________________________________________________________________________________UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-Q
(Mark(Mark One)[X]
QUARTERLY REPORT PURSUANT TO SECTION 13orOR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended July 31,
19992000OR
[
]TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from
toCommission file number: 1-11592
HAYES LEMMERZ INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 13-3384636 (State or Other Jurisdiction of (IRS Employer Incorporation or Organization) Identification No.)
Delaware(State or other Jurisdiction ofIncorporation or Organization)13-3384636(IRS Employer Identification No.)15300 CENTENNIAL DRIVE
NORTHVILLE, MICHIGAN 48167(Address of Principal Executive Offices)(Zip Code)
RegistrantsRegistrant’s telephone number, including area code: (734) 737-5000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes [X]No []
The number of shares of common stock outstanding as of September14, 1999,13, 2000, was30,336,69528,899,495 shares.
HAYES LEMMERZ INTERNATIONAL, INC.QUARTERLY REPORT ON FORM 10-QTABLE OF CONTENTS
PageTABLE OF CONTENTS PART I. FINANCIAL INFORMATION:Item 1. Financial Statements PART 1. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements ofOf Operations3Consolidated Balance Sheets 4Consolidated Statements of Cash Flows 5Notes to Consolidated Financial Statements 6Item 2. ManagementsManagement’s Discussion and Analysis of Financial Condition and Results of Operations16Item 3. Quantitative and Qualitative Disclosures about Market Risk 19PART II. OTHER INFORMATION:INFORMATIONItem 1. Legal Proceedings 20Item 2. Changes in Securities and Use of Proceeds 20Item 3. Defaults uponUpon Senior Securities20Item 4. Submission of Matters to a Vote of Security-HoldersSecurity HoldersItem 5. Other Information SIGNATURES EXHIBIT INDEX Financial Data Schedule HAYES LEMMERZ INTERNATIONAL, INC.
QUARTERLY REPORT ON FORM 10-QTABLE OF CONTENTS
Page 20PART I. FINANCIAL INFORMATION Item 5.1.Other InformationFinancial Statements20Consolidated Statements of Operations 3 Consolidated Balance Sheets 4 Consolidated Statements of Cash Flows 5 Notes to Consolidated Financial Statements 6 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 14 Item 3. Quantitative and Qualitative Disclosures about Market Risk 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings 16 Item 2. Changes in Securities and Use of Proceeds 16 Item 3. Defaults Upon Senior Securities 16 Item 4. Submission of Matters to a Vote of Security Holders 16 Item 5. Other Information 16 Item 6. Exhibits and Reports on Form 8-K 2017SignaturesSIGNATURES2118
UNLESS OTHERWISE INDICATED, REFERENCES TO THECOMPANY“COMPANY” MEAN HAYES LEMMERZ INTERNATIONAL, INC., AND ITS SUBSIDIARIES AND REFERENCE TO A FISCAL YEAR MEANS THECOMPANYSCOMPANY’S YEAR ENDED JANUARY 31 OF THE FOLLOWING YEAR (E.G., FISCAL19992000 MEANS THE PERIOD BEGINNING FEBRUARY 1,1999,2000, AND ENDING JANUARY 31,2000)2001). THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS, AND BUSINESS OF THE COMPANY. THESE FORWARD LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES. NO ASSURANCE CAN BE GIVEN THAT ANY OF SUCH MATTERS WILL BE REALIZED. FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS INCLUDE, AMONG OTHERS, THE FOLLOWING POSSIBILITIES: (1) COMPETITIVE PRESSURE IN THECOMPANYSCOMPANY’S INDUSTRY INCREASES SIGNIFICANTLY; (2) GENERAL ECONOMIC CONDITIONS ARE LESS FAVORABLE THAN EXPECTED; (3) THECOMPANYSCOMPANY’S DEPENDENCE ON THE AUTOMOTIVE INDUSTRY (WHICH HAS HISTORICALLY BEEN CYCLICAL); (4) CHANGES IN THE FINANCIAL MARKETS AFFECTING THECOMPANYSCOMPANY’S FINANCIAL STRUCTURE AND THECOMPANYSCOMPANY’S COST OF CAPITAL AND BORROWED MONEY; AND (5) THE UNCERTAINTIES INHERENT IN INTERNATIONAL OPERATIONS AND FOREIGN CURRENCY FLUCTUATIONS. THE COMPANY HAS NO DUTY UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 TO UPDATE THE FORWARD LOOKING STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-Q AND THE COMPANY DOES NOT INTEND TO PROVIDE SUCH UPDATES.2
Item 1. Financial StatementsHAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated StatementsofOf Operations(Millions of dollars, except share amounts)(Unaudited)
Three Months EndedSix Months EndedJuly 31,July 31,1999199819991998Net sales$544.4$383.0$1,132.3$796.9Cost of goods sold450.3321.1932.1662.9Gross profit94.161.9200.2134.0Marketing, general and administration24.416.848.932.0Engineering and product development5.05.611.210.0Amortization of intangibles6.84.213.88.1Other income(3.1)(1.4)(3.8)(2.1)Equity in earnings of unconsolidated subsidiaries(1.6)(0.4)(1.3)(1.0)Earnings from operations62.637.1131.487.0Interest expense, net38.522.878.047.0Earnings before taxes on income, minorityinterest and extraordinary loss24.114.353.440.0Income tax provision10.36.022.916.8Earnings before minority interest andextraordinary loss13.88.330.523.2Minority interest0.50.80.91.0Earnings before extraordinary loss13.37.529.622.2Extraordinary loss, net of tax of $6.0(8.3)(8.3)Net income (loss)$13.3$(0.8)$29.6$13.9Basic earnings per share information:Earnings before extraordinary loss$0.44$0.25$0.98$0.74Extraordinary loss, net of tax(0.28)(0.28)Basic net income (loss) per share$0.44$(0.03)$0.98$0.46Diluted earnings per share information:Earnings before extraordinary loss$0.41$0.23$0.93$0.68Extraordinary loss, net of tax(0.25)(0.25)Diluted net income (loss) per share$0.41$(0.02)$0.93$0.43
Three Months Ended Six Months Ended July 31, July 31, 2000 1999 2000 1999 Net sales $ 542.8 $ 544.4 $ 1,137.6 $ 1,132.3 Cost of goods sold 458.4 450.3 951.3 932.1 Gross profit 84.4 94.1 186.3 200.2 Marketing, general and administration 24.0 24.4 48.5 48.9 Engineering and product development 3.2 5.0 9.4 11.2 Amortization of intangibles 7.1 6.8 14.3 13.8 Other income (2.5 ) (4.1 ) (4.9 ) (4.8 ) Equity in losses (earnings) of unconsolidated subsidiaries 0.6 (0.6 ) (0.5 ) (0.3 ) Earnings from operations 52.0 62.6 119.5 131.4 Interest expense, net 40.0 38.5 78.8 78.0 Earnings before taxes on income and minority interest 12.0 24.1 40.7 53.4 Income tax provision 5.0 10.3 17.1 22.9 Earnings before minority interest 7.0 13.8 23.6 30.5 Minority interest 0.5 0.5 1.4 0.9 Net income $ 6.5 $ 13.3 $ 22.2 $ 29.6 Per share information: Basic net income per share $ 0.21 $ 0.44 $ 0.73 $ 0.98 Basic average shares outstanding (in thousands) 30,357 30,337 30,357 30,330 Diluted net income per share $ 0.21 $ 0.41 $ 0.73 $ 0.93 Diluted average shares outstanding (in thousands) 30,446 32,219 30,575 31,977 See accompanying notes to consolidated financial statements.
