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Hayes Lemmerz International (HAZ) Inactive

Filed: 17 Apr 02, 8:00pm
Table of Contents



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


Form 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 31, 2001

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                     to                                     

Commission file number: 1-11592


HAYES LEMMERZ INTERNATIONAL, INC.

(Exact Name of Registrant as Specified in Its Charter)
   
Delaware
 13-3384636
(State or Other Jurisdiction of
 (IRS Employer
Incorporation or Organization)
 Identification No.)

15300 Centennial Drive

Northville, Michigan 48167
(Address of Principal Executive Offices) (Zip Code)

Registrant’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 þ     No o

     The number of shares of common stock outstanding as of April 15, 2002 was 28,455,745 shares.




TABLE OF CONTENTS

QUARTERLY REPORT ON FORM 10-Q
PART I. FINANCIAL INFORMATION
Consolidated Statements Of Operations
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Consolidated Balance Sheet
Condensed Consolidating Statements of Operations For the Nine Months Ended October 31, 2001
Condensed Consolidating Statements of Operations For the Nine Months Ended October 31, 2000, As Restated
Condensed Consolidating Balance Sheets As of October 31, 2001
Condensed Consolidating Balance Sheet As of January 31, 2001
Condensed Consolidating Statement of Cash Flows For the Nine Months Ended October 31, 2001
Condensed Consolidating Statement of Cash Flows For the Nine Months Ended October 31, 2000, As Restated
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
Amendment to the Amended and Restated By-Laws
Amended and Restated Employment Agreement
Form of Employment Agreement


Table of Contents

HAYES LEMMERZ INTERNATIONAL, INC.

 
QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

        
Page

PART I. FINANCIAL INFORMATION
 Item 1. Financial Statements    
  Consolidated Statements of Operations  2 
  Consolidated Balance Sheets  3 
  Consolidated Statements of Cash Flows  4 
  Notes to Consolidated Financial Statements  5 
 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations  25 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk  36 
PART II. OTHER INFORMATION
 Item 1. Legal Proceedings  37 
 Item 2. Changes in Securities  37 
 Item 3. Defaults upon Senior Securities  37 
 Item 4. Submission of Matters to a Vote of Security-Holders  37 
 Item 5. Other Information  37 
 Item 6. Exhibits and Reports on Form 8-K  37 
SIGNATURES  38 

     UNLESS OTHERWISE INDICATED, REFERENCES TO THE “COMPANY” MEAN HAYES LEMMERZ INTERNATIONAL, INC., AND ITS SUBSIDIARIES AND REFERENCE TO A FISCAL YEAR MEANS THE COMPANY’S YEAR ENDED JANUARY 31 OF THE FOLLOWING YEAR (E.G., FISCAL 2001 MEANS THE PERIOD BEGINNING FEBRUARY 1, 2001, AND ENDING JANUARY 31, 2002). 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) THE OUTCOME AND CONSEQUENCES OF THE COMPANY’S CHAPTER 11 PROCEEDINGS; (2) COMPETITIVE PRESSURE IN THE COMPANY’S INDUSTRY INCREASES SIGNIFICANTLY; (3) GENERAL ECONOMIC CONDITIONS ARE LESS FAVORABLE THAN EXPECTED; (4) THE COMPANY’S DEPENDENCE ON THE AUTOMOTIVE INDUSTRY (WHICH HAS HISTORICALLY BEEN CYCLICAL); (5) CHANGES IN THE FINANCIAL MARKETS AFFECTING THE COMPANY’S FINANCIAL STRUCTURE AND THE COMPANY’S COST OF CAPITAL AND BORROWED MONEY; AND (6) 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.

     EXCEPT AS SPECIFICALLY STATED OTHERWISE IN THIS FORM 10-Q, THE INFORMATION CONTAINED IN THE 10-Q HAS NOT BEEN UPDATED TO REFLECT THE MATTERS SET FORTH IN NOTE 13, “SUBSEQUENT EVENTS” BELOW.

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Table of Contents

PART I.     FINANCIAL INFORMATION

Item 1.     Financial Statements

HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES

 
Consolidated Statements Of Operations
(Millions of dollars, except share amounts)
(Unaudited)
                   
Three Months EndedNine Months Ended
October 31,October 31,


(As Restated)(As Restated)
2001200020012000




Net sales $515.0  $558.0  $1,574.5  $1,692.0 
Cost of goods sold  476.0   495.2   1,444.2   1,466.0 
   
   
   
   
 
  Gross profit  39.0   62.8   130.3   226.0 
Marketing, general and administration  27.7   29.9   79.9   76.5 
Engineering and product development  5.3   3.6   16.9   13.0 
Amortization of intangibles  6.7   6.8   20.0   20.7 
Equity in losses (earnings) of joint ventures  0.4   (0.2)  0.9   (0.7)
Asset impairments and other restructuring charges  4.6   73.9   42.6   78.3 
Loss on investment in joint venture     1.5   3.8   1.5 
Other income, net  (5.0)  (2.1)  (3.7)  (4.1)
   
   
   
   
 
  Earnings (loss) from operations  (0.7)  (50.6)  (30.1)  40.8 
Interest expense, net  49.1   41.7   142.0   120.5 
   
   
   
   
 
  Loss before taxes on income, minority interest and extraordinary gain  (49.8)  (92.3)  (172.1)  (79.7)
Income tax (benefit) provision  4.2   (32.8)  14.6   (28.4)
   
   
   
   
 
  Loss before minority interest and extraordinary gain  (54.0)  (59.5)  (186.7)  (51.3)
Minority interest  0.8   0.7   2.6   2.1 
   
   
   
   
 
  Loss before extraordinary gain  (54.8)  (60.2)  (189.3)  (53.4)
Extraordinary gain, net of tax        2.7    
   
   
   
   
 
  Net loss $(54.8) $(60.2) $(186.6) $(53.4)
   
   
   
   
 
Basic net loss per share:                
 Loss before extraordinary gain $(1.92) $(2.06) $(6.65) $(1.78)
 Extraordinary gain, net of tax        0.09    
   
   
   
   
 
Basic net loss per share $(1.92) $(2.06) $(6.56) $(1.78)
   
   
   
   
 
Diluted net loss per share:                
 Loss before extraordinary gain $(1.92) $(2.06) $(6.65) $(1.78)
 Extraordinary gain, net of tax        0.09    
   
   
   
   
 
Diluted net loss per share $(1.92) $(2.06) $(6.56) $(1.78)
   
   
   
   
 

See accompanying notes to consolidated financial statements.

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Table of Contents

HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES

 
Consolidated Balance Sheets
(Millions of dollars, except share amounts)
                
(As Restated)
October 31,October 31,January 31,
200120002001



(Unaudited)(Unaudited)
ASSETS
Current assets:            
 Cash and cash equivalents $91.1  $23.6  $ 
 Receivables  291.6   229.7   248.8 
 Inventories  181.8   217.5   217.3 
 Prepaid expenses and other  33.5   46.9   38.7 
   
   
   
 
   Total current assets  598.0   517.7   504.8 
Net property, plant and equipment  1,058.6   1,102.5   1,104.8 
Goodwill and other assets  947.7   1,031.4   994.3 
   
   
   
 
   Total assets $2,604.3  $2,651.6  $2,603.9 
   
   
   
 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:            
 Bank borrowings $36.7  $85.4  $79.6 
 Current portion of long-term debt  1,914.0   72.5   1,613.7 
 Accounts payable and accrued liabilities  450.7   428.4   491.6 
   
   
   
 
   Total current liabilities  2,401.4   586.3   2,184.9 
Long-term debt, net of current portion  91.1   1,600.9   94.6 
Pension and other long-term liabilities  327.9   346.8   335.6 
Minority interest  11.9   10.1   10.6 
   
   
   
 
   Total liabilities  2,832.3   2,544.1   2,625.7 
Commitments and Contingencies            
Stockholders’ equity (deficit):            
 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; 27,708,169, 27,707,919, and 27,707,919 shares issued; 25,806,719, 25,806,469, and 25,806,469 shares outstanding  0.3   0.3   0.3 
  Nonvoting — authorized 5,000,000 shares; issued and outstanding, 2,649,026 shares         
 Additional paid in capital  235.1   235.1   235.1 
 Common stock in treasury at cost, 1,901,450 shares  (25.7)  (25.7)  (25.7)
 Accumulated deficit  (332.3)  (12.9)  (145.7)
 Accumulated other comprehensive loss  (105.4)  (89.3)  (85.8)
   
   
   
 
   Total stockholders’ equity (deficit)  (228.0)  107.5   (21.8)
   
   
   
 
   Total liabilities and stockholders’ equity (deficit) $2,604.3  $2,651.6  $2,603.9 
   
   
   
 

See accompanying notes to consolidated financial statements.

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Table of Contents

HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES

 
Consolidated Statements of Cash Flows
(Millions of dollars)
(Unaudited)
            
Nine Months Ended
October 31,

(As Restated)
20012000


Cash flows from operating activities:        
Net loss $(186.6) $(53.4)
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:        
 Depreciation and tooling amortization  93.2   90.7 
 Amortization of intangibles  20.0   20.7 
 Amortization of deferred financing fees  5.9   4.8 
 Deferred taxes  5.3   8.1 
 Asset impairments and other restructuring charges  42.6   78.3 
 Loss on investment in joint venture  3.8   1.5 
 Minority interest  2.6   2.1 
 Equity in losses (earnings) of joint ventures  0.9   (0.7)
 Gain on sale of joint venture  (0.6)   
 Extraordinary gain  (2.7)   
 Changes in operating assets and liabilities that increase (decrease) cash flows:        
  Receivables  21.8   (46.1)
  Inventories  31.3   (31.7)
  Prepaid expenses and other  5.0   (5.0)
  Accounts payable and accrued liabilities  (29.4)  (138.6)
  Other long-term liabilities  (6.7)  (9.7)
   
   
 
   Cash provided by (used for) operating activities  6.4   (79.0)
   
   
 
Cash flows from investing activities:        
 Acquisition of property, plant and equipment  (104.3)  (123.8)
 Tooling expenditures  (9.9)  (10.2)
 Net proceeds from termination of cross-currency swap agreements  10.1   26.4 
 Increased investment in majority-owned subsidiary     (7.2)
 Purchase of business, net of cash acquired     (6.4)
 Proceeds from sale of joint venture  9.5    
 Other, net  (9.6)  (5.9)
   
   
 
   Cash used for investing activities  (104.2)  (127.1)
   
   
 
Cash flows from financing activities:        
 Increase in bank borrowings and revolving facility�� 246.7   250.7 
 Proceeds from refinancing, net of related fees  435.4    
 Repayment of bank borrowings and revolving facility from refinancing  (381.3)   
 Repayment of long-term debt from refinancing  (36.6)   
 Payments on accounts receivable securitization  (71.6)  (17.2)
 Purchase of treasury stock     (25.7)
 Fees to amend Credit Agreement  (2.7)   
   
   
 
   Cash provided by financing activities  189.9   207.8 
   
   
 
Effect of exchange rate changes on cash and cash equivalents  (1.0)  (4.0)
   
   
 
 Increase in cash and cash equivalents  91.1   (2.3)
Cash and cash equivalents at beginning of year     25.9 
   
   
 
Cash and cash equivalents at end of period $91.1  $23.6 
   
   
 
Supplemental data:        
 Cash paid for interest $102.8  $110.5 
 Cash paid for income taxes $9.8  $10.9 

See accompanying notes to consolidated financial statements.

