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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, 1999
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)
38481 HURON RIVER DRIVE, ROMULUS, MICHIGAN 48174
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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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 28, 1999 (BASED ON THE CLOSING PRICE OF THE REGISTRANT'S
COMMON STOCK REPORTED ON THE NEW YORK STOCK EXCHANGE ON SUCH DATE) WAS
APPROXIMATELY $235 MILLION.
THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF APRIL 30, 1999 WAS
30,324,235 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.................................................. 16
Item 3. Legal Proceedings........................................... 17
Item 4. Submission of Matters to a Vote of Security Holders......... 18
PART II
Market for Registrant's Common Equity and Related 18
Item 5. Stockholder Matters.........................................
Item 6. Selected Financial Data..................................... 18
Management's Discussion and Analysis of Financial Condition
Item 7. and Results of
Operations.................................................. 19
Quantitative and Qualitative Disclosures About Market 24
Item 7A. Risk........................................................
Item 8. Consolidated Financial Statements and Supplementary Data.... 25
Changes in and Disagreements with Accountants on Accounting
Item 9. and Financial
Disclosure.................................................. 25
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 25
Item 11. Executive Compensation...................................... 27
Security Ownership of Certain Beneficial Owners and 27
Item 12. Management..................................................
Item 13. Certain Relationships and Related Transactions.............. 27
PART IV
Exhibits, Financial Statement Schedules and Reports on Form 27
Item 14. 8-K.........................................................
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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. As used herein, any reference to a
fiscal year of the Company shall mean the Company's fiscal year commencing
February 1 of a calendar year and ending on January 31 of the next calendar
year. Thus, for example, "fiscal 1998" refers to the fiscal year which commenced
on February 1, 1998 and ended on January 31, 1999.
The following discussion of the Company's business during fiscal 1998 does
not reflect the Company's acquisition of CMI International, Inc. ("CMI"), which
took place on February 3, 1999. A discussion of the business of CMI is set forth
below under the heading of "CMI Acquisition."
The Company is the world's largest manufacturer of automotive wheels,
supplying approximately 32% and 23% 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, DaimlerChrysler (the three of which
comprised approximately 50% of the Company's fiscal 1998 net sales), BMW,
Renault, Fiat, Volkswagen, Porsche, 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, DaimlerChrysler, Iveco, Strick, Great Dane
Trailers, Freightliner, PACCAR, Volvo/GM, Renault and Western Star. The Company
also produces a variety of non-wheel cast aluminum products for the automotive,
heating equipment and general machinery industries. Sales of automotive wheel
and brake products comprised approximately 82% of the Company's combined net
sales in fiscal 1998 (75% wheels and 7% brake components), with the remaining
18% comprised of commercial highway wheel and brake products (13%) and non-wheel
aluminum castings (5%).
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 market position in North America and Europe in 1998:
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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(R)) 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 expanding its presence and developing
strategic alliances around the world. These include subsidiaries and 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.
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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 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 51% in 1998. 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(R) aluminum wheels. Aluminum wheel
penetration in Europe in 1998 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(R) 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(R) 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, and
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
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 "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 the Company; (ii) the Company's common stock was
recapitalized with each share of common stock then outstanding being exchanged
for 1/10th share of Common Stock and $28.80 in cash (the "Recapitalization");
and (iii) Joseph Littlejohn & Levy Fund II, L.P. and certain other investors
acquired ownership of approximately 76.6% of the Common Stock. On June 30, 1997,
the Company acquired Lemmerz Holding GmbH ("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"). Lemmerz was founded
in 1919 at its current site in Konigswinter, Germany and was the leading
full-line wheel supplier in Europe. 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(R) 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 1998 approximately 29 million aluminum automotive wheels where
manufactured in North America. The Company estimates that it sold approximately
26% of the aluminum wheels manufactured in North America in 1998. In Western
Europe, the Company estimates that approximately 18 million cast aluminum wheels
were manufactured in 1998, of which the Company sold approximately 27%.
Based on published vehicle production statistics, the Company estimates
that in 1998 approximately 42 million steel passenger car and light truck
wheels, including 10 million steel wheels manufactured by the OEMs for their own
use, were manufactured in North America. During 1998, the Company believes that
it sold approximately 51% of the independently manufactured steel wheels and
approximately 38% of all steel wheels manufactured in North America. The Company
estimates that in 1998 approximately 74 million steel passenger car and light
truck wheels, including 13 million steel wheels manufactured by the OEMs for
their own use, were manufactured in Western Europe, of which approximately 24%
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 1 suppliers ("Tier 1 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 1 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 approximately 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(R) two-piece aluminum wheel, which provides both high
styling and lighter weight. The Company believes this breadth of product
offerings and manufacturing capabilities enhances its ability to support a full
vehicle platform with any wheel designed by its customers.
The Company also 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. 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'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. Ford recently outsourced its
entire North American steel wheel production to the Company and 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 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 DaimlerChrysler (in the aggregate,
approximately 50% of the Company's fiscal 1998 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, Europe,
South America and South Africa and are sold in North America, Europe, South
America, South Africa 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 1998, the Company supplied approximately 26%
of the cast aluminum wheels purchased in North America. With the exception of a
limited number of cast aluminum wheels manufactured by Ford in New Zealand and
aluminum wheels manufactured by Toyota and Volkswagen, there is no significant
OEM manufacturing of cast aluminum wheels. In 1998, the Company believes
approximately 51% of passenger cars and light trucks in North America used cast
aluminum wheels, up from approximately 50% in 1997.
Customers. In fiscal 1998, approximately 80% of the Company's total cast
aluminum wheel production was sold to General Motors, Ford and DaimlerChrysler
for use on vehicles produced in North America. The Company exported
approximately 4% of its cast aluminum wheels to Nissan and Isuzu in Japan and
sold approximately 16% 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 majority of the Company's current sales. The
Company introduced its first high volume FFC(R) 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.
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
30% share of the North American market in 1998, as compared with the Company's
share of approximately 26%. Other aluminum wheel manufacturers that account for
the remaining market share include Wheeltek, a subsidiary of Amcast
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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 1998. Substantially all of
the Company's European cast aluminum wheels were sold to DaimlerChrysler, BMW,
Opel, Fiat, Volkswagen, Porsche, Peugeot, Renault, Nissan, Volvo and Ford. In
1998, the Company believes approximately 25% of passenger cars and light trucks
in Europe used cast aluminum wheels, up from approximately 23% in 1997.
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(R) 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 8% to 20% each.
South America and South Africa
The Company has two cast aluminum manufacturing facilities in South
America, both of which are located near Sao Paulo, Brazil. In addition, the
Company (through a majority owned joint venture) operates one cast aluminum
wheel manufacturing facility in Africa which is located near Johannesburg, South
Africa. 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 South American and South African automotive industries.
Customers. The Company estimates that its share of the South American and
South African market for cast aluminum wheels was approximately 50% and 33%,
respectively, for fiscal 1998. The largest customers for the Company's South
American cast aluminum wheels were Ford, General Motors, Volkswagen and
DaimlerChrysler. In 1998, the Company believes approximately 12% of passenger
cars and light trucks in South America used cast aluminum wheels, up from
approximately 11% in 1997. The largest customers for the Company's South African
cast aluminum wheels were BMW, DaimlerChrysler, Dotz and Volkswagen. In
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1998, the Company believes approximately 41% of passenger cars and light trucks
in South Africa used cast aluminum wheels, up from approximately 36% in 1997.
Manufacturing. Engineering, research and development for the Company's
South American and South African cast aluminum wheel operations is currently
performed at the Company's facilities located in such areas, with support from
the Company's European operations.
Competition. The Company's primary competitors in the South American cast
aluminum wheel market for passenger cars are Italmagnesio and Mangels. These
competitors have market shares ranging from 20% to 35%. The Company's primary
competitor in the South African cast aluminum wheel market for passenger cars is
Tiger Wheels, which has a market share of approximately 15%.
FABRICATED WHEELS
The Company's fabricated steel and fabricated aluminum wheels are produced
and sold in North America, Europe and South America.
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
1997 and 1998 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 1998 was approximately 38% (including wheels
manufactured by OEMs). Approximately 91% of the Company's steel wheels were sold
to General Motors, Ford and DaimlerChrysler in fiscal 1998.
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.
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 33% of the
steel wheel market in 1998 while the OEMs together accounted for 29% of the
market in 1998. The Company believes that it is well-positioned to maintain its
market share of steel wheels at General Motors, Ford and DaimlerChrysler against
non-OEM competition.
Although Ford recently outsourced the production of all of its in-house
North American steel wheels to the Company, the Company remains vulnerable to
increased sourcing of steel wheels by General Motors to GM's own wheel
operations, which may win contracts based on factors other than quality, price
and efficiency. General Motors supplied approximately 50% of its steel wheel
needs in each of 1997 and 1998. The Company
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<PAGE> 10
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. General
Motors has no production capability for stylized steel wheels or fabricated
aluminum wheels. The Company continues to work with General Motors 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 of which the Company owns 68%. This joint
venture was established to provide the growing Turkish automobile industry with
quality steel wheels.
Customers. The Company supplied approximately 24% of the automotive steel
wheels manufactured in Europe in 1998. The Company's principal customers include
General Motors, Opel, DaimlerChrysler, Ford, Volkswagen, Audi, BMW, PSA, Nissan
and Volvo. In Eastern Europe, the Company's principal customer is Skoda, the
national automobile manufacturer of the Czech Republic, for which the Company is
the sole supplier of steel wheels.
Manufacturing. The Company's 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, the Company's Ostrava,
Czech Republic facility 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 the Company's 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 Volkswagen together produced approximately 17%
of all passenger car and light truck steel wheels in Europe during 1998.
South America
In South America, the Company has one fabricated wheel manufacturing
facility, which is located near Sao Paulo, Brazil, 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 South
America.
Customers. The Company supplied approximately 40% of the automotive steel
wheels manufactured in South America in 1998. The Company's principal customers
in South America include Ford, General Motors, DaimlerChrysler, Renault and
Volkswagen.
Manufacturing. The Company's Brazilian steel wheel manufacturing facility
has its own research and development facility and its operations are being
converted to state-of-the-art, automated production equipment.
Competition. The Company's principal non-OEM competitor for the sale of
passenger car and light truck steel wheels in South America is Meritor-Fumigali.
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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.
Customers. In fiscal 1998, the Company's OEM customers for its automotive
brake components were DaimlerChrysler, Ford and Nissan. In addition, the Company
sold automotive brake components, on a Tier 2 basis, to Continental Teves, Lucas
Varity and Delphi Automotive.
Manufacturing. The Company currently has two manufacturing facilities in
North America which produce brake components. These facilities are located in
Homer, Michigan and Monterrey, Mexico (which facility is operated by a joint
venture of which the Company owns 75%).
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
Aisin Seiki. The Company believes that Lucas Varity and Bosch supply brake drums
and rotors as well as anti-lock brake systems, while American Axle and Aisin
Seiki are suppliers of brake rotors and drums. Delphi Automotive 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, Europe, South America and Asia.
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 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.
Approximately 500,000 commercial highway trucks and trailers were sold in
North America in 1998. Of this market, the Company supplied approximately 22% of
the wheels and 29% 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 Volvo of North America. 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 1998.
Manufacturing. The Company has three manufacturing facilities which produce
components for the commercial highway market. These facilities are located in
Akron, Ohio (wheels and rims), Berea, Kentucky (brake components) and Mexico
City, Mexico (cast spoke wheels, rims and 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
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<PAGE> 12
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 Meritor.
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 26% of the heavy truck steel
wheels sold in Western Europe in 1998. The Company's principal customers for
steel wheels for commercial highway vehicles include DaimlerChrysler, Renault,
Volvo, Leyland/DAF, PACCAR and Iveco.
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.
South America and Asia
The Company manufactures steel truck and trailer wheels for sale to OEMs of
commercial highway vehicles in South America at its Sao Paulo, Brazil facility
and in Asia at its Pune, India facility.
Customers. The Company supplied approximately 50% of the heavy truck steel
wheels sold in South America in 1998. The Company's principal customers for
steel wheels for commercial highway vehicles in South America include Ford,
DaimlerChrysler, Volvo, Volkswagen and Roudon. The Company supplied
approximately 20% of the heavy truck steel wheels sold in India in 1998. The
Company's largest customers for steel wheels for commercial highway vehicles in
India include Bharat Forge, Telco and Volvo (India).
Manufacturing. At the Sao Paulo and Pune facilities, the Company produces a
variety of tubeless and tube-type wheels for commercial highway vehicles. Both
the Sao Paulo and Pune facilities have total annual capacity for these products
of approximately 1.0 million wheels.
Competition. The Company's principal competitor for the sale of commercial
highway wheels in South America is FNV and the Company's principal competitor
for the sale of commercial highway wheels in India is Wheels of India.
OTHER PRODUCTS
The Company has two non-wheel aluminum casting operations, collectively
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.
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<PAGE> 13
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 operates four tire and wheel assembly operations in
Europe; these facilities are located in Brussels, Belgium; Konigswinter and
Bremen, Germany; and Ostrava, Czech Republic. From these facilities, the Company
supplies balanced tire and wheel assemblies to customers 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
As of January 31, 1999, the Company had 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 Continental Lemmerz (Portugal) -- Componente
para Automoveis, Lda., a value-added assembler of passenger car and light
truck wheels and tires in Portugal;
(iv) a 49% in Hayes Wheels do Brasil, Ltda., a cast aluminum wheel
manufacturer in Brazil;
(v) a 25% interest in Reynolds-Lemmerz Industries, a cast aluminum
wheel manufacturer in Canada;
(vi) a 25% interest in Jantas Jant Sanayi ve Ticaret A.S., a truck
wheel manufacturer in Turkey; and
(vii) a 25% interest in Siam Lemmerz Co., Ltd., an aluminum wheel
manufacturer in Thailand.
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, 1999, approximately 12% of the Company's employees in the
United States were represented by the 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. These agreements expire at
various times through 1999. Additional agreements are often made with the
facility Works Council on an individual basis covering miscellaneous topics of
local concern. There are no
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<PAGE> 14
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.
CMI ACQUISITION
The Company acquired CMI on February 3, 1999 for $605 million in cash, of
which approximately $129 million was used to repay CMI's indebtedness existing
at the time of the acquisition and the balance of which was paid to the then
existing shareholders of CMI. The cash portion of the consideration, the
refinancing of existing CMI debt and the fees and expenses of the acquisition of
CMI were financed with the proceeds of the Company's senior secured credit
facilities and the issuance of $250 million of senior subordinated notes in
December 1998.
The Company believes that CMI is the premier independent full service
supplier of cast aluminum, iron and advanced polymer components to the
automotive industry. CMI and its joint ventures operate a total of 16
facilities, which are located primarily in the midwestern United States, with
other locations in Mexico and Norway. CMI directly operates eight manufacturing
facilities, including two aluminum foundries, one ductile iron foundry, one
polymer facility, one facility that has both aluminum casting and injection
molding polymer capabilities and three dedicated machining and assembly centers.
CMI also operates a world-class technical and research and development center
which provides design, engineering, sales and marketing support services to all
of CMI's facilities and joint ventures. For the fiscal year ended May 31, 1998,
CMI had total sales of $573.9 million and net income of $22.4 million.