3
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets(Millions of Dollars)
July 31,January 31,19991999(Unaudited)AssetsCurrent assets:Cash and cash equivalents$40.9$51.3Receivables (less allowance of $6.3 million at July 31, 1999 and $4.0 million at January 31, 1999)178.5181.6Inventory195.3166.6Prepaid expenses and other16.922.8Total current assets431.6422.3Property, plant and equipment, net1,099.3878.0Goodwill and other assets1,154.7810.6Total assets$2,685.6$2,110.9Liabilities and Stockholders EquityCurrent liabilities:Bank borrowings$102.5$44.8Current portion of long-term debt11.312.3Accounts payable and accrued liabilities453.7456.7Total current liabilities567.5513.8Long-term debt1,490.0976.1Pension and other long-term liabilities326.1329.1Deferred income taxes88.758.4Minority interest12.812.6Total liabilities2,485.11,890.0Commitments and contingencies:Stockholders equity:Preferred stock, 25,000,000 shares authorized, none issued or outstandingCommon stock, par value $0.01 per share:Voting authorized 99,000,000 shares; issued and outstanding 27,687,669 at July 31, 1999 and 27,675,209 at January 31, 19990.30.3Nonvoting authorized 5,000,000 shares; issued and outstanding, 2,649,026 at July 31, 1999 and January 31, 1999Additional paid in capital237.0236.8Retained earnings (accumulated deficit)22.5(7.1)Accumulated other comprehensive income(59.3)(9.1)Total stockholders equity200.5220.9Total liabilities and stockholders equity$2,685.6$2,110.9
See accompanying notes to consolidated financial statements.
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HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows(Millions of Dollars)(Unaudited)
Six Months EndedJuly 31,19991998Cash flows from operating activities:Net income$29.6$13.9Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and tooling amortization56.432.7Amortization of intangibles13.88.6Amortization of deferred financing fees4.32.9Increase in deferred taxes12.08.5Increase in minority interest3.2Equity in earnings of subsidiaries(1.3)(1.0)Extraordinary loss14.4Gain on disposal of assets/business(8.0)Changes in operating assets and liabilities that increase (decrease) cash flows:Receivables(26.6)1.7Inventories(14.8)(15.8)Prepaid expenses and other4.11.4Accounts payable and accrued liabilities(39.8)(2.4)Other long-term liabilities(11.6)(15.9)Cash provided by operating activities18.152.2Cash flows from investing activities:Acquisition of property, plant and equipment(79.4)(56.4)Tooling expenditures(6.2)(6.2)Purchase of businesses, net of cash received(619.6)(21.4)Proceeds from assumption of future commitments in acquisition12.0Proceeds from disposal of assets/business40.0Purchase of minority interest(50.8)Other, net(7.1)(4.4)Cash used for investing activities(672.3)(127.2)Cash flows from financing activities:Increase (decrease) in bank borrowings and revolver585.8(28.0)Proceeds from accounts receivable securitization76.878.7Stock options exercised0.11.7Fees paid to issue long term debt(15.0)1.3Cash provided by financing activities647.753.7Effect of exchange rate changes on cash and cash equivalents(3.9)(0.2)Decrease in cash and cash equivalents(10.4)(21.5)Cash and cash equivalents at beginning of year51.323.1Cash and cash equivalents at end of period$40.9$1.6Supplemental data:Cash paid for interest$66.7$51.6Cash paid for income taxes$9.6$2.9
See accompanying notes to consolidated financial statements.
5HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets(Millions of Dollars)
July 31, January 31, 2000 2000 (Unaudited) Assets Current assets: Cash and cash equivalents $ 16.6 $ 25.9 Receivables (less allowance of $5.5 million at July 31, 2000 and $6.3 million at January 31, 2000) 203.8 188.7 Inventory 211.4 175.6 Prepaid expenses and other 14.1 9.4 Total current assets 445.9 399.6 Property, plant and equipment, net 1,187.4 1,178.4 Goodwill and other assets 1,181.0 1,198.8 Total assets $ 2,814.3 $ 2,776.8 Liabilities and Stockholders’ Equity Current liabilities: Bank borrowings $ 77.8 $ 73.6 Current portion of long-term debt 70.0 69.6 Accounts payable and accrued liabilities 469.0 583.9 Total current liabilities 616.8 727.1 Long-term debt 1,539.3 1,384.6 Pension and other long-term liabilities 288.9 316.3 Deferred income taxes 115.0 115.6 Minority interest 8.0 14.3 Total liabilities 2,568.0 2,557.9 Commitments and Contingencies Stockholders’ equity: Preferred stock, 25,000,000 shares authorized, none issued or outstanding — — Common stock, par value $0.01 per share: Voting — authorized 99,000,000 shares; issued and outstanding 27,707,919 at July 31, 2000 and 27,705,019 at January 31, 2000 0.3 0.3 Nonvoting — authorized 5,000,000 shares; issued and outstanding, 2,649,026 at July 31, 2000 and January 31, 2000 — — Additional paid in capital 237.1 237.1 Retained earnings 80.3 58.0 Accumulated other comprehensive loss (71.4 ) (76.5 ) Total stockholders’ equity 246.3 218.9 Total liabilities and stockholders’ equity $ 2,814.3 $ 2,776.8 See accompanying notes to consolidated financial statements.
