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UNITED STATES
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 April 30, 2002 | ||
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.
Delaware | 13-3384636 | |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |
15300 Centennial Drive Northville, Michigan (Address of principal executive offices) | 48167 (Zip Code) |
Registrant’s telephone number, including area code:
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 June 14, 2002 was 28,455,995 shares.
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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 | 18 | ||||
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 26 | ||||
PART II. OTHER INFORMATION | ||||||
Item 1. | Legal Proceedings | 27 | ||||
Item 2. | Changes in Securities and Use of Proceeds | 27 | ||||
Item 3. | Defaults upon Senior Securities | 27 | ||||
Item 4. | Submission of Matters to a Vote of Security Holders | 27 | ||||
Item 5. | Other Information | 27 | ||||
Item 6. | Exhibits and Reports on Form 8-K | 27 | ||||
Signatures | 28 |
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 2002 MEANS THE PERIOD BEGINNING FEBRUARY 1, 2002, AND ENDING JANUARY 31, 2003). 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.
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HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
Three Months | |||||||||
Ended April 30, | |||||||||
2002 | 2001 | ||||||||
(Unaudited) | |||||||||
Net sales | $ | 486.7 | $ | 540.9 | |||||
Cost of goods sold | 441.6 | 483.3 | |||||||
Gross profit | 45.1 | 57.6 | |||||||
Marketing, general and administration | 27.6 | 26.2 | |||||||
Engineering and product development | 5.0 | 5.9 | |||||||
Amortization of goodwill | — | 6.7 | |||||||
Equity in losses (earnings) of joint ventures | — | 0.4 | |||||||
Asset impairments and other restructuring charges | 7.2 | 31.0 | |||||||
Other income, net | (2.6 | ) | (0.2 | ) | |||||
Reorganization items | 22.5 | — | |||||||
Earnings (loss) from operations | (14.6 | ) | (12.4 | ) | |||||
Interest expense, net (excluding $28.7 million not accrued on liabilities subject to compromise for the three months ended April 30, 2002) | 16.8 | 44.2 | |||||||
Loss before taxes on income and minority interest | (31.4 | ) | (56.6 | ) | |||||
Income tax provision | 0.9 | 6.3 | |||||||
Loss before minority interest | (32.3 | ) | (62.9 | ) | |||||
Minority interest | 0.7 | 0.8 | |||||||
Net loss | $ | (33.0 | ) | $ | (63.7 | ) | |||
Basic net loss per share | $ | (1.16 | ) | $ | (2.24 | ) | |||
Diluted net loss per share | $ | (1.16 | ) | $ | (2.24 | ) | |||
See accompanying notes to consolidated financial statements.
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HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
April 30, | January 31, | ||||||||||
2002 | 2002 | ||||||||||
(Unaudited) | |||||||||||
ASSETS | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | 64.0 | $ | 45.2 | |||||||
Receivables | 274.6 | 266.2 | |||||||||
Inventories | 162.8 | 155.2 | |||||||||
Prepaid expenses and other | 35.4 | 36.3 | |||||||||
Total current assets | 536.8 | 502.9 | |||||||||
Property, plant and equipment, net | 937.3 | 965.4 | |||||||||
Goodwill and other assets | 899.0 | 889.8 | |||||||||
Total assets | $ | 2,373.1 | $ | 2,358.1 | |||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | |||||||||||
Current liabilities: | |||||||||||
Bank borrowings and other notes | $ | 26.1 | $ | 25.1 | |||||||
Current portion of long-term debt | 12.8 | 14.5 | |||||||||
Accounts payable and accrued liabilities | 282.5 | 232.0 | |||||||||
Total current liabilities | 321.4 | 271.6 | |||||||||
Long-term debt, net of current portion | 79.9 | 83.5 | |||||||||
Pension and other long-term liabilities | 325.4 | 330.2 | |||||||||
Minority interest | 11.4 | 11.8 | |||||||||
Liabilities subject to compromise | 2,135.8 | 2,121.0 | |||||||||
Commitments and Contingencies | |||||||||||
Stockholders’ 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; 27,708,419 shares issued; 25,806,969 shares outstanding | 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 | |||||||||
Common stock in treasury at cost, 1,901,450 shares | (25.7 | ) | (25.7 | ) | |||||||
Accumulated deficit | (575.4 | ) | (542.4 | ) | |||||||
Accumulated other comprehensive loss | (135.1 | ) | (127.3 | ) | |||||||
Total stockholders’ deficit | (500.8 | ) | (460.0 | ) | |||||||
Total liabilities and stockholders’ deficit | $ | 2,373.1 | $ | 2,358.1 | |||||||
See accompanying notes to consolidated financial statements.