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HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES

 
Notes to Consolidated Financial Statements
Nine Months Ended October 31, 2001 and 2000
(Unaudited)
(Millions of Dollars Unless Otherwise Stated)

(1) Description of Business and Basis of Presentation

     Description of Business

     Unless otherwise indicated, references to “Company” mean Hayes Lemmerz International, Inc. and its subsidiaries and references to fiscal year mean the Company’s year ended January 31 of the following year (e.g., “fiscal 2001” refers to the period beginning February 1, 2001 and ending January 31, 2002, “fiscal 2000” refers to the period beginning February 1, 2000 and ending January 31, 2001 and “fiscal 1999” refers to the period beginning February 1, 1999 and ending January 31, 2000).

     The Company designs, engineers and manufactures suspension module components, principally for 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 face cast aluminum wheels, clad covered wheels, wheel-end attachments, aluminum structural components, intake and exhaust manifolds, and brake drums, hubs and rotors.

     Basis of Presentation

     The accompanying consolidated financial statements have been prepared on a going concern basis which contemplates continuity of operations, realization of assets, and payment of liabilities in the ordinary course of business and do not reflect adjustments that might result if the Company is unable to continue as a going concern. The Company’s recent history of significant losses, deficit in stockholders’ equity and issues related to compliance with debt covenants raise substantial doubt about the Company’s ability to continue as a going concern. As is more fully discussed in Note 13, the Company filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code in December 2001. Continuing as a going concern is dependent upon, among other things, the Company’s formulation of a plan of reorganization that is confirmed by the Bankruptcy Court, the success of future business operations, and the generation of sufficient cash from operations and financing sources to meet the Company’s obligations.

     The Company’s unaudited interim consolidated financial statements do not include all of the disclosures required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the interim period results have been included. Operating results for the nine months ended October 31, 2001 are not necessarily indicative of the results that may be expected for the full fiscal year ending January 31, 2002.

     Certain prior period amounts have been reclassified to conform to the current year presentation.

(2) Restatement of Consolidated Financial Statements

     On February 19, 2002, the Company issued restated consolidated financial statements as of and for the fiscal years ended January 31, 2001 and 2000, and related quarterly periods (the “10-K/ A”), and for the fiscal quarter ended April 30, 2001 (the “10-Q/ A”). The restatement was the result of failure by the Company to properly apply certain accounting standards generally accepted in the United States of America, and because certain accounting errors and irregularities in the Company’s financial statements were identified.

     The Company has been advised that the Securities and Exchange Commission (“SEC”) is conducting an investigation into the facts and circumstances giving rise to the restatement, and the Company has been and intends to continue cooperating with the SEC. The Company cannot predict the outcome of such an investigation.

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HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

     The primary categories of restatement adjustments are discussed more fully in the Company’s Annual Report on Form 10-K/ A and the notes to the consolidated financial statements included therein. Following are the primary categories of restatement adjustments to the Company’s previously reported financial results for the three month and nine month periods ended October 31, 2000 ($ in millions):

            
Quarter EndedNine Months Ended
October 31, 2000October 31, 2000


Adjustments (increasing) decreasing net income:        
 Deferred operating expenditures $4.1  $11.0 
 Unrecorded trade payables and claims  3.2   7.7 
 Acquisition accounting  5.1   15.3 
 Customer credits and other  0.4   4.8 
 Asset impairment losses  (1.2)  0.9 
   
   
 
   Total adjustments to earnings (loss) from operations  11.6   39.7 
 Income taxes  1.1   (11.6)
   
   
 
   Total adjustment to net loss  12.7   28.1 
Adjustments (increasing) decreasing stockholders’ equity:        
 Tax effect of net investment hedges  7.1   17.4 
  Other  (2.3)  (1.8)
   
   
 
   Total decrease in stockholders’ equity $17.5  $43.7 
   
   
 

     The restatement adjustments to the consolidated balance sheet as of October 31, 2000 reflected in the table below include the cumulative effect of the restatement adjustments for fiscal 1999 through October 31, 2000.

     For purposes of these consolidated financial statements, certain non-current deferred income tax assets and liabilities as previously reported at October 31, 2000 were reclassified either as part of the previously reported amounts or as restatement adjustments. These reclassifications, which did not affect previously reported net income (loss), have been made to the consolidated financial statements and are included in the accompanying tables.

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HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

Consolidated Statement of Operations

(Millions of dollars, except per share amounts)
              
Quarter Ended October 31, 2000

As
PreviouslyAs
ReportedRestatementsRestated



Net sales $558.3  $(0.3) $558.0 
Cost of goods sold  485.1   10.1   495.2 
   
   
   
 
 Gross profit  73.2   (10.4)  62.8 
Marketing, general and administration  28.3   1.6   29.9 
Engineering and product development  3.6      3.6 
Amortization of intangible assets  7.0   (0.2)  6.8 
Equity in earnings of joint ventures  (0.2)     (0.2)
Asset impairments and other restructuring charges  74.1   (0.2)  73.9 
Loss on investment in joint venture  1.5      1.5 
Other (income) expense, net  (2.0)  (0.1)  (2.1)
   
   
   
 
 Loss from operations  (39.1)  (11.5)  (50.6)
Interest expense, net  41.6   0.1   41.7 
   
   
   
 
 Loss before taxes on income and minority interest  (80.7)  (11.6)  (92.3)
Income tax benefit  (33.9)  1.1   (32.8)
   
   
   
 
 Loss before minority interest  (46.8)  (12.7)  (59.5)
Minority interest  0.7      0.7 
   
   
   
 
 Net loss $(47.5) $(12.7) $(60.2)
   
   
   
 
Basic net loss per share $(1.63) $(0.43) $(2.06)
   
   
   
 
Diluted net loss per share $(1.63) $(0.43) $(2.06)
   
   
   
 

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HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

Consolidated Statement of Operations

(Millions of dollars, except per share amounts)
              
Nine Months Ended October 31, 2000

As
PreviouslyAs
ReportedRestatementsRestated



Net sales $1,695.9  $(3.9) $1,692.0 
Cost of goods sold  1,436.4   29.6   1,466.0 
   
   
   
 
 Gross profit  259.5   (33.5)  226.0 
Marketing, general and administration  76.8   (0.3)  76.5 
Engineering and product development  13.0      13.0 
Amortization of intangible assets  21.3   (0.6)  20.7 
Equity in earnings of joint ventures  (0.7)     (0.7)
Asset impairments and other restructuring charges  74.1   4.2   78.3 
Loss on investment in joint venture  1.5      1.5 
Other (income) expense, net  (6.9)  2.8   (4.1)
   
   
   
 
 Earnings from operations  80.4   (39.6)  40.8 
Interest expense, net  120.4   0.1   120.5 
   
   
   
 
 Loss before taxes on income and minority interest  (40.0)  (39.7)  (79.7)
Income tax benefit  (16.8)  (11.6)  (28.4)
   
   
   
 
 Loss before minority interest  (23.2)  (28.1)  (51.3)
Minority interest  2.1      2.1 
   
   
   
 
 Net loss $(25.3) $(28.1) $(53.4)
   
   
   
 
Basic net loss per share $(0.85) $(0.93) $(1.78)
   
   
   
 
Diluted net loss per share $(0.85) $(0.93) $(1.78)
   
   
   
 

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HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

 

Consolidated Balance Sheet

(Millions of dollars, except share amounts)
                
As of October 31, 2000

As
PreviouslyAs
ReportedRestatementsRestated




ASSETS
Current assets:            
 Cash and cash equivalents $23.6  $  $23.6 
 Receivables  240.5   (10.8)  229.7 
 Inventories  201.2   16.3   217.5 
 Deferred tax assets     32.2   32.2 
 Prepaid expenses and other  16.9   (2.2)  14.7 
   
   
   
 
   Total current assets  482.2   35.5   517.7 
Property, plant and equipment, net  1,108.6   (6.1)  1,102.5 
Deferred tax assets  62.6   (35.2)  27.4 
Goodwill and other assets  1,120.5   (116.5)  1,004.0 
   
   
   
 
   Total assets $2,773.9  $(122.3) $2,651.6 
   
   
   
 

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:            
 Bank borrowings $85.4  $  $85.4 
 Current portion of long-term debt  72.5      72.5 
 Accounts payable and accrued liabilities  446.6   (18.2)  428.4 
   
   
   
 
   Total current liabilities  604.5   (18.2)  586.3 
Long-term debt, net of current portion  1,600.9      1,600.9 
Deferred tax liabilities  94.4   (24.8)  69.6 
Pension and other long-term liabilities  290.3   (13.1)  277.2 
Minority interest  10.1      10.1 
   
   
   
 
   Total liabilities  2,600.2   (56.1)  2,544.1 
Commitments and contingencies            
Stockholders’ equity:            
 Preferred stock         
 Common stock:            
  Voting  0.3      0.3 
  Nonvoting         
 Additional paid in capital  237.1   (2.0)  235.1 
 Common stock in treasury at cost  (26.3)  0.6   (25.7)
 Retained earnings(deficit)  32.7   (45.6)  (12.9)
 Accumulated other comprehensive loss  (70.1)  (19.2)  (89.3)
   
   
   
 
   Total stockholders’ equity  173.7   (66.2)  107.5 
   
   
   
 
   Total liabilities and stockholders’ equity $2,773.9  $(122.3) $2,651.6 
   
   
   
 

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HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

(3) Bank Borrowings and Long-Term Debt

 
Refinancing

     On June 21, 2001, the Company received formal approval for Consent and Amendment No. 5 to the Credit Agreement. Such amendment provided for and/or permits, among other things, the issuance and sale of certain senior unsecured notes (the “Senior Notes”) by the Company, a receivables securitization transaction, and changes to the various financial covenants contained in the Credit Agreement in the event that the issuance and sale of the Senior Notes does occur. The amendment also provided the Company with the option of establishing a new “B” tranche of term loans (the “B Term Loan”) under the Credit Agreement. The amendment also provides for the net cash proceeds of the issuance and sale of the Senior Notes to be applied as follows: (i) the first $140,000,000, to prepay outstanding term loans (in direct order of stated maturity) under the Credit Agreement; (ii) the next $60,000,000, at the Company’s option, to prepay indebtedness of the Company’s foreign subsidiaries; (iii) the next $50,000,000, to prepay outstanding term loans (in direct order of stated maturity) under the Credit Agreement; (iv) the next $50,000,000, at the Company’s option, to repurchase or redeem a portion of the Company’s existing senior subordinated notes; and (v) the remainder, if any, to prepay outstanding term loans (in direct order of stated maturity) and then to reduce the revolving credit commitments under the Credit Agreement.

     On June 22, 2001, the Company received $291.1 million in net proceeds from the issuance of 11 7/8% senior unsecured notes due 2006 in the original principal amount of $300 million (the “11 7/8% Notes”). In addition, on July 2, 2001, the Company received $144.3 million in net proceeds from the issuance of the B Term Loan. These aggregate net proceeds totaled $435.4 million and were used as follows ($ in millions):

      
Permanent reduction of Credit Agreement indebtedness with a principal balance of $334.3, plus $2.2 in accrued interest $336.5 
Payment on foreign indebtedness with a principal balance of $47.0  47.0 
Repurchase of certain Senior Subordinated Notes with a face value of $47.2, plus $1.0 in accrued interest  37.6 
Payment of fees and expenses on the above  0.8 
Remaining cash proceeds held by Company  13.5 
   
 
 Total $435.4 
   
 

     In connection with the repurchase of the senior subordinated notes at a discount, the Company recorded an extraordinary gain of $10.6 million in the second quarter of fiscal 2001. This gain was offset by $0.9 million of unamortized deferred financing costs written off as a result of the repurchase. Further, in connection with the B Term refinancing and permanent reduction of the Credit Agreement, the Company recorded an extraordinary loss of $5.5 million for the write-off of unamortized deferred financing costs associated with the Credit Agreement. These extraordinary items are reflected net of tax of $1.5 million on the accompanying consolidated statement of operations. As a result, the deferred tax asset valuation allowance was reduced by a corresponding amount with the benefit included in Income tax provision on the consolidated statement of operations included herein.