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HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows(Unaudited)(Millions of Dollars)
Six Months Ended July 31, 2000 1999 Cash flows from operating activities: Net income $ 22.2 $ 29.6 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation and tooling amortization 59.1 56.4 Amortization of intangibles 14.3 13.8 Amortization of deferred financing fees 3.2 4.3 Increase in deferred taxes 2.1 12.0 Increase in minority interest 1.6 — Equity in earnings of unconsolidated subsidiaries (0.5 ) (0.3 ) Gain on disposal of assets/business — (8.0 ) Changes in operating assets and liabilities that increase (decrease) cash flows: Receivables 1.3 (26.6 ) Inventories (38.9 ) (14.8 ) Prepaid expenses and other (4.9 ) 4.1 Accounts payable and accrued liabilities (106.1 ) (39.8 ) Other long-term liabilities (20.5 ) (11.6 ) Cash provided by (used for) operating activities (67.1 ) 19.1 Cash flows from investing activities: Acquisition of property, plant and equipment (93.0 ) (79.4 ) Tooling expenditures — (6.2 ) Purchase of businesses, net of cash received — (619.6 ) Increased investment in majority-owned subsidiary (7.3 ) — Proceeds from disposal of assets/business — 40.0 Other, net 14.1 (8.1 ) Cash used for investing activities (86.2 ) (673.3 ) Cash flows from financing activities: Increase in bank borrowings and revolver 167.4 585.8 Proceeds (payments) from accounts receivable securitization (25.0 ) 76.8 Stock options exercised — 0.1 Fees paid to issue long term debt — (15.0 ) Cash provided by financing activities 142.4 647.7 Effect of exchange rate changes on cash and cash equivalents 1.6 (3.9 ) Decrease in cash and cash equivalents (9.3 ) (10.4 ) Cash and cash equivalents at beginning of year 25.9 51.3 Cash and cash equivalents at end of period $ 16.6 $ 40.9 Supplemental data: Cash paid for interest $ 86.2 $ 66.7 Cash paid for income taxes $ 5.5 $ 9.6 See accompanying notes to consolidated financial statements.
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HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial StatementsThree and Six Months Ended July 31,19992000 and19981999(Unaudited)(Millions of Dollars Unless Otherwise Stated)(1) Basis of Presentation
The accompanying consolidated financial statements have been prepared by management and in the opinion of management, contain all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial position of the Company as of July 31,1999,2000 and January 31,1999,2000, and the results of its operations for the three and six months ended July 31,1999,2000, and19981999 and cash flows for the six months ended July 31,1999,2000, and1998.1999. The consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in theCompanysCompany’s Annual Report on Form 10-K for the fiscal year ended January 31,1999.2000. Results for interim periods are not necessarily indicative of those to be expected for the year.(2)
Acquisitions/Divestitures
On February 3, 1999, the Company completed the acquisition of CMI International, Inc. (CMI). The purchase price for CMI was $605 million in cash, of which approximately $129 million was used to repay CMIs outstanding 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 debt of CMI and the fees and expenses of the acquisition of CMI were financed with the proceeds of the Companys senior secured credit facilities and the issuance by the Company of $250 million of 8 1/4% senior subordinated notes due 2008 (the 8 1/4% Notes).
On April 21, 1999, the Company completed the acquisition of Metaalindustrie Bergen B.V. (MIB). MIB is a full service machining supplier, specializing in the machining of large aluminum castings for a variety of automotive and industrial applications located in Bergen, Netherlands.
On July 30, 1999, the Company completed the sale of its equity interests in A-CMI and A-CMI Scandinavia Casting Center ANS, two joint ventures formerly owned by CMI. The equity interests were purchased by the ALCOA, Inc., CMIs partner in these joint ventures for net proceeds of $37 million.
The following unaudited pro forma financial data illustrates the estimated effects as if the above-mentioned acquisitions had been completed as of the beginning of the periods presented, after including the impact of certain adjustments, such as amortization, depreciation, interest expense and the related income tax effects:
Three MonthsSix MonthsEndedEnded1999199819991998Sales$544.4$532.3$1,132.3$1,130.0Net income (loss)$13.3$(3.6)$29.6$9.6Basic net income (loss) per share$0.44$(0.12)$0.98$0.32Diluted net income (loss) per share$0.41$(0.11)$0.93$0.30
The pro forma results are not necessarily indicative of the actual results as if the transactions had been in effect for the entire periods presented. In addition, they are not intended to be a projection of future results and do not reflect, among other things, any synergies that might have been achieved from combined operations.
6HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)Three and Six Months Ended July 31, 1999 and 1998(Unaudited)(Millions of Dollars Unless Otherwise Stated)
(3)Summary of 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. The Company adopted this standard on February 1, 1999 and adoption did not have a material impact on the Companys results of operations.
In June 1998, June 1999 and June1999 respectively,2000, the Financial Accounting Standards Board(FASB(“FASB”) issued Statement of Financial Accounting Standards(SFAS(“SFAS”) No. 133,Accounting“Accounting for Derivative Instruments and HedgingActivities andActivities”, SFAS 137,Accounting“Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No.133.133” and SFAS 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities an amendment of FASB Statement No. 133”. These Statements establish 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. These Statements require that changes in thederivativesderivative’s fair value be recognized currently in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows aderivativesderivative’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 137This accounting is effective for fiscal years beginning after June 15, 2000. The Company anticipates adopting this standard in its fiscal year 2001 and does not, at this time, anticipate a material impact on theCompanysCompany’s financial position or results of operations when adopted.
(4)(3) Inventories
The major classes of inventory are as follows:
July 31,January 31,19991999Raw Materials$56.9$65.2Work-in-process66.248.8Finished goods72.252.6Total$195.3$166.6
July 31, January 31, 2000 2000 Raw materials $ 79.3 $ 62.3 Work-in-process 57.3 55.9 Finished goods 74.8 57.4 Total $ 211.4 $ 175.6 6
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
(5)Notes to Consolidated Financial Statements — (Continued)Three and Six Months Ended July 31, 2000 and 1999(Unaudited)(Millions of Dollars Unless Otherwise Stated)(4) Property, plant and equipment
The major classes of property, plant and equipment are as follows:
July 31,January 31,19991999Land$23.6$24.9Buildings247.5201.1Machinery and equipment1,051.8832.81,322.91,058.8Accumulated depreciation(223.6)(180.8)Net property, plant and equipment$1,099.3$878.0
July 31, January 31, 2000 2000 Land $ 30.0 $ 30.1 Buildings 265.5 265.5 Machinery and equipment 1,206.4 1,151.6 1,501.9 1,447.2 Accumulated depreciation (314.5 ) (268.8 ) Net property, plant and equipment $ 1,187.4 $ 1,178.4
7HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)Three and Six Months Ended July 31, 1999 and 1998(Unaudited)(Millions of Dollars Unless Otherwise Stated)
(6)(5) Earnings per share
SFAS No. 128,Earnings“Earnings perShare (EPSShare” (“EPS”), 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.