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HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
Three Months | |||||||||||
Ended April 30, | |||||||||||
2002 | 2001 | ||||||||||
(Unaudited) | |||||||||||
Cash flows from operating activities: | |||||||||||
Net loss | $ | (33.0 | ) | $ | (63.7 | ) | |||||
Adjustments to reconcile net loss to net cash provided by (used for) operating activities: | |||||||||||
Depreciation and tooling amortization | 33.5 | 30.8 | |||||||||
Amortization of goodwill | — | 6.7 | |||||||||
Amortization of deferred financing fees | 1.3 | 1.8 | |||||||||
Increase in deferred income taxes | — | 3.6 | |||||||||
Asset impairments and other restructuring charges | 7.2 | 31.0 | |||||||||
Minority interest | 0.7 | 0.8 | |||||||||
Reorganization items | 22.5 | — | |||||||||
Equity in losses (earnings) of joint ventures | — | 0.4 | |||||||||
Gain on sale of assets and businesses | (1.6 | ) | — | ||||||||
Changes in operating assets and liabilities that increase (decrease) cash flows: | |||||||||||
Receivables | (10.4 | ) | (53.1 | ) | |||||||
Inventories | (8.5 | ) | 3.8 | ||||||||
Prepaid expenses and other | 1.0 | 0.8 | |||||||||
Accounts payable and accrued liabilities | 42.1 | (14.5 | ) | ||||||||
Other long-term liabilities | (3.4 | ) | (3.8 | ) | |||||||
Payments for reorganization items | (1.4 | ) | — | ||||||||
Cash provided by (used for) operating activities | 50.0 | (55.4 | ) | ||||||||
Cash flows from investing activities: | |||||||||||
Purchase of property, plant and equipment | (22.4 | ) | (31.1 | ) | |||||||
Proceeds from sale of assets and businesses | 6.7 | — | |||||||||
Cash paid for purchase of Wheland Foundry | (2.1 | ) | — | ||||||||
Other, net | (9.2 | ) | (1.3 | ) | |||||||
Cash used for investing activities | (27.0 | ) | (32.4 | ) | |||||||
Cash flows from financing activities: | |||||||||||
Decrease in borrowings under DIP facility | (1.0 | ) | — | ||||||||
Changes in bank borrowings and revolving facility | (2.7 | ) | 73.1 | ||||||||
Payments on accounts receivable securitization | — | 47.6 | |||||||||
Fees to amend Credit Agreement | — | (2.3 | ) | ||||||||
Cash provided by (used for) financing activities | (3.7 | ) | 118.4 | ||||||||
Effect of exchange rate changes on cash and cash equivalents | (0.5 | ) | (1.7 | ) | |||||||
Increase in cash and cash equivalents | 18.8 | 28.9 | |||||||||
Cash and cash equivalents at beginning of year | 45.2 | — | |||||||||
Cash and cash equivalents at end of period | $ | 64.0 | $ | 28.9 | |||||||
Supplemental data: | |||||||||||
Cash paid for interest | $ | 2.8 | $ | 22.0 | |||||||
Cash paid for income taxes | $ | 1.5 | $ | 0.4 |
See accompanying notes to consolidated financial statements.
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HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
(1) Business and Chapter 11 Filings
These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year 2001 as filed with the Securities and Exchange Commission on May 1, 2002.
Description of Business
Unless otherwise indicated, references to “Company” mean Hayes Lemmerz International, Inc. and its subsidiaries and references to fiscal year means the Company’s year ended January 31 of the following year (e.g., “fiscal 2002” refers to the period beginning February 1, 2002 and ending January 31, 2003, “fiscal 2001” refers to the period beginning February 1, 2001 and ending January 31, 2002.