     The 11 7/8% Notes mature on June 15, 2006 and require interest payments semi-annually on each June 15 and December 15 commencing December 15, 2001. The 11 7/8% Notes may not be redeemed prior to June 15, 2005; provided, however, that the Company may, at any time and from time to time prior to June 15, 2004, redeem up to 35% of the aggregate principal amount of the 11 7/8% Notes at a price equal to 111.875% of the aggregate principal amount so redeemed, plus accrued and unpaid interest to the date of redemption, with the Net Cash Proceeds (as defined) of one or more Equity Offerings (as defined), provided that at least $195.0 million aggregate principal amount of the 11 7/8% Notes remain outstanding. On or after June 15, 2005,

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Notes to Consolidated Financial Statements — (Continued)

the Company may, at its option, redeem the 11 7/8% Notes upon the terms and conditions set forth in the indenture.

     The 11 7/8% Notes rank equally to all other existing and future senior debt but are effectively subordinated to the borrowings under the Credit Agreement to the extent of collateral securing the Credit Agreement. The 11 7/8% Notes are effectively subordinated to all liabilities (including trade and intercompany obligations) of the Company’s subsidiaries which are not guarantors of the Credit Agreement and the B Term Loan. The indenture governing the 11 7/8% Notes provides for certain restrictions regarding additional debt, dividends and other distributions, additional stock of subsidiaries, certain investments, liens, transactions with affiliates, mergers, consolidations, and the transfer and sales of assets. The indenture also provides that a holder of the 11 7/8% Notes may, under certain circumstances, have the right to require that the Company repurchase such holder’s 11 7/8% Notes upon a change of control of the Company. The 11 7/8% Notes are unconditionally guaranteed as to the payment of principal, premium, if any, and interest, jointly and severally by the Company’s material domestic subsidiaries.

     Pursuant to an Exchange Offer Registration Rights Agreement (the “Registration Rights Agreement”), the Company agreed to use its best efforts to file and have declared effective an Exchange Offer Registration Statement with respect to an offer to exchange the 11 7/8% Notes for other notes of the Company with terms substantially identical to the 11 7/8% Notes. The Company also agreed to consummate such exchange offer on or prior to December 19, 2001. As a result of the Chapter 11 Filings by the Company on December 5, 2001 as discussed in Note 13, such registration has not occurred.

     The B Term Loans amortize at the rate of 1% of principal per year and mature in full on December 31, 2005 (at which time all remaining unpaid principal will be due and payable). The B Term Loans rank equally with all other loans outstanding under the Credit Agreement and share equally in the guarantees and collateral granted by the Company and its subsidiaries to secure the amounts outstanding under the Credit Agreement. The B Term Loans are also subject to the same covenants and events of default which govern all other loans outstanding under the Credit Agreement.

     The interest rates of the B Term Loans are, at the option of the Company, based upon either an adjusted eurocurrency rate (the “eurocurrency rate”) or the rate which is equal to the highest of CIBC’s prime rate, the federal funds rate plus  1/2 of 1% and the base certificate of deposit rate plus 1% (the “ABR rate”), in each case plus an applicable margin. For B Term Loans which bear interest at the eurocurrency rate, the applicable margin is 5.0%, and for B Term Loans which bear interest at the ABR rate, the applicable margin is 4.0%. The Company may elect interest periods of one, two, three or six months for eurocurrency loans. Interest is computed on the basis of actual number of days elapsed in a year of 360 days (or 365 or 366 days, as the case may be, for ABR loans based on the prime rate). Interest is payable at the end of each interest period and, in any event, at least every three months.

     The Credit Agreement, as amended, contains certain financial covenants regarding interest coverage ratios, fixed charge coverage ratios, leverage ratios and capital spending limitations. For purposes of these consolidated financial statements, all amounts outstanding with respect to the Credit Agreement, the senior subordinated notes, and the 11 7/8% Notes outstanding at October 31, 2001 are classified as a current liability as of October 31, 2001.

     Trade Securitization Agreement

     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 continued 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 continued to transfer substantially all of their U.S. dollar denominated trade accounts receivable to Funding Co. Funding

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Notes to Consolidated Financial Statements — (Continued)

Co. then sold and continued to 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 that are sold.

     This trade securitization agreement expired on May 1, 2001 and as such, there were no receivables sold at October 31, 2001. From the expiration date to October 31, 2001, the Company financed the amount of receivables previously sold under the securitization agreement with its revolving credit facility. The impact of the discontinued securitization program had an adverse impact on liquidity of approximately $71.6 million for the nine month period ended October 31, 2001.

(4) Derivative Financial Instruments

     On February 1, 2001, the Company adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities”, SFAS 137, “Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133” and SFAS 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB Statement No. 133.” The adoption of these standards did not have a material impact on the Company’s financial position or results of operations.

     The Company has significant investments in foreign subsidiaries. The majority of these investments are in Europe wherein the Euro is the functional currency. As a result, the Company is exposed to fluctuations in exchange rates between the Euro and the U.S. Dollar. To reduce this exposure, the Company entered into cross-currency interest rate swap agreements. At January 31, 2001, the Company held $281 million notional amount of cross-currency interest rate swaps, which are recorded in the accompanying consolidated balance sheet at fair value. At January 31, 2001, the Company had an unrealized loss of approximately $0.4 million. The fair value of the Company’s cross-currency interest rate swaps is the estimated amount the Company would receive or pay to terminate the agreement based on third party market quotes. During the nine months ended October 31, 2001, the Company received net cash in the amount of $10.1 million in connection with the early termination of all cross-currency interest rate swap agreements. These payments reduced the fair market value recorded by the Company resulting from accounting for mark-to-market adjustments during the terms of the agreements. As such, the Company held no cross-currency interest rate swaps at October 31, 2001.

     The Company designated these swap agreements as hedges of the foreign currency exposure of its net investment in foreign operations. In addition, the Company has designated a term loan, totaling 30.5 million Euro at October 31, 2001, as a hedge of foreign currency exposure of its net investment in its European operations.

     The Company records the gain or loss on the derivative financial instruments designated as hedges of the foreign currency exposure of its net investment in foreign operations as currency translation adjustments in Accumulated Other Comprehensive Loss to the extent the hedges are effective. The gain or loss on the hedging instruments offset the change in currency translation adjustments resulting from translating the foreign operations’ financial statements from their respective functional currency to the Dollar. In the third quarter of fiscal 2001, the Company recorded a loss of $7.5 million on the instruments designated as hedges in Accumulated Other Comprehensive Loss. The tax effect of this loss was offset by a reversal of the deferred tax asset valuation allowance, such that there was no net tax benefit in the quarter ended October 31, 2001. As these derivative financial instruments were accounted for as qualifying hedges prior to adoption of SFAS No. 133, no transition adjustment was recorded at the date of adoption.

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Notes to Consolidated Financial Statements — (Continued)

(5) Inventories

     The major classes of inventory are as follows:

          
October 31,January 31,
20012001


Raw materials $42.3  $49.7 
Work-in-process  45.8   60.1 
Finished goods  56.8   72.4 
Spare parts and supplies  36.9   35.1 
   
   
 
 Total $181.8  $217.3 
   
   
 

(6) Property, Plant and Equipment

     The major classes of property, plant and equipment are as follows:

          
October 31,January 31,
20012001


Land $30.7  $31.2 
Buildings  249.5   248.7 
Machinery and equipment  1,156.4   1,134.9 
   
   
 
   1,436.6   1,414.8 
Accumulated depreciation  (378.0)  (310.0)
   
   
 
 Net property, plant and equipment $1,058.6  $1,104.8 
   
   
 

(7) Asset Impairments and Other Restructuring Charges

     During the third quarter of fiscal 2001 the Company recognized asset impairment losses of $4.6 million related principally to $2.3 million due to the discontinuance of the Company’s Equipment and Engineering business located in Montague, Michigan, $0.9 million related to the abandonment of a greenfield project in Thailand, and impairments of investments in other fixed assets. Such investments in fixed assets were written down to fair value based on the expected scrap value, if any, of such machinery, equipment and tooling.

     In the third quarter of fiscal 2000, the Company recorded asset impairment and other restructuring charges of $73.9 million. These charges relate principally to $63.6 million in impairment of excess and obsolete machinery and equipment, $7.6 million in severance and facility closure costs, and $2.7 million for the termination of certain contractual obligations.

(8) Sale of Non-Core Business

     During the third quarter of fiscal 2001, the Company sold its 25% interest in a Canadian joint venture for cash proceeds of $9.5 million. In connection with the sale, the Company recognized a gain of $0.6 million, which is included in Other income, net, on the accompanying consolidated statement of operations.

(9) Earnings Per Share

     Basic earnings (loss) per share are calculated by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted earnings (loss) per share are computed by dividing net income (loss) by the diluted weighted average shares outstanding. Diluted weighted average shares assume the exercise of stock options and warrants.

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Notes to Consolidated Financial Statements — (Continued)

     Shares outstanding for the three months and nine months ended October 31, 2001 and 2000, were as follows:

                 
Three MonthsNine Months
EndedEnded


2001200020012000




Weighted average shares outstanding  28,456   29,189   28,456   29,965 
Dilutive effect of options and warrants            
   
   
   
   
 
Diluted shares outstanding  28,456   29,189   28,456   29,965 
   
   
   
   
 

     For the three months and nine months ending October 31, 2001 and 2000, respectively, all options and warrants were excluded from the calculation of diluted earnings (loss) per share as the effect was anti-dilutive due to the net loss reflected for such periods.

(10) Comprehensive Income

     SFAS No. 130, “Reporting Comprehensive Income,” 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.

     The components of comprehensive income (loss) for the nine months ended October 31, 2001 and 2000 are as follows:

          
20012000


Net loss $(186.6) $(53.4)
Cumulative translation adjustments  (19.6)  (7.8)
   
   
 
 Total comprehensive loss $(206.2) $(61.2)
   
   
 

(11) Contingencies

     Various lawsuits, claims and proceedings have been or may be instituted or asserted against the Company, including those pertaining to environmental, product liability, patent infringement, and employee benefit matters. While the amounts claimed may be substantial, the ultimate liability cannot now be determined because of the considerable uncertainties that exist. Therefore, it is possible that results of operations or liquidity in a particular period could be materially affected by certain contingencies. However, based on facts currently available, management believes that the disposition of matters that are pending or asserted will not have a material adverse effect on the financial position of the Company.

     Following the September 5, 2001 announcement of the restatements, several lawsuits were filed by and purportedly on behalf of the shareholders of the Company naming as defendants a combination of the Company, Mr. Cucuz and Mr. Shovers. These lawsuits are seeking class action status, but no class has yet been certified in these actions. Due to the Company’s bankruptcy filing, this litigation against the Company is subject to the automatic stay.

     Certain operating leases covering leased assets with an original cost of approximately $68.0 million, contain provisions which, if certain events occur or conditions are met, including termination of the lease, might require the Company to purchase or re-sell the leased assets within a specified period of time, generally one year, based on amounts specified in the lease agreements. On July 18, 2001, the Company received notification of termination from a lessor with respect to leased assets having approximately $25.0 million of

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Notes to Consolidated Financial Statements — (Continued)

original cost (which termination was not to be effective for one year). The Company has not agreed with the lessor that a termination has occurred at the time of the notice and has continued to use the leased assets.

(12) Segment Reporting

     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, 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.