Shares outstanding for the three and six months ended July 31,19992000 and1998,1999, were as follows:
Three MonthsSix MonthsEndedEnded1999199819991998Weighted average shares outstanding30,33730,12430,33030,107Dilutive effect of options and warrants1,8822,7921,6472,561Diluted shares outstanding32,21932,91631,97732,668
Three Months Six Months Ended Ended 2000 1999 2000 1999 Weighted average shares outstanding 30,357 30,337 30,357 30,330 Dilutive effect of options and warrants 89 1,882 218 1,647 Diluted shares outstanding 30,446 32,219 30,575 31,977
(7)(6) Comprehensive Income
SFAS No. 130,Reporting“Reporting Comprehensive Income,” establishes standards for the reporting and display of comprehensive income. Comprehensive income is defined as all changes in aCompanysCompany’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.
The components of comprehensive income (loss) for the six months ended July 31,19992000 and19981999 are as follows:
July 31,July 31,19991998Net Income$29.6$13.9Cumulative translation adjustments(50.2)(0.5)Total comprehensive income (loss)$(20.6)$13.4
2000 1999 Net Income $ 22.2 $ 29.6 Cumulative translation adjustments 5.1 (50.2 ) Total comprehensive income (loss) $ 27.3 $ (20.6 )
(8)(7) Commitments and Contingencies
Management believes that at July 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 July 31, 2000.
The Company is party to various litigation. Management believes that the outcome of these lawsuits will not have a material adverse effect on the consolidated operations or financial condition of the Company.7
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
(9)Notes to Consolidated Financial Statements — (Continued)Three and Six Months Ended July 31, 2000 and 1999(Unaudited)(Millions of Dollars Unless Otherwise Stated)(8) Segment Reporting
The Company is organized based primarily on markets served and products produced. Under this organization structure, theCompanysCompany’s operating segments have been aggregated into three reportable segments: Automotive Wheels, Cast Components and Other. The Other category includes Commercial Highway products, the corporate office and elimination of intercompany activities, none of which meet the requirements of being classified as an operating segment.
8HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)Three and Six Months Ended July 31, 1999 and 1998(Unaudited)(Millions of Dollars Unless Otherwise Stated)(9) Segment Reporting (Continued)
The following table represents revenues and other financial information by business segment for the six months ended July 31:
RevenueNet IncomeTotal Assets199919981999199819991998Automotive Wheels$654.6$595.0$23.3$15.6$1,944.8$1,532.1Cast Components366.9100.55.05.3896.3203.9Other110.8101.41.3(7.0)(155.5)157.7Total$1,132.3$796.9$29.6$13.9$2,685.6$1,893.7
Revenue Net Income Total Assets 2000 1999 2000 1999 2000 1999 Automotive wheels $ 702.1 $ 648.3 $ 22.7 $ 23.8 $ 1,465.6 $ 1,401.5 Cast components 343.5 366.9 2.3 5.0 979.3 896.3 Other 92.0 117.1 (2.8 ) 0.8 369.4 387.8 Total $ 1,137.6 $ 1,132.3 $ 22.2 $ 29.6 $ 2,814.3 $ 2,685.6
(10)(9) Reclassifications
Certain prior period amounts have been reclassified to conform to the current year presentation.
(11)(10) Guarantor and Nonguarantor Financial Statements
In connection with the Companys merger with Motor Wheel, and as part of the financing thereof, the Company issued and sold $250 million in aggregate principal amount of its 11%The Company’s senior subordinated notesdue 2006 (the 11% Notes) in a public offering.
In connection with the Companys acquisition of Lemmerz Holding GmbH on June 30, 1997 (the Lemmerz Acquisition), the Company issued and sold $400 million in aggregate principal amount of its 9 1/8% senior subordinated notes due 2007 (the 9 1/8% Notes).
In anticipation of the acquisition of CMI and as part of the financing thereof, the Company issued and sold $250 million in aggregate principal amount of the 8 1/4% Notes. Effective June 17, 1999, the Company completed the offer to exchange all of the 8 1/4% Notes for 8 1/4% Series B Senior Subordinated Notes due 2008.
The 11% Notes, 9 1/8% Notes and 8 1/4% Notes rankpari passuwith each other and are general unsecured obligations of the Company, subordinated in right of payment to all existing and future senior indebtedness of the Company, andare guaranteed by certain of theCompanysCompany’s domestic subsidiaries. Certain other domestic subsidiaries and the foreign subsidiaries (the “Non-Guarantor Subsidiaries”) do not guarantee the senior subordinated notes.
The following condensed consolidating financial information presents:
(1) | Condensed consolidating financial statements as of July 31, | |
(2) | Elimination entries necessary to consolidate Hayes Lemmerz International, Inc., the parent, with the guarantor and nonguarantor subsidiaries. |
Investments in foreign subsidiaries are accounted for by the parent on the equity method (domestic subsidiaries are accounted for by the parent on the cost method) for purposes of the consolidating presentation. The principleprincipal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions.