CMI focuses its design, manufacturing and finishing competencies on a
select group of products, including: (i) wheel end attachments and assemblies
such as steering knuckles, spindles, hub carriers and suspension arms; (ii)
undercarriage components such as structural cross members, subframes, engine
cradles and axle assemblies; and (iii) powertrain and engine components such as
intake manifolds, exhaust manifolds, cylinder heads and engine blocks. CMI's
principal customers are OEMs of passenger cars and light trucks, including Ford,
DaimlerChrysler and General Motors, which accounted for approximately 38%, 24%
and 12% of net sales, respectively, for the fiscal year ended May 31, 1998. In
1997, CMI supplied components for over 50 different passenger car and light
truck platforms and its products were used in eight of the ten best-selling
vehicles in North America.
The Company believes that CMI is the largest independent supplier of wheel
end attachments and assemblies to automotive OEMs. Within the industry,
non-captive suppliers produce approximately 18.5 million wheel end attachments
and assemblies each year, of which CMI supplies approximately 37% of this total.
In the market for aluminum undercarriage components, CMI has a market-leading
share of approximately 59% in this 1.2 million-unit market. As a supplier of
powertrain and engine components, CMI also holds the number-one market share of
approximately 25% among suppliers of this 18.6 million-unit market.
CMI emphasizes technological innovation in its efforts to enhance quality,
reduce costs and improve lead times. This enables CMI to manufacture
high-precision, lightweight components that meet the high quality, low-cost
requirements of its automotive customers. CMI's focus on quality is evidenced by
the ISO 9001 and QS 9000 certification of each of CMI's eligible operating
locations and is supported by CMI's total quality management system that
emphasizes planning, control and continuous improvement processes.
CMI's broad material offerings (aluminum, polymer and ductile iron) enable
it to supply products in the material that best satisfies its customer's needs.
CMI leverages its technical expertise to develop new material and process
applications such as differential carriers, control arms, power steering pump
housings, squeeze cast air conditioner scrolls and metal matrix composite brake
rotors. As certain products move to new materials, CMI actively seeks new
products to replace capacity previously dedicated to those parts.
Wheel End Attachments and Assemblies
CMI produces aluminum and iron knuckles, spindles and spindle assemblies,
iron hub carriers and axle flanges for the corner of the vehicle. CMI is the
largest supplier of steering knuckles and spindles to Ford and a major supplier
to Volvo and GM. Approximately 77%, 18% and 5% of North American wheel
attachments
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<PAGE> 15
are made from iron, aluminum and steel, respectively. As weight reduction
initiatives continue and casting technologies improve, aluminum's market share
is expected to grow to 27% by 2002. However, aluminum is not expected to replace
iron completely due to strength requirements on certain vehicle platforms. As a
result of its ability to produce both iron and aluminum components, the Company
believes that CMI is well positioned to take advantage of the market trends for
these components.
Undercarriage Components
CMI manufactures structural aluminum subframes and crossmembers. CMI
developed a one-piece cast aluminum crossmember for the 1995 Chrysler NS
Minivan, the first high-volume application of such product. Approximately 5% of
crossmembers and subframes for the North American market are currently produced
from aluminum, of which 80% are cast. Competing metals and processes include
stamped steel of approximately 92%, hydro-formed steel of approximately 2% and
extruded aluminum of approximately 1%. Aluminum's market share of this segment
is expected to grow to approximately 10% by 2002 primarily due to desired weight
reductions and ride characteristics. The Company believes that CMI is well
positioned to benefit from this expected increased penetration of aluminum.
Powertrain Components
CMI manufactures a variety of powertrain components, including aluminum and
polymer intake manifolds, aluminum cylinder heads, engine blocks and ductile
iron exhaust manifolds. CMI produces 25% of the total intake manifolds and 30%
of the total exhaust manifolds used in North America. Approximately two-thirds
of the intake manifolds produced in North America are made from aluminum, with
the remainder from polymers. Nearly half of all intake manifolds are expected to
be made of polymers by 2000. Given CMI's ability to manufacture both aluminum
and polymer components, the Company believes that CMI will remain a leading
supplier of these products.
Welded technologies are used to produce less complex polymer manifolds
utilizing multiple pieces. CMI, which has specialized in complex design
manifolds, is the largest lost core producer worldwide. More recently, CMI has
developed technologies that the Company believes that will ensure CMI's position
in the overall manifold market. While CMI currently manufactures a limited
number of welded components, CMI is actively developing proprietary processes
that management believes is superior to other current welding technologies. The
Company believes that this will enable CMI to capture future growth in this
market segment.
Joint Ventures
CMI operates two joint ventures with Alcoa, which joint ventures operate a
total of three aluminum foundries (two in the United States and one in Norway)
and produce aluminum products in all of CMI's product lines. CMI also operates a
joint venture with Digitron, Inc., which joint venture operates a machining
facility in the United States.
Strategic Considerations
As automotive suppliers continue to consolidate worldwide, the Company
intends to strengthen and expand its leadership position to meet the global
sourcing, quality and engineering requirements of its customers. The acquisition
of CMI is expected to create significant growth opportunities for the Company,
resulting from the following:
- the combination of the Company's wheel and brake products with CMI's
suspension and structural components, leading to the development of a
suspension module for automotive applications. In the module concept,
vehicles will be designed and built in modules, which will then be
assembled into the entire vehicle. The suspension module consists of the
wheels, mechanical brake components and various suspension, wheel-end and
structural components;
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<PAGE> 16
- the expansion of the market the Company serves from the $6 billion wheel
market to the $50 billion market for suspension components and
assemblies;
- the strengthening of the Company's position with key automotive customers
in a rapidly consolidating market;
- the utilization of the Company's global presence to expand CMI's sales
outside of North America;
- the ability to share innovative products and processes across passenger
cars, light trucks and commercial highway vehicles worldwide; and
- the exploitation of growth opportunities in the rapidly expanding market
for aluminum and lightweight materials.
In addition to these strategic benefits, the Company believes that the CMI
Acquisition will ultimately result in annual cost savings of at least $42
million, primarily as a result of synergies, including the consolidation of
selling, general, administrative and engineering facilities, improvement of
manufacturing productivity, combination of purchasing power and an increase in
sales by combining the marketing efforts of the two companies.
ITEM 2. PROPERTIES
The Company operates twelve major manufacturing facilities in North
America, and has its headquarters in Romulus, Michigan. Total North American
manufacturing space is approximately 3.1 million square feet. Within Europe, the
Company operates nine manufacturing facilities with approximately 5.4 million
square feet in the aggregate. In South America, Asia and South Africa, the
Company operates four manufacturing facilities with approximately 1.4 million
square feet in the aggregate. The Company believes that its plants are adequate
and suitable for the manufacturing of products for the markets in which it
sells. Moreover, the Company believes that it maintains adequate production
capacity at its manufacturing facilities to meet current demand for all of its
products. To meet projected demand for fabricated aluminum wheels and FFC(R)
wheels in North America and Europe, the Company expects to continue upgrading
and expanding its current manufacturing facilities. All of the Company's
worldwide facilities are either QS 9000 or ISO 9001 registered.
The Company's manufacturing and research facilities are as follows:
<TABLE>
<CAPTION>
OWNED OR
LOCATION EMPLOYEES USE LEASED
-------- --------- --- --------
<S> <C> <C> <C>
Romulus, MI............. 240 Headquarters and R&D Leased
Howell, MI.............. 320 Cast Aluminum Wheels Owned
Gainesville, GA......... 360 Cast Aluminum Wheels Owned
Huntington, IN.......... 420 Cast Aluminum Wheels Owned
La Mirada, CA........... 480 Cast Aluminum Wheels Leased
Somerset, KY............ 360 Cast Aluminum Wheels Owned
Sedalia, MO............. 740 Fabricated Wheels Owned
Bowling Green, KY....... 300 Fabricated Wheels Leased
Homer, MI............... 300 Automotive Brake Components Owned
Monterrey, Mexico....... 160 Automotive Brake Components Leased
Akron, OH............... 210 Commercial Highway Wheels Owned
Berea, KY............... 220 Commercial Highway Brake Components Owned
Mexico City, Mexico..... 655 Commercial Highway Wheels and Brake Owned
Components
Barcelona, Spain........ 160 Cast Aluminum Wheels Owned
Dello, Italy............ 340 Cast Aluminum Wheels and R&D Owned
Campiglione Fenile,
Italy................. 140 Cast Aluminum Wheels Leased
Johannesburg, South
Africa................ 460 Cast Aluminum Wheels Owned
</TABLE>
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<PAGE> 17
<TABLE>
<CAPTION>
OWNED OR
LOCATION EMPLOYEES USE LEASED
-------- --------- --- --------
<S> <C> <C> <C>
Sao Paulo, Brazil (2
facilities)........... 1,150 Fabricated, Cast Aluminum and Commercial Owned
Highway Wheels
Ostrava, Czech
Republic.............. 480 Fabricated Wheels and Tire and Wheel Owned
Assembly
Konigswinter, Germany... 1,250 Fabricated Wheels (Automotive and Commercial Owned
Highway), Tire and Wheel Assembly and R&D
Manresa, Spain.......... 365 Fabricated Wheels Owned
Manisa, Turkey.......... 120 Fabricated Wheels Owned
Pune, India............. 240 Commercial Highway Wheels Leased
Hoboken, Belgium........ 640 Cast Aluminum Wheels, Non-Wheel Castings and Owned
R&D
Tegelen, Netherlands.... 420 Non-Wheel Castings and R&D Owned
Brussels, Belgium....... 30 Tire and Wheel Assembly Owned
Bremen, Germany......... 10 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 manufacturing quality, design and safety. 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 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 made by 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.
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.
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<PAGE> 18
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 and the state-listed sites, the Company has
potential environmental liability at five (5) Superfund sites arising out of
businesses presently operated by Kelsey-Hayes (now owned by LucasVarity).
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
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company had 30,324,235 shares of Common Stock outstanding and 110
record holders as of April 28, 1999. The Company's shares are traded on 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 during the last two fiscal years.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL YEAR ENDED JANUARY 31, 1999
Quarter ended January 31, 1999............................ 34.875 26.750
Quarter ended October 31, 1998............................ 36.438 23.500
Quarter ended July 31, 1998............................... 41.063 36.250
Quarter ended April 30, 1998.............................. 39.125 24.750
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
</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.
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, 1999. The
information set forth below should be read in conjunction with
18
<PAGE> 19
the Company's Consolidated Financial Statements and Notes to Consolidated
Financial Statements filed herewith, beginning at page F-1.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31,
1995 1996 1997 1998 1999
----------- ----------- ----------- ----------- -----------
(AMOUNTS IN MILLIONS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales................................ $ 537.6 $ 611.1 $ 778.2 $1,269.8 $1,672.9
Depreciation and amortization............ 29.6 32.7 47.6 71.2 92.4
Interest expense, net.................... 13.4 15.0 48.5 90.4 94.9
Earnings (loss) before extraordinary
loss.................................. 29.9 28.4 (65.5) 31.4 52.0
Extraordinary loss....................... -- -- 7.4 -- 8.3
------- ------- -------- -------- --------
Net income (loss)........................ $ 29.9 $ 28.4 $ (72.9) $ 31.4 $ 43.7
======= ======= ======== ======== ========
Balance Sheet Data:
Total assets............................. $ 589.6 $ 633.9 $1,183.1 $1,758.9 $2,110.9
Long-term debt........................... 112.7 129.0 710.2 897.0 988.4
Stockholders' equity (deficit)........... 216.4 245.4 (41.1) 161.5 220.9
Per Share Data:
Earnings (loss) before extraordinary
loss.................................. $ 0.85 $ 0.81 $ (2.36) $ 1.12 $ 1.60
Extraordinary loss, net of tax........... -- -- (0.27) -- (0.25)
------- ------- -------- -------- --------
Earnings (loss) per share................ $ 0.85 $ 0.81 $ (2.63) $ 1.12 $ 1.35
======= ======= ======== ======== ========
Dividends declared per share............. $ 0.03 $ 0.03 $ 0.015 -- --
Average shares outstanding (in
thousands)............................ 35,148 35,148 27,703 28,132 32,411
</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 1998 Compared to Fiscal 1997
The Company's net sales for fiscal 1998 were $1,672.9 million, an increase
of 31.7% as compared to net sales for fiscal 1997. This increase was due to
additional sales contributed by Lemmerz, which was acquired on June 30, 1997,
sales contributed by the recent acquisitions of Alumitech, Borlem, MIN-CER, N.F.
Die and Kalyani (the "1998 Acquisitions") and higher sales in the Company's
European businesses and the automotive brake business in North America. These
increases were realized despite the negative impacts of the GM strike in the
Company's second quarter ended July 31, 1998 and the economic and market
conditions in Brazil and India.
The Company's gross profit for fiscal 1998 increased to $289.8 million or
17.3% of net sales as compared to $216.1 million or 17.0% of net sales for
fiscal 1997. This increase in margin amount was achieved due to the increased
revenues and improved productivity in most of the Company's businesses, despite
the negative impacts of the GM strike and the economic and market conditions in
Brazil and India.
Marketing, general and administrative expenses were $71.0 million or 4.2%
of net sales for fiscal 1998 as compared to $52.5 million or 4.1% of net sales
for fiscal 1997. Marketing, general and administrative expenses remained equal
with fiscal 1997 as a percent of sales, despite increased costs related to the
recent acquisitions. The Company believes that these costs will improve as a
percent of sales as expected savings are realized from the acquisition of
Lemmerz and the 1998 Acquisitions.
19
<PAGE> 20
Engineering and product development costs were $20.2 million or 1.2% of net
sales for fiscal 1998 as compared to $11.7 million or 0.9% of net sales for
fiscal 1997. These increases were attributable to additional costs incurred as a
result of the Lemmerz Acquisition and the 1998 Acquisitions and the negative
impact of the GM strike. The Company believes that costs will increase, however
engineering and product development costs as a percent of sales will improve as
expected savings are realized as a result of these acquisitions.
Amortization of intangibles increased by $3.9 million to $16.6 million for
fiscal 1998. This increase is attributable to the increased goodwill recognized
as a result of the Lemmerz Acquisition and the 1998 Acquisitions.
Interest expense was $94.9 million for fiscal 1998, an increase of $4.5
million over fiscal 1997. This increase was due to increased debt incurred to
finance the Lemmerz Acquisition and the 1998 Acquisitions. Such increases were
offset by improved interest rates a result of the Company's reduction in its
leverage ratio.
The extraordinary loss for early extinguishment of debt represented the
write-off of deferred financing costs as a result of refinancing of existing
debt in the second quarter of fiscal 1998. As a result of strong cash flow and a
significantly improved credit position, the Company was able to restructure its
senior credit facility and fully repay its outstanding term debt.
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 by 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.
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.
20
<PAGE> 21
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.
CAPITAL RESOURCES AND LIQUIDITY
The Company's operations provided $178.3 million in cash for fiscal 1998,
an increase of $76.4 million over fiscal 1997. This increase was due primarily
to increased operating income before noncash charges for depreciation,
amortization and deferred taxes and more effective management of working
capital.
Capital expenditures for fiscal 1998 were $134.3 million. These
expenditures were primarily for additional machinery and equipment to increase
the production capacity at the Company's North American and European Aluminum
Wheel facilities and to meet expected future customer requirements for
fabricated aluminum and FFC(R) wheels. The Company anticipates that capital
expenditures for fiscal 1999 will be approximately $200 million relating
primarily to new vehicle platforms, cost reduction programs, and the funding of
new programs associated with the recent acquisition of CMI.