     The following table represents revenues and other financial information by business segment for the nine months ended October 31:

                          
RevenueNet Income (Loss)Total Assets



(As Restated)(As Restated)(As Restated)
200120002001200020012000






Automotive wheels $952.0  $1,054.7  $(51.4) $10.7  $1,282.0  $1,417.7 
Components  503.1   506.3   (19.2)  (7.0)  884.7   964.5 
Other  119.4   131.0   (116.0)  (57.1)  437.6   269.4 
   
   
   
   
   
   
 
 Total $1,574.5  $1,692.0  $(186.6) $(53.4) $2,604.3  $2,651.6 
   
   
   
   
   
   
 

(13) Subsequent Events

     Chapter 11 Filings

     On December 5, 2001, the Company, 30 of its wholly-owned domestic subsidiaries and one wholly-owned Mexican subsidiary (collectively, the “Debtors”) filed voluntary petitions for reorganization relief (the “Chapter 11 Filings” or the “Filings”) under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). The Chapter 11 Filings are being jointly administered, for procedural purposes only, before the Bankruptcy Court under Case No. 01-11490-MFW.

     During the pendancy of these Filings, the Debtors remain in possession of their properties and assets and management of the Company continues to operate the businesses of the Debtors as debtors-in-possession. As a debtor-in-possession, the Company is authorized to operate the business of the Debtors, but may not engage in transactions outside of the ordinary course of business without the approval of the Bankruptcy Court, after notice and the opportunity for a hearing.

     Shortly after the commencement of the Chapter 11 Filings, on December 21, 2001, the Bankruptcy Court granted interim approval for the Debtors to obtain $45 million in debtor-in-possession financing (the “DIP facility”). Subsequently, on January 28, 2002, the Bankruptcy Court granted final approval of a $200 million DIP facility for the Debtors. The amounts that the Company is able to borrow under the DIP facility are determined by a borrowing base formula based on certain eligible assets of the Company. As of April 10, 2002, the Company had $4.0 million in cash borrowings and had issued $4.7 million in letters of credit pursuant to this financing. The amount available under the DIP facility as of April 10, 2002, after taking into account the aforementioned borrowings and letters of credit, was $87.0 million.

     The Bankruptcy Court has approved payment of certain of the Debtors’ pre-petition liabilities, such as employee wages, benefits, and certain customer, vendor and freight program related payments. In addition, the Bankruptcy Court authorized the Debtors to continue and maintain the majority of their employee benefit programs. Pension and savings plan funds are in trusts and protected under federal regulations. All required

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Notes to Consolidated Financial Statements — (Continued)

contributions are current in the respective plans. The Debtors have received Bankruptcy Court approval for the retention of legal, financial and management consulting professionals, and from time to time may seek Bankruptcy Court approval for the retention of additional financial and management consulting professionals, to advise the Debtors in the bankruptcy proceedings and the restructuring of its businesses.

     Pursuant to the automatic stay provisions of Section 362 of the Bankruptcy Code, actions to collect pre-petition indebtedness and virtually all litigation against the Debtors that was, or could have been, brought prior to the commencement of the Chapter 11 Filings are stayed, and other contractual obligations of the Debtors may not be enforced against them. In addition, under Section 365 of the Bankruptcy Code, subject to the approval of the Bankruptcy Court, the Debtors may assume or reject executory contracts and unexpired leases. As of the date of this filing, the Debtors had not yet completed their review of all contracts and leases for assumption or rejection, but ultimately will assume or reject all such contracts and leases. The Debtors cannot presently determine or reasonably predict the ultimate liability that may result from rejecting such contracts or leases or from the filing of rejection damage claims, but such rejections could result in additional liabilities subject to compromise.

     Parties with claims against the Debtors, including, among other things, claims for damages resulting from the rejection of executory contracts or unexpired leases, may file proofs of claim with the Bankruptcy Court in accordance with the reorganization process. Proofs of claims generally must be filed with the Bankruptcy Court by the later of (a) June 3, 2002, which is the general claims bar date established by the Bankruptcy Court in the Debtors’ cases, or (b) the date that is thirty days after entry of order approving the rejection.

     All liabilities subject to compromise are subject to future adjustment depending on Bankruptcy Court action, further developments with respect to disputed claims, or other events. Under a confirmed plan of reorganization, most all unsecured pre-petition claims may be paid at amounts substantially less than their allowed amounts. In light of the number of creditors of the Debtors, the claims resolution process may take considerable time to complete. Accordingly, the ultimate number and amount of allowed claims is not presently known and, because the settlement terms of such allowed claims is subject to a confirmed plan of reorganization, the ultimate resolution with respect to allowed claims is not presently ascertainable.

     The consummation of a plan or plans of reorganization is the principal objective of the Chapter 11 Filings. A plan of reorganization sets forth the means for satisfying claims against and interests in the Company and its Debtor subsidiaries, including the liabilities subject to compromise. Generally, pre-petition liabilities are subject to settlement under such a plan or plans of reorganization, which must be voted upon by certain creditors and approved by the Bankruptcy Court. Pursuant to an Order of the Bankruptcy Court in the Debtors’ cases, the Debtors have the exclusive right through September 3, 2002 to submit a plan or plans of reorganization. Such exclusive period may be lengthened (or shortened) by Bankruptcy Court order pursuant to the request of the Debtors or a party-in-interest. The Debtors have retained Lazard Freres & Co. LLC, as financial advisors and investment bankers for the purpose of providing financial advisory and investment banking services during the Chapter 11 reorganization process. The Company anticipates that any plan or plans of reorganization it may propose, if ultimately approved by the Bankruptcy Court, would result in substantial dilution of the interest of existing equity holders, so that they would hold little, if any, meaningful stake in the reorganized enterprise.

     Confirmation of a plan of reorganization is subject to certain findings being made by the Bankruptcy Court, all of which are required by the Bankruptcy Code. Subject to certain exceptions set forth in the Bankruptcy Code, confirmation of a plan of reorganization requires the approval of the Bankruptcy Court and the affirmative vote of each impaired class of creditors and equity security holders. The Bankruptcy Court may confirm a plan notwithstanding the non-acceptance of the plan by an impaired class of creditors or equity security holders if certain requirements of the Bankruptcy Code are met. There can be no assurance that a reorganization plan or plans will be proposed by the Debtors or confirmed by the Bankruptcy Court, or that any such plan or plans will be consummated.

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Notes to Consolidated Financial Statements — (Continued)

     Currently, it is not possible to predict the length of time the Company will operate under the protection of Chapter 11 and the supervision of the Bankruptcy Court, when the Company will file a plan or plans of reorganization with the Bankruptcy Court, the outcome of the Chapter 11 proceedings in general, or the effect of the proceedings on the business of the Company or on the interest of the various creditors and stakeholders. Under the priority scheme established by the Bankruptcy Code, certain post-petition liabilities need to be satisfied before shareholders can receive any distribution. The ultimate recovery, if any, to shareholders will not be determined until confirmation of a plan or plans of reorganization. There can be no assurance as to what value, if any, will be ascribed to the common stock of the Company in the bankruptcy proceedings, and the value of the equity represented by that stock could be substantially diluted or canceled.

     The Company’s financial statements commencing with the period that includes December 5, 2001, the date of filing of the Chapter 11 proceedings, will be presented in conformity with the AICPA’s Statement of Position 90-7, “Financial Reporting By Entities In Reorganization Under the Bankruptcy Code,” (“SOP 90-7”). The statement requires a segregation of liabilities subject to compromise by the Bankruptcy Court as of the bankruptcy filing date and identification of all transactions and events that are directly associated with the reorganization of the Company.

     The accompanying consolidated financial statements do not reflect: (a) the requirements of SOP 90-7, (b) the realizable value of assets on a liquidation basis or their availability to satisfy liabilities; (c) aggregate pre-petition liability amounts that may be allowed for unrecorded claims or contingencies, or their status or priority; (d) the effect of any changes to the Debtors’ capital structure or in the Debtors’ business operations as the result of an approved plan of reorganization; or (e) adjustments to the carrying value of assets (including goodwill and other intangibles) or liability amounts that may be necessary as the result of actions by the Bankruptcy Court.

     Facility Closures

     In February 2002, the Company committed to a plan to close its manufacturing facility in Somerset, Kentucky. The Company will record asset impairment losses of $5.8 million in the fourth quarter of fiscal 2001 related to the Somerset facility’s machinery and equipment, which are in addition to asset impairment losses previously recorded in the second quarter of 2001. In connection with the closure of the Somerset facility (which commenced during February 2002), the Company will record a restructuring charge of $4.4 million in the first quarter of fiscal 2002. This charge relates to the termination of leases and other closure costs, including security and maintenance costs subsequent to the shutdown date, and is expected to be paid during fiscal 2002 and 2003.

     Acquisition

     In March 2002, the Company purchased the facility and assets of a foundry in Chattanooga, Tennessee for $4.1 million. This purchase integrates the foundry, which produces brake drum castings for the Company, into the Company’s commercial highway operations.

     Other Subsequent Events

     Other events occurring subsequent to October 31, 2001 regarding the market for the Company’s common stock, other facility closures, a reduction of the Company’s North American salaried workforce, and sale of non-core businesses are more fully discussed in the Company’s Annual Report on Form 10-K/ A for the year ended January 31, 2001, and the notes to the consolidated financial statements contained therein.

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Notes to Consolidated Financial Statements — (Continued)

(14) Guarantor and Non-Guarantor Financial Statements

     As of October 31, 2001, the senior subordinated notes and senior notes are guaranteed by certain of the Company’s domestic subsidiaries. Certain other domestic subsidiaries and the foreign subsidiaries (the “Non-Guarantor Subsidiaries”) do not guarantee the senior subordinated notes and senior notes. In the third quarter of fiscal 2001, amendments were entered into by the Company and holders of the Company’s 8 1/4% and 9 1/8% Senior Subordinated Notes (the “8 1/4% Notes” and the “9 1/8% Notes”). Such amendments conformed the lists of guarantor subsidiaries of the respective senior subordinated notes to that list of subsidiaries guaranteeing the 11 7/8% Notes (the “Conformed Guarantor Subsidiaries”). The list of guarantor subsidiaries of the Company’s 11% Senior Subordinated Notes (the “11% Notes”) was not conformed.

     The condensed consolidating financial information as of and for the nine months ended October 31, 2001 for those guarantor subsidiaries of the 11% Notes (the “Guarantor Subsidiaries”) has been presented separately below as the 11% Notes are not guaranteed by the Conformed Guarantor Subsidiaries. Collectively, the Guarantor Subsidiaries and the Conformed Guarantor Subsidiaries guarantee the 8 1/4% Notes, the 9 1/8% Notes, and the 11 7/8% Notes.

     As of October 31, 2000, the 8 1/4% Notes, the 9 1/8% Notes, and the 11% Notes were guaranteed by the Guarantor Subsidiaries. Certain other domestic subsidiaries and the foreign subsidiaries did not guarantee these notes.

     The following condensed consolidating financial information presents:

      (1) Condensed consolidating financial statements as of October 31, 2001 and January 31, 2001, and for the nine month periods ended October 31, 2001 and 2000, of (a) Hayes Lemmerz International, Inc., the parent, (b) the guarantor subsidiaries (as defined), (c) the non-guarantor subsidiaries (as defined), and (d) the Company on a consolidated basis, and
 
      (2) Elimination entries necessary to consolidate Hayes Lemmerz International, Inc., the parent, with guarantor and non-guarantor subsidiaries.

     The condensed consolidating financial statements are presented on the equity method. Under this method, the investments in subsidiaries are recorded at cost and adjusted for the Company’s share of the subsidiaries’ cumulative results of operations, capital contributions, distributions and other equity changes. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions.

