decrease) in parent
loans and advances.............. (1.2) 11.7 (15.6) 5.1 --
Effect of exchange rates of cash
and cash equivalents............ -- -- 1.2 -- 1.2
------- ------ ------ ----- -------
Net increase (decrease) in cash
and cash equivalents......... (36.6) 0.7 11.5 -- (24.4)
Cash and cash equivalents at
beginning of period............. 41.2 (0.6) 6.9 -- 47.5
------- ------ ------ ----- -------
Cash and cash equivalents at end
of period....................... $ 4.6 $ 0.1 $ 18.4 $ -- $ 23.1
======= ====== ====== ===== =======
</TABLE>
F-31
<PAGE> 60
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
------------------------------------
(16) GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
AS OF JANUARY 31, 1997
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows provided by (used in)
operating activities................ $ 31.4 $ 31.2 $ 16.0 $(7.4) $ 71.2
Cash flows from investing activities:
Acquisition of property, plant and
equipment........................ (28.9) (25.6) (16.9) -- (71.4)
Other, net.......................... (4.3) 12.1 (1.5) -- 6.3
------- ------- ------ ----- -------
Cash used in investing activities... (33.2) (13.5) (18.4) -- (65.1)
Cash flows from financing activities:
Decrease in foreign bank borrowings
and loans........................ -- -- (4.1) -- (4.1)
Retirement of long term debt........ (106.4) -- -- -- (106.4)
Retirement of acquired long term
debt............................. -- (137.7) -- -- (137.7)
Proceeds from issuance of long term
debt............................. 673.5 -- -- -- 673.5
Common stock repurchase............. (506.1) -- -- -- (506.1)
Proceeds from equity infusion, net
of costs......................... 185.4 -- -- -- 185.4
Dividends paid to stockholders...... (0.5) -- -- -- (0.5)
Fees paid to issue long term debt... (35.0) -- -- -- (35.0)
Decrease in bank revolving loan and
other domestic loans............. (29.5) -- -- -- (29.5)
------- ------- ------ ----- -------
Cash provided by (used in)
financing activities........... 181.4 (137.7) (4.1) -- 39.6
Increase (decrease) in parent loans
and advances........................ (139.4) 119.3 12.7 7.4 --
Effect of exchange rates of cash and
cash equivalents.................... -- -- -- -- --
------- ------- ------ ----- -------
Net increase (decrease) in cash and
cash equivalents................. 40.2 (0.7) 6.2 -- 45.7
Cash and cash equivalents at beginning
of period........................... 1.0 0.1 0.7 -- 1.8
------- ------- ------ ----- -------
Cash and cash equivalents at end of
period.............................. $ 41.2 $ (0.6) $ 6.9 $ -- $ 47.5
======= ======= ====== ===== =======
</TABLE>
F-32
<PAGE> 61
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
------------------------------------
(16) GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
AS OF JANUARY 31, 1996
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows provided by (used in)
operating activities................. $ 24.0 $ 8.7 $22.0 $(9.8) $ 44.9
Cash flows from investing activities:
Acquisition of property, plant and
equipment......................... (23.5) (15.1) (4.8) -- (43.4)
Other, net........................... (10.0) 2.1 (1.1) -- (9.0)
------ ------ ----- ----- ------
Cash used in investing activities.... (33.5) (13.0) (5.9) -- (52.4)
Cash flows from financing activities:
Decrease in foreign bank borrowings
and loans......................... -- -- (6.4) -- (6.4)
Dividends paid to stockholders....... (1.1) -- -- -- (1.1)
Increase (decrease) in bank revolving
loan and other domestic loans..... 17.7 (1.3) (0.1) -- 16.3
------ ------ ----- ----- ------
Cash provided by (used in)
financing activities............ 16.6 (1.3) (6.5) -- 8.8
Increase (decrease) in parent loans and
advances............................. (6.2) 5.6 (9.2) 9.8 --
Effect of exchange rates of cash and
cash equivalents..................... -- -- -- -- --
------ ------ ----- ----- ------
Net increase in cash and cash
equivalents....................... 0.9 -- 0.4 -- 1.3
Cash and cash equivalents at beginning
of period............................ 0.1 0.1 0.3 -- 0.5
------ ------ ----- ----- ------
Cash and cash equivalents at end of
period............................... $ 1.0 $ 0.1 $ 0.7 $ -- $ 1.8
====== ====== ===== ===== ======
</TABLE>
F-33
<PAGE> 62
RESPONSIBILITIES FOR CONSOLIDATED FINANCIAL STATEMENTS
The Board of Directors and Stockholders
Hayes Lemmerz International, Inc.