9
8
Notes to Consolidated Financial Statements — (Continued)
Condensed Consolidating Statements of Operations
Guarantor | Nonguarantor | Consolidated | |||||||||||||||||||
Parent | Subsidiaries | Subsidiaries | Eliminations | Total | |||||||||||||||||
Net sales | $ | 163.7 | $ | 346.8 | $ | 638.7 | $ | (11.6 | ) | $ | 1,137.6 | ||||||||||
Cost of goods sold | 132.5 | 298.7 | 531.7 | (11.6 | ) | 951.3 | |||||||||||||||
Gross profit | 31.2 | 48.1 | 107.0 | — | 186.3 | ||||||||||||||||
Marketing, general and Administration | 2.9 | 12.0 | 33.6 | — | 48.5 | ||||||||||||||||
Engineering and product development | 0.9 | 3.9 | 4.6 | — | 9.4 | ||||||||||||||||
Amortization of intangibles | 0.5 | 4.1 | 9.7 | — | 14.3 | ||||||||||||||||
Other expense (income), net | (0.1 | ) | 0.2 | (5.0 | ) | — | (4.9 | ) | |||||||||||||
Equity in earnings of unconsolidated subsidiaries | (0.3 | ) | (0.2 | ) | — | — | (0.5 | ) | |||||||||||||
Earnings from operations | 27.3 | 28.1 | 64.1 | — | 119.5 | ||||||||||||||||
Interest expense, net | 12.5 | 28.5 | 37.8 | — | 78.8 | ||||||||||||||||
Earnings (loss) before taxes on income, and minority interest | 14.8 | (0.4 | ) | 26.3 | — | 40.7 | |||||||||||||||
Income tax provision | 3.3 | 2.1 | 11.7 | — | 17.1 | ||||||||||||||||
Earnings (loss) before minority interest | 11.5 | (2.5 | ) | 14.6 | — | 23.6 | |||||||||||||||
Minority interest | — | — | 1.4 | — | 1.4 | ||||||||||||||||
Net income (loss) | $ | 11.5 | $ | (2.5 | ) | $ | 13.2 | $ | — | $ | 22.2 | ||||||||||
Condensed Consolidating Statements of Operations
Guarantor | Nonguarantor | Consolidated | |||||||||||||||||||
Parent | Subsidiaries | Subsidiaries | Eliminations | Total | |||||||||||||||||
Net sales | $ | 165.6 | $ | 359.4 | $ | 608.8 | $ | (1.5 | ) | $ | 1,132.3 | ||||||||||
Cost of goods sold | 140.2 | 298.8 | 494.6 | (1.5 | ) | 932.1 | |||||||||||||||
Gross profit | 25.4 | 60.6 | 114.2 | — | 200.2 | ||||||||||||||||
Marketing, general and Administration | 3.0 | 11.7 | 34.2 | — | 48.9 | ||||||||||||||||
Engineering and product development | 2.8 | 3.4 | 5.0 | — | 11.2 | ||||||||||||||||
Amortization of intangibles | 0.8 | 4.0 | 9.0 | — | 13.8 | ||||||||||||||||
Other income, net | (3.0 | ) | (1.6 | ) | (0.2 | ) | — | (4.8 | ) | ||||||||||||
Equity in earnings of unconsolidated subsidiaries | (0.3 | ) | — | — | — | (0.3 | ) | ||||||||||||||
Earnings from operations | 22.1 | 43.1 | 66.2 | — | 131.4 | ||||||||||||||||
Interest expense, net | 15.3 | 27.6 | 35.1 | — | 78.0 | ||||||||||||||||
Earnings before taxes on income, and minority interest | 6.8 | 15.5 | 31.1 | — | 53.4 | ||||||||||||||||
Income tax provision (benefit) | (0.2 | ) | 6.1 | 17.0 | — | 22.9 | |||||||||||||||
Earnings before minority interest | 7.0 | 9.4 | 14.1 | — | 30.5 | ||||||||||||||||
Minority interest | — | 0.2 | 0.7 | — | 0.9 | ||||||||||||||||
Net income | $ | 7.0 | $ | 9.2 | $ | 13.4 | $ | — | $ | 29.6 | |||||||||||
9
Notes to Consolidated Financial Statements — (Continued)
Condensed Consolidating Balance Sheet
Guarantor | Nonguarantor | Consolidated | |||||||||||||||||||
Parent | Subsidiaries | Subsidiaries | Eliminations | Total | |||||||||||||||||
Cash and cash equivalents | $ | 7.6 | $ | 0.2 | $ | 8.8 | $ | — | $ | 16.6 | |||||||||||
Receivables | 24.8 | 12.4 | 166.6 | — | 203.8 | ||||||||||||||||
Inventories | 36.2 | 60.2 | 115.0 | — | 211.4 | ||||||||||||||||
Prepaid expenses and other | 3.1 | 5.9 | 15.9 | (10.8 | ) | 14.1 | |||||||||||||||
Total current assets | 71.7 | 78.7 | 306.3 | (10.8 | ) | 445.9 | |||||||||||||||
Property, plant and equipment, net | 160.9 | 337.8 | 688.7 | — | 1,187.4 | ||||||||||||||||
Goodwill and other assets | 1,470.9 | 302.9 | 669.9 | (1,262.7 | ) | 1,181.0 | |||||||||||||||
Total assets | $ | 1,703.5 | $ | 719.4 | $ | 1,664.9 | $ | (1,273.5 | ) | $ | 2,814.3 | ||||||||||
Bank borrowings | $ | — | $ | — | $ | 77.8 | $ | — | $ | 77.8 | |||||||||||
Current portion of long-term debt | 60.7 | — | 9.3 | — | 70.0 | ||||||||||||||||
Accounts payable and accrued liabilities | 81.9 | 89.7 | 298.8 | (1.4 | ) | 469.0 | |||||||||||||||
Total current liabilities | 142.6 | 89.7 | 385.9 | (1.4 | ) | 616.8 | |||||||||||||||
Long-term debt, net of current portion | 1,431.3 | — | 108.0 | — | 1,539.3 | ||||||||||||||||
Deferred income taxes | 18.4 | 28.5 | 68.1 | — | 115.0 | ||||||||||||||||
Pension and other long-term liabilities | 79.1 | 53.9 | 155.9 | — | 288.9 | ||||||||||||||||
Minority interest | — | — | 8.0 | — | 8.0 | ||||||||||||||||
Parent loans | (197.3 | ) | 316.4 | (106.4 | ) | (12.7 | ) | — | |||||||||||||
Total liabilities | 1,474.1 | 488.5 | 619.5 | (14.1 | ) | 2,568.0 | |||||||||||||||
Common stock | 0.3 | — | — | — | 0.3 | ||||||||||||||||
Additional paid-in capital | 251.9 | 108.7 | 1,005.9 | (1,129.4 | ) | 237.1 | |||||||||||||||
Retained earnings (accumulated deficit) | (49.5 | ) | 122.2 | 137.6 | (130.0 | ) | 80.3 | ||||||||||||||
Accumulated other comprehensive income (loss) | 26.7 | — | (98.1 | ) | — | (71.4 | ) | ||||||||||||||
Total stockholders’ equity | 229.4 | 230.9 | 1,045.4 | (1,259.4 | ) | 246.3 | |||||||||||||||
Total liabilities and stockholder’s equity | $ | 1,703.5 | $ | 719.4 | $ | 1,664.9 | $ | (1,273.5 | ) | $ | 2,814.3 | ||||||||||
10
Notes to Consolidated Financial Statements — (Continued)
(10) Guarantor and Nonguarantor Financial Statements — (Continued)
Condensed Consolidating Balance Sheet
Guarantor | Nonguarantor | Consolidated | |||||||||||||||||||
Parent | Subsidiaries | Subsidiaries | Eliminations | Total | |||||||||||||||||
Cash and cash equivalents | $ | 6.8 | $ | 0.1 | $ | 19.0 | $ | — | $ | 25.9 | |||||||||||
Receivables | 34.1 | 4.2 | 150.4 | — | 188.7 | ||||||||||||||||
Inventories | 38.0 | 46.1 | 91.5 | — | 175.6 | ||||||||||||||||
Prepaid expenses and other | 0.9 | 4.0 | 21.9 | (17.4 | ) | 9.4 | |||||||||||||||
Total current assets | 79.8 | 54.4 | 282.8 | (17.4 | ) | 399.6 | |||||||||||||||
Property, plant and equipment, net | 158.3 | 339.1 | 681.0 | — | 1,178.4 | ||||||||||||||||