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Notes to Consolidated Financial Statements — (Continued)

Condensed Consolidating Statements of Operations
For the Nine Months Ended October 31, 2001
                          
Conformed
GuarantorGuarantorNon-guarantorConsolidated
ParentSubsidiariesSubsidiariesSubsidiariesEliminationsTotal






Net sales $199.3  $389.6  $379.1  $614.2  $(7.7) $1,574.5 
Cost of goods sold  185.6   364.8   387.8   513.7   (7.7)  1,444.2 
   
   
   
   
   
   
 
 Gross profit  13.7   24.8   (8.7)  100.5      130.3 
Marketing, general and administration  14.5   18.9   15.4   31.1      79.9 
Engineering and product development  2.8   5.6   2.1   6.4      16.9 
Amortization of
intangibles
  0.9   5.8   8.0   5.3      20.0 
Equity in (earnings) loss of subsidiaries and joint ventures  122.8   35.0   3.5   (0.1)  (160.3)  0.9 
Asset impairments and other restructuring charges  4.7   0.7   36.4   0.8      42.6 
Loss on investment in joint venture  3.8               3.8 
Other (income) expense, net  (1.4)     (0.8)  (1.5)     (3.7)
   
   
   
   
   
   
 
 Earnings (loss) from operations  (134.4)  (41.2)  (73.3)  58.5   160.3   (30.1)
Interest expense, net  56.0   32.8   29.5   23.7      142.0 
   
   
   
   
   
   
 
 Earnings (loss) before taxes on income, minority interest, and extraordinary gain  (190.4)  (74.0)  (102.8)  34.8   160.3   (172.1)
Income tax provision (benefit)  (1.1)  0.5   0.8   14.4      14.6 
   
   
   
   
   
   
 
 Earnings (loss) before minority interest and extraordinary gain  (189.3)  (74.5)  (103.6)  20.4   160.3   (186.7)
Minority interest           2.6      2.6 
   
   
   
   
   
   
 
 Earnings (loss) before extraordinary gain  (189.3)  (74.5)  (103.6)  17.8   160.3   (189.3)
Extraordinary gain, net of tax  2.7               2.7 
   
   
   
   
   
   
 
 Net income (loss) $(186.6) $(74.5) $(103.6) $17.8  $160.3  $(186.6)
   
   
   
   
   
   
 

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HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

Condensed Consolidating Statements of Operations
For the Nine Months Ended October 31, 2000, As Restated
                      
GuarantorNon-guarantorConsolidated
ParentSubsidiariesSubsidiariesEliminationsTotal





Net sales $239.6  $475.4  $989.9  $(12.9) $1,692.0 
Cost of goods sold  204.7   416.3   857.9   (12.9)  1,466.0 
   
   
   
   
   
 
 Gross profit  34.9   59.1   132.0      226.0 
Marketing, general and administration  11.9   17.4   47.2      76.5 
Engineering and product development  1.2   5.5   6.3      13.0 
Amortization of intangibles  0.8   5.8   14.1      20.7 
Equity in (earnings) loss of subsidiaries and joint ventures  50.3   14.3   (0.3)  (65.0)  (0.7)
Asset impairments and other restructuring charges  2.9   54.5   20.9      78.3 
Loss on investment in joint venture  1.5            1.5 
Other (income) expense, net  (0.8)     (3.3)     (4.1)
   
   
   
   
   
 
 Earnings (loss) from operations  (32.9)  (38.4)  47.1   65.0   40.8 
Interest expense, net  21.9   42.6   56.0      120.5 
   
   
   
   
   
 
 Loss before taxes on income and minority interest  (54.8)  (81.0)  (8.9)  65.0   (79.7)
Income tax benefit  (1.4)  (23.7)  (3.3)     (28.4)
   
   
   
   
   
 
 Loss before minority interest  (53.4)  (57.3)  (5.6)  65.0   (51.3)
Minority interest        2.1      2.1 
   
   
   
   
   
 
 Net loss $(53.4) $(57.3) $(7.7) $65.0  $(53.4)
   
   
   
   
   
 

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HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

 

Condensed Consolidating Balance Sheets

As of October 31, 2001
                          
Conformed
GuarantorGuarantorNon-guarantorConsolidated
ParentSubsidiariesSubsidiariesSubsidiariesEliminationsTotal






Cash and cash equivalents $66.8  $0.1  $1.9  $22.3  $  $91.1 
Receivables  12.0   45.6   68.7   165.3      291.6 
Inventories  20.2   33.2   44.8   83.6      181.8 
Prepaid expenses and other  7.5   7.4   18.3   26.3   (26.0)  33.5 
   
   
   
   
   
   
 
 Total current assets  106.5   86.3   133.7   297.5   (26.0)  598.0 
Net property, plant and equipment  125.1   233.8   257.1   442.6      1,058.6 
Goodwill and other assets  1,075.7   255.1   412.9   294.0   (1,090.0)  947.7 
   
   
   
   
   
   
 
 Total assets $1,307.3  $575.2  $803.7  $1,034.1  $(1,116.0) $2,604.3 
   
   
   
   
   
   
 
Bank borrowings $  $  $  $36.7  $  $36.7 
Current portion of long-term debt  1,900.1         13.9      1,914.0 
Accounts payable and accrued liabilities  39.3   92.8   146.0   191.8   (19.2)  450.7 
   
   
   
   
   
   
 
 Total current liabilities  1,939.4   92.8   146.0   242.4   (19.2)  2,401.4 
Long-term debt, net of current portion           91.1      91.1 
Pension and other long-term liabilities  67.0   49.1   20.2   191.6      327.9 
Minority interest           11.9      11.9 
Parent loans  (471.1)  317.5   (25.9)  179.5       
   
   
   
   
   
   
 
 Total liabilities  1,535.3   459.4   140.3   716.5   (19.2)  2,832.3 
Common stock  0.3               0.3 
Additional paid-in capital  235.1   198.5   912.5   339.7   (1,450.7)  235.1 
Common stock in treasury at cost  (25.7)              (25.7)
Retained earnings (accumulated deficit)  (332.3)  (76.5)  (157.5)  60.3   173.7   (332.3)
Accumulated other comprehensive loss  (105.4)  (6.2)  (91.6)  (82.4)  180.2   (105.4)
   
   
   
   
   
   
 
 Total stockholders’ equity (deficit)  (228.0)  115.8   663.4   317.6   (1,096.8)  (228.0)
   
   
   
   
   
   
 
 Total liabilities and stockholders’ equity $1,307.3  $575.2  $803.7  $1,034.1  $(1,116.0) $2,604.3 
   
   
   
   
   
   
 

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HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

 

Condensed Consolidating Balance Sheet

As of January 31, 2001
                          
Conformed
GuarantorGuarantorNon-guarantorConsolidated
ParentSubsidiariesSubsidiariesSubsidiariesEliminationsTotal






Cash and cash equivalents $(19.3) $0.2  $1.9  $17.2  $  $ 
Receivables  68.2   2.6   9.7   168.3      248.8 
Inventories  34.4   41.9   50.9   90.1      217.3 
Prepaid expenses and other  7.0   8.7   17.1   27.3   (21.4)  38.7 
   
   
   
   
   
   
 
 Total current assets  90.3   53.4   79.6   302.9   (21.4)  504.8 
Net property, plant and equipment  143.3   240.0   271.2   450.3      1,104.8 
Goodwill and other assets  1,220.9   274.5   482.2   320.3   (1,303.6)  994.3 
   
   
   
   
   
   
 
 Total assets $1,454.5  $567.9  $833.0  $1,073.5  $(1,325.0) $2,603.9 
   
   
   
   
   
   
 
Bank borrowings $  $  $  $79.6  $  $79.6 
Current portion of long-term debt  1,597.5      0.5   15.1   0.6   1,613.7 
Accounts payable and accrued liabilities  29.0   98.1   147.4   235.6   (18.5)  491.6 
   
   
   
   
   
   
 
 Total current liabilities  1,626.5   98.1   147.9   330.3   (17.9)  2,184.9 
Long-term debt, net of current portion           94.6      94.6 
Pension and other long-term liabilities  72.5   56.1   37.9   169.1      335.6 
Minority interest           10.6      10.6 
Parent loans  (222.7)  245.4   (218.3)  195.6       
   
   
   
   
   
   
 
 Total liabilities  1,476.3   399.6   (32.5)  800.2   (17.9)  2,625.7 
Common stock  0.3               0.3 
Additional paid-in capital  235.1   173.4   1,002.5   294.7   (1,470.6)  235.1 
Common stock in treasury at cost  (25.7)              (25.7)
Retained earnings (accumulated deficit)  (145.7)  (1.9)  (53.9)  42.3   13.5   (145.7)
Accumulated other comprehensive loss  (85.8)  (3.2)  (83.1)  (63.7)  150.0   (85.8)
   
   
   
   
   
   
 
 Total stockholders’ equity (deficit)  (21.8)  168.3   865.5   273.3   (1,307.1)  (21.8)
   
   
   
   
   
   
 
 Total liabilities and stockholder’s equity $1,454.5  $567.9  $833.0  $1,073.5  $(1,325.0) $2,603.9 
   
   
   
   
   
   
 

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HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended October 31, 2001
                            
Conformed
GuarantorGuarantorNon-guarantorConsolidated
ParentSubsidiariesSubsidiariesSubsidiariesEliminationsTotal






Cash flows provided by (used for) operating activities $(4.8) $(10.9) $(41.4) $63.5  $  $6.4 
Cash flows from investing activities:                        
 Acquisition of property, plant, equipment, and tooling  (6.3)  (13.9)  (33.0)  (61.0)     (114.2)
 Proceeds from sale of joint venture  9.5               9.5 
 Other, net  (1.4)  (0.2)  (5.0)  7.1      0.5 
   
   
   
   
   
   
 
  Cash provided by (used for) investing activities  1.8   (14.1)  (38.0)  (53.9)     (104.2)
   
   
   
   
   
   
 
Cash flows from financing activities:                        
 Increase (decrease) in bank borrowings and revolving facility  242.1      (0.5)  5.1      246.7 
 Proceeds from refinancing, net of related fees  435.4               435.4 
 Repayment of bank borrowings, revolving facility, and long term debt from refinancing  (370.9)        (47.0)     (417.9)
 Proceeds (payments) on accounts receivable securitization  43.1   (47.1)  (67.6)        (71.6)
 Capital contribution        (44.0)  44.0       
 Fees to amend Credit Agreement  (2.7)              (2.7)
   
   
   
   
   
   
 
   Cash provided by (used for) financing activities  347.0   (47.1)  (112.1)  2.1      189.9 
   
   
   
   
   
   
 
Increase (decrease) in parent loans and advances  (257.8)  72.0   191.4   (5.6)      
Effect of exchange rates of cash and cash equivalents           (1.0)     (1.0)
   
   
   
   
   
   
 
   Net increase (decrease) in cash and cash equivalents  86.2   (0.1)  (0.1)  5.1      91.1 
Cash and cash equivalents at beginning of period  (19.3)  0.2   1.9   17.2       
   
   
   
   
   
   
 
Cash and cash equivalents at end of period $66.9  $0.1  $1.8  $22.3  $  $91.1 
   
   
   
   
   
   
 

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HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended October 31, 2000, As Restated
                       
GuarantorNon-guarantorConsolidated
ParentSubsidiariesSubsidiariesEliminationsTotal





Cash flows used for operating activities $(1.0) $(64.6) $(13.4) $  $(79.0)
   
   
   
   
   
 
Cash flows from investing activities:                    
 Acquisition of property, plant, equipment, and tooling  (12.8)  (21.8)  (99.4)     (134.0)
 Increased investment in majority owned subsidiary        (7.2)     (7.2)
 Purchase of business, net of cash acquired        (6.4)     (6.4)
 Other, net  19.3   (0.3)  1.5      20.5 
   
   
   
   
   
 
  Cash provided by (used for) investing activities  6.5   (22.1)  (111.5)     (127.1)
   
   
   
   
   
 
Cash flows from financing activities:                    
 Increase in bank borrowings and revolving facility  216.7      34.0      250.7 
 Proceeds (payments) from accounts receivable securitization  (11.2)  0.9   (6.9)     (17.2)
 Purchase of treasury stock  (25.7)           (25.7)
   
   
   
   
   
 
  Cash provided by financing activities  179.8   0.9   27.1      207.8 
   
   
   
   
   
 
Increase (decrease) in parent loans and advances  (185.2)  85.8   99.4       
Effect of exchange rates of cash and cash equivalents        (4.0)     (4.0)
   
   
   
   
   
 
  Net increase (decrease) in cash and cash equivalents  0.1      (2.4)     (2.3)
Cash and cash equivalents at beginning of period  6.8   0.1   19.0      25.9 
   
   
   
   
   
 
Cash and cash equivalents at end of period $6.9  $0.1  $16.6  $  $23.6 
   
   
   
   
   
 

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The following discussion and analysis should be read in conjunction with the Company’s Consolidated Financial Statements, related notes thereto and the other information included elsewhere herein, and in the Company’s Annual Report on Form 10-K/ A for the year ended January 31, 2001 filed with the SEC on February 19, 2002. The financial information included in the following discussion and analysis reflects the results of the restatements of the consolidated financial statements for the three month and nine month periods ended October 31, 2000 discussed more fully below.