The consolidated financial statements of Hayes Lemmerz 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
judgements of management. Financial information elsewhere in this Report is
consistent with that in the 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 Lemmerz 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 advance
of the Annual Meeting of Stockholders and submits the selection for ratification
at the Meeting. 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, 1998 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.
<TABLE>
<S> <C>
/s/ R. CUCUZ /s/ W.D. SHOVERS
Chief Executive Officer Chief Financial Officer
</TABLE>
F-34
<PAGE> 63
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
<TABLE>
<CAPTION>
ADDITIONS --
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND END OF
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS YEAR
----------- ---------- ------------ ---------- -------
<S> <C> <C> <C> <C>
Year ended January 31, 1996
Allowance for doubtful accounts.................... $0.1 -- -- $0.1
Year ended January 31, 1997
Allowance for doubtful accounts.................... $0.1 2.1 -- $2.2
Year ended January 31, 1998
Allowance for doubtful accounts.................... $2.2 2.1 -- $4.3
</TABLE>
F-35
<PAGE> 64
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Hayes Lemmerz International, Inc.:
Under date of February 27, 1998, we reported on the consolidated balance sheets
of Hayes Lemmerz International, Inc. and subsidiaries as of January 31, 1998 and
1997, and the related consolidated statements of operations, changes in
stockholders' equity (deficit), and cash flows for each of the years in the
three-year period ended January 31, 1998, which are included in the annual
report on Form 10-K of Hayes Lemmerz International, Inc. In connection with our
audits of the aforementioned consolidated financial statements, we also audited
the related consolidated financial statement schedule in Form 10-K. The
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Detroit, Michigan
February 27, 1998
F-36
<PAGE> 1
EXHIBIT 10.28
MANAGING DIRECTOR'S SERVICE AGREEMENT
between
LEMMERZ HOLDING GMBH
hereinafter referred to as "the Company"
and
MR. DIPL.-KFM. KLAUS JUNGER
hereinafter referred to as "the Manager"
PREAMBLE
This Managing Director's Service Agreement fully replaces any former
agreements between Mr. Junger and the Company or its legal predecessor Lemmerz
Werke KgaA, including but not limited to the Managing Director's Service
Agreement dated July 1, 1993, and the Employment Agreement dated June 29, 1990.
SECTION 1 FUNCTIONS AND DUTIES
1.1 Manager shall serve as Managing Director of the Company with direct
responsibility for Hayes Lemmerz International, Inc.'s ("Hayes Lemmerz")
European steel wheel operations.
1.2 The Manager shall represent the Company both in and out of court either
alone or jointly with another Managing Director, or with a prokurist, of the
Company as provided herein. Unless otherwise provided for in this Agreement, the
rights and duties of the Managing Director shall be subject to the Articles of
Association of the Company, as amended from time to time, the rules of procedure
as amended from time to time, the directions given by the shareholders, and the
laws, particularly the Limited Liability Companies' Act.
1.3 The Manager shall be exempted from the statutory ban on competition
only with respect to his serving as an officer, director or employee of other
companies within the Hayes Lemmerz Group.
1.4 The Company reserves the right to give the Manager a different position
with a company in the Hayes Lemmerz Group; such a position must correspond to
the Manager's standing, knowledge and abilities. Any transfer to a foreign
country in this context, however, requires the Manager's consent. In the event
that the Manager is transferred to a position which is over 100 km from
Manager's current office with the Company, the Company shall pay Manager such
moving costs and other expenses, in accordance with the Company's then current
management employee relocation policies.