The Company is a leading supplier of wheels, wheel-end attachments, aluminum structural components and automotive brake components. The Company is the world’s largest manufacturer of automotive wheels. In addition, the Company also designs and manufactures wheels and brake components for commercial highway vehicles, and powertrain components and aluminum non-structural components for the automotive, commercial highway, heating and general equipment industries.
Chapter 11 Filings
On December 5, 2001, Hayes Lemmerz International, Inc., 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 pendency 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.
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 and pre-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.
On May 30, 2002, an order was entered with the Bankruptcy Court approving, among other things, a critical employee retention plan filed with the Bankruptcy Court in February, 2002 which is designed to compensate certain critical employees in order to assure their retention and availability during the Company’s restructuring. The plan has two components which will (i) reward critical employees who remain with the Company (and certain affiliates of the Company who are not directly involved in the restructuring) during and through the completion of the restructuring (the “Retention Bonus”) and (ii) provide additional incentives to
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The maximum possible aggregate amount of Retention Bonus is approximately $8.5 million and is payable in cash and is due upon the consummation of the restructuring, provided, however, that 35% of such bonus will be paid on October 1, 2002, if the restructuring has not been consummated by that date. The maximum possible aggregate amount of any Restructuring Performance Bonus is $37.5 million and will be payable as soon as reasonably practicable after the consummation of the restructuring. Up to 70% of the amount by which a Restructuring Performance Bonus exceeds a participant’s Retention Bonus may be paid in restricted shares or units of any common stock of the Company that is issued as part of a confirmed plan of reorganization in connection with the restructuring, if the Company’s Board of Directors elects, within the time period specified in the plan, to elect such option. The amount of any Restructuring Performance Bonus to be earned is not currently estimatable.
Reorganization items as reported in the accompanying consolidated statement of operations for the three months ended April 30, 2002 is comprised of:
Critical employee retention plan provision | $ | 2.5 | |||
Estimated accrued liability for rejected prepetition leases | 12.5 | ||||
Professional fees directly related to the filing | 7.6 | ||||
Interest earned during Chapter 11 reorganization proceedings | (0.1 | ) | |||
Total | $ | 22.5 | |||
Cash payments of $1.4 million were paid during this period with respect to such reorganization items.
The condensed financial statements of the Debtors are presented in Note 11, “Condensed Combined Financial Statements.”
(2) Basis of Presentation
As discussed in Note 1, the Company filed a voluntary petition for reorganization relief under Chapter 11 of the Bankruptcy Code in December 2001. The accompanying consolidated financial statements have been prepared in accordance with AICPA Statement of Position 90-7 (“SOP 90-7”), “Financial Reporting by Entities in Reorganization under the Bankruptcy Code,” and on a going concern basis. Continuing as a going concern contemplates continuity of operations, realization of assets, and payment of liabilities in the ordinary course of business. The accompanying consolidated financial statements 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 non-compliance with debt covenants, raise substantial doubt about the Company’s ability to continue as a going concern. 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. SOP 90-7 requires the 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 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 three months ended April 30, 2002 are not necessarily indicative of the results that may be expected for the full fiscal year ending January 31, 2003.
Certain prior period amounts have been reclassified to conform to the current year presentation.