Organization, Chapter 11 Filings and Other Recent Developments

     The Company designs, engineers and manufactures suspension module components, principally for 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 face cast aluminum wheels, clad covered wheels, wheel-end attachments, aluminum structural components, intake and exhaust manifolds, and brake drums, hubs and rotors.

     Chapter 11 Filings

     On December 5, 2001, the Company, 30 of its wholly-owned domestic subsidiaries and one wholly-owned Mexican subsidiary (collectively, the “Debtors”) filed voluntary petitions for reorganization relief (the “Chapter 11 Filings” or the “Filings”) under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). The Chapter 11 Filings are being jointly administered, for procedural purposes only, before the Bankruptcy Court under Case No. 01-11490-MFW.

     During the pendancy of these Filings, the Debtors remain in possession of their properties and assets and management of the Company continues to operate the businesses of the Debtors as debtors-in-possession. As a debtor-in-possession, the Company is authorized to operate the business of the Debtors, but may not engage in transactions outside of the ordinary course of business without the approval of the Bankruptcy Court, after notice and the opportunity for a hearing.

     Shortly after the commencement of the Chapter 11 Filings, on December 21, 2001, the Bankruptcy Court granted interim approval for the Debtors to obtain $45 million in debtor-in-possession financing. Subsequently, on January 28, 2002, the Bankruptcy Court granted final approval of a $200 million debtor-in-possession financing facility for the Debtors. The Bankruptcy Court has approved payment of certain of the Debtors’ pre-petition liabilities, such as employee wages, benefits, and certain customer, vendor and freight program related payments. In addition, the Bankruptcy Court authorized the Debtors to continue and maintain the majority of their employee benefit programs. Pension and savings plan funds are in trusts and protected under federal regulations. All required contributions are current in the respective plans. The Debtors have received Bankruptcy Court approval for the retention of legal, financial and management consulting professionals, and from time to time may seek Bankruptcy Court approval for the retention of additional financial and management consulting professionals, to advise the Debtors in the bankruptcy proceedings and the restructuring of its businesses.

     Pursuant to the automatic stay provisions of Section 362 of the Bankruptcy Code, actions to collect pre-petition indebtedness and virtually all litigation against the Debtors that was, or could have been, brought prior to the commencement of the Chapter 11 Filings are stayed, and other contractual obligations of the Debtors may not be enforced against them. In addition, under Section 365 of the Bankruptcy Code, subject to the approval of the Bankruptcy Court, the Debtors may assume or reject executory contracts and unexpired leases. As of the date of this filing, the Debtors had not yet completed their review of all contracts and leases for assumption or rejection, but ultimately will assume or reject all such contracts and leases. The Debtors cannot presently determine or reasonably predict the ultimate liability that may result from rejecting such contracts or leases or from the filing of rejection damage claims, but such rejections could result in additional liabilities subject to compromise.

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     Parties with claims against the Debtors, including, among other things, claims for damages resulting from the rejection of executory contracts or unexpired leases, may file proofs of claim with the Bankruptcy Court in accordance with the reorganization process. Proofs of claims generally must be filed with the Bankruptcy Court by the later of (a) June 3, 2002, which is the general claims bar date established by the Bankruptcy Court in the Debtors’ cases, or (b) the date that is thirty days after entry of order approving the rejection.

     All liabilities subject to compromise are subject to future adjustment depending on Bankruptcy Court action, further developments with respect to disputed claims, or other events. Under a confirmed plan of reorganization, most all unsecured pre-petition claims may be paid at amounts substantially less than their allowed amounts. In light of the number of creditors of the Debtors, the claims resolution process may take considerable time to complete. Accordingly, the ultimate number and amount of allowed claims is not presently known and, because the settlement terms of such allowed claims is subject to a confirmed plan of reorganization, the ultimate resolution with respect to allowed claims is not presently ascertainable.

     The consummation of a plan or plans of reorganization is the principal objective of the Chapter 11 Filings. A plan of reorganization sets forth the means for satisfying claims against and interests in the Company and its Debtor subsidiaries, including the liabilities subject to compromise. Generally, pre-petition liabilities are subject to settlement under such a plan or plans of reorganization, which must be voted upon by certain creditors and approved by the Bankruptcy Court. Pursuant to an Order of the Bankruptcy Court in the Debtors’ cases, the Debtors have the exclusive right through September 3, 2002 to submit a plan or plans of reorganization. Such exclusive period may be lengthened (or shortened) by Bankruptcy Court order pursuant to the request of the Debtors or a party-in-interest. The Debtors have retained Lazard Freres & Co. LLC, as financial advisors and investment bankers for the purpose of providing financial advisory and investment banking services during the Chapter 11 reorganization process. The Company anticipates that any plan or plans of reorganization it may propose, if ultimately approved by the Bankruptcy Court, would result in substantial dilution of the interest of existing equity holders, so that they would hold little, if any, meaningful stake in the reorganized enterprise.

     Confirmation of a plan of reorganization is subject to certain findings being made by the Bankruptcy Court, all of which are required by the Bankruptcy Code. Subject to certain exceptions set forth in the Bankruptcy Code, confirmation of a plan of reorganization requires the approval of the Bankruptcy Court and the affirmative vote of each impaired class of creditors and equity security holders. The Bankruptcy Court may confirm a plan notwithstanding the non-acceptance of the plan by an impaired class of creditors or equity security holders if certain requirements of the Bankruptcy Code are met. There can be no assurance that a reorganization plan or plans will be proposed by the Debtors or confirmed by the Bankruptcy Court, or that any such plan or plans will be consummated.

     Currently, it is not possible to predict the length of time the Company will operate under the protection of Chapter 11 and the supervision of the Bankruptcy Court, when the Company will file a plan or plans of reorganization with the Bankruptcy Court, the outcome of the Chapter 11 proceedings in general, or the effect of the proceedings on the business of the Company or on the interest of the various creditors and stakeholders. Under the priority scheme established by the Bankruptcy Code, certain post-petition liabilities need to be satisfied before shareholders can receive any distribution. The ultimate recovery, if any, to shareholders will not be determined until confirmation of a plan or plans of reorganization. There can be no assurance as to what value, if any, will be ascribed to the common stock of the Company in the bankruptcy proceedings, and the value of the equity represented by that stock could be substantially diluted or canceled.

     The Company’s financial statements commencing with the period that includes December 5, 2001, the date of filing of the Chapter 11 proceedings, will be presented in conformity with the AICPA’s Statement of Position 90-7, “Financial Reporting By Entities In Reorganization Under the Bankruptcy Code,” (“SOP 90-7”). The statement requires a segregation of liabilities subject to compromise by the Bankruptcy Court as of the bankruptcy filing date and identification of all transactions and events that are directly associated with the reorganization of the Company.

     The accompanying consolidated financial statements do not reflect: (a) the requirements of SOP 90-7, (b) the realizable value of assets on a liquidation basis or their availability to satisfy liabilities; (c) aggregate

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pre-petition liability amounts that may be allowed for unrecorded claims or contingencies, or their status or priority; (d) the effect of any changes to the Debtors’ capital structure or in the Debtors’ business operations as the result of an approved plan of reorganization; or (e) adjustments to the carrying value of assets (including goodwill and other intangibles) or liability amounts that may be necessary as the result of actions by the Bankruptcy Court.

     Restatement of Consolidated Financial Statements

     On February 19, 2002, the Company issued restated consolidated financial statements as of and for the fiscal years ended January 31, 2001 and 2000, and related quarterly periods, and for the fiscal quarter ended April 30, 2001. The restatement was the result of failure by the Company to properly apply certain accounting standards generally accepted in the United States of America, and because certain accounting errors and irregularities in the Company’s financial statements were identified.

     The Company has been advised that the SEC is conducting an investigation into the facts and circumstances giving rise to the restatement, and the Company has been and intends to continue cooperating with the SEC. The Company cannot predict the outcome of such an investigation.

     Facility Closures

     As more fully discussed in Note 13 to the consolidated financial statements included herein, in February 2002, the Company committed to a plan to close its manufacturing facility in Somerset, Kentucky.

     Bank Borrowings and Long-Term Debt

     See Note 3 to the consolidated financial statements included herein for a discussion of certain transactions and events which affect the amount and classification of a significant portion of the Company’s debt.

Results of Operations

     Sales of the Company’s wheels, wheel-end attachments, aluminum structural components, powertrain 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 and automotive castings 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.

     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, Components and Other. The Automotive Wheels segment includes results from the Company’s operations that primarily manufacture and distribute fabricated steel and cast aluminum wheels for original equipment manufacturers in the global passenger car and light vehicle markets. The Components segment includes results from the Company’s operations that primarily manufacture and distribute suspension, brake and powertrain components for original equipment manufacturers in the global passenger car and light vehicle markets. The Other segment includes results from the Company’s operations that primarily manufacture and distribute wheel and brake products for commercial highway and aftermarket customers in North America. The Other segment also includes financial results related to the corporate office and elimination of certain intercompany activities.

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     Three Months Ended October 31, 2001 Compared to Three Months Ended October 31, 2000

     Net Sales

              
(As Restated)

20012000% Change



(millions)
Automotive Wheels $315.2  $355.0   (11.2)%
Components  163.3   164.0   (0.4)
Other  36.5   39.0   (6.4)
   
   
   
 
 Total $515.0  $558.0   (7.7)
   
   
   
 

     The Company’s net sales for the third quarter of fiscal 2001 were $515.0 million, a decrease of 7.7% as compared to net sales of $558.0 million for the third quarter of fiscal 2000. This decrease is primarily due to the impact of lower light vehicle and heavy-duty vehicle production levels in North America and the build-out and termination of certain original equipment manufacturer (“OEM”) platforms on the Company’s North American operations.

     Net sales from the Company’s Automotive Wheels segment decreased 11.2% from $355.0 million in the third quarter of fiscal 2000 to $315.2 million in the third quarter of fiscal 2001. This was primarily due to a $37.0 million reduction in sales from the Company’s North American operations arising from lower OEM production levels and lower market share in 2001 compared to 2000. Sales from the Company’s European operations decreased by $2.8 million, including the effect of an approximate $9.4 million decrease in the value of European currencies relative to the U.S. dollar. Of this decrease, sales for the Company’s European fabricated wheels business unit declined $13.5 million in the three months ended October 31, 2001 compared to the same period in 2000 due primarily to lower customer production requirements in Europe and in Brazil and lower penetration rates. Sales for the Company’s European aluminum wheels business unit partially offset the fabricated wheel decline, increasing $10.7 million primarily due to increasing penetration rates of aluminum wheels in the European light vehicle market.

     Components net sales were relatively unchanged from the three months ending October 31, 2000 to the same period in 2001. The Company’s North American operation’s sales declined by $11.6 million due primarily to lower OEM production levels and the build-out and termination of certain customer platforms, while the Company’s European operation’s sales increased by $10.9 million, of which $7.3 million resulted from the Schenk acquisition in September 2000 and $3.6 million from the Company’s MGG operations in Europe.