SECTION 2 TERM OF THE AGREEMENT
2.1 This term of this Agreement shall commence as of July 1, 1997 and shall
continue indefinitely, until and unless terminated in accordance with this
Section 2.
2.2 This Agreement shall be terminable by the Company or the Manager in
writing upon six (6) months notice prior to the effective date of termination;
provided, that this Agreement shall terminate without the requirement of notice:
(a) at the end of the month in which the Manager attains the age of 65, or (b)
upon the death of Manager. Notice by Manager to the Company of his election to
terminate this Agreement shall be given to the Chairman of the Supervisory Board
of the Company with a copy to the General Counsel of
1
<PAGE> 2
Hayes Lemmerz, at the address of the world headquarters of Hayes Lemmerz, which
address as of the date of this agreement is:
38481 Huron River Drive
Romulus, Michigan 48174
USA
Notice by Company or Manager shall be sent by personal delivery or
overnight courier, with confirmation receipt, which notice shall be deemed given
as of the date conveyed to the courier for delivery.
2.3 In the event the Agreement is terminated by the Company:
(a) such written notification shall include a resolution from the
Company's shareholders withdrawing the Company's appointment of Manager as
a Managing Director and such withdrawal shall not affect the Manager's
claims, in particular, for any of the benefits under this Agreement in
accordance with the terms herein. Except as provided in Section 1.4, the
withdrawal of the Manager's appointment as a Managing Director shall
constitute a termination of this Agreement of Employment; and
(b) The Manager shall be paid compensation amounting to the Manager's
Base Salary (as defined below) for the twelve (12) month period prior to
the date of the notice of termination; provided, however, that Manager
shall not be entitled to such compensation in the event this Agreement is
terminated as a result of any of the following:
(i) the willful failure, neglect or refusal by Manager to perform
his duties hereunder (including without limitation, Manager's inability
to perform such duties as a result of alcohol or drug abuse, chronic
alcoholism or drug addiction);
(ii) any willful, intentional or grossly negligent act by Manager
having the effect of injuring the interest, business or reputation of
the Company or any of its parents, subsidiaries or affiliates;
(iii) Manager's commission of any felony or a misdemeanor involving
dishonest, unethical, immoral or similar conduct (including the entry of
a nolo contendre, no contest, or similar plea);
(iv) any misappropriation or embezzlement of the property of the
Company and its affiliates and subsidiaries (whether or not a
misdemeanor or felony); and
(v) any material breach of any one or more of the provisions of
this Agreement by Manager, which to the extent curable has not been
cured within ten (10) days after notice thereof is received by Manager.
A breach of Section 11 shall not be considered curable.
(vi) termination of this Agreement as a result of the death or
disability of Manager.
Such payment shall be in lieu of any other severance, benefits or other
compensation required to be paid to Manager hereunder or by law.
2.4 After termination of the Agreement, Manager shall be relieved of his
duty to render service to the Company; provided, that Company may upon delivery
of notice of termination to or by Manager, request that Manager cease performing
services on behalf of the Company, but Company shall continue to provide
compensation and other benefits provided herein until the expiration of the six
(6) month notice period required above.
SECTION 3 REMUNERATION
The Manager shall be paid the following remuneration for his work:
3.1 annual salary of DM 360,000 gross, payable in equal installments
in accordance with the Company's normal management payroll practices (the
"Base Salary").
3.2 a bonus in an amount, and subject to Manager's and the Company's
accomplishment of certain objectives, as determined by the Chief Executive
Officer of Hayes Lemmerz and the Compensation Committee of the Board of
Directors of Hayes Lemmerz.
2
<PAGE> 3
3.3 upon approval by the Hayes Lemmerz shareholders of the Hayes
Lemmerz 1996 Stock Option Plan, an option to purchase 121,669 shares of
Hayes Lemmerz Common Stock upon such terms and subject to such conditions
as set forth in such plan.
3.4 Manager's Base Salary shall be reviewed annually at the same time
as the other executive officers of Hayes Lemmerz, and shall be adjusted
based upon market conditions and Hayes Lemmerz', Company's and Manager's
performance.