On February 3, 1999, the Company entered into a third amended and restated
credit agreement (the "Third Amended and Restated Credit Agreement") with
Canadian Imperial Bank of Commerce ("CIBC") and Merrill Lynch Capital
Corporation ("Merrill Lynch"), as managing agents. Pursuant to the Third Amended
and Restated Credit Agreement, a syndicate of lenders agreed to lend the Company
up to $450 million in the form of a senior secured term loan facility and up to
$650 million in the form of a senior secured revolving credit facility. Such
term loan and revolving credit facilities are guaranteed by the Company and all
of its existing and future material domestic subsidiaries. Such term loan and
revolving facilities are secured by a first priority lien in substantially all
of the properties and assets of the Company and its material domestic
subsidiaries, now owned or acquired later, including a pledge of all of the
shares of certain of the Company's existing and future domestic subsidiaries and
65% of the shares of certain of the Company's existing and future foreign
subsidiaries.
In anticipation of the acquisition of CMI, and as part of the financing
thereof, the Company issued and sold $250 million in principal amount of 8 1/4%
Senior Subordinated Notes due 2008 (the "8 1/4% Notes") in an offering under
Rule 144A of the Securities Act which closed December 8, 1998. The 8 1/4% Notes
are general unsecured obligation of the Company ranking pari passu with the
Company's 11% Senior Subordinated Notes due 2006 in the original principal
amount of $250 million (the "11% Notes") and the Company's 9 1/8% Senior
Subordinated Notes due 2007 in the original principal amount of $400 million
(the "9 1/8% Notes").
In April 1998, the Company entered into a three-year agreement pursuant to
which the Company and certain of its subsidiaries sold, and will continue to
sell on an ongoing basis, a portion of their accounts receivables to a special
purpose entity ("Funding Co."), which is wholly owned by the Company. The
Company and such subsidiaries, irrevocably and without recourse, transferred and
will transfer substantially all of their U.S. dollar denominated trade accounts
receivable to Funding Co. Funding Co. then sold and will sell such trade
accounts receivable to an independent issuer of receivable-backed commercial
paper. The Company has collection and administrative responsibilities with
respect to all the receivables which are sold.
21
<PAGE> 22
At January 31, 1999, the Company was in compliance with the various
covenants under the agreements pursuant to which it has or may borrow money.
Management expects that the Company will remain in compliance with these
covenants in all material respects through the period ending January 31, 2000.
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 Third Amended Credit
Agreement and interest payments on the 11% Notes, the 9 1/8% Notes and the
8 1/4% Notes will represent significant liquidity requirements for the Company.
The loans under the Third Amended Credit Agreement bear interest at floating
rates based upon the interest rate option elected by the Company.
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, the 9 1/8% Notes and the 8 1/4% Notes and to repay,
extend or refinance the Third 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.
MARKET RISKS
In the normal course of business the Company is exposed to market risks
arising from changes in foreign exchange rates, interest rates and raw material
prices. The Company selectively uses derivative financial instruments to manage
these risks, and does not enter into any derivative financial instruments for
trading purposes.
Foreign Exchange
The Company has global operations and thus makes investments and enters
into transactions in various foreign currencies. In order to minimize the risks
associated with global diversification, the Company first seeks to internally
net foreign exchange exposures, and uses derivative financial instruments to
hedge any remaining net exposure. The Company uses forward foreign currency
exchange contracts on a limited basis to reduce the earnings and cash flow
impact of non-functional currency denominated transactions. The gains and losses
from these hedging instruments generally offset the gains or losses from the
hedged items and are recognized in the same period the hedged items are settled.
In addition, the Company has entered into two cross currency interest rate swaps
to hedge a portion of its investment in Germany. The currency effects of these
swaps are reflected in the cumulative translation adjustments component of other
accumulated comprehensive income, where they offset the gain or loss associated
with the investment in Germany.
The Company periodically analyzes the impact of foreign exchange
fluctuations on earnings and determined that, at January 31, 1999, the effect of
a 10% movement in foreign exchange rates would not have a material effect on
earnings.
Interest Rates
The Company generally manages its risk associated with interest rate
movements through the use of a combination of variable and fixed rate debt, and
certain specific interest rate cap agreements. However, at January 31, 1999, the
majority of the Company's variable rate debt has been repaid in contemplation of
the CMI Acquisition and related financing. Therefore, the effect of a 10%
increase or decrease in the cost of funds would not have a material effect on
earnings.
Commodities
The Company relies upon the supply of certain raw materials in it's
production process and has entered into firm purchase commitments for aluminum
and steel. The Company manages the exposures associated with these commitments
primarily through the terms of its supply and procurement contracts.
Additionally,
22
<PAGE> 23
the Company uses forward contracts to hedge against changes in certain specific
commodity prices of the purchase commitments outstanding.
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 steadily declined during fiscal 1998. 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 related
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.
NEW ACCOUNTING PRONOUNCEMENTS
In 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-5, "Reporting the Costs of Start-Up
Activities." SOP 98-5 is effective January 1, 1999, and requires that start-up
costs capitalized prior to January 1, 1999 be written off and any future
start-up costs be expensed as incurred. Adoption of this standard will not have
a material impact on the Company's results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate, and assess the effectiveness
of transactions that receive hedge accounting. Statement 133 is effective for
fiscal years beginning after June 15, 1999. The Company anticipates adopting
this standard in its fiscal year 2000 and does not anticipate a material impact
on the Company's financial position or results of operations when adopted.
23
<PAGE> 24
EURO CONVERSION
On January 1, 1999, certain member countries of the European Union
irrevocably fixed the conversion rates between their national currencies and a
common currency, the "Euro," which became the legal currency on that date. The
participating countries' former national currencies continue to exist as
denominations of the Euro until January 1, 2002. The Company has established a
steering committee that is monitoring the business implications of conversion to
the Euro, including the need to adapt internal systems to accommodate
Euro-denominated transactions. While the Company is still in various stages of
assessments and implementation, the Company does not expect the conversion to
the Euro to have a material affect on its financial condition or results of
operations.
YEAR 2000
The Company has developed plans to address its exposure in all critical
information technology ("IT") and non-IT systems to computer programs which
identify years with two digits instead of four. Such programs may recognize the
year 2000 as the year 1900. The Company is also assessing the year 2000
capabilities of its critical suppliers, customers and key service providers to
determine, to the extent possible, whether its operations will be adversely
impacted by these companies.
The Company primarily relies on packaged software applications which are
year 2000 compliant. The Company has substantially completed the testing of
these applications and has confirmed their year 2000 compliance. The Company is
also testing all internally developed IT software for year 2000 compliance. This
process will be completed by the end of the second quarter of fiscal 1999.
The Company continues to assess all critical non-IT systems for year 2000
compliance. Non-IT systems include, among other things, manufacturing equipment,
telephone systems and heating and cooling systems. An inventory of all critical
non-IT systems and manufacturers to determine year 2000 compliance has been
prepared. This process was completed during the first quarter of fiscal 1998.
As of January 31, 1999, the costs incurred directly related to becoming
year 2000 compliant were approximately $3.0 million and the costs which are
expected to be incurred subsequent to January 31, 1999 are approximately $2.0
million. The year 2000 remediation effort has not postponed any IT projects, the
delay of which would have a material adverse effect on the business, financial
condition or results of operations.
The Company is not entirely year 2000 compliant at this time, but has
targeted the end of the third quarter of fiscal 1999 to have all critical
business and production processes ready. Although the Company is striving to be
completely year 2000 compliant, year 2000 issues may still negatively affect the
Company. Based on progress to date, the management believes that such impact, if
any, will not have a material adverse impact on the business, financial
condition or results of operations. The Company cannot guarantee that this will
be so.
Although the Company has contacted critical suppliers, customers and key
service providers to determine their level of year 2000 compliance, as a lack of
year 2000 readiness at these companies could adversely impact the Company's
operations. The Company has developed a program for monitoring year 2000 risk in
its supply chain and has mailed "Supplier Year 2000 Self-Assessment"
questionnaires to critical suppliers and key service providers. The full extent
of any such adverse impact (if any) is impossible to determine. The Company is
attempting to mitigate any possible adverse impact by identifying alternate
suppliers where possible. The Company may also increase its inventory of crucial
materials in anticipation of possible disruptions.
The Company has developed contingency plans for all critical business and
production processes which the Company believes will help to minimize its year
2000 risk.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The response to this Item is set forth above in Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations, under
the heading "Market Risk."
24
<PAGE> 25
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 17, 1999 (the "Proxy
Statement"), under the captions "Proposals -- Election of Directors" and "Board
of Directors -- Directors Continuing in Office," which information is
incorporated herein by reference.
The following table sets out the names and ages of each of the executive
officers of the Company, their present positions, the date on which they were
appointed to such positions and their business experience during the past five
years. All positions shown are with the Company or its subsidiaries unless
otherwise indicated. All executive officers are elected by the Board of
Directors of the Company and serve at its pleasure. There are no family
relationships among any of the executive officers and there is no arrangement or
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 55 October 1992 Chairman of the Board of Directors
Officer of the Company since July, 1996;
Director of the Company since
October 1992.
Giancarlo Dallera...... Vice President -- 52 October 1992 Chief Executive Officer and Chairman
President, European 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.
Mish Jaksic............ Vice President -- 40 February 1999 President of the Company's
President, Automotive Brakes business unit from
Suspension August 1997 to January 1999;
Components Director of Engineering and
Marketing, Automotive Brakes
business unit from July 1996 to
August 1997; Director of
Engineering, North American
Fabricated Wheels business unit
from January 1994 to July 1996.
</TABLE>
25
<PAGE> 26
<TABLE>
<CAPTION>
DATE OF
NAME TITLE AGE APPOINTMENT EXPERIENCE
---- ----- --- ----------- ----------
<S> <C> <C> <C> <C>
Klaus Junger........... Vice President -- 43 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.
Larry Karenko.......... Vice President -- 48 February 1999 Vice President -- Human Resources of
Human Resources and the Company from October 1994 to
Administration January 1999; Group Human
Resources Manager, Chassis
Products Operation for Federal
Mogul Corporation, August 1993 to
October 1994.
Ronald L. Kolakowski... Vice President -- 52 February 1999 President of the Company's North
President, North American Aluminum Wheels business
American Wheel unit from November 1995 to January
Group 1999; Plant Manager, Sedalia
Plant, June 1993 to October 1995.
William S. Linski...... Vice President -- 52 November 1993 Chairman, Supervisory Board of
President, North Autokola since October 1993. Vice
American Fabricated President,
Wheels Operations -- Fabricated Wheels,
October 1992 to October 1993.
Michael C. McGrath..... Vice President -- 53 February 1994 Vice President and General Manager,
President, Kelsey-Hayes Parts Division,
Commercial Highway February 1990 to January 1994.
and Aftermarket
Services Division
Gary Ruff.............. Vice President -- 47 February 1999 Executive Vice President, Chief
President, North Technical Officer and Director of
American Aluminum CMI International, Inc., February
Wheels 1994 to January 1999.
John Salvette.......... Vice President -- 44 February 1999 Vice President -- Finance, Hayes
Finance, Cast European Operations, July 1997 to
Components Group January 1999; Treasurer, February
1995 to June 1997; Director of
Investor Relations and Business
Planning, May 1993 to January
1995.
Daniel M. Sandberg..... Vice President -- 39 February 1999 Vice President -- International
President, Operations of the Company from
Automotive Brake January 1997 to January 1999; Vice
Systems and President -- General Counsel of
Secretary the Company from March 1994 to
January 1999; Director of Autokola
since December 1996; Director of
Hayes Lemmerz, S.p.A. since
September 1994.
William D. Shovers..... Vice President -- 45 February 1993 Director of Autokola since October
Finance; Chief 1993. Director of Hayes Lemmerz,
Financial Officer S.p.A. since February 1993.
</TABLE>
26
<PAGE> 27
ITEM 11. EXECUTIVE COMPENSATION
The response to this Item is contained in the Proxy Statement under the
captions "Board of Directors -- Director Compensation" and "Appendix
C -- 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 "Appendix B -- Stockholdings," 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 "Appendix C -- Executive
Compensation -- Certain Related Transactions," which information is incorporated
herein by reference.
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,
1999, 1998 and 1997
(3) Consolidated Balance Sheets at January 31, 1999 and 1998
(4) Consolidated Statements of Changes in Stockholders' Equity (Deficit)
for the years ended January 31, 1999, 1998 and 1997
(5) Consolidated Statements of Cash Flows for the years ended January 31,
1999, 1998 and 1997
(6) Notes to Consolidated Financial Statements
2. Financial Statement Schedules for fiscal 1998, 1997 and 1996
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
</TABLE>
27
<PAGE> 28
<TABLE>
<S> <C> <C>
(M) 2.3 Agreement and Plan of Merger, dated November 19, 1998, among
the Company, HL -- CMI Holding Co., CMI International, Inc.
and Ray H. Witt, as Trustee of the Ray H. Witt Living Trust
Agreement dated December 2, 1981, as amended and restated.
(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.
(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.
(N) 4.11 Indenture, dated as of December 14, 1998, among the Company,
as Issuer, certain subsidiaries of the Company, as
Guarantors, and The Bank of New York, a New York banking
corporation, as Trustee.
(N) 4.12 Registration Rights Agreement, dated as of December 14,
1998, among the Company, as Issuer, certain subsidiaries of
the Company, as Guarantors, and CIBC Oppenheimer Corp.,
Credit Suisse First Boston Corporation, Merrill Lynch,
Pierce, Fenner & Smith Incorporated, as the Initial
Purchasers.
(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) 10.5 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.
(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.
</TABLE>
28
<PAGE> 29
<TABLE>
<S> <C> <C>
(C) 10.15 Subordination Agreement, dated November 12, 1993, between Autokola, Nova Hut a.s., 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.
(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.
(L) 10.28* Managing Director's Service Agreement, dated September 25, 1997, between Hayes Lemmerz Holding GmbH
and Klaus Junger.
(N) 10.29 Third Amended and Restated Credit Agreement, dated as of February 3, 1999, among the Company, as
Borrower, the several banks and other financial institutions from time to time Parties thereto, as
Lenders, Canadian Imperial Bank of Commerce, as Administrative Agent and Co-Lead Arranger, Credit
Suisse First Boston, as Syndication Agent and Co-Lead Arranger, Merrill Lynch Capital Corporation, as
Co-Documentation Agent, and Dresdner Bank AG, as Co-Documentation Agent and European Swing
Administrator.
(O) 12 Computation of Ratios.
(O) 21.1 Subsidiaries of the Company.
(O) 23 Consent of KPMG LLP.
(O) 24 Powers of Attorney.
(O) 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.
29
<PAGE> 30
(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) Incorporated by reference from the Company's Annual Report on Form 10-K for
the Fiscal Year Ended January 31, 1998, filed with the SEC.
(M) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended October 31, 1998, filed with the SEC.
(N) Incorporated by reference from the Company's Current Report on Form 8-K,
dated February 3, 1999, filed with the SEC.
(O) 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
During the fiscal quarter ended January 31, 1999, the Company filed Current
Reports on Form 8-K with the SEC on November 19, 1998 and December 7, 1998.
30
<PAGE> 31
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 30th day of April, 1999.
HAYES LEMMERZ INTERNATIONAL, INC.