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(3) Inventories
The major classes of inventory are as follows:
April 30, | January 31, | ||||||||
2002 | 2002 | ||||||||
Raw materials | $ | 37.3 | $ | 38.7 | |||||
Work-in-process | 47.2 | 39.2 | |||||||
Finished goods | 39.4 | 41.4 | |||||||
Spare parts and supplies | 38.9 | 35.9 | |||||||
Total | $ | 162.8 | $ | 155.2 | |||||
(4) Property, Plant and Equipment
The major classes of property, plant and equipment are as follows:
April 30, | January 31, | ||||||||
2002 | 2002 | ||||||||
Land | $ | 30.0 | $ | 29.9 | |||||
Buildings | 243.4 | 240.6 | |||||||
Machinery and equipment | 1,053.8 | 1,063.3 | |||||||
1,327.2 | 1,333.8 | ||||||||
Accumulated depreciation | (389.9 | ) | (368.4 | ) | |||||
Property, plant and equipment, net | $ | 937.3 | $ | 965.4 | |||||
(5) Asset Impairments and Other Restructuring Charges
Asset impairments and other restructuring charges recorded by the Company during the three months ended April 30, 2002 and 2001 are as follows (millions of dollars):
2002 | 2001 | ||||||||
Impairment of manufacturing facilities | $ | — | $ | 28.5 | |||||
Impairment of machinery and equipment | — | 2.5 | |||||||
Facility closures | 6.7 | — | |||||||
Other restructuring | 0.5 | — | |||||||
Total | $ | 7.2 | $ | 31.0 | |||||
Impairment of Manufacturing Facilities
As a consequence of the notifications received in April 2001 by the Company from certain customers of its Petersburg, Michigan manufacturing facility regarding significantly lower future product orders and the failure to obtain adequate customer support required to relocate production, management revised its estimate of future undiscounted cash flows expected to be generated by the facility. The Company concluded that this estimated amount was less than the carrying value of the long-lived assets related to the Petersburg facility and, accordingly, recognized an impairment charge of $28.5 million in the first quarter of fiscal 2001.
Facility Closures
In February 2002, the Company committed to a plan to close its manufacturing facility in Somerset, Kentucky. In connection with the closure of the Somerset facility (which commenced during February 2002), the Company recorded an estimated restructuring charge of $6.7 million in the first quarter of fiscal 2002. This charge includes amounts related to lease termination costs and other closure costs including security and maintenance costs subsequent to the shut down date. The amount of the charge related to leases was
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The following table describes the activity in the balance sheet accounts affected by the severance and other restructuring charges noted above during the three months ended April 30, 2002:
Severance | ||||||||||||||||||||
January 31, | and Other | April 30, | ||||||||||||||||||
2002 | Restructuring | Cash | 2002 | |||||||||||||||||
Accrual | Charges | Reclassification | Payments | Accrual | ||||||||||||||||
Facility exit costs | $ | 11.7 | $ | 6.7 | $ | (3.5 | ) | $ | (0.6 | ) | $ | 14.3 | ||||||||
Severance | 6.0 | 0.5 | — | (1.7 | ) | 4.8 | ||||||||||||||
$ | 17.7 | $ | 7.2 | $ | (3.5 | ) | $ | (2.3 | ) | $ | 19.1 | |||||||||
In connection with an early retirement program in the fourth quarter of fiscal 2001, a charge of $3.8 million related to supplemental retirement benefits was included in the above table at January 31, 2002. This amount is recorded as a component of the Company’s accrued benefit cost of the applicable defined benefit plans and will be funded as part of the requirements of the entire plans. Accordingly, for purposes of the current presentation of the above table, this amount has not been included.
(6) Sale and Purchase of Assets and Businesses
Purchase of Wheland Foundry
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’s Commercial Highway operations. The purchase price for this business included cash payments and a note payable in the amount of $2.0 million due in March, 2003. Of the purchase price, $2.6 million was allocated to the fair value of the land, building, and machinery and equipment purchase and $1.5 million was allocated to goodwill.
Sales of Assets and Businesses
Other income, net in the consolidated statement of operations of $2.6 million includes a gain on the sale of the Company’s Brazilian agricultural business of approximately $0.9 million. The Company received $5.2 million in cash in connection with this sale. Gains on the sale of equipment at various other locations accounted for most of the remainder of the balance in this account.
(7) 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, so long as they are not anti-dilutive.
Shares outstanding for the three months ended April 30, 2002 and 2001, were as follows (thousands of shares):
Three Months | ||||||||
Ended | ||||||||
2002 | 2001 | |||||||
Weighted average shares outstanding | 28,456 | 28,456 | ||||||
Dilutive effect of options and warrants | — | — | ||||||
Diluted shares outstanding | 28,456 | 28,456 | ||||||
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For the three months ending April 30, 2002 and 2001, 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.