3.5 the above remuneration covers all services rendered by the
Manager, including any overtime work. The Manager is obliged to work even
beyond the usual business working hours if this is required by the business
interests of the Company.
SECTION 4 SICKNESS, ACCIDENT AND DEATH
4.1 If the Manager becomes temporarily unable to work as required in this
Agreement as a result of sickness, an accident or for any other reason for which
he bears no responsibility (a "Disability"), then the Base Salary payable under
Section 3.1 shall continue to be paid in full until the earlier of: (a) the date
which is twelve (12) months from the date Manager first becomes Disabled, or (b)
the effective date of termination of this Agreement if notice of termination was
given in accordance with Section 2.2, prior to Manager incurring such
Disability.
4.2 The Manager shall immediately inform the Company (by notifying the
Chairman of the Supervisory Board) about any work incapacity and the expected
duration thereof as well as the reasons of such incapacity. In the event of
illness, the Manager shall submit upon request a medical certificate attesting
to his incapacity to work and the expected duration thereof.
4.3 If the Manager dies during the term of the Agreement of Employment,
then his widow shall be entitled to the payment of the Base Salary as detailed
in Section 3.1 for the month of the Manager's death and a further three (3)
months.
SECTION 5 COMPANY CAR
5.1 The Company shall provide the Manager with a suitable company car (e.g.
BMW 740 or similar) which he may also use without limitation for private
journeys. Any tax that may be payable and therefore deductible from the
Manager's salary with respect to the Company car shall be paid by Company.
5.2 Company shall reimburse Manager for all gas, oil, maintenance and other
charges in connection with the use of the vehicle and Company shall maintain
liability insurance for use of the vehicle by Manager, and his family members.
Manager acknowledges receipt of the Company's rules and procedures regarding use
of Company vehicles and agrees to abide by the terms thereof.
5.3 The vehicle, including any and all accessories, shall be returned by
Manager to the Company at the end of the term of this Agreement in the original
condition provided to Manager, reasonable wear and tear excepted.
SECTION 6 SPECIAL ALLOWANCES
6.1 The Company shall continue the accident insurance policy for the
benefit of the Manager, which also covers accidents occurring in the private
sphere, providing the following insurance payments:
- in the event of death DM 500,000
- in the event of disability DM 1,000,000
The insurance ends with the expiration of the term of this Agreement. In
such case the Manager may continue the insurance at his own expense. Entitled to
payments under this insurance are the Manager in the case of invalidity or the
persons designated by the Manager in the case of death or his heirs if no such
designation has been made.
3
<PAGE> 4
6.2 Manager shall be an insured under the Director's and Officers liability
policy maintained by Hayes Lemmerz for the benefit of Hayes Lemmerz and its
subsidiaries. The Company also shall continue the insurance for legal costs.
6.3 Company shall provide enhanced coverage in the event of hospitalization
of Manager allowing for a single room and choice of doctor in accordance with
the terms and tariffs of private Germany insurers and subject to approval by
such insurers of Manager's insurability; provided that the initial premium
payable by Company shall not exceed DM 1,000 per year.
6.4 Any claim to benefits under the above policies of insurance is subject
to the respective insurance conditions.
6.5 Manager shall be required to have a physical examination by the
physician of his choice on an annual basis, which examination shall be paid for
by the Company.
SECTION 7 BUSINESS EXPENSES
If business trips are required, or other expenses incurred, in the interest
of the Company, the Manager shall be entitled to reimbursement for such
reasonable expenses. In order to obtain reimbursement, Manager shall submit such
expense reports and receipts as are required by the Company's auditors, tax
authorities and as may be otherwise set forth from time to time in the Company's
expense reimbursement policies.
SECTION 8 HOLIDAY
The Manager shall be entitled to an annual holiday of 30 working days,
which is to be taken in installments. He shall agree upon the dates of holidays
with the other Managers, with due regard to the Company's business interests.