By: /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; April 30, 1999
- ------------------------------------------ Chief Executive Officer;
Ranko Cucuz Director
/s/ WILLIAM D. SHOVERS Vice President--Finance and Chief April 30, 1999
- ------------------------------------------ Financial Officer
William D. Shovers
/s/ D. N. VERMILYA Corporate Controller and Chief April 30, 1999
- ------------------------------------------ Accounting Officer
D. N. Vermilya
/s/ CLEVELAND A. CHRISTOPHE* Director April 30, 1999
- ------------------------------------------
Cleveland A. Christophe
/s/ ANTHONY GRILLO* Director April 30, 1999
- ------------------------------------------
Anthony Grillo
/s/ ANDREW R. HEYER* Director April 30, 1999
- ------------------------------------------
Andrew R. Heyer
/s/ HORST KUKWA-LEMMERZ* Director April 30, 1999
- ------------------------------------------
Horst Kukwa-Lemmerz
/s/ PAUL S. LEVY* Director April 30, 1999
- ------------------------------------------
Paul S. Levy
/s/ JEFFREY LIGHTCAP* Director April 30, 1999
- ------------------------------------------
Jeffrey Lightcap
/s/ WEINARD MEILICKE* Director April 30, 1999
- ------------------------------------------
Weinard Meilicke
/s/ JOHN S. RODEWIG* Director April 30, 1999
- ------------------------------------------
John S. Rodewig
/s/ RAY H. WITT* Director April 30, 1999
- ------------------------------------------
Ray H. Witt
</TABLE>
31
<PAGE> 32
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ DAVID YING* Director April 30, 1999
- ------------------------------------------
David Ying
*By /s/ PATRICK B. CAREY
- ------------------------------------
Patrick B. Carey
Attorney-in-fact
</TABLE>
32
<PAGE> 33
INDEX TO FINANCIAL STATEMENTS
HAYES LEMMERZ INTERNATIONAL, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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> 34
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, 1999 and 1998,
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, 1999. 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, 1999 and 1998,
and the results of their operations and their cash flows for each of the years
in the three year-period ended January 31, 1999, in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
Detroit, Michigan
February 26, 1999
F-2
<PAGE> 35
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
JANUARY 31, JANUARY 31, JANUARY 31,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales................................................... $1,672.9 $1,269.8 $778.2
Cost of goods sold.......................................... 1,383.1 1,053.7 675.2
-------- -------- ------
Gross profit.............................................. 289.8 216.1 103.0
Marketing, general and administration....................... 71.0 52.5 28.8
Engineering and product development......................... 20.2 11.7 7.2
Amortization of intangible assets........................... 16.6 12.7 7.1
Equity in (earnings) loss of unconsolidated subsidiaries.... (0.6) 4.5 2.5
Other income, net........................................... (5.4) (10.8) (4.5)
Nonrecurring charges (Note 11).............................. -- -- 115.4
-------- -------- ------
Earnings (loss) from operations........................... 188.0 145.5 (53.5)
Interest expense, net....................................... 94.9 90.4 48.5
-------- -------- ------
Earnings (loss) before taxes on income, minority interest
and extraordinary loss................................. 93.1 55.1 (102.0)
Income tax (benefit) provision (Note 7)..................... 39.1 23.2 (36.7)
-------- -------- ------
Earnings (loss) before minority interest and extraordinary
loss................................................... 54.0 31.9 (65.3)
Minority Interest........................................... 2.0 0.5 0.2
-------- -------- ------
Earnings (loss) before extraordinary loss................. 52.0 31.4 (65.5)
Extraordinary loss, net of tax (Note 8)..................... 8.3 -- 7.4
-------- -------- ------
Net income (loss)......................................... $ 43.7 $ 31.4 $(72.9)
======== ======== ======
Basic net income (loss) per share:
Income (loss) before extraordinary loss................... $ 1.72 $ 1.19 $(2.36)
Extraordinary loss, net of tax............................ (0.27) -- (0.27)
-------- -------- ------
Basic net income (loss) per share........................... $ 1.45 $ 1.19 $(2.63)
======== ======== ======
Diluted net income (loss) per share:
Income (loss) before extraordinary loss................... $ 1.60 $ 1.12 $(2.36)
Extraordinary loss, net of tax............................ (0.25) -- (0.27)
-------- -------- ------
Diluted net income (loss) per share......................... $ 1.35 $ 1.12 $(2.63)
======== ======== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 36
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1999 1998
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 51.3 $ 23.1
Receivables (less allowance of $4.0 million at January 31,
1999 and $4.3 million at January 31, 1998)............. 181.6 217.8
Inventories (Note 3)...................................... 166.6 131.5
Prepaid expenses and other................................ 22.8 10.0
-------- --------
Total current assets.............................. 422.3 382.4
Property, plant and equipment, net (Note 4)................. 878.0 670.4
Goodwill and other assets (Note 5).......................... 810.6 706.1
-------- --------
Total assets...................................... $2,110.9 $1,758.9
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank borrowings (Note 8).................................. $ 44.8 $ 23.6
Current portion of long-term debt (Note 8)................ 12.3 14.4
Accounts payable and accrued liabilities (Notes 6 and
12).................................................... 456.7 334.9
-------- --------
Total current liabilities......................... 513.8 372.9
Long-term debt, net of current portion (Note 8)............. 976.1 882.6
Deferred income taxes (Note 7).............................. 58.4 34.8
Pension and other long-term liabilities (Notes 10 and 11)... 329.1 301.5
Minority interest........................................... 12.6 5.6
-------- --------
Total liabilities................................. 1,890.0 1,597.4
Commitments and contingencies (Notes 8, 9, 10, 11 and 12)
Stockholders' equity (Note 14):
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, 27,675,209 at January 31, 1999 and
27,439,419 at January 31, 1998........................ 0.3 0.3
Nonvoting -- authorized 5,000,000; issued and
outstanding, 2,649,026 at January 31, 1999 and 1998... -- --
Additional paid-in capital................................ 236.8 229.4
Accumulated deficit....................................... (7.1) (50.8)
Accumulated other comprehensive income.................... (9.1) (17.4)
-------- --------
Total stockholders' equity........................ 220.9 161.5
-------- --------
Total liabilities and stockholders' equity........ $2,110.9 $1,758.9
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 37
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED JANUARY 31, 1999, 1998, 1997
(MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
------------------- ADDITIONAL RETAINED OTHER
PAR PAID-IN EARNINGS COMPREHENSIVE
SHARES VALUE CAPITAL (DEFICIT) INCOME TOTAL
----------- ----- ---------- --------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 31, 1996........... 35,148,000 $ 0.4 $ 198.3 $ 49.6 $ (2.9) $ 245.4
Net loss.......................... -- -- -- (72.9) -- (72.9)
Currency translation adjustment... -- -- -- -- (0.2) (0.2)
Pension adjustment................ -- -- -- -- 0.4 0.4
-------
Comprehensive income........... -- -- -- -- -- (72.7)
Cash dividends.................... -- -- -- (0.5) -- (0.5)
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) (2.7) (41.1)
Net income........................ -- -- -- 31.4 -- 31.4
Currency translation adjustment... -- -- -- -- (16.9) (16.9)
Pension adjustment................ -- -- -- -- 2.2 2.2
-------
Comprehensive income........... -- -- -- -- -- 16.7
Repurchase of common stock........ (20,100) -- (0.6) -- -- (0.6)
Exercise of options............... 151,102 -- 2.2 -- -- 2.2
Common stock issued with
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
Net income........................ -- -- -- 43.7 -- 43.7
Currency translation adjustment... -- -- -- -- 17.0 17.0
Pension adjustment................ -- -- -- -- (8.7) (8.7)
-------
Comprehensive income........... -- -- -- -- -- 52.0
Issuance of common stock.......... 500 -- -- -- -- --
Exercise of options............... 91,540 -- 1.7 -- -- 1.7
Common stock issued with
acquisition.................... 143,750 -- 5.7 -- -- 5.7
----------- ----- ------- ------ ------ -------
Balance, January 31, 1999........... 30,324,235 $ 0.3 $ 236.8 $ (7.1) $ (9.1) $ 220.9
=========== ===== ======= ====== ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 38
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31, JANUARY 31,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................ $ 43.7 $ 31.4 $ (72.9)
Adjustments to reconcile net income (loss) to net cash
provided by operations:
Depreciation and tooling amortization................. 69.9 51.7 36.6
Amortization of intangibles........................... 17.9 13.6 7.8
Amortization of deferred financing fees............... 4.6 5.9 3.2
Deferred taxes........................................ 18.7 27.3 (31.5)
Minority interest..................................... 2.0 0.5 0.2
Nonrecurring charges.................................. -- -- 115.4
Equity in (earnings) losses of unconsolidated
subsidiaries........................................ (0.6) 4.5 2.5
Extraordinary loss.................................... 14.4 -- 12.3
Changes in operating assets and liabilities:
Increase in receivables............................. (1.5) (11.6) (4.5)
(Increase) decrease in inventories.................. (8.3) (1.8) 4.4
(Increase) decrease in prepaid expenses and other... (10.9) 5.6 1.9
Increase in accounts payable and accrued
liabilities...................................... 69.6 23.8 15.9
Decrease in other long-term liabilities............. (41.2) (49.0) (27.7)
------- ------- -------
Cash provided by operating activities............... 178.3 101.9 63.6
Cash flows from investment activities:
Purchase of property, plant and equipment............. (134.3) (90.9) (71.4)
Tooling expenditures.................................. (21.3) (8.8) (6.5)
Purchase of businesses, net of cash acquired.......... (79.3) (228.0) 5.0
Other, net............................................ (31.9) (6.4) 15.4
------- ------- -------
Cash used in investment activities.................. (266.8) (334.1) (57.5)
Cash flows from financing activities:
Proceeds from accounts receivable securitization...... 73.5 -- --
Repayment of long term debt........................... (200.5) -- (244.1)
Proceeds from issuance of long term debt.............. 250.0 500.0 673.5
Common stock repurchase............................... -- -- (506.1)
Proceeds from the sale of common stock, net........... 1.7 77.1 184.9
Fees paid to issue long term debt..................... (6.4) (17.0) (35.0)
Net change in bank borrowings and revolver............ 0.1 (353.5) (33.6)
------- ------- -------
Cash provided by financing activities............... 118.4 206.6 39.6
Effect of exchange rate changes on cash and cash
equivalents........................................... (1.7) 1.2 --
------- ------- -------
Increase (decrease) in cash and cash equivalents...... 28.2 (24.4) 45.7
Cash and cash equivalents at beginning of year........... 23.1 47.5 1.8
------- ------- -------
Cash and cash equivalents at end of year................. $ 51.3 $ 23.1 $ 47.5
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 39
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1999, 1998 AND 1997
(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 1998"
refers to the period beginning February 1, 1998 and ending January 31, 1999,
"fiscal 1997" refers to the period beginning February 1, 1997 and ending January
31, 1998 and "fiscal 1996" refers to the period beginning February 1, 1996 and
ending January 31, 1997).
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
In February 1998, the Company purchased the remaining 50% of the equity in
Aluminum Wheel Technology, Inc., its aluminum wheel joint venture in Somerset,
Kentucky.
On March 4, 1998 the Company acquired 35% of the automotive wheel business
of Automotive Overseas Investments Limited, an organization which owns and
operates N.F. DieCasting (Pty) Ltd. ("N.F. Die"), a producer of cast aluminum
wheels for the automotive industry in South Africa. The Company exercised its
right to purchase an additional 16% of the operations on June 4, 1998 increasing
its total interest in N.F. Die to 51%.
On May 19, 1998, the Company purchased an additional 50.7% of the common
equity and 46.2% of the preferred equity in its joint venture in Brazil, Borlem
S.A. Empreedimentos Industriais ("Borlem"). This purchase increased the
Company's ownership of Borlem to 98.7% of the common equity and 87.0% of the
preferred equity, with the remaining shares then being publicly held.
On June 10, 1998, the Company acquired 100% of the common stock of MIN-CER,
S.A. de C.V., Mexico's largest heavy-duty hub, drum and wheel manufacturer.
On August 14, 1998, the Company acquired an additional 60% of the equity in
its joint venture Kalyani Lemmerz Limited in India. This transaction increased
the Company's ownership equity from 25% to 85%.
The purchase price for the above mentioned acquisitions (the "1998
Acquisitions"), net of cash received, amounted to $79.3 million and generated
$94.2 million of goodwill.
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 stockholders 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.
F-7
<PAGE> 40
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (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.
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.
In October, 1996, the Company exercised its right to increase its ownership
in Hayes Lemmerz Autokola 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.
Debt and Equity Offerings
In connection with the above mentioned acquisitions, the following
financings occurred:
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).
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.
In connection with the financing of 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 8 for additional disclosure.
F-8
<PAGE> 41
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Unaudited Pro Forma Data
The following unaudited pro forma financial data illustrates the estimated
effects as if the Lemmerz Acquisition and the 1998 Acquisitions, and the related
financings, had been completed as of the beginning of the periods presented,
after including the impact of certain adjustments, such as amortization,
depreciation, interest expense and the related income tax effects (dollars in
millions, except per share amounts):
<TABLE>
<CAPTION>
UNAUDITED
-------------------------
YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31,
1999 1998
----------- -----------
<S> <C> <C>
Net sales................................................... $1,747.1 $1,671.9
Earnings (loss) from operations............................. 187.6 159.8
Net income (loss)........................................... 32.2 27.4
Diluted net income (loss) per common share.................. $ 0.99 $ 0.83
</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 joint venture entities as of, and for the twelve
months ended January 31, 1999, 1998 and 1997, 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
principally by the first in, first out (FIFO) or average cost method. Cost for a
portion of domestic inventories, which were approximately 27 percent and 32
percent of inventories at January 31, 1999 and 1998, respectively, are stated
using the last in, first out (LIFO) 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 $59.0
million, $45.7 million and $28.1 million for the years ended January 31, 1999,
1998 and 1997, respectively, were charged to expense as incurred.
F-9
<PAGE> 42
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (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.
Intangibles
Goodwill arising from business acquisitions is amortized using the
straight-line method over 40 years. Patents and other intangibles are amortized
over their estimated lives. The Company reviews the carrying value of goodwill
for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. An impairment would be determined based
on a comparison of the undiscounted future operating cash flows anticipated to
be generated during the remaining life of the goodwill to the carrying value.
Measurement of any impairment loss would be based on discounted operating cash
flows.
Research and Development Costs
Research and development costs are expensed as incurred. Amounts expensed
during the years ended January 31, 1999, 1998 and 1997, were approximately $7.5
million, $2.9 million and $3.1 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 8.
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> 43
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (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 accumulated other comprehensive income 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, 1999, 1998 and 1997.
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 YEAR YEAR
ENDED ENDED ENDED
JANUARY 31, JANUARY 31, JANUARY 31,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash paid for interest.............................. $100.4 $ 84.3 $ 40.0
Cash paid for income taxes.......................... 9.6 8.5 7.7
Non-cash financing activity:........................
Stock issued in acquisitions...................... 5.7 108.8 105.4
</TABLE>
F-11
<PAGE> 44
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 reviews long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
Stock-Based Compensation
The Company accounts 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 is recorded on the date of grant only if the current market
price of the underlying stock exceeds the exercise price. The Company follows
the provisions of Statement of Financial Accounting Standards ("SFAS") No. 123
"Accounting for Stock-Based Compensation," and discloses pro forma net income
and pro forma earnings per share as if employee stock option grants were treated
as compensation expense using the fair-value-based method defined in SFAS No.