Goodwill and other assets | 1,464.0 | 304.8 | 694.3 | (1,264.3 | ) | 1,198.8 | |||||||||||||||
Total assets | $ | 1,702.1 | $ | 698.3 | $ | 1,658.1 | $ | (1,281.7 | ) | $ | 2,776.8 | ||||||||||
Bank borrowings | $ | — | $ | — | $ | 73.6 | $ | — | $ | 73.6 | |||||||||||
Current portion of long-term debt | 57.9 | — | 11.7 | — | 69.6 | ||||||||||||||||
Accounts payable and accrued liabilities | 126.9 | 154.1 | 326.1 | (23.2 | ) | 583.9 | |||||||||||||||
Total current liabilities | 184.8 | 154.1 | 411.4 | (23.2 | ) | 727.1 | |||||||||||||||
Long-term debt, net of current portion | 1,289.2 | — | 95.4 | — | 1,384.6 | ||||||||||||||||
Deferred income taxes | 18.5 | 28.5 | 68.6 | — | 115.6 | ||||||||||||||||
Pension and other long-term liabilities | 80.3 | 57.1 | 181.4 | (2.5 | ) | 316.3 | |||||||||||||||
Minority interest | — | — | 14.3 | — | 14.3 | ||||||||||||||||
Parent loans | (61.9 | ) | 225.2 | (166.7 | ) | 3.4 | — | ||||||||||||||
Total liabilities | 1,510.9 | 464.9 | 604.4 | (22.3 | ) | 2,557.9 | |||||||||||||||
Common stock | 0.3 | — | — | — | 0.3 | ||||||||||||||||
Additional paid-in capital | 251.9 | 108.7 | 1,005.9 | (1,129.4 | ) | 237.1 | |||||||||||||||
Retained earnings (accumulated deficit) | (61.1 | ) | 124.7 | 124.4 | (130.0 | ) | 58.0 | ||||||||||||||
Accumulated other comprehensive income (loss) | 0.1 | — | (76.6 | ) | — | (76.5 | ) | ||||||||||||||
Total stockholders’ equity | 191.2 | 233.4 | 1,053.7 | (1,259.4 | ) | 218.9 | |||||||||||||||
Total liabilities and stockholder’s equity | $ | 1,702.1 | $ | 698.3 | $ | 1,658.1 | $ | (1,281.7 | ) | $ | 2,776.8 | ||||||||||
11
Notes to Consolidated Financial Statements — (Continued)
(10) Guarantor and Nonguarantor Financial Statements — (Continued)
Condensed Consolidating Statement of Cash Flows
Guarantor | Nonguarantor | Consolidated | ||||||||||||||||||||
Parent | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||||
Cash flows provided by (used in) operating activities | $ | 10.2 | $ | (70.3 | ) | $ | (7.0 | ) | $ | — | $ | (67.1 | ) | |||||||||
Cash flows from investing activities: | ||||||||||||||||||||||
Acquisition of property, plant and equipment | (6.4 | ) | (13.8 | ) | (72.8 | ) | — | (93.0 | ) | |||||||||||||
Increased investment in majority-owned subsidiary | — | — | (7.3 | ) | — | (7.3 | ) | |||||||||||||||
Other, net | 12.7 | (6.9 | ) | 8.3 | — | 14.1 | ||||||||||||||||
Cash provided by (used in) investing activities | 6.3 | (20.7 | ) | (71.8 | ) | — | (86.2 | ) | ||||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||
Net change in bank borrowings and revolver | 145.0 | — | 22.4 | — | 167.4 | |||||||||||||||||
Net proceeds from accounts receivable securitization | (25.0 | ) | — | — | — | (25.0 | ) | |||||||||||||||
Cash provided by financing activities | 120.0 | — | 22.4 | — | 142.4 | |||||||||||||||||
Increase (decrease) in parent loans and advances | (135.7 | ) | 91.1 | 44.6 | — | — | ||||||||||||||||
Effect of exchange rates of cash and cash equivalents | — | — | 1.6 | — | 1.6 | |||||||||||||||||
Net increase (decrease) in cash and cash equivalents | 0.8 | 0.1 | (10.2 | ) | — | (9.3 | ) | |||||||||||||||
Cash and cash equivalents at beginning of period | 6.8 | 0.1 | 19.0 | — | 25.9 | |||||||||||||||||
Cash and cash equivalents at end of period | $ | 7.6 | $ | 0.2 | $ | 8.8 | $ | — | $ | 16.6 | ||||||||||||
12
Notes to Consolidated Financial Statements — (Continued)
(10) Guarantor and Nonguarantor Financial Statements — (Continued)
Condensed Consolidating Statement of Cash Flows
Guarantor | Nonguarantor | Consolidated | ||||||||||||||||||||
Parent | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||||
Cash flows provided by (used in) operating activities | $ | (0.5 | ) | $ | (19.1 | ) | $ | 38.7 | $ | — | $ | 19.1 | ||||||||||
Cash flows from investing activities: | ||||||||||||||||||||||
Acquisition of property, plant and equipment | (16.7 | ) | (22.8 | ) | (39.9 | ) | — | (79.4 | ) | |||||||||||||
Acquisition of tooling | (6.2 | ) | — | — | — | (6.2 | ) | |||||||||||||||
Purchase of businesses, net of cash | (605.0 | ) | — | (14.6 | ) | — | (619.6 | ) | ||||||||||||||
Proceeds from sale of business | — | 2.6 | 37.4 | — | 40.0 | |||||||||||||||||
Other, net | 20.9 | (7.2 | ) | (21.8 | ) | — | (8.1 | ) | ||||||||||||||
Cash used in investing activities | (607.0 | ) | (27.4 | ) | (38.9 | ) | — | (673.3 | ) | |||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||
Net change in bank borrowings and revolver | 513.9 | — | 71.9 | — | 585.8 | |||||||||||||||||
Fees paid to issue long term debt | (15.0 | ) | — | — | — | (15.0 | ) | |||||||||||||||
Stock options exercised | 0.1 | — | — | — | 0.1 | |||||||||||||||||
Net proceeds from accounts receivable securitization | 76.8 | — | — | — | 76.8 | |||||||||||||||||
Cash provided by financing activities | 575.8 | — | 71.9 | — | 647.7 | |||||||||||||||||
Increase (decrease) in parent loans and advances | 12.2 | 46.5 | (58.7 | ) | — | — | ||||||||||||||||
Effect of exchange rates of cash and cash equivalents | — | — | (3.9 | ) | — | (3.9 | ) | |||||||||||||||
Net increase (decrease) in cash and cash equivalents | (19.5 | ) | — | 9.1 | — | (10.4 | ) | |||||||||||||||
Cash and cash equivalents at beginning of period | 23.3 | 0.1 | 27.9 | — | 51.3 | |||||||||||||||||
Cash and cash equivalents at end of period | $ | 3.8 | $ | 0.1 | $ | 37.0 | $ | — | $ | 40.9 | ||||||||||||
13
10
Notes to Consolidated Financial
Statements (Continued)
Condensed Consolidating Statements of Operations
11
Notes to Consolidated Financial
Statements (Continued)
(11) Guarantor and Nonguarantor Financial Statements
(Continued)
Condensed Consolidating Balance Sheets
12
Notes to Consolidated Financial
Statements (Continued)
(11) Guarantor and Nonguarantor Financial Statements
(Continued)
Condensed Consolidating Balance Sheet
13
Notes to Consolidated Financial
Statements (Continued)
Condensed Consolidating Statement of Cash Flows
14
Notes to Consolidated Financial
Statements (Continued)
(11) Guarantor and Nonguarantor Financial Statements
(Continued)