SECTION 9 PENSION RIGHTS
9.1 The Manager shall be entitled to a pension payable in arrears at the
end of each calendar month in the amount of 50% of the monthly Base Salary last
received according to Section 3.1, if he becomes disabled because of disease or
other circumstances for which he bears no fault and if for that reason he
discontinues to work.
9.2 Irrespective of any disability, at termination of his employment after
having attained the age of sixty-five (65), the Manager shall be entitled to a
monthly pension which shall be payable twelve (12) times per year. Until
completion of the fifth (5th) year of employment, such pension shall amount to
12.5% of the monthly Base Salary last received pursuant to subsection 3.1; and
thereafter the pension shall increase by 3.75% per year up to 50% of the Base
Salary after a total of fifteen (15) years of employment. For purposes of
computing the Manager's years of employment with the Company under this
provision 9.2, July 1, 1990 shall be Manager's first day of employment and each
consecutive twelve (12) month period thereafter shall constitute one (1) year of
service. Notwithstanding any law to the contrary, any accumulated pension claim
shall be considered non-lapsable as of July 1, 1997.
9.3 In case of death of the Manager, his widow shall be entitled for the
rest of her life to a pension in the amount of 60% of the amount to which the
Manager would have been entitled under Section 9.2.
9.4 In case of death of the widow, the children shall be entitled to an
orphan's pension in the amount of 20% of the amount payable pursuant to Section
9.2 until completion of the eighteenth (18th) year of each of their lives, or
additionally, until completion of the twenty-fifth (25th) year of each of their
lives as long as the respective child continues an orderly school or
professional training. A child's right to an orphan's pension continues for any
additional time period after completion of the twenty-fifth (25th) year of the
respective child's life for which the school or professional training is
interrupted or delayed because of the child having fulfilled its statutory
obligation to do the military service or the alternative non-military service.
9.5 Starting at the date of the beginning of the entitlement, the pension
rights are adjusted at the same percentage ratio as the basic salary of a
federal civil servant of the salary bracket B3.
4
<PAGE> 5
9.6 Any disability pension payment payable to the Manager pursuant to
Section 6.1 shall be deducted from his pension rights.
SECTION 10 RETURN OF PROPERTY
Upon leaving the Company or after his release from his duties of service
pursuant to this Agreement, the Manager shall immediately return to the Company
any and all documents, correspondence, records, drafts and the like referring to
Company's affairs, including any copies thereof, which are still in his
possession and the Company car. The Manager is not entitled to exercise a right
of retention concerning the aforementioned documents and objects.
SECTION 11 CONFIDENTIALITY, NON-COMPETITION
11.1 The Manager shall maintain strict confidentiality with respect to
third parties and unauthorized staff members of the Company as to all
confidential events or business matters of the Company or any affiliated company
including any trade secrets coming to his attention within the scope of his
activities for the Company, irrespective of how he obtained such knowledge. This
does not apply to such information for which a disclosure is essential for the
due performance of the functions delegated to the Manager or which has been
approved by the shareholders in advance. This duty of confidentiality shall
continue to be valid even after the termination of the employment relationship.
11.2 Unless he receives prior written approval from the shareholders of the
Company, during the duration of this Agreement the Manager shall not accept
employment in any manner with any enterprise or business which directly or
indirectly competes with the Company or any affiliated company. Under the same
proviso, during the duration of this Agreement the Manager shall not establish,
acquire nor directly or indirectly engage in any such enterprise or business.
11.3 In the event this Agreement is terminated by the Company, and as
consideration for the payment by the Company of an amount equal to twelve (12)
times Manager's monthly Base Salary as of the date of termination of this
Agreement, Manager shall not accept employment in any manner with any enterprise
or business which directly or indirectly competes with the Company or any
affiliated company for a period of one (1) year following the termination of
this Agreement. During such period the Manager shall not establish, acquire nor
directly or indirectly engage in any such enterprise or business. The payment
made hereunder shall be in addition to the payment under Section 2.3(b).