123. See Note 14.
Earnings per Share
During 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings per Share" ("EPS"), which changes the calculation of earnings
per share to be more consistent with countries outside of the United States. In
general, the statement requires two calculations of earnings per share to be
disclosed, basic EPS and diluted EPS. Basic EPS is computed using only the
weighted average shares outstanding, while diluted EPS is computed considering
the dilutive effect of options and warrants.
Net income (loss) per share information has been computed using the new
standard for all periods presented. Shares outstanding for the years ended
January 31, 1999, 1998 and 1997, were as follows (millions of shares):
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Weighted average shares outstanding........................ 30,324 26,512 27,703
Dilutive effect of options and warrants.................... 2,087 1,620 --
------ ------ ------
Diluted shares outstanding................................. 32,411 28,132 27,703
====== ====== ======
</TABLE>
Comprehensive Income
During 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for the reporting and display of
comprehensive income. Comprehensive income is defined as all changes in a
Company's net assets except changes resulting from transactions with
shareholders. It differs from net income in that certain items currently
recorded to equity would be a part of comprehensive income. Comprehensive income
must be reported in a financial statement with the cumulative total presented as
a component of equity. This statement was adopted by the Company effective
February 1, 1998 and all prior periods have been restated.
Reclassifications
Certain prior period amounts have been reclassified to conform to the
current year presentation.
F-12
<PAGE> 45
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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,
1999 1998
----------- -----------
<S> <C> <C>
Raw materials............................................... $ 65.2 $ 40.9
Work-in-process............................................. 48.8 37.6
Finished goods.............................................. 52.6 53.0
------ ------
Total............................................. $166.6 $131.5
====== ======
</TABLE>
(4) PROPERTY, PLANT AND EQUIPMENT
The major classes of property, plant and equipment are as follows (millions
of dollars):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1999 1998
----------- -----------
<S> <C> <C>
Land........................................................ $ 24.9 $ 15.6
Buildings................................................... 201.1 154.7
Machinery and equipment..................................... 832.8 622.3
-------- -------
1,058.8 792.6
Accumulated depreciation.................................... (180.8) (122.2)
-------- -------
Property, plant and equipment, net................ $ 878.0 $ 670.4
======== =======
</TABLE>
(5) GOODWILL AND OTHER ASSETS
Goodwill and other assets consist of the following (millions of dollars):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1999 1998
----------- -----------
<S> <C> <C>
Goodwill and other intangibles.............................. $629.6 $557.9
Unamortized debt issuance costs............................. 28.0 40.6
Investments in joint ventures............................... 24.5 39.4
Deferred tax assets......................................... 76.7 45.3
Other....................................................... 51.8 22.9
------ ------
Total............................................. $810.6 $706.1
====== ======
</TABLE>
Goodwill and other intangibles are presented net of accumulated
amortization of $65.1 million and $48.5 million at January 31, 1999 and 1998,
respectively.
F-13
<PAGE> 46
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following (millions
of dollars):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1999 1998
----------- -----------
<S> <C> <C>
Accounts payable............................................ $336.2 $241.1
Employee costs.............................................. 25.9 39.2
Accrued interest............................................ 10.1 7.6
Other accrued liabilities................................... 84.5 47.0
------ ------
Total............................................. $456.7 $334.9
====== ======
</TABLE>
(7) 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,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
United States...................................... $19.0 $23.6 $(127.6)
Foreign............................................ 59.7 31.5 13.3
----- ----- -------
$78.7 $55.1 $(114.3)
===== ===== =======
</TABLE>
The (benefit) 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,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal and State................................ $(0.1) $(5.6) $(15.8)
Foreign.......................................... 12.5 12.1 4.1
----- ----- ------
12.4 6.5 (11.7)
Deferred:
Federal and State................................ 8.1 15.5 (29.3)
Foreign.......................................... 12.5 1.2 (0.6)
----- ----- ------
20.6 16.7 (29.9)
Extraordinary items (Note 8)....................... 6.1 -- 4.9
----- ----- ------
Taxes on income excluding extraordinary items.... $39.1 $23.2 $(36.7)
===== ===== ======
</TABLE>
F-14
<PAGE> 47
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of federal income tax computed at the statutory 35% rate
to the actual (benefit) provision for taxes on income follows (millions of
dollars):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31, JANUARY 31,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Federal taxes computed at statutory rate........... $27.4 $19.3 $(40.0)
Increase (decrease) resulting from:
Unrecognized tax benefit from net operating loss
carryforwards................................. -- 0.8 0.8
Effective tax rate differential on earnings of
consolidated foreign affiliates............... 0.4 4.0 (0.8)
Permanent differences resulting from purchase
accounting.................................... 4.0 1.9 2.3
Change in valuation allowance for foreign NOL
carryforward/deferred tax asset............... -- (0.8) (0.8)
Effect of change in tax rates on deferred tax
balance....................................... -- (3.0) --
All other items.................................. 1.3 1.0 (3.1)
----- ----- ------
Income tax expense (benefit).................. $33.1 $23.2 $(41.6)
===== ===== ======
</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,
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Nondeductible accrued liabilities......................... $ 63.8 $ 90.8
Net operating loss and tax credit carry forwards.......... 95.5 83.0
Pension................................................... 16.3 12.8
Other..................................................... 16.3 2.6
Inventory................................................. 2.6 2.5
------- -------
Total gross deferred tax assets................... 194.5 191.7
Less valuation allowance.................................. (19.9) (45.9)
------- -------
Net deferred tax assets........................... 174.6 145.8
Deferred tax liabilities:
Fixed assets, principally due to differences in
depreciation........................................... (105.5) (102.8)
Intangibles............................................... (26.3) (25.8)
Inventory................................................. (3.7) (3.5)
All other items........................................... (20.8) (3.2)
------- -------
Total gross deferred tax liabilities.............. (156.3) (135.3)
------- -------
Net deferred tax assets........................... $ 18.3 $ 10.5
======= =======
</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
carry forwards which expire through the year 2012. The subsequent recognition of
tax benefits 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 if opportunities to utilize these carryforwards become
more certain. During 1998, the Company reduced its valuation allowance related
to certain domestic and foreign NOL's due to management's belief that such
deferred tax assets will be realized. The effect of this reduction in valuation
allowance of $26 million is reflected as a decrease to goodwill.
F-15
<PAGE> 48
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has domestic operating loss carryforwards of approximately
$127.4 million expiring in years 2005 through 2020, foreign net operating loss
carryforwards of approximately $94.5 million which may be carried forward
indefinitely, and alternative minimum and other tax credits of approximately
$69.1 million.
(8) 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,
1999 1998
----------- -----------
<S> <C> <C>
Bank term notes............................................. $ -- $196.4
Other domestic loans maturing through 2002, weighted average
interest rates of 7.4% at January 31, 1999 and 1998....... 1.3 1.8
Various foreign bank and government loans maturing through
2006, weighted average interest rates of 6.7% and 6.2% at
January 31, 1999 and 1998................................. 85.6 47.3
8 1/4% Senior Subordinated Notes due 2008................... 250.0 --
9 1/8% Senior Subordinated Notes due 2007................... 400.0 400.0
11% Senior Subordinated Notes due 2006...................... 250.0 250.0
9 1/4% Senior Subordinated Notes due November 15, 2002...... 1.5 1.5
------ ------
988.4 897.0
Less current portion........................................ 12.3 14.4
------ ------
$976.1 $882.6
====== ======
</TABLE>
During the second quarter of fiscal 1998, the Company entered into a second
amended and restated credit agreement dated June 12, 1998 (the "Second Amended
and Restated Credit Agreement"). This agreement amended and restated the credit
agreement dated June 30, 1997 and thereby (a) eliminated (and repaid the
outstanding principal balance of) certain of the then existing senior secured
term loan facilities under the prior credit agreement and (b) increased the
revolving credit facility. In connection with this early repayment of the term
loan facilities, the Company recorded an extraordinary loss of $14.4 million
($8.3 million, net of tax) for the write-off of unamortized deferred financing
costs associated with the term debt which was repaid. As of January 31, 1999,
$229.9 million was available under the Second Amended and Restated Credit
Agreement.
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 debt, 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 (i) the CIBC prime rate or (ii) the Federal Funds rate plus
1/2% or (iii) a certificate of deposit-based rate plus 1%. At January 31, 1999,
the Company had no borrowings outstanding under this agreement.
The Company pays a commitment fee on the unused portion of the revolving
credit facility which was at a rate of 0.3% at January 31, 1999. The Company had
available revolver borrowing capacity under the Credit Agreement of $367.6
million, including unused letters of credit totaling $67.6 million as of January
31, 1999.
The Credit Agreement and certain foreign bank borrowings contain financial
covenants. The Company was in compliance with such covenants at January 31,
1999. 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.
F-16
<PAGE> 49
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In April 1998, the Company entered into a three-year trade securitization
agreement pursuant to which the Company and certain of its subsidiaries sold,
and will continue to sell on an ongoing basis, a portion of their accounts
receivable to a special purpose entity ("Funding Co."), which is wholly owned by
the Company. Accordingly, the Company and such subsidiaries, irrevocably and
without recourse, transferred and will transfer substantially all of their U.S.
dollar denominated trade accounts receivable to Funding Co. Funding Co. then
sold and will sell such trade accounts receivable to an independent issuer of
receivable-backed paper. The Company has collection and administrative
responsibilities with respect to all receivables which were and will be sold.
The aggregate amount of receivables sold under the agreement was $103.5
million at January 31, 1999. This amount was excluded from the accompanying
consolidated balance sheet. The Company's retained interest in the accounts
receivable is included in the consolidated balance sheet caption Receivables.
On December 15, 1998, in connection with, and in anticipation of, the
acquisition of CMI International Inc. ("CMI") (see Note 17 Subsequent Events),
the Company issued $250 million in aggregate principal amount of 8 1/4% Senior
Subordinated Notes due 2008 (the "8 1/4% Notes"). The 8 1/4% Notes are
redeemable at the Company's option at specified prices, in whole or in part, at
any time on or after December 15, 2003. The 8 1/4% Notes are guaranteed by the
Company's domestic subsidiaries but are subordinated to the credit agreement.
The proceeds were used to repay all of the outstanding amounts under the
existing credit agreement, including the DEM Term Note, and to reduce
commitments, under the revolving credit facility. The Company believes that as
of January 31, 1999, the market value of the 8 1/4% Notes exceed their recorded
value by approximately 1 percent.
In connection with the Lemmerz Acquisition, the Company issued the 9 1/8%
Notes in principal amounts of $250 million on June 30, 1997 and $150 million on
July 22, 1997. 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, 1999, 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, in 1996, 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 the
write-off of unamortized deferred financing costs. In addition on July 2 1996,
the Company issued $250 in aggregate principal amount of 11% Senior Subordinated
Notes (the "11% Notes"). 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, 1999, 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);
2000 -- $12.3; 2001 -- $11.4; 2002 -- $6.3; 2003 -- $34.2; 2004 -- $5.0; and
thereafter $919.2.
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
objectives have resulted in the Company maintaining interest rate cap agreements
covering floating rate
F-17
<PAGE> 50
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
indebtedness at January 31, 1999. 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 loss of $2.4 million as of January 31, 1999
and in a gain of $3.5 million as of January 31, 1998.
On December 15, 1998, the Company entered into forward contracts for the
purchase of DEM. These transactions were entered into as a hedge against changes
in the exchange rate of the DEM to the USD from the time that the DEM Term Note
in the current Company's senior secured credit agreement was repaid to the
closing of a new credit agreement on February 3, 1999, at which time a new DEM
Term Note was funded. These contracts were terminated on February 6, 1999
following the closing of the CMI acquisition.
(9) LEASES
The Company leases certain production facilities and equipment under
agreements expiring from 2000 to 2004 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, 1999 (millions of dollars):
<TABLE>
<S> <C>
YEAR ENDING JANUARY 31:
2000...................................................... $14.3
2001...................................................... 11.6
2002...................................................... 10.7
2003...................................................... 9.7
2004 and later years...................................... 39.4
-----
Total minimum payments required................... $85.7
=====
</TABLE>
Rent expense was $21.5 million, $17.0 million and $13.9 million for the
years ended January 31, 1999, 1998 and 1997, 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> 51
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) PENSION PLANS AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company sponsors several defined benefit pension plans ("Pension
Benefits") and health care and life insurance benefits ("Other Benefits") for
certain employees around the world. The Company funds the Pension Benefits based
upon the funding requirements of federal and international laws and regulations
in advance of benefit payments and the Other Benefits as benefits are provided
to the employees.
Effective January 1, 1998, the Company adopted SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." In accordance
with SFAS No. 132, the following tables provide a reconciliation of the change
in benefit obligation, the change in plan assets and the net amount recognized
in the consolidated balance sheets (based on a October 31 measurement date, in
millions) as of January 31:
<TABLE>
<CAPTION>
NORTH AMERICAN PLANS INTERNATIONAL PLANS
PENSION BENEFITS OTHER BENEFITS PENSION BENEFITS
----------------- ----------------- -------------------
1999 1998 1999 1998 1999 1998
------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of
year................................ $177.5 $163.8 $ 125.5 $ 128.4 $ 102.1 $ 99.1
Service cost.......................... 0.2 0.2 0.2 0.3 0.6 0.4
Interest cost......................... 11.5 11.6 8.6 9.2 6.0 3.1
Amendments............................ -- 0.2 3.0 0.6 -- --
Curtailments/settlements.............. -- (1.5) -- -- -- --
Actuarial loss (gain)................. (6.8) 10.6 (1.0) (1.6) 7.6 2.1
Benefits paid......................... (13.4) (7.4) (12.5) (11.4) (5.5) (2.6)
------ ------ ------- ------- ------- -------
Benefit obligation at end of year..... $169.0 $177.5 $ 123.8 $ 125.5 $ 110.8 $ 102.1
====== ====== ======= ======= ======= =======
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning
of year............................. $156.3 $125.7 $ -- $ -- $ -- $ --
Actual return on plan assets.......... 11.4 21.5 -- -- -- --
Company contributions................. 5.0 16.0 -- -- -- --
Benefits paid......................... (13.4) (6.9) -- -- -- --
------ ------ ------- ------- ------- -------
Fair value of plan assets at end of
year................................ $159.3 $156.3 $ -- $ -- $ -- $ --
====== ====== ======= ======= ======= =======
FUNDED STATUS:
Funded status of plan................. $ (9.7) $(21.3) $(123.8) $(125.5) $(110.8) $(102.1)
Unrecognized net actuarial (gain)
loss................................ (10.5) (0.5) 7.5 9.1 13.0 0.7
Unrecognized prior service cost....... 1.9 2.1 3.8 (1.1) -- --
Adjustment to recognize additional
minimum liability................... -- -- -- -- (8.7) --
Employer contributions................ 5.0 -- 1.6 1.5 -- --
------ ------ ------- ------- ------- -------
Accrued benefit cost.................. $(13.3) $(19.7) $(110.9) $(116.0) $(106.5) $(101.4)
====== ====== ======= ======= ======= =======
AMOUNT RECOGNIZED IN CONSOLIDATED
BALANCE SHEET:
Accrued benefit cost.................. $(13.3) $(19.7) $(110.9) $(116.0) $(106.5) $(101.4)
Accumulated other comprehensive
income.............................. -- -- -- -- (8.7) --
------ ------ ------- ------- ------- -------
Net amount recognized................. $(13.3) $(19.7) $(110.9) $(116.0) $(115.2) $(101.4)
====== ====== ======= ======= ======= =======
</TABLE>
The projected benefit obligation, accumulated projected benefit obligation
("APBO") and fair value of plan assets for the pension plans with accumulated
benefit obligations in excess of plan assets for the North
F-19
<PAGE> 52
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
American plans were $169.0 million, $167.4 million and $144.3 million,
respectively, as of January 31, 1999, and $177.5 million, $175.6 million and
$156.3 million, respectively, as of January 31, 1998.