Condensed Consolidating Statements of Cash Flows
15
Item 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
Results of Operations
Three Months Ended July 31, 19992000 Compared to Three Months Ended July 31, 19981999
The CompanysCompany’s net sales for the second quarter of fiscal 19992000 were $544.4$542.8 million an increase of 42.1% as compared to net sales of $383.0$544.4 million for the second quarter of fiscal 1998. This increase was due to the additional sales contributed
by CMI, which was acquired effective February 3, 1999, the
additional sales contributed by the acquisitions of Alumitech,
Borlem, MIN-CER, N.F. Die and Kalyani (the 1998
acquisitions), and higher1999. Higher sales in the North American Automotive Wheels group. These sales increasesand European Wheel Groups were partially offset by lower selling pricessales in the North American Commercial Highway business due to softening market conditions. Additionally, sales were negatively impacted due to the pass throughEuro weakening against the Dollar by approximately 11% in the second quarter of lower
aluminum costs andfiscal 2000 as compared to the maxi-devaluationsecond quarter of the Brazilian economy.
fiscal 1999.
The CompanysCompany’s gross profit margin for the second quarter of fiscal 1999 increased2000 decreased to $94.1$84.4 million or 17.3%15.5% of net sales as compared to $61.9$94.1 million or 16.2%17.3% of net sales for the second quarter of fiscal 1998. This increase in1999. The Company’s second quarter gross profit margin was attributable tonegatively impacted by the increased revenues and improved productivityreduction in the majority ofNorth American Commercial Highway sales, the Companys businesses.
weakening Euro against the Dollar and launch costs related to new model production start-up.
Marketing, general and administrative expenses were $24.4consistent for the comparative quarters at $24.0 million or 4.5%4.4% of net sales for the second quarter of fiscal 19992000 as compared to $16.8$24.4 million or 4.4%4.5% for the second quarter of fiscal 1999.
Engineering and product development costs were $3.2 million or 0.6% of net sales for the same periodsecond quarter of fiscal 1998. Even though the
expenses increased attributable2000 as compared to additional costs incurred as a
result of the CMI and 1998 acquisitions, the Company believes
that marketing, general and administrative costs as a percent of
net sales will improve as the synergies are realized as a result
of these acquisitions.
Engineering and product development costs were $5.0 million or 0.9% of net sales for the second quarter of fiscal 1999 as
compared to $5.6 million or 1.5% of net sales for1999. This improvement principally reflects the second
quarter of fiscal 1998. Engineering and product development
costs were lower, despite the CMI and 1998 acquisitions, due to
synergies being realized as a result of these acquisitions and timing associated with recovery of engineering and development costs from our customers.
Amortization of intangibles increased by $2.6 million to
$6.8Other income was $2.5 million for the second quarter of fiscal 1999. This
increase is attributable to the increased goodwill recognized as2000, a resultdecrease of the CMI and 1998 acquisitions.
Other income was $3.1$1.6 million from $4.1 million for the same period in fiscal 1999. In the second quarter of fiscal 1999, an increase of $1.7 million over the same
period of fiscal 1998. Otherother income included gains on the sale of a joint venture interest and other assets offset by currencyassets.
Equity in losses (earnings) of unconsolidated subsidiaries decreased $1.2 million to $0.6 million of losses for the second quarter of fiscal 2000 as compared to $0.6 million of earnings for the same period in fiscal 1999. The majority of this decrease was due to the Company’s Mexico joint venture, which is a 40% owned joint venture producing both steel and other redundancy costs associated with productivity
improvement programsaluminum wheels for the light vehicle market in the Company.
North America.
Interest expense was $38.5$40.0 million for the second quarter of fiscal 1999,2000, an increase of $15.7$1.5 million over $38.5 million for the same period of fiscal 1998 of $22.8 million.1999. This increase was due primarily to the increase in debt as a result of the CMI and 1998
acquisitions.
interest rates.
Six Months Ended July 31, 19992000 Compared to Six Months Ended July 31, 19981999
The CompanysCompany’s net sales for the first half of fiscal 19992000 were $1,132.3$1,137.6 million, an increase of 42.1%0.5%, as compared to net sales of $796.9$1,132.3 million for the first half of fiscal 1998.1999. This increase was due to the additional sales contributed by CMI,
which was acquired effective February 3, 1999, the
additional sales contributed by the 1998 acquisitions, and higher sales in the North American Automotive Wheels group. These sales
increases were partiallyand European Wheel Groups offset by lower selling pricessales in the North American Commercial Highway business due to the pass through of lower aluminum costssoftening marketing conditions and the maxi-devaluationweakening of the Brazilian economy.
Euro against the Dollar by approximately 11%.
The CompanysCompany’s gross profit for the first half of fiscal 1999
increased2000 decreased to $200.2$186.3 million or 17.7%16.4% of net sales as compared to $134.0$200.2 million or 16.8%17.7% of net sales for the first half of fiscal 1998.1999. This increase in
16
Marketing, generalEngineering and administrative expensesproduct development costs were $48.9$9.4 million or 4.3%0.8% of net sales for the first half of fiscal 19992000 as compared to $32.0 million or 4.0% of net
sales for the same period of fiscal 1998. This increase was
attributable to additional costs incurred as a result of the CMI
and 1998 acquisitions. The Company believes that marketing,
general and administrative costs as a percent of net sales will
improve as the synergies are realized as a result of these
acquisitions.