11.4 In the event of a breach of the post-contractual non-competition
obligation under Section 11.3 by the Manager, he shall be liable to pay to the
Company a contractual penalty equal to the Base Salary paid to Manager in the
month prior to the termination of this Agreement, which monthly Base Salary
amount shall be paid for each month such violation continues. The Company
reserves any other rights it may have as a consequence of the breach of the
non-competition obligation.
SECTION 12 RIGHTS OF USE AND INVENTIONS
The Manager shall be obliged to inform the Company about any inventions
according to the provisions of the Employees Inventions Act immediately in
writing. The Company shall be entitled to declare within a period of four (4)
months after receipt of the information, whether and to which extent the Company
wants to make use of the inventions. In case of the use of the inventions by the
Company, the Manager shall receive compensation according to the provisions of
the Employees Inventions Act and the respective regulations.
SECTION 13 FINAL PROVISIONS
13.1 This Agreement replaces any and all previous agreements concluded by
and between the parties hereto.
13.2 There are no written or oral agreements other than the foregoing
provisions. The parties hereto have not made any side agreements.
5
<PAGE> 6
13.3 Amendments and supplements of this Agreement must be in writing to be
effective. This also applies for an amendment of this provision.
13.4 As far as in this Agreement written form has been agreed upon, this
form is also observed by the sending of a telegram, telex or telecopy if the
author of a document is indicated.
13.5 Should any provision of this Agreement be or become invalid, the
validity of the remaining provisions of this Agreement shall not be affected
thereby. Such invalid provision shall be replaced by such provision, which comes
closest to the economic intention of the parties.
13.6 This Agreement is governed by the laws of the Federal Republic of
Germany.
13.7 This Agreement shall be executed in both German and English. Should
there be a discrepancy between the two versions, the real intention of the
parties shall be determined. In the event of any doubt, the English version
shall prevail as the language in which this Agreement was negotiated.
13.8 The Manager confirms to have received today an executed copy of this
Agreement signed by the Company.
13.9 After the termination of this Agreement all mutual claims of the
parties shall lapse, with the exception of pension or disability claims, to the
extent such claims have become vested prior to termination of the Agreement, of
the Manager and his legal successor; claims shall lapse unless they have been
asserted towards the other party in writing within a period of three (3) months.
If the other party rejects a claim or if the other party does not agree to the
claim within two (2) weeks of its assertion, the claim shall lapse unless it is
asserted through a court of law within three (3) months of the date such claim
was asserted in writing.
13.10 In the event of disputes arising from the Agreement of Employment,
the parties shall invoke an industrial tribunal.
WHEREFORE, the Company and Manager have executed this Agreement as of this
25th day of September, 1997.
LEMMERZ HOLDING GMBH
By: /s/ R. CUCUZ By: /s/ KLAUS JUNGER
----------------------------- -------------------------------------
Klaus Junger
Its: Director
6
<PAGE> 1
EXHIBIT 12
HAYES LEMMERZ 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
JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31,
1994 1995 1996 1997 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Earnings:
Earnings (loss) before taxes on income
and minority interest.............. $42.2 $49.9 $46.2 $(102.0) $ 55.1
Interest expense:
Bank borrowings and long-term debt.... 13.6 13.4 15.0 48.5 90.4
Rentals(1).............................. 1.0 2.0 2.6 4.6 5.7
----- ----- ----- ------- ------
Earnings before interest expense, taxes
on income and minority interest....... $56.8 $65.3 $63.8 $ (48.9) $151.2
===== ===== ===== ======= ======
Fixed charges:
Bank borrowings and long-term debt.... $13.6 $13.4 $15.0 $ 48.5 $ 90.4
Rentals(1)............................ 1.0 2.0 2.6 4.6 5.7
----- ----- ----- ------- ------
Total fixed charges................ $14.6 $15.4 $17.6 $ 53.1 $ 96.1
===== ===== ===== ======= ======
Ratio of earnings to fixed charges...... 3.89 4.24 3.63 (0.92) 1.57
===== ===== ===== ======= ======
Coverage deficiency on fixed charges.... N/A N/A N/A 102.0 N/A
===== ===== ===== ======= ======
</TABLE>
- ---------------
(1) Estimated interest component of rent expense.