(8) 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 loss for the three months ended April 30, 2002 and 2001 are as follows:
2002 | 2001 | ||||||||
Net loss | $ | (33.0 | ) | $ | (63.7 | ) | |||
Cumulative translation adjustments | (7.8 | ) | (5.7 | ) | |||||
Total comprehensive loss | $ | (40.8 | ) | $ | (69.4 | ) | |||
(9) Liabilities Subject to Compromise
The principal categories of claims classified as liabilities subject to compromise under reorganization proceedings are identified below. All amounts below may be subject to future adjustment depending on Bankruptcy Court action, further developments with respect to disputed claims, or other events, including the reconciliation of claims filed with the Bankruptcy Court to amounts included in the Company’s records. Additional pre-petition claims may arise from rejection of additional executory contracts or unexpired leases by the Company. Under a confirmed plan of reorganization, all pre-petition claims may be paid and discharged at amounts substantially less than their allowed amounts.
Recorded Liabilities
On a consolidated basis, recorded liabilities subject to compromise under Chapter 11 proceedings consisted of the following (millions of dollars):
April 30, | January 31, | |||||||||
2002 | 2002 | |||||||||
Accounts payable and accrued liabilities, principally trade | $ | 156.2 | $ | 155.2 | ||||||
Credit Agreement: | ||||||||||
Term loans | 176.8 | 176.8 | ||||||||
Revolving facility | 572.8 | 572.1 | ||||||||
Accrued interest | 26.5 | 13.4 | ||||||||
Senior Notes and Senior Subordinated Notes: | ||||||||||
Face value | 1,152.8 | 1,152.8 | ||||||||
Accrued interest | 50.7 | 50.7 | ||||||||
Total | $ | 2,135.8 | $ | 2,121.0 | ||||||
The increase in accounts payable and accrued liabilities in the above table is due primarily to additional accruals for rejected lease obligations net of payments to certain vendors pursuant to procedures approved by the Bankruptcy Court.
The Bankruptcy Code generally disallows the payment of interest that would otherwise accrue postpetition with respect to unsecured or undersecured claims. The Company has continued to record interest expense accruing postpetition with respect to the Credit Agreement because the Company currently estimates that such accrued interest will be an allowed claim as part of a plan or plans of reorganization. The amount of such
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The DIP Facility provides for the postpetition cash payment at certain intervals of interest and fees accruing postpetition under the Company’s prepetition credit agreements if certain tests are satisfied relating to the liquidity position and earnings of the Company and its subsidiaries, and the repatriation of funds from foreign subsidiaries. On May 1, 2002, a payment of $2.1 million for a portion of accrued interest was made with respect to this provision.
The Company has not continued to record interest expense accruing postpetition with respect to the Senior Notes and the Senior Subordinated Notes because the Company cannot currently reasonably estimate the amount of such interest, if any, that will be an allowed claim as part of a plan or plans of reorganization. The amount of such interest accruing postpetition that has not been recorded at April 30, 2002 was $47.4 million. If it is determined that such interest is allowable as a claim, the amount might include some or all interest accruing from the date of the Chapter 11 Filing. The recorded amount of prepetition accrued interest was $50.7 million, which has been classified as a liability subject to compromise in the accompanying consolidated balance sheet at April 30, 2002.
Contingent Liabilities
Contingent liabilities of the Debtors as of the Chapter 11 Filing date are also subject to compromise. The Company is a party to litigation matters and claims that are normal in the course of its operations. Generally, litigation related to “claims,” as defined by the Bankruptcy Code, is stayed. Also, as a normal part of their operations, the Company’s subsidiaries undertake certain contractual obligations, warranties and guarantees in connection with the sale of products or services. The outcome of the bankruptcy process on these matters cannot be predicted with certainty.