Engineering and product development costs were $11.2 million or 1.0% of net sales for the first half of fiscal 1999 as
compared to $10.0 million or 1.3%1999. The improvement results principally from the timing of net sales for the first
half of fiscal 1998. Even with the increase in costs
attributable to the CMI and 1998 acquisitions, engineering and product development costs as a percentcost recoveries.
14
Equity in earnings of sales improved over the
prior fiscal year.
Amortization of intangibles increased by $5.7 million to
$13.8 million for the first quarter of fiscal 1999. This
increase is attributable to the increased goodwill recognized as
a result of the CMI and 1998 acquisitions.
Other incomeunconsolidated subsidiaries was $3.8$0.5 million for the first half of fiscal 1999,2000, a $0.2 million increase over the first half of fiscal 1999. The increase is due to earnings from the Company’s Mexico joint venture, which is a 40% owned joint venture producing both steel and aluminum wheels for the light vehicle market in North America.
Financial Condition, Liquidity and Capital Resources
The Company’s operations used $67.1 million in cash in the first half of fiscal 2000, an increase of $1.7$86.2 million over the same period of fiscal 1998. Other income included gains on the sale of a joint
venture interest and other assets offset by currency losses and
other redundancy costs associated with productivity improvement
programs in the Company.
Interest expense was $78.0 million for the first half of
fiscal 1999, an increase of $31.0 million over the same
period of fiscal 1998 of $47.0 million.1999. This increase was due to the increase in debt as a result of the CMI and 1998
acquisitions.
The extraordinary loss for early extinguishment of debt in fiscal
1998 represented the write-off of the remaining deferred
financing costs associated with the term debt incurred in
connection with both the Lemmerz Acquisition and the merger with
Motor Wheel. As a result of strong cash flow and significantly
improved credit position, the Company was able to restructure its
senior credit facility and fully repay certain of the
outstanding term debt.
Financial Condition, Liquidity and Capital Resources
The Companys operations provided $18.1 million in cash
in the first six months of fiscal 1999, a decrease of
$34.1 million over the same period of fiscal 1998. This
decrease was due primarily to increased working capital
requirements as a resulttiming of the acquisition of CMI.
payments to suppliers and higher inventories.
Capital expenditures for the first six months of fiscal 19992000 were $79.4$93.0 million. These expenditures were primarily for additional machinery and equipment to improve productivity, to increase production capacity and to meet expected requirements for our products. The Company anticipates capital expenditures for fiscal 19992000 will be approximately $200$190.0 million relating primarily to new vehicle platforms, capacity increases worldwide to meet the growing demand for ourthe Company’s products, cost reduction programs and the funding of new programs associated with the acquisition of CMI.
CMI International, Inc.
On February 3, 1999, the Company entered into a third amended and restated credit agreement (the Third“Third Amended and Restated Credit AgreementAgreement”) 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 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 onin 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 CompanysCompany’s existing and future domestic subsidiaries and 65% of the shares of certain of our existing and future foreign subsidiaries. As of July 31, 19992000 there was $450$420 million outstanding under the term loan facilities and $535$478.1 million available under the revolving facility.
17
In April 1998, the Company entered into a three-year agreement pursuant to which the Company and certain of its subsidiaries sold, and will continue to sell on an ongoing basis, a portion of their accounts receivables to a special purpose entity ((“Funding Co.”), which is wholly owned by the Company. Accordingly, the Company and such subsidiaries, irrevocably and without recourse, transferred and will transfer 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.
During the second quarter, the Board of Directors approved the repurchase of up to an aggregate of $30.0 million of the Company’s outstanding common stock. Through August 31, 2000, the Company has repurchased approximately 1.3 million shares of its common stock for an aggregate purchase price of approximately $18.1 million.
At July 1999,31, 2000, management believes that the Company was in compliance with the various covenants under the agreements pursuant to which it has or may borrow money. Management expects that the Company will remain in compliance with these covenants in all material respects through the period ending July 31, 2000.
2001.
Other Matters
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 represented to be 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 the year 2000
compliance. This process was 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 1999.
As of July 31, 1999, the costs incurred directly related to
becoming year 2000 compliant were approximately $4.3 million
and the costs which are expected to be incurred subsequent to
July 31, 1999 are approximately $1.1 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, 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, a lack of year 2000 readiness at these companies
could adversely impact the Companys operations. The Company
has developed a program for monitoring year 2000 risk in its
supply chain and have mailed Supplier Year 2000
Self-Assessment questionnaires to all 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 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.
18
Quantitative and Qualitative Disclosures about Market Risk
For the period ended July 31, 1999,2000, the Company did not experience any material change in market risk exposures affecting the quantitative and qualitative disclosures as presented in the CompanysCompany’s Annual Report on Form 10-K for the year ended January 31, 1999.
2000.
19
15
None.
None
None
None.
None
The Company held its Annual Meeting of Stockholders on June 17, 1999.August 3, 2000. At the Annual Meeting, the following matersmatters were proposed and voted upon by the CompanysCompany’s stockholders (including the number of votes cast for, against or withheld, as well as the number of abstentions for each such matter):
To elect |
Nominee | For | Withheld | ||||||
Anthony Grillo | 22,606,441 | 1,139,511 | ||||||
Horst Kukwa-Lemmerz | 23,326,642 | 419,310 | ||||||
Jeffrey Lightcap | 23,365,906 | 380,046 |
The terms of office of each of the following directors also continued after the meeting: Ranko Cucuz, Cleveland A. Christophe, | ||||||||
Andrew R. Heyer, Paul S. Levy, | ||||||||
Wienand Meilicke, | ||||||||
John S. Rodewig, Ray H. Witt and David Ying. |
The terms of office of each of the following directors also
continued after the meeting: Ranko Cucuz, Anthony Grillo,
Andrew R. Heyer, Horst Kukwa-Lemmerz, Jeffrey Lightcap,
Ray H. Witt and David Ying.
To |
For: 23,341,109 Against: 376,911 Abstain: 27,932
For: 22,248,347 Against: 1,466,521 Abstain: 31,084
4. | To ratify the appointment of KPMG LLP as the Company’s independent auditors for the fiscal year ending January 31, 2001. The number of votes cast with respect to this matter were as follows: |
For: 23,684,902 Against: 36,817 Abstain: 24,233
There were no broker held non-voted shares represented at the Annual Meeting with respect to eitherany of the foregoing matters.
None.
None
16
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number | Description | |||
27 | Financial Data Schedule |
(b) Reports on Form 8-K
20
17
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
HAYES LEMMERZ INTERNATIONAL, INC. |
By: |
D. N. Vermilya | |
Corporate Controller and Chief Accounting Officer |
September 14, 1999
13, 2000
21
18
Number | ||||||||
27 | ||||||||
Financial Data Schedule |
22
19