<PAGE> 1
EXHIBIT 22.1
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION PERCENTAGE OWNERSHIP
------------------ ----------------------------- --------------------
<S> <C> <C>
Hayes Lemmerz International -- California, Inc. Delaware 100%
Hayes Lemmerz International -- Michigan, Inc. Michigan 100%
Hayes Lemmerz International -- Indiana, Inc. Delaware 100%
Hayes Lemmerz International -- Georgia, Inc. Delaware 100%
Hayes Lemmerz International -- Texas, Inc. Texas 100%
Hayes Lemmerz International -- Ohio, Inc. Ohio 100%
Hayes Lemmerz International -- Mexico, Inc. Delaware 100%
Hayes Lemmerz, S.p.A. Italy 100%
HLI (Europe), Ltd. Delaware 100%
Hayes Lemmerz de Espana, S.A. Spain 100%
Hayes Lemmerz Japan Limited Japan 100%
HL Ohio Sub, Inc. Delaware 100%
Motor Wheel de Mexico, S.A. de C.V. Mexico 75%
Hayes Lemmerz Autokola, a.s. Czech Republic 100%
Aluminum Wheel Technology, Inc. Delaware 98%
HL Holdings BV Netherlands 100%
HL Holding Germany GmbH Germany 100%
Hayes Lemmerz Hungary Consulting Limited Liability Hungary 100%
Company
Newco Nr. 17 Vermogensverwaltungs GmbH Germany 100%
Newco Nr. 18 Vermogensverwaltungs GmbH Germany 100%
Hayes Lemmerz Holding GmbH Germany 99.9%
Hayes Lemmerz Werke GmbH Germany 100%
Hayes Lemmerz Werke Wohnungsbaugesellschaft mbH Germany 100%
Metaalgieterij Giesen B.V. Netherlands 91%
Hayes Lemmerz Manresa SPRL Spain 100%
Hayes Lemmerz System Services N.V. Belgium 99.7%
Hayes Lemmerz Belgie N.V. Belgium 99.9%
Hayes Lemmerz Comercio e Participacoes SRL Brazil 99.9%
Lemmerz Canada, Inc. Canada 100%
Hayes Lemmerz-Inci Jant Sanayi A.S. Turkey 68%
</TABLE>
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Stockholders
Hayes Lemmerz International, Inc.
We consent to incorporation by reference in the registration statements (No.
33-80552 and 33-71708) on Form S-8 of Hayes Lemmerz International, Inc. of our
reports dated February 27, 1998 relating to the consolidated balance sheets of
Hayes Lemmerz International, Inc. and subsidiaries as of January 31, 1998 and
1997, and the related consolidated statements of operations, changes in
stockholders' equity (deficit), and cash flows for each of the years in the
three-year period ended January 31, 1998, and our report on the accompanying
financial statement schedule which reports appears in the January 31, 1998,
annual report on Form 10-K of Hayes Lemmerz International, Inc.
/s/ KPMG Peat Marwick LLP
Detroit, Michigan
April 24, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 23,100
<SECURITIES> 0
<RECEIVABLES> 217,800
<ALLOWANCES> 4,300
<INVENTORY> 131,500
<CURRENT-ASSETS> 382,400
<PP&E> 792,600
<DEPRECIATION> 122,200
<TOTAL-ASSETS> 1,758,900
<CURRENT-LIABILITIES> 372,900
<BONDS> 0
0
0
<COMMON> 300
<OTHER-SE> 161,200
<TOTAL-LIABILITY-AND-EQUITY> 1,758,900
<SALES> 1,269,800
<TOTAL-REVENUES> 1,269,800
<CGS> 1,053,700
<TOTAL-COSTS> 1,053,700
<OTHER-EXPENSES> 70,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 90,400
<INCOME-PRETAX> 55,100
<INCOME-TAX> 23,200
<INCOME-CONTINUING> 31,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,400
<EPS-PRIMARY> 1.19
<EPS-DILUTED> 1.12
</TABLE>