     Other net sales decreased 6.4% from $39.0 million in the three months ending October 31, 2000 to $36.5 million in the same period in 2001. This decrease is primarily due to the significant decrease in heavy duty Class 8 truck and trailer production in North America between those time periods.

     Gross Profit

     The Company’s gross profit margin for the third quarter of fiscal 2001 decreased by $23.8 million, to $39.0 million or 7.6% of net sales, as compared to $62.8 million or 11.3% of net sales for the third quarter of fiscal 2000.

     The Company’s gross profit from Automotive Wheels decreased $24.0 million from third quarter of fiscal 2000 to the same period in fiscal 2001. Gross profit from the Company’s North American operations decreased $20.4 million from the three months ended October 31, 2000 compared to the same period in 2001. This decrease is primarily due to recurring manufacturing difficulties and lower operating performance at various facilities in North America which reduced gross profit by approximately $17.4 million. Lower OEM production requirements in North America reduced gross profit by approximately $3.0 million. Additionally, gross profit from the Company’s foreign wheel operations decreased by $3.6 million.

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     Gross profit from Components decreased $5.4 million from the third quarter of fiscal 2000 to the same period in fiscal 2001. This decrease is primarily due to lower operating performance, higher customer program start-up costs, and lower OEM production requirements.

     Other gross profit increased $5.6 million from the third quarter of fiscal 2000 to the same period in fiscal 2001. This increase is primarily due to inventory and other charges taken in the third quarter of fiscal 2000, and was partially offset by lower sales in the commercial highway market.

     Marketing, General and Administrative

     Marketing, general and administrative expenses for the three months ended October 31, 2001 decreased by $2.2 million as compared to the same period in fiscal 2000. These expenses for the third quarter of fiscal 2001 included approximately $6.3 million of costs related to the engagement of certain management consulting professionals, higher auditing and legal costs related to the financial restatement discussed earlier in the footnotes to the accompanying consolidated financial statements, and non-recurring costs related to employee agreements for certain new senior management executives. The financial results for the third quarter of fiscal 2000 included non-recurring charges of approximately $7.2 million related primarily to a provision for past due accounts receivable and certain employee severance costs.

     Engineering and Product Development

     Engineering and product development expenses increased from $3.6 million or 0.6% of net sales in the third quarter of fiscal 2000 to $5.3 million or 1.0% of net sales for the third quarter of fiscal 2001. This increase is primarily related to higher engineering spending net of customer recoveries in the Company’s fabricated wheel operations in both North America and Europe.

     Equity in Losses (Earnings) of Joint Ventures

     Equity in losses (earnings) of joint ventures decreased $0.6 million to $0.4 million of losses for the third quarter of fiscal 2001 as compared to $0.2 million of earnings for the same period in fiscal 2000.

     Asset Impairments and Other Restructuring Charges

     During the third quarter of fiscal 2001 the Company recognized asset impairment losses of $4.6 million related principally to $2.3 million due to the discontinuance of the Company’s Equipment and Engineering business located in Montague, Michigan, $0.9 million related to the abandonment of a greenfield project in Thailand, and impairments of investments in other fixed assets. Such investments in fixed assets were written down to fair value based on the expected scrap value, if any, of such machinery, equipment and tooling.

     In the third quarter of fiscal 2000, the Company recorded asset impairment and other restructuring charges of $73.9 million. These charges relate principally to $63.6 million in impairment of excess and obsolete machinery and equipment, $7.6 million in severance and facility closure costs, and $2.7 million for the termination of certain contractual obligations.

     Loss on Investment in Joint Venture

     In the third quarter of fiscal 2000, the Company recorded a $1.5 million loss on investment in joint venture related to its Venezuelan joint venture.

     Interest Expense, net

     Interest expense was $49.1 million for the third quarter of fiscal 2001 compared to $41.7 million for the third quarter of fiscal 2000. This increase reflects higher outstanding borrowings and increased interest rates on the refinanced debt.

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     Income Taxes

     The Company established a full valuation allowance with respect to net domestic deferred income tax assets as of January 31, 2001. Accordingly, any income tax provision during the quarter ended October 31, 2001 is related primarily to the Company’s foreign operations.

     Nine Months Ended October 31, 2001 Compared to Nine Months Ended October 31, 2000

     Net Sales

              
(As Restated)
20012000% Change



(millions)
Automotive Wheels $952.0  $1,054.7   (9.7)%
Components  503.1   506.3   (0.6)
Other  119.4   131.0   (8.9)
   
   
   
 
 Total $1,574.5  $1,692.0   (6.9)
   
   
   
 

     The Company’s net sales for the nine months ended October 31, 2001 were $1,574.5 million, a decrease of 6.9% as compared to net sales of $1,692.0 million in the same period in 2000. This decrease is primarily due to the impact of lower sales to light vehicle OEMs and heavy-duty vehicle manufacturers in North America and the build-out and termination of certain OEM platforms on the Company’s North American operations.

     Net sales from the Company’s Automotive Wheels segment decreased 9.7% from $1,054.7 million in the nine months ended October 31, 2000 to $952.0 million in the same period in 2001. This was primarily due to a $110.6 million reduction in sales from the Company’s North American operations arising from lower OEM production levels and lower market share in 2001 compared to 2000. Sales from the Company’s European operations increased by $7.9 million, net of the effect of an approximate $39.4 million decrease in the value of European currencies relative to the U.S. dollar. Of the net increase, sales for the Company’s European aluminum wheels business unit increased by $33.2 million, primarily due to increasing penetration rates of aluminum wheels in the European light vehicle market. Sales for the Company’s European fabricated wheels business unit partially offset this increase, decreasing by $25.3 million primarily due to lower customer production requirements and lower penetration rates.

     Components net sales were essentially unchanged for the nine months ending October 31, 2001 compared to the same period in 2000. The impact of lower OEM production levels and the build-out and termination of certain customer platforms reduced net sales from the Company’s North American operations which were offset by the increase in net sales arising from the Schenk acquisition and higher net sales from the Company’s MGG operations in Europe.

     Other net sales decreased 8.9% from $131.0 million in the nine months ended October 31, 2000 to $119.4 million in the same period in 2001. This decrease is primarily due to the significant decrease in heavy duty Class 8 truck and trailer production in North America between those time periods. This decrease was partially offset by higher sales from the Company’s system service business in Europe.

     Gross Profit

     The Company’s gross profit margin for the nine months ended October 31, 2001 decreased by $95.7 million, to $130.3 million or 8.3% of net sales, as compared to $226.0 million or 13.4% of net sales for the first nine months of fiscal 2000.

     The Company’s gross profit from Automotive Wheels decreased $82.0 million from the first nine months of fiscal 2000 compared to the same period in fiscal 2001. Gross profit from the Company’s North American operations decreased $83.5 million from the nine months ended October 31, 2000 compared to the same period in 2001. This decrease is primarily due to recurring manufacturing difficulties at the Company’s Somerset, Kentucky facility and lower operating performance at various facilities in North America, which

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reduced gross profit by approximately $30.8 million and $40.6 million, respectively. Lower OEM production requirements in North America reduced gross profit by approximately $12.1 million. Conversely, gross profit from the Company’s European wheel operations increased by $1.5 million.

     Gross profit from Components decreased $16.1 million from the first nine months of fiscal 2000 compared to the same period in fiscal 2001. This decrease is primarily due to lower operating performance, lower OEM production requirements and the inefficiencies arising from lower production in the North American operations. The decrease was partially offset by improved operating performance at the Company’s MGG operations in Europe and the Schenk acquisition, which collectively increased gross profit by approximately $0.8 million in the nine months ended October 31, 2001 compared to the same period in fiscal 2000.

     Other gross profit increased $2.4 million from the first nine months of fiscal 2000 compared to the same period in fiscal 2001. This increase is primarily due to higher inventory and other charges in the first nine months of fiscal 2000, and was partially offset by lower sales and lower operating margins in the commercial highway market.

     Marketing, General and Administration

     Marketing, general and administrative expenses increased slightly from the nine months ended October 31, 2000 to the nine months ended October 31, 2001. This is primarily due to increased provisions for past due accounts receivable in the Company’s North American operations.

     Engineering and Product Development

     Engineering and product development expenses increased from $13.0 million or 0.8% of net sales in the nine months ended October 31, 2000 to $16.9 million or 1.1% of net sales in the same period in fiscal 2001. Lower engineering and product development spending, net of customer recoveries, in the Company’s wheel operations in fiscal 2000 is the primary reason for this variance.

     Equity in Losses (Earnings) of Joint Ventures

     Equity in losses (earnings) of joint ventures decreased $1.6 million to $0.9 million of losses for the first nine months of fiscal 2001 as compared to $0.7 million of earnings for the same period in fiscal 2000.

     Asset Impairments and Other Restructuring Charges

     In the nine months ended October 31, 2001, the Company recognized asset impairment losses and other restructuring charges of $42.6 million. These charges are primarily comprised of asset impairment losses of $28.5 million related to the Company’s Petersburg, Michigan facility, $2.5 million related to the abandonment of plans to continue to invest in the start-up of certain single-purpose equipment at another facility, $0.6 million of closure costs related to the Petersburg facility, $6.4 million related principally to a change in management’s plan for future use of idled machinery and equipment and to investments in machinery, equipment and tooling at its Somerset, Kentucky facility, and an additional $4.6 million recognized in the three months ended October 31, 2001 as discussed above.

     In the nine months ended October 31, 2000, the Company recognized asset impairment losses and other restructuring charges of $78.3 million. These charges are primarily comprised of asset impairment losses of $2.1 million related to excess and obsolete machinery and equipment, severance and facility closure costs of $2.3 million, and an additional $73.9 million recognized in the three months ended October 31, 2000 as discussed above.

     Loss on Investment in Joint Venture

     In the second quarter of fiscal 2001, the Company recorded a $3.8 million loss on investment in joint venture related to its Mexican joint venture, which had incurred and expects to continue to incur significant operating losses.

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     In the third quarter of fiscal 2000, the Company recorded a $1.5 million loss on investment in joint venture related to its Venezuelan joint venture.

     Interest Expense, net

     Interest expense was $142.0 million for the third quarter of fiscal 2001 compared to $120.5 million for the third quarter of fiscal 2000. This increase primarily reflects higher outstanding borrowings and higher interest rates on the refinanced debt.

     Income Taxes

     The Company established a full valuation allowance with respect to net domestic deferred income tax assets as of January 31, 2001. Accordingly, any income tax provision during the nine months ended October 31, 2001 is related primarily to the Company’s foreign operations.

Liquidity and Capital Resources

     Chapter 11 Filings

     As previously discussed, the Company and certain subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code. The matters described under this caption “Liquidity and Capital Resources”, to the extent that they relate to future events or expectations, may be significantly affected by the Chapter 11 Filings. Those proceedings will involve, or result in, various restrictions on the Company’s activities, limitations on financing, the need to obtain Bankruptcy Court approval for various matters and uncertainty as to relationships with vendors, suppliers, customers and others with whom the Company may conduct or seek to conduct business.

     DIP Facility

     The Bankruptcy Court has approved the Company’s request for a total of $200 million in debtor-in-possession financing (the “DIP facility”). The amounts that the Company is able to borrow under the DIP facility are determined by a borrowing base formula based on certain eligible assets of the Company. As of April 10, 2002, the Company had $4.0 million in cash borrowings and had issued $4.7 million in letters of credit pursuant to this financing. The amount available under the DIP facility as of April 10, 2002, after taking into account the aforementioned borrowings and letters of credit, was $87.0 million.