The components of net periodic benefit costs included in operating results
for the years ended January 31, are as follows (millions of dollars):
<TABLE>
<CAPTION>
NORTH AMERICAN PLANS INTERNATIONAL PLANS
PENSION BENEFITS OTHER BENEFITS PENSION BENEFITS
----------------------- -------------------- ---------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
------ ------ ----- ----- ---- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC
BENEFIT COST (INCOME):
Service cost............... $ 0.2 $ 0.2 $ 1.4 $ 0.2 $0.3 $ 0.4 $0.6 $0.4 $ --
Interest cost.............. 11.5 11.6 8.9 8.6 9.2 5.0 6.0 3.1 --
Expected return on plan
assets................... (13.4) (12.3) (7.1) -- -- -- -- --
Net amortization and
deferral................. 0.3 0.2 0.5 0.1 0.2 (3.7) -- -- --
Curtailment gains.......... -- (1.5) -- (1.4) -- -- -- -- --
------ ------ ----- ----- ---- ----- ---- ---- ----
Net pension cost
(income)....... $ (1.4) $ (1.8) $ 3.7 $ 7.5 $9.7 $ 1.7 $6.6 $3.5 $ --
====== ====== ===== ===== ==== ===== ==== ==== ====
</TABLE>
Effective January 1, 1995 and January 1, 1999, the Company modified the
defined benefit Salaried Pension Plan and all hourly pension plans,
respectively, to freeze credited service and future compensation increases and
remove salary caps that had been instituted in 1991. In conjunction with this
change, the Company increased the basic contribution of the existing salary
defined contribution plan.
The actuarial assumptions used in determining the funded status information
and net periodic benefit cost information shown above were as follows:
<TABLE>
<CAPTION>
INTERNATIONAL
NORTH AMERICAN PLANS PLANS
PENSION PENSION
BENEFITS OTHER BENEFITS BENEFITS
------------ -------------- --------------
1999 1998 1999 1998 1999 1998
---- ---- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
WEIGHTED AVERAGE ASSUMPTIONS:
Discount rate.................................... 7.00% 7.00% 7.00% 7.00% 6.00% 5.75%
Expected return on plan assets................... 9.00% 9.00% N/A N/A N/A N/A
Rate of compensation increase.................... N/A 4.75% N/A N/A 2.50% 2.50%
</TABLE>
At January 31, 1999, the assumed annual health care cost trend rate used in
measuring the APBO approximated 7.0% declining to an ultimate annual rate of
5.5%. Increasing the assumed cost trend rate by 1% each year would have
increased the APBO and service/interest cost components by approximately $8.8
million and $0.6 million, respectively, for 1998. Decreasing the assumed cost
trend rate by 1% each year would have decreased the APBO and service/interest
cost components by approximately $7.6 million and $0.5 million, respectively,
for 1998.
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 $5 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 $5
million. Once all of the required contributions are made, the letter of credit
will be canceled.
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
F-20
<PAGE> 53
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximately $6.4 million, $4.6 million and $2.7 million for the years ended
January 31, 1999, 1998 and 1997, respectively.
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.
(11) 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 were idled
and subsequently disposed of, other excess assets were disposed of and the
service of approximately 450 active employees were 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, 1999,
$2.6 million of the plant closure reserve was reflected as a current accrued
liability.
In connection with the Motor Wheel Merger, the Company recorded
nonrecurring charges of $6.4 million. These charges consisted 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, 1999, $4.0 million of these liabilities remain on the balance sheet
of the Company.
(12) 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 1999. Based on management's
experience, negotiation of new contracts is anticipated without work stoppages.
F-21
<PAGE> 54
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(13) INVESTMENTS IN UNCONSOLIDATED AFFILIATES
As of January 31, 1999, the Company held 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 cast
aluminum wheel manufacturer in Brazil;
(iv) a 49% interest in Continental Lemmerz (Portugal) --
Componente para Automoveis, Lda., a tire and wheel assembly
operation in Portugal;
(v) a 25% interest in Reynolds-Lemmerz Industries, a cast
aluminum wheel manufacturer in Canada;
(vi) a 25% interest in Jantas Jant Sanayi ve Ticaret A.S., a
commercial highway steel wheel manufacturer in Turkey; and
(vii) 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, 1999, 1998 and 1997,
respectively, were not material to the consolidated financial statements of the
Company.
(14) 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, 1999, 282,700 options were
exercisable at a price of $10.00, 143,000 options were exercisable at a price of
$19.94 and 7,500 options were exercisable at a price of $19.69. At January 31,
1999, there were no shares available for issuance under this plan.
At the time of the Recapitalization, the Company established the Hayes
Lemmerz 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, fiscal 1997 and fiscal 1998 ranged
from $16 to $40 per share, which exercise prices represented the Common Stock's
fair market value on the date of each grant. All the option grants which, as of
January 31, 1999, 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 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 seven 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, 1999, 545,373
options were exercisable at a price of $16.00 per share and 44,708 options were
exercisable at a price of $32.00 per share.
F-22
<PAGE> 55
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
In connection with the Lemmerz Acquisition, the Company granted to a former
shareholder of Lemmerz 250,000 options with an exercise price of $16 per share.
These options become exercisable at the rate of 20% annually on June 30, 1998
and each June 30th thereafter until 2002.
Information with respect to all stock options is summarized below:
<TABLE>
<CAPTION>
1992 PLAN 1996 PLAN OTHER TOTAL
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
Balance as of January 31, 1997............ 470,500 2,335,075 150,702 2,956,277
Granted................................. -- 361,668 250,000 611,668
Exercised............................... -- (400) (150,702) (151,102)
Forfeited............................... -- (30,000) -- (30,000)
------- --------- -------- ---------
Balance as of January 31, 1998............ 470,500 2,666,343 250,000 3,386,843
Granted................................. -- 57,624 -- 57,624
Exercised............................... (37,300) (4,240) (50,000) (91,540)
Forfeited............................... -- (28,400) -- (28,400)
------- --------- -------- ---------
Outstanding at January 31, 1999......... 433,200 2,691,327 200,000 3,324,527
======= ========= ======== =========
</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>
1998 1997 1996
----- ----- ------
<S> <C> <C> <C>
Net Income (loss):
As reported............................................... $43.7 $31.4 $(72.9)
Pro forma................................................. 40.3 28.4 (75.1)
Diluted earnings (loss) per share:
As reported............................................... $1.35 $1.12 $(2.63)
Pro forma................................................. 1.24 1.01 (2.73)
</TABLE>
The fair value of stock options granted in fiscal 1998, fiscal 1997 and
fiscal 1996 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>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Weighted average fair value....................... $ 20.30 $ 13.36 $ 9.32
Expected volatility............................... 42.7% 33.4% 41.2%
Risk free interest rate........................... 5.5% 6.5% 6.8%
Expected lives.................................... 7.0 years 7.0 years 8.7 years
</TABLE>
Dividend yield for all grants was assumed to be insignificant.
At January 31, 1999, 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.
F-23
<PAGE> 56
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(15) SEGMENT REPORTING
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which introduced the "management approach"
for segment reporting. This approach reflects management's organization of
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 and geographic data by
country.
The Company is organized based primarily on markets served and products
produced. Under this organization structure, the Company's operating segments
have been aggregated into three reportable segments: Automotive Wheels, Casting
Products and Other. The Other category includes Commercial Highway products,
Automotive Brake components, the corporate office and elimination of
intercompany activities, none of which meet the requirements of being classified
as an operating segment.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies described in Note 2.
The Company evaluates the performance of its operating segments based primarily
on sales, operating profit and cash flow.
F-24
<PAGE> 57
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents revenues and other financial information by
business segment for the year ended January 31, (in millions):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Automotive Wheels.................................... $1,269.0 $ 964.4 $ 633.7
Casting Products..................................... 88.6 42.5 --
Other................................................ 315.3 262.9 144.5
-------- -------- --------
Total........................................ $1,672.9 $1,269.8 $ 778.2
======== ======== ========
Net income (loss):
Automotive Wheels.................................... $ 36.3 $ 16.9 $ (69.9)
Casting Products..................................... 4.9 1.9 --
Other................................................ 2.5 12.6 (3.0)
-------- -------- --------
Total........................................ $ 43.7 $ 31.4 $ (72.9)
======== ======== ========
Depreciation/amortization:
Automotive Wheels.................................... $ 70.1 $ 51.0 $ 37.0
Casting Products..................................... 2.6 1.4 --
Other................................................ 15.1 12.9 7.4
-------- -------- --------
Total........................................ $ 87.8 $ 65.3 $ 44.4
======== ======== ========
Capital expenditures:
Automotive Wheels.................................... $ 110.7 $ 53.7 $ 41.9
Casting Products..................................... 10.2 -- --
Other................................................ 13.4 37.2 29.5
-------- -------- --------
Total........................................ $ 134.3 $ 90.9 $ 71.4
======== ======== ========
Total assets:
Automotive Wheels.................................... $1,877.0 $1,428.8 $ 776.2
Casting Products..................................... 98.6 85.4 --
Other................................................ 135.3 244.7 406.9
-------- -------- --------
Total........................................ $2,110.9 $1,758.9 $1,183.1
======== ======== ========
</TABLE>
The following table presents revenues and net property, plant and equipment
for each of the geographic areas in which the Company operates (in millions):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- ------
<S> <C> <C> <C>
Revenues:
North America......................................... $ 973.5 $ 912.2 $689.5
Europe and other...................................... 699.4 357.6 88.7
-------- -------- ------
Total......................................... $1,672.9 $1,269.8 $778.2
======== ======== ======
Net property, plant & equipment:
North America......................................... $ 471.2 $ 399.1 $406.6
Europe and other...................................... 406.8 271.3 79.8
-------- -------- ------
Total......................................... $ 878.0 $ 670.4 $486.4
======== ======== ======
</TABLE>
F-25
<PAGE> 58
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A large percentage of the Company's revenues are from three automotive
manufacturers. The following is a summary of the percentage of revenues from
these major customers for the fiscal years ended January 31:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
General Motors Corporation.................................. 15.6% 16.6% 23.8%
Ford Motor Company.......................................... 16.1% 19.1% 23.4%
DaimlerChrysler............................................. 18.1% 20.9% 26.4%
</TABLE>
(16) 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,
1999 1998 1998 1998 1998 1997 1997 1997
----------- ----------- -------- --------- ----------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................... $432.1 $443.9 $383.0 $413.9 $371.9 $369.8 $277.9 $250.2
Gross profit................ 73.1 82.7 61.9 72.1 66.5 64.8 46.8 38.0
Net income (loss)........... 10.1 19.7 (0.8) 14.7 12.0 10.9 4.7 3.8
Basic net income (loss) per
share..................... $ 0.33 $ 0.65 $(0.03) $ 0.49 $ 0.40 $ 0.34 $ 0.20 $ 0.17
Diluted net income (loss)
per share................. $ 0.31 $ 0.62 $(0.02) $ 0.45 $ 0.38 $ 0.34 $ 0.20 $ 0.17
</TABLE>
(17) SUBSEQUENT EVENTS
On February 3, 1999, the Company completed the acquisition of CMI. The
purchase price for CMI was $605 million in cash, of which approximately $129
million was used to repay CMI's indebtedness existing at the time of the
acquisition, and of which approximately $476 million was paid to the
shareholders of CMI. The cash portion of the consideration, the refinancing of
the existing CMI debt and the fees and expenses of the acquisition of CMI were
financed with the proceeds of the Company's senior secured credit facilities and
the issuance of the 8 1/4% Notes.
On February 3, 1999, the Company entered into a third amended and restated
credit agreement (the "Third Amended and Restated Credit Agreement") with
Canadian Imperial Bank of Commerce ("CIBC") and Merrill Lynch Capital
Corporation ("Merrill Lynch"), as managing agents. Pursuant to the Third Amended
and Restated Credit Agreement, a syndicate of lenders agreed to lend to the
Company up to $450 million in the form of a senior secured term loan facility
and up to $650 million in the form of a senior secured revolving credit
facility. Such term loan and revolving credit facilities are guaranteed by the
Company and all of its existing and future material domestic subsidiaries. Such
term loan and revolving facilities are secured by a first priority lien on
substantially all of the properties and assets of the Company and its material
domestic subsidiaries, now owned or acquired later, including a pledge of all of
the shares of certain of the Company's existing and future foreign subsidiaries.
(18) GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS
In connection with the Motor Wheel Merger and as part of the financing
thereof, the Company issued and sold the 11% Notes in a public offering. The 11%
Notes are general unsecured obligations of the Company, subordinated in right of
payment to all existing and future senior indebtedness of the Company, and are
guaranteed by certain of the Company's domestic subsidiaries.
In connection with the Lemmerz Acquisition, the Company issued and sold the
9 1/8% Notes in two offerings 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.
F-26
<PAGE> 59
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In anticipation of the acquisition of CMI and as part of the financing
thereof, the Company issued and sold the 8 1/4% Notes in an offering under Rule
144A of the Securities Act which closed December 8, 1998. The 8 1/4% Notes are
general unsecured obligations of the Company subordinated in right of payment to
senior indebtedness of the Company, ranking pari passu with the 11% and the
9 1/8% Notes and senior in right of payment to any current or future
subordinated indebtedness of the Company. The 8 1/4% Notes are unconditionally
guaranteed, on a senior subordinated basis, as to payment of principal, premium,
if any, and interest, jointly and severally by the Company's material domestic
subsidiaries.