     The principal sources of liquidity for the Company’s future operating, capital expenditure, facility closure and other restructuring requirements are expected to be (i) cash flows from operations, (ii) proceeds from the sale of non-core assets and businesses, (iii) borrowings under various foreign bank and government loans and (iv) and borrowings under the DIP facility. While the Company expects that such sources will meet these requirements, there can be no assurances that such sources will prove to be sufficient.

     Refinancing

     On June 22, 2001, the Company received $291.1 million in net proceeds from the issuance of 11 7/8% senior unsecured notes due 2006 in the original principal amount of $300 million (the “11 7/8% Notes”). In

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addition, on July 2, 2001, the Company received $144. 3 million in net proceeds from the issuance of the B Term Loan. These aggregate net proceeds totaled $435.4 million and were used as follows ($ in millions):
      
Permanent reduction of Credit Agreement indebtedness with a principal balance of $334.3, plus $2.2 in accrued interest  336.5 
Payment on foreign indebtedness with a principal balance of $47.0  47.0 
Repurchase of certain Senior Subordinated Notes with a face value of $47.2, plus $1.0 in accrued interest  37.6 
Payment of fees and expenses on the above  0.8 
Remaining cash proceeds held by Company  13.5 
   
 
 Total $435.4 
   
 

     In connection with the repurchase of the senior subordinated notes at a discount, the Company recorded an extraordinary gain of $10.6 million in the second quarter of fiscal 2001. This gain was offset by $0.9 million of unamortized deferred financing costs written off as a result of the repurchase. Further, in connection with the B Term refinancing and permanent reduction of the Credit Agreement, the Company recorded an extraordinary loss of $5.5 million for the write-off of unamortized deferred financing costs associated with the Credit Agreement. These extraordinary items are reflected net of tax of $1.5 million on the accompanying consolidated statement of operations. As a result, the deferred tax asset valuation allowance was reduced by a corresponding amount with the benefit included in Income tax provision on the consolidated statement of operations included herein.

     The Credit Agreement, as amended, contains certain financial covenants regarding interest coverage ratios, fixed charge coverage ratios, leverage ratios and capital spending limitations. As of October 31, 2001, there was $177.8 million outstanding under the term loan facilities of the Credit Agreement, which amount represents the total amount available under the facility. At October 31, 2001, there was $572.1 million outstanding under the revolving credit facility and $77.9 million available. As a result of the Debtors’ Chapter 11 Filings, all additional availability under the Credit Agreement has been terminated, although letters of credit amounting to approximately $11.0 million remain outstanding.

     All amounts outstanding with respect to the Credit Agreement, the aforementioned senior subordinated notes, and the 11 7/8% Notes are classified as a current liability in the consolidated financial statements as of October 31, 2001 included herein.

     Trade Securitization Agreement

     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 continued 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 continued to transfer substantially all of their U.S. dollar denominated trade accounts receivable to Funding Co. Funding Co. then sold and continued to 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 that are sold.

     This trade securitization agreement expired on May 1, 2001 and as such, there were no receivables sold at October 31, 2001. From the expiration date to October 31, 2001, the Company financed the amount of receivables previously sold under the securitization agreement with its revolving credit facility. The impact of the discontinued securitization program had an adverse impact on liquidity of approximately $71.6 million.

     Other Liquidity Matters

     During the third quarter of fiscal 2001, the Company sold its interest in its Canadian joint venture for cash proceeds of $9.5 million.

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     The Company received net cash in the amount of $10.1 million during the nine months ended October 31, 2001 in connection with the early termination of all of its cross-currency interest rate swap agreements. These payments reduced the fair market value recorded by the Company at the time of the early terminations resulting from accounting for mark-to-market adjustments during the terms of the agreements.

     During the second quarter of fiscal 2000, the Board of Directors approved the repurchase of up to an aggregate of $30.0 million of the Company’s outstanding common stock. The Company repurchased approximately 1.9 million shares of its common stock for an aggregate purchase price of approximately $25.7 million during the third quarter of fiscal 2000.

     Certain of the operating leases covering leased assets with an original cost of approximately $68.0 million, contain provisions which, if certain events occur or conditions are met, including termination of the lease, might require the Company to purchase or re-sell the leased assets within a specified period of time, generally one year, based on amounts specified in the lease agreements. On July 18, 2001, the Company received notification of termination from a lessor with respect to leased assets having approximately $25.0 million of original cost (which termination was not to be effective for one year). The Company has not agreed with the lessor that a termination has occurred at the time of the notice and has continued to use the leased assets.

     Cash Flows

     Between January 31, 2001 and the date of the Chapter 11 Filings, the Company’s operating cash flows were adversely affected by (i) a further decrease in operating margins, (ii) the effect of discontinuing the receivables securitization program, less the effect on the Company of its participation in separate accelerated payment programs with some of its major customers starting in September 2001 and (iii) further contraction of terms required by trade creditors.

     Since the Chapter 11 Filings, the Company believes its operating cash flows will be impacted by, among other things, (i) the need to fund the significant professional fees and other costs directly related to the Chapter 11 Filings, (ii) the cash requirements for the closure and restructuring of certain facilities, and (iii) the rate and level post-petition trade credit available to the Company. The amount of interest expense should be substantially less due to the effect of the stay on payment of pre-petition obligations.

     The Company’s operations provided $6.4 million in cash in the first nine months of fiscal 2001 compared to a use of $79.0 million in the same period of fiscal 2000. This increase is primarily due to the working capital improvements during this period exceeding the effect of lower operating profits.

     Capital expenditures for the first nine months of fiscal 2001 were $104.3 million. These expenditures were primarily for additional machinery and equipment to improve productivity and reduce costs, to meet demand for new vehicle platforms, and to meet expected requirements for the Company’s products.

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, but 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 may enter into cross currency interest rate swaps to hedge a portion of its investments in Europe. The currency effects of these

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swaps are reflected in the cumulative translation adjustments component of other accumulated comprehensive income, where they offset the gain or loss associated with the investments in Europe. In addition, the Company has designated a term loan, totaling 30.5 million Euro at October 31, 2001, as a hedge of foreign currency exposure of its net investment in its European operations.

     Commodities

     The Company relies upon the supply of certain raw materials and other inputs for its 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, the Company uses forward contracts to hedge against changes in certain specific commodity prices of the purchase commitments outstanding. The Company had no forward contracts during the quarters ended October 31, 2001 and 2000.

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 to six 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. 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.

     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 the Euro (as defined under “Euro Conversion”) and the Brazilian Real. Such translation adjustments are reported as a separate component of stockholders’ equity. 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 August 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 supersedes FASB No. 121, “Accounting for the Impairment of Long-lived assets and for Long-lived Assets to be Disposed Of.” The statement retains the previously existing accounting requirements related to the recognition and measurement of the impairment of long-lived assets to be held and used while expanding the measurement requirements of long-lived assets to be disposed of by sale to include discontinued operations. It also expands the previously existing reporting requirements for discontinued operations to include a component of an entity that either has been disposed of or is classified as held for sale. The provisions of this Statement are effective for fiscal years beginning after December 15, 2001. The Company has not yet completed its analysis of the impact of SFAS No. 144 on its consolidated financial position or results of operations upon adoption.

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     In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value of the liability can be made. Such associated asset retirement costs are to be capitalized as part of the carrying amount of the long-lived asset. SFAS also contains additional disclosure requirements regarding descriptions of the asset retirement obligations and reconciliations of changes therein. The provisions of this Statement are effective for fiscal years beginning after June 15, 2002. The Company has not yet completed its analysis of the impact of SFAS No. 143 on its consolidated financial position or results of operations upon adoption.

     In June 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 requires that goodwill be reviewed for impairment annually, rather than amortized into earnings. The provisions of this Statement are effective for fiscal years beginning after December 15, 2001. Amortization of goodwill will cease upon adoption of the Statement by the Company on February 1, 2002. At that valuation date, the Company will test goodwill for impairment, and any losses will be recognized as a cumulative effect of a change in accounting principle. Other acquired identifiable intangible assets having estimable useful lives will be separately stated from goodwill, and will continue to be amortized over their estimated useful lives. As of February 1, 2002, the Company expects to have unamortized goodwill and other intangible assets of approximately $873.6 million, which will be subject to the transition provisions of SFAS No. 142. Amortization expense related to goodwill and other intangible assets was $27.4 million, $27.5 million and $16.6 million for fiscal 2000, 1999 and 1998, respectively. The Company believes it will likely incur a significant write-down in the value of its goodwill at the earlier of its emergence from bankruptcy, as provided by SOP 90-7, or the adoption of SFAS No. 142.

     In June 2001, the FASB issued SFAS No. 141, “Business Combinations.” SFAS No. 141 requires that all business combinations (initiated after June 30, 2001) be accounted for under the purchase method of accounting. Use of the pooling-of-interests method is no longer permitted. Adoption of this standard is not anticipated to have a material effect on the Company’s financial position or results of operations as a result of future business combinations, as the Company has historically accounted for such transactions under the purchase method.

     In September 2000, the FASB issued SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities — a replacement of FASB Statement No. 125.” This statement revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain financial statement disclosures. SFAS 140 is effective for transactions occurring after March 31, 2001. The new disclosure requirements are effective for fiscal years ending after December 15, 2000. Adoption of this replacement standard did not have a material effect on the Company’s financial position or results of operations.

Item 3.Quantitative and Qualitative Disclosures about Market Risk

     For the period ended October 31, 2001, the Company did not experience any material change in market risk exposures affecting the quantitative and qualitative disclosures as presented in the Company’s Annual Report on Form 10-K/A for the year ended January 31, 2001.

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PART II.     OTHER INFORMATION

Item 1.     Legal Proceedings

     Following the September 5, 2001 announcement of the restatements, several lawsuits were filed by and purportedly on behalf of the shareholders of the Company naming as defendants a combination of the Company, Mr. Cucuz and Mr. Shovers. These lawsuits are seeking class action status, but no class has yet been certified in these actions. Due to the Company’s bankruptcy filing, this litigation against the Company is subject to the automatic stay.

Item 2.     Changes in Securities and Use of Proceeds

     None

Item 3.     Defaults Upon Senior Securities

     As a result of the Chapter 11 Filings by the Debtors on December 5, 2001, the following required interest payments were not made by the Company:

       
Date DueInterest Due


8 1/4% Senior Subordinated Notes December 17, 2001 $9,252,168.75 
9 1/8% Senior Subordinated Notes January 15, 2002  17,754,968.75 
11% Senior Subordinated Notes January 15, 2002  13,164,250.00 
11 7/8% Senior Notes December 17, 2001  17,218,750.00 

Item 4.     Submission of Matters to a Vote of Security Holders

     None

Item 5.     Other Information

     None

Item 6.     Exhibits and Reports on Form 8-K

     (a) Exhibits

     
Exhibit NumberDescription


 3.5  Amendment to the Amended and Restated By-Laws of the Company dated August 1, 2001
 10.38  Amended and Restated Employment Agreement between the Company and Curtis J. Clawson dated September 26, 2001
 10.39  Form of Employment Agreement between the Company and certain of its officers

     (b) Reports on Form 8-K

     During the fiscal quarter ended October 31, 2001, the Company filed Current Reports on Form 8-K with the Securities and Exchange Commission on August 3, 2001 and September 6, 2001.

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 HAYES LEMMERZ INTERNATIONAL, INC.
 
 /s/ KENNETH A. HILTZ
 
 Kenneth A. Hiltz
 Chief Financial Officer
 
 /s/ HERBERT S. COHEN
 
 Herbert S. Cohen
 Chief Accounting Officer

April 17, 2002

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EXHIBIT INDEX
     
Exhibit
Number

 3.5   Amendment to the Amended and Restated By-Laws of the Company dated August 1, 2001
 10.38  Amended and Restated Employment Agreement between the Company and Curtis J. Clawson dated September 26, 2001
 10.39  Form of Employment Agreement between the Company and certain of its officers

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