The following condensed consolidating financial information presents:
(1) Condensed consolidating financial statements as of January 31,
1999 and 1998 and for the twelve month periods ended January 31, 1999, 1998
and 1997, of (a) Hayes Lemmerz International, Inc., the parent (b) the
guarantor subsidiaries, (c) the nonguarantor subsidiaries and (d) the
Company on a consolidated basis, and
(2) Elimination entries necessary to consolidate Hayes Lemmerz
International, Inc., the parent, with 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-27
<PAGE> 60
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JANUARY 31, 1999
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents.......... $ 23.3 $ 0.1 $ 27.9 $ -- $ 51.3
Receivables........................ 42.9 26.0 112.7 -- 181.6
Inventories........................ 33.1 49.8 83.7 -- 166.6
Prepaid expenses and other......... 1.6 2.9 19.9 (1.6) 22.8
-------- ------- -------- ------- --------
Total current assets..... 100.9 78.8 244.2 (1.6) 422.3
Net property, plant and
equipment........................ 148.1 313.9 416.0 -- 878.0
Goodwill and other assets.......... 799.1 309.2 363.4 (661.1) 810.6
-------- ------- -------- ------- --------
Total assets............. $1,048.1 $ 701.9 $1,023.6 $(662.7) $2,110.9
======== ======= ======== ======= ========
Bank borrowings.................... $ 2.6 $ -- $ 42.2 $ -- $ 44.8
Current portion of long-term
debt............................. 0.2 -- 12.1 -- 12.3
Accounts payable and accrued
liabilities...................... 87.5 159.1 211.2 (1.1) 456.7
-------- ------- -------- ------- --------
Total current
liabilities............ 90.3 159.1 265.5 (1.1) 513.8
Long-term debt, net of current
portion.......................... 900.8 -- 75.3 -- 976.1
Deferred income taxes.............. (5.1) 13.0 50.5 -- 58.4
Pension and other long-term
liabilities...................... 83.1 79.4 169.1 (2.5) 329.1
Minority interest.................. -- 0.4 12.2 -- 12.6
Parent loans....................... (191.5) 228.7 (33.9) (3.3) --
-------- ------- -------- ------- --------
Total liabilities........ 877.6 480.6 538.7 (6.9) 1,890.0
Common stock....................... 0.3 -- -- -- 0.3
Additional paid-in capital......... 251.7 108.7 293.4 (417.0) 236.8
Retained earnings (accumulated
deficit)......................... (59.4) 112.6 178.5 (238.8) (7.1)
Accumulated other comprehensive
income........................... (22.1) -- 13.0 -- (9.1)
-------- ------- -------- ------- --------
Total stockholders'
equity................. 170.5 221.3 484.9 (655.8) 220.9
Total liabilities and
stockholder's equity... $1,048.1 $ 701.9 $1,023.6 $(662.7) $2,110.9
======== ======= ======== ======= ========
</TABLE>
F-28
<PAGE> 61
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED 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
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
Pension and other long-term
liabilities....................... 83.6 85.4 135.4 (2.9) 301.5
Minority interest................... -- 0.2 5.3 0.1 5.6
Parent loans........................ (212.5) 219.7 (7.2) -- --
------- ------ ------ ------- --------
Total liabilities......... 779.9 451.6 368.9 (3.0) 1,597.4
Common stock........................ 0.3 -- -- -- 0.3
Additional paid-in capital.......... 246.9 104.5 272.9 (394.9) 229.4
Retained earnings (accumulated
deficit).......................... (30.6) 91.7 144.4 (256.3) (50.8)
Accumulated other comprehensive
income............................ (10.9) 0.1 (10.1) 3.5 (17.4)
------- ------ ------ ------- --------
Total stockholders'
equity.................. 205.7 196.3 407.2 (647.7) 161.5
------- ------ ------ ------- --------
Total liabilities and
stockholders' equity.... $ 985.6 $647.9 $776.1 $(650.7) $1,758.9
======= ====== ====== ======= ========
</TABLE>
F-29
<PAGE> 62
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JANUARY 31, 1999
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales.............................. $291.1 $677.8 $715.6 $(11.6) $1,672.9
Cost of goods sold..................... 253.7 565.2 575.8 (11.6) 1,383.1
------ ------ ------ ------ --------
Gross profit......................... 37.4 112.6 139.8 -- 289.8
Marketing, general and
administration....................... 9.2 20.6 41.2 -- 71.0
Engineering and product development.... 2.6 5.6 12.0 -- 20.2
Amortization of intangibles............ 1.5 8.3 6.8 -- 16.6
Equity in earnings of unconsolidated
subsidiaries......................... (0.4) -- (0.2) -- (0.6)
Other income, net...................... (0.7) (0.2) (4.5) -- (5.4)
------ ------ ------ ------ --------
Earnings from operations............. 25.2 78.3 84.5 -- 188.0
Interest expense, net.................. 37.1 48.0 9.8 -- 94.9
Earnings before taxes on income,
minority interest, and
extraordinary loss................ (11.9) 30.3 74.7 -- 93.1
Income tax provision................... 11.9 11.8 15.4 -- 39.1
------ ------ ------ ------ --------
Earnings before minority interest and
extraordinary loss................ (23.8) 18.5 59.3 -- 54.0
Minority interest...................... -- 0.2 1.8 -- 2.0
------ ------ ------ ------ --------
Earnings before extraordinary loss... (23.8) 18.3 57.5 -- 52.0
Extraordinary loss, net of tax......... 8.3 -- -- -- 8.3
------ ------ ------ ------ --------
Net income............................. $(32.1) $ 18.3 $ 57.5 $ -- $ 43.7
====== ====== ====== ====== ========
</TABLE>
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED 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-30
<PAGE> 63
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED 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-31
<PAGE> 64
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
AS OF JANUARY 31, 1999
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows provided by (used in)
operating activities................ $ (71.8) $ 79.7 $ 170.4 $-- $ 178.3
Cash flows from investing activities:
Acquisition of property, plant and
equipment........................ (18.7) (69.0) (46.6) -- (134.3)
Acquisition of tooling.............. (15.1) -- (6.2) -- (21.3)
Purchase of businesses, net of
cash............................. (8.8) -- (70.5) -- (79.3)
Other, net.......................... (9.5) 14.9 (37.3) -- (31.9)
------- ------ ------- -- -------
Cash used in investing activities... (52.1) (54.1) (160.6) -- (266.8)
Cash flows from financing activities:
Net change in bank borrowings and
revolver......................... 6.6 (34.5) 28.0 -- 0.1
Proceeds from issuance of long term
debt............................. 250.0 -- -- -- 250.0
Proceeds from the sale of common
stock............................ 1.7 -- -- -- 1.7
Fees paid to issue long term debt... (6.4) -- -- -- (6.4)
Repayment of long term debt......... (200.5) -- -- -- (200.5)
Net proceeds from accounts
receivable securitization........ 73.5 -- -- -- 73.5
------- ------ ------- -- -------
Cash provided by (used in)
financing activities........... 124.9 (34.5) 28.0 -- 118.4
Increase (decrease) in parent loans
and advances........................ 17.7 8.9 (26.6) -- --
Effect of exchange rates of cash and
cash equivalents.................... -- -- (1.7) -- (1.7)
------- ------ ------- -- -------
Net increase in cash and cash
equivalents...................... 18.7 -- 9.5 -- 28.2
Cash and cash equivalents at beginning
of period........................... 4.6 0.1 18.4 -- 23.1
------- ------ ------- -- -------
Cash and cash equivalents at end of
period.............................. $ 23.3 $ 0.1 $ 27.9 $-- $ 51.3
======= ====== ======= == =======
</TABLE>
F-32
<PAGE> 65
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED 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................ $ (12.2) $ 38.5 $ 80.7 $(5.1) $ 101.9
Cash flows from investing activities:
Acquisition of property, plant and
equipment........................ (30.0) (30.9) (30.0) -- (90.9)
Acquisition of tooling.............. (8.8) -- -- -- (8.8)
Purchase of businesses, net of
cash............................. (228.0) -- -- -- (228.0)
Other, net.......................... 22.7 (18.6) (10.5) -- (6.4)
------- ------ ------ ----- -------
Cash used in investing activities... (244.1) (49.5) (40.5) -- (334.1)
Cash flows from financing activities:
Net change in bank borrowings and
revolver......................... (339.2) -- (14.3) -- (353.5)
Proceeds from issuance of long term
debt............................. 500.0 -- -- -- 500.0
Proceeds from the sale of common
stock............................ 77.1 -- -- -- 77.1
Fees paid to issue long term debt... (17.0) -- -- -- (17.0)
------- ------ ------ ----- -------
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-33
<PAGE> 66
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED 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.................. $ 23.8 $ 31.2 $ 16.0 $(7.4) $ 63.6
Cash flows from investing activities:
Acquisition of property, plant and
equipment.......................... (28.9) (25.6) (16.9) -- (71.4)
Acquisition of tooling................ (6.5) -- -- -- (6.5)
Purchase of businesses, net of cash
acquired........................... 5.0 -- -- -- 5.0
Other, net............................ 4.8 12.1 (1.5) -- 15.4
------- ------- ------ ----- -------
Cash used in investing activities..... (25.6) (13.5) (18.4) -- (57.5)
Cash flows from financing activities:
Net change in bank borrowings and
revolver........................... (29.5) -- (4.1) -- (33.6)
Repayment of long term debt........... (106.4) (137.7) -- -- (244.1)
Proceeds from issuance of long term
debt............................... 673.5 -- -- -- 673.5
Common stock repurchase............... (506.1) -- -- -- (506.1)
Proceeds from the sale of common
stock.............................. 184.9 -- -- -- 184.9
Fees paid to issue long term debt..... (35.0) -- -- -- (35.0)
------- ------- ------ ----- -------
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-34
<PAGE> 67
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 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 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, 1999 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
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-35
<PAGE> 68
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, 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
Year ended January 31, 1999
Allowance for doubtful accounts.................... $4.3 0.8 (1.1) $4.0
</TABLE>
F-36
<PAGE> 69
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Hayes Lemmerz International, Inc.:
Under date of February 26, 1999, we reported on the consolidated balance
sheets of Hayes Lemmerz International, Inc. and subsidiaries as of January 31,
1999 and 1998, 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, 1999, 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.
/s/ KPMG LLP
Detroit, Michigan
February 26, 1999
F-37
<PAGE> 70
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<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
(M) 2.3 Agreement and Plan of Merger, dated November 19, 1998, among
the Company, HL -- CMI Holding Co., CMI International, Inc.
and Ray H. Witt, as Trustee of the Ray H. Witt Living Trust
Agreement dated December 2, 1981, as amended and restated.
(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.
(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.
(N) 4.11 Indenture, dated as of December 14, 1998, among the Company,
as Issuer, certain subsidiaries of the Company, as
Guarantors, and The Bank of New York, a New York banking
corporation, as Trustee.
(N) 4.12 Registration Rights Agreement, dated as of December 14,
1998, among the Company, as Issuer, certain subsidiaries of
the Company, as Guarantors, and CIBC Oppenheimer Corp.,
Credit Suisse First Boston Corporation, Merrill Lynch,
Pierce, Fenner & Smith Incorporated, as the Initial
Purchasers.
(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) 10.5 Michigan Workers' Compensation Claims Payment Guarantee
between the Company and Kelsey-Hayes Company.
(A) 10.6* 1992 Incentive Stock Option Plan.
</TABLE>
<PAGE> 71
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C> <C>
(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.
(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, Nova Hut a.s., 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.
(L) 10.28* Managing Director's Service Agreement, dated September 25,
1997, between Hayes Lemmerz Holding GmbH and Klaus Junger.
(N) 10.29 Third Amended and Restated Credit Agreement, dated as of
February 3, 1999, among the Company, as Borrower, the
several banks and other financial institutions from time to
time Parties thereto, as Lenders, Canadian Imperial Bank of
Commerce, as Administrative Agent and Co-Lead Arranger,
Credit Suisse First Boston, as Syndication Agent and Co-Lead
Arranger, Merrill Lynch Capital Corporation, as
Co-Documentation Agent, and Dresdner Bank AG, as
Co-Documentation Agent and European Swing Administrator.
(O) 12 Computation of Ratios.
(O) 21.1 Subsidiaries of the Company.
(O) 23 Consent of KPMG LLP.
(O) 24 Powers of Attorney.
(O) 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.
<PAGE> 72
(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) Incorporated by reference from the Company's Annual Report on Form 10-K for
the Fiscal Year Ended January 31, 1998, filed with the SEC.
(M) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended October 31, 1998, filed with the SEC.
(N) Incorporated by reference from the Company's Current Report on Form 8-K,
dated February 3, 1999, filed with the SEC.
(O) 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.
<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,
1995 1996 1997 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Earnings:
Earnings (loss) before taxes on
income and minority interest..... $49.9 $46.2 $(102.0) $ 55.1 $ 93.1
Interest expense:
Bank borrowings and long-term
debt............................. 13.4 15.0 48.5 90.4 94.9
Rentals(1)............................ 2.0 2.6 4.6 5.7 7.2
----- ----- ------- ------ ------
Earnings before interest expense,
taxes on income and minority
interest............................ $65.3 $63.8 $ (48.9) $151.2 $195.2
===== ===== ======= ====== ======
Fixed charges:
Bank borrowings and long-term
debt............................. $13.4 $15.0 $ 48.5 $ 90.4 $ 94.9
Rentals(1).......................... 2.0 2.6 4.6 5.7 7.2
----- ----- ------- ------ ------
Total fixed charges......... $15.4 $17.6 $ 53.1 $ 96.1 $102.1
===== ===== ======= ====== ======
Ratio of earnings to fixed charges.... 4.24 3.63 (0.92) 1.57 1.91
===== ===== ======= ====== ======
Coverage deficiency on fixed
charges............................. N/A N/A 102.0 N/A N/A
===== ===== ======= ====== ======
</TABLE>
- ---------------
(1) Estimated interest component of rent expense.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF
HAYES LEMMERZ INTERNATIONAL, INC.
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION
------------------ -----------------------------
<S> <C>
Hayes Lemmerz International -- California, Inc.............. Delaware
Hayes Lemmerz International -- Michigan, Inc................ Michigan
Hayes Lemmerz International -- Indiana, Inc................. Delaware
Hayes Lemmerz International -- Georgia, Inc................. Delaware
Hayes Lemmerz International -- Mexico, Inc.................. Delaware
Hayes Lemmerz International -- Texas, Inc................... Texas
Hayes Lemmerz International -- Ohio, Inc.................... Ohio
Hayes Lemmerz International -- Kentucky, Inc................ Delaware
Hayes Lemmerz Funding Corp.................................. Delaware
Hayes Lemmerz Funding Company, LLC.......................... Delaware
Hayes Lemmerz Japan Limited................................. Japan
HLI (Europe), Ltd........................................... Delaware
HL Europe Fabricated Holdings, Inc. ........................ Delaware
Hayes Lemmerz Fabricated Holdings B.V. ..................... Netherlands
Hayes Lemmerz, S.p.A. ...................................... Italy
Hayes Lemmerz Barcelona, S.A................................ Spain
Hayes Lemmerz Autokola, a.s. ............................... Czech Repub.
Hayes Lemmerz Alukola, s.r.o. .............................. Czech Repub.
HL Ohio Sub, Inc............................................ Delaware
Hayes Lemmerz Frenos de Mexico, S.A. de C.V................. Mexico
HL Holdings, B.V. .......................................... Netherlands
Hayes Lemmerz Holding Germany GmbH.......................... Germany
Hayes Lemmerz Hungary Consulting Limited Liability
Company................................................... Hungary
Newco Nr. 17 Vermogensverwaltungs GmbH...................... Germany
Hayes Lemmerz Werke GmbH & Co. ............................. Germany
Metaalgieterij Giesen, B.V. ................................ Netherlands
J.van Erp Vastgoed Heijen B.V. ............................. Netherlands
Metaalindustrie Bergen B.V. ................................ Netherlands
Hayes Lemmerz Manresa, SPRL................................. Spain
Hayes Lemmerz Werke Wohnungsbaugesellschaft mbH............. Germany
Hayes Lemmerz System Services N.V. ......................... Belgium
Hayes Lemmerz Belgie B.V.B.A. .............................. Belgium
Hayes Lemmerz Comercio e Participacoes SRL.................. Brazil
Lemmerz Canada, Inc......................................... Canada
Hayes Lemmerz- Inci- Jany Sanayi, A.S. ..................... Turkey
Borlem S.A. Empreendimentos Industriais..................... Brazil
Hayes Lemmerz Mexico, S.A. de C.V........................... Mexico
Kalyani Lemmerz Limited..................................... India
Automotive Overseas Investments (Pty) Ltd................... South Africa
RSDS Vermogensverwaltungs GmbH 161.......................... Germany
CMI International, Inc...................................... Michigan
CMI -- Cast Parts, Inc...................................... Michigan
CMI -- Dearborn, Inc........................................ Michigan
CMI -- Equipment & Engineering, Inc......................... Michigan
CMI -- Norway, Inc.......................................... Michigan
CMI -- Polymers, Inc........................................ Michigan
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION
------------------ -----------------------------
<S> <C>
Summerfield Realty Corp..................................... Michigan
CMI -- Precision Mold, Inc.................................. Michigan
Process Control Automation, Inc............................. Michigan
CMI -- Southfield, Inc...................................... Michigan
CMI -- Tech Center, Inc..................................... Michigan
TC Realty, Inc.............................................. Michigan
CMI -- Texas, Inc........................................... Texas
Industrias Fronterizas CMI S.A. de C.V...................... Mexico
CMI -- Transportation, Inc.................................. Michigan
CMI -- Ventures, Inc........................................ Michigan
CMI -- Wabash Cast, Inc..................................... Indiana
</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 26, 1999 relating to the consolidated balance sheets of
Hayes Lemmerz International, Inc. and subsidiaries as of January 31, 1999 and
1998, 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, 1999, and our report on the accompanying
financial statement schedule which reports appears in the January 31, 1999,
annual report on Form 10-K of Hayes Lemmerz International, Inc.
/s/ KPMG LLP
Detroit, Michigan
April 29,1999
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Daniel M. Sandberg
and Patrick B. Carey, and each of them, as his true and lawful agent and
attorney-in-fact, with full power of substitution and resubstitution, to execute
and deliver on behalf of the undersigned: (1) any Annual Reports on Form 10-K
required to be filed by Hayes Wheels International, Inc. (the "Company") with
the United States Securities and Exchange Commission (the "SEC"), and any
amendments thereto; (2) any reports required to be filed with the SEC by the
undersigned pursuant to Section 16 of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), respecting transactions involving the equity
securities of the Company, including without limitation reports on Form 3, 4 and
5 (and any amendments thereto); and (3) any reports of the undersigned to the
SEC on Form 144 promulgated pursuant to the Securities Act of 1933, as amended,
respecting sales of the Company's equity securities. This Power of Attorney
shall grant to the aforesaid persons the power to file any or all of the
foregoing reports with the SEC and generally to do anything else necessary or
proper in connection therewith. The authority of the aforesaid persons under
this Power of Attorney shall continue until the undersigned is no longer a
director of the Company or until otherwise revoked in writing. The undersigned
acknowledges that the aforesaid persons are not assuming any of the
undersigned's responsibilities to comply with Section 16 of the 1934 Act.
/s/ CLEVELAND A. CHRISTOPHE
--------------------------------------
Cleveland A. Christophe
Dated: April 23, 1997
<PAGE> 2
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Patrick B. Carey
and Patrick C. Cauley, and each of them, as his true and lawful agent and
attorney-in-fact, with full power of substitution and resubstitution, to execute
and deliver on behalf of the undersigned: (1) any Annual Reports on Form 10-K
required to be filed by Hayes Lemmerz International, Inc. (the "Company") with
the United States Securities and Exchange Commission (the "SEC"), and any
amendments thereto; (2)any reports required to be filed with the SEC by the
undersigned pursuant to Section 16 of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), respecting transactions involving the equity
securities of the Company, including without limitation reports on Form 3, 4 and
5 (and any amendments thereto); and (3) any reports of the undersigned to the
SEC on Form 144 promulgated pursuant to the Securities Act of 1933, as amended,
respecting sales of the Company's equity securities. This Power of Attorney
shall grant to the aforesaid persons the power to file any or all of the
foregoing reports with the SEC and generally to do anything else necessary or
proper in connection therewith. The authority of the aforesaid persons under
this Power of Attorney shall continue until the undersigned is no longer a
director of the Company or until otherwise revoked in writing. The undersigned
acknowledges that the aforesaid persons are not assuming any of the
undersigned's responsibilities to comply with Section 16 of the 1934 Act.
/s/ ANTHONY GRILLO
--------------------------------------
Anthony Grillo
Dated: April 13, 1999
<PAGE> 3
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Daniel M. Sandberg
and Patrick B. Carey, and each of them, as his true and lawful agent and
attorney-in-fact, with full power of substitution and resubstitution, to execute
and deliver on behalf of the undersigned: (1) any Annual Reports on Form 10-K
required to be filed by Hayes Wheels International, Inc. (the "Company") with
the United States Securities and Exchange Commission (the "SEC"), and any
amendments thereto; (2) any reports required to be filed with the SEC by the
undersigned pursuant to Section 16 of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), respecting transactions involving the equity
securities of the Company, including without limitation reports on Form 3, 4 and
5 (and any amendments thereto); and (3) any reports of the undersigned to the
SEC on Form 144 promulgated pursuant to the Securities Act of 1933, as amended,
respecting sales of the Company's equity securities. This Power of Attorney
shall grant to the aforesaid persons the power to file any or all of the
foregoing reports with the SEC and generally to do anything else necessary or
proper in connection therewith. The authority of the aforesaid persons under
this Power of Attorney shall continue until the undersigned is no longer a
director of the Company or until otherwise revoked in writing. The undersigned
acknowledges that the aforesaid persons are not assuming any of the
undersigned's responsibilities to comply with Section 16 of the 1934 Act.
/s/ ANDREW R. HEYER
--------------------------------------
Andrew R. Heyer
Dated: April 23, 1997
<PAGE> 4
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Daniel M. Sandberg
and Patrick B. Carey, and each of them, as his true and lawful agent and
attorney-in-fact, with full power of substitution and resubstitution, to execute
and deliver on behalf of the undersigned: (1) any Annual Reports on Form 10-K
required to be filed by Hayes Wheels International, Inc. (the "Company") with
the United States Securities and Exchange Commission (the "SEC"), and any
amendments thereto; (2) any reports required to be filed with the SEC by the
undersigned pursuant to Section 16 of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), respecting transactions involving the equity
securities of the Company, including without limitation reports on Form 3, 4 and
5 (and any amendments thereto); and (3) any reports of the undersigned to the
SEC on Form 144 promulgated pursuant to the Securities Act of 1933, as amended,
respecting sales of the Company's equity securities. This Power of Attorney
shall grant to the aforesaid persons the power to file any or all of the
foregoing reports with the SEC and generally to do anything else necessary or
proper in connection therewith. The authority of the aforesaid persons under
this Power of Attorney shall continue until the undersigned is no longer a
director of the Company or until otherwise revoked in writing. The undersigned
acknowledges that the aforesaid persons are not assuming any of the
undersigned's responsibilities to comply with Section 16 of the 1934 Act. This
Power of Attorney shall be effective only upon the consummation and closing of
the transactions contemplated by the Purchase Agreement, dated June 6, 1997,
among the Company, Cromodora Wheels S.p.A., Lemmerz Holding GmbH ("Lemmerz") and
the shareholders of Lemmerz.
/s/ HORST KUKWA-LEMMERZ
--------------------------------------
Horst Kukwa-Lemmerz
Dated: June 30, 1997
<PAGE> 5
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Daniel M. Sandberg
and Patrick B. Carey, and each of them, as his true and lawful agent and
attorney-in-fact, with full power of substitution and resubstitution, to execute
and deliver on behalf of the undersigned: (1) any Annual Reports on Form 10-K
required to be filed by Hayes Wheels International, Inc. (the "Company") with
the United States Securities and Exchange Commission (the "SEC"), and any
amendments thereto; (2) any reports required to be filed with the SEC by the
undersigned pursuant to Section 16 of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), respecting transactions involving the equity
securities of the Company, including without limitation reports on Form 3, 4 and
5 (and any amendments thereto); and (3) any reports of the undersigned to the
SEC on Form 144 promulgated pursuant to the Securities Act of 1933, as amended,
respecting sales of the Company's equity securities. This Power of Attorney
shall grant to the aforesaid persons the power to file any or all of the
foregoing reports with the SEC and generally to do anything else necessary or
proper in connection therewith. The authority of the aforesaid persons under
this Power of Attorney shall continue until the undersigned is no longer a
director of the Company or until otherwise revoked in writing. The undersigned
acknowledges that the aforesaid persons are not assuming any of the
undersigned's responsibilities to comply with Section 16 of the 1934 Act.
/s/ PAUL S. LEVY
--------------------------------------
Paul S. Levy
Dated: April 23, 1997
<PAGE> 6
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Daniel M. Sandberg
and Patrick B. Carey, and each of them, as his true and lawful agent and
attorney-in-fact, with full power of substitution and resubstitution, to execute
and deliver on behalf of the undersigned: (1) any Annual Reports on Form 10-K
required to be filed by Hayes Wheels International, Inc. (the "Company") with
the United States Securities and Exchange Commission (the "SEC"), and any
amendments thereto; (2) any reports required to be filed with the SEC by the
undersigned pursuant to Section 16 of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), respecting transactions involving the equity
securities of the Company, including without limitation reports on Form 3, 4 and
5 (and any amendments thereto); and (3) any reports of the undersigned to the
SEC on Form 144 promulgated pursuant to the Securities Act of 1933, as amended,
respecting sales of the Company's equity securities. This Power of Attorney
shall grant to the aforesaid persons the power to file any or all of the
foregoing reports with the SEC and generally to do anything else necessary or
proper in connection therewith. The authority of the aforesaid persons under
this Power of Attorney shall continue until the undersigned is no longer a
director of the Company or until otherwise revoked in writing. The undersigned
acknowledges that the aforesaid persons are not assuming any of the
undersigned's responsibilities to comply with Section 16 of the 1934 Act.
/s/ JEFFREY C. LIGHTCAP
--------------------------------------
Jeffrey C. Lightcap
Dated: October 24, 1997
<PAGE> 7
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Daniel M. Sandberg
and Patrick B. Carey, and each of them, as his true and lawful agent and
attorney-in-fact, with full power of substitution and resubstitution, to execute
and deliver on behalf of the undersigned: (1) any Annual Reports on Form 10-K
required to be filed by Hayes Wheels International, Inc. (the "Company") with
the United States Securities and Exchange Commission (the "SEC"), and any
amendments thereto; (2)any reports required to be filed with the SEC by the
undersigned pursuant to Section 16 of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), respecting transactions involving the equity
securities of the Company, including without limitation reports on Form 3, 4 and
5 (and any amendments thereto); and (3) any reports of the undersigned to the
SEC on Form 144 promulgated pursuant to the Securities Act of 1933, as amended,
respecting sales of the Company's equity securities. This Power of Attorney
shall grant to the aforesaid persons the power to file any or all of the
foregoing reports with the SEC and generally to do anything else necessary or
proper in connection therewith. The authority of the aforesaid persons under
this Power of Attorney shall continue until the undersigned is no longer a
director of the Company or until otherwise revoked in writing. The undersigned
acknowledges that the aforesaid persons are not assuming any of the
undersigned's responsibilities to comply with Section 16 of the 1934 Act. This
Power of Attorney shall be effective only upon the consummation and closing of
the transaction contemplated by the Purchase Agreement, dated June 6, 1997,
among the Company, Cromodora Wheels S.p.A., Lemmerz Holding GmbH ("Lemmerz") and
the shareholders of Lemmerz.
/s/ WIENAND MEILICKE
--------------------------------------
Wienand Meilicke
Dated: June 30, 1997
<PAGE> 8
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Daniel M. Sandberg
and Patrick B. Carey, and each of them, as his true and lawful agent and
attorney-in-fact, with full power of substitution and resubstitution, to execute
and deliver on behalf of the undersigned: (1) any Annual Reports on Form 10-K
required to be filed by Hayes Wheels International, Inc. (the "Company") with
the United States Securities and Exchange Commission (the "SEC"), and any
amendments thereto; (2) any reports required to be filed with the SEC by the
undersigned pursuant to Section 16 of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), respecting transactions involving the equity
securities of the Company, including without limitation reports on Form 3, 4 and
5 (and any amendments thereto); and (3) any reports of the undersigned to the
SEC on Form 144 promulgated pursuant to the Securities Act of 1933, as amended,
respecting sales of the Company's equity securities. This Power of Attorney
shall grant to the aforesaid persons the power to file any or all of the
foregoing reports with the SEC and generally to do anything else necessary or
proper in connection therewith. The authority of the aforesaid persons under
this Power of Attorney shall continue until the undersigned is no longer a
director of the Company or until otherwise revoked in writing. The undersigned
acknowledges that the aforesaid persons are not assuming any of the
undersigned's responsibilities to comply with Section 16 of the 1934 Act.
/s/ JOHN S. RODEWIG
--------------------------------------
John S. Rodewig
Dated: April 23, 1997
<PAGE> 9
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Patrick B. Carey
and Patrick C. Cauley, and each of them, as his true and lawful agent and
attorney-in-fact, with full power of substitution and resubstitution, to execute
and deliver on behalf of the undersigned: (1) any Annual Reports on Form 10-K
required to be filed by Hayes Lemmerz International, Inc. (the "Company") with
the United States Securities and Exchange Commission (the "SEC"), and any
amendments thereto; (2) any reports required to be filed with the SEC by the
undersigned pursuant to Section 16 of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), respecting transactions involving the equity
securities of the Company, including without limitation reports on Form 3, 4 and
5 (and any amendments thereto); and (3) any reports of the undersigned to the
SEC on Form 144 promulgated pursuant to the Securities Act of 1933, as amended,
respecting sales of the Company's equity securities. This Power of Attorney
shall grant to the aforesaid persons the power to file any or all of the
foregoing reports with the SEC and generally to do anything else necessary or
proper in connection therewith. The authority of the aforesaid persons under
this Power of Attorney shall continue until the undersigned is no longer a
director of the Company or until otherwise revoked in writing. The undersigned
acknowledges that the aforesaid persons are not assuming any of the
undersigned's responsibilities to comply with Section 16 of the 1934 Act.
/s/ RAY H. WITT
--------------------------------------
Ray H. Witt
Dated: April 13, 1999
<PAGE> 10
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Daniel M. Sandberg
and Patrick B. Carey, and each of them, as his true and lawful agent and
attorney-in-fact, with full power of substitution and resubstitution, to execute
and deliver on behalf of the undersigned: (1) any Annual Reports on Form 10-K
required to be filed by Hayes Wheels International, Inc. (the "Company") with
the United States Securities and Exchange Commission (the "SEC"), and any
amendments thereto; (2) any reports required to be filed with the SEC by the
undersigned pursuant to Section 16 of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), respecting transactions involving the equity
securities of the Company, including without limitation reports on Form 3, 4 and
5 (and any amendments thereto); and (3) any reports of the undersigned to the
SEC on Form 144 promulgated pursuant to the Securities Act of 1933, as amended,
respecting sales of the Company's equity securities. This Power of Attorney
shall grant to the aforesaid persons the power to file any or all of the
foregoing reports with the SEC and generally to do anything else necessary or
proper in connection therewith. The authority of the aforesaid persons under
this Power of Attorney shall continue until the undersigned is no longer a
director of the Company or until otherwise revoked in writing. The undersigned
acknowledges that the aforesaid persons are not assuming any of the
undersigned's responsibilities to comply with Section 16 of the 1934 Act.
/s/ DAVID Y. YING
--------------------------------------
David Y. Ying
Dated: June 30, 1997
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<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 51,300
<SECURITIES> 0
<RECEIVABLES> 181,600
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<CURRENT-ASSETS> 422,300
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0
0
<COMMON> 300
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<TOTAL-LIABILITY-AND-EQUITY> 2,110,900
<SALES> 1,672,900
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