(10) 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 three months ended April 30:
Revenue | Net Income (Loss) | Total Assets | |||||||||||||||||||||||
2002 | 2001 | 2002 | 2001 | 2002 | 2001 | ||||||||||||||||||||
Automotive Wheels | $ | 285.4 | $ | 324.3 | $ | (13.1 | ) | $ | (9.5 | ) | $ | 1,180.9 | $ | 1,336.0 | |||||||||||
Components | 176.5 | 176.9 | (3.2 | ) | (4.0 | ) | 872.5 | 917.3 | |||||||||||||||||
Other | 24.8 | 39.7 | (16.7 | ) | (50.2 | ) | 319.7 | 293.9 | |||||||||||||||||
Total | $ | 486.7 | $ | 540.9 | $ | (33.0 | ) | $ | (63.7 | ) | $ | 2,373.1 | $ | 2,547.2 | |||||||||||
The net income (loss) amounts for the three months ended April 30, 2002 presented in the above table include reorganization items of $12.5 million and $10.0 million in Automotive Wheels and Other, respectively.
(11) Condensed Combined Financial Statements
The following condensed combined financial statements present in one format the financial information required for entities that have filed for reorganization relief under Chapter 11 of the Bankruptcy Code pursuant to SOP 90-7, and the financial information required with respect to those entities which guarantee certain of the Company’s debt.
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
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Guarantor and Nonguarantor Financial Statements
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 the 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 three months ended April 30, 2002 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.
At April 30, 2001, 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.
Financial Statements for Entities in Reorganization Under Chapter 11
As discussed in Note 1, Hayes Lemmerz International, Inc. (the “Parent”), 30 of its wholly-owned domestic subsidiaries, and one wholly-owned Mexican subsidiary (the “Nonguarantor Debtor”) filed voluntary petitions for reorganization relief under Chapter 11. In accordance with SOP 90-7, condensed consolidating financial information is presented below as of and for the three months ended April 30, 2002.
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CONDENSED COMBINED STATEMENTS OF OPERATIONS
Debtors | Non-Debtors | ||||||||||||||||||||||||||||
Conformed | Nonguarantor | ||||||||||||||||||||||||||||
Guarantor | Guarantor | Debtor | Nonguarantor | Consolidated | |||||||||||||||||||||||||
Parent | Subsidiaries | Subsidiaries | Subsidiary | Subsidiaries | Eliminations | Total | |||||||||||||||||||||||
Net sales | $ | 64.0 | $ | 122.8 | $ | 125.8 | $ | 11.0 | $ | 170.7 | $ | (7.6 | ) | $ | 486.7 | ||||||||||||||
Cost of goods sold | 61.2 | 110.4 | 121.5 | 11.0 | 145.1 | (7.6 | ) | 441.6 | |||||||||||||||||||||
Gross profit | 2.8 | 12.4 | 4.3 | — | 25.6 | — | 45.1 | ||||||||||||||||||||||
Marketing, general and administration | 6.3 | 6.9 | 4.8 | — | 9.6 | — | 27.6 | ||||||||||||||||||||||
Engineering and product development | 0.8 | 1.9 | 0.9 | — | 1.4 | — | 5.0 | ||||||||||||||||||||||
Amortization of goodwill | — | — | — | — | — | — | — | ||||||||||||||||||||||
Equity in (earnings) losses of subsidiaries and joint ventures | 21.8 | 4.5 | (2.4 | ) | (0.1 | ) | — | (23.8 | ) | — | |||||||||||||||||||
Asset impairments and other restructuring charges | — | — | 6.7 | — | 0.5 | — | 7.2 | ||||||||||||||||||||||
Loss on investment in joint venture | — | — | — | — | — | — | — | ||||||||||||||||||||||
Other expense (income), net | — | 0.1 | (0.1 | ) | — | (2.6 | ) | — | (2.6 | ) | |||||||||||||||||||
Reorganization items | 10.0 | 12.5 | — | — | — | — | 22.5 | ||||||||||||||||||||||
Earnings (loss) from operations | (36.1 | ) | (13.5 | ) | (5.6 | ) | 0.1 | 16.7 | 23.8 | (14.6 | ) | ||||||||||||||||||
Interest expense, net | 0.9 | 6.0 | 4.5 | — | 5.4 | — | 16.8 | ||||||||||||||||||||||
Earnings (loss) before taxes on income and minority interest | (37.0 | ) | (19.5 | ) | (10.1 | ) | 0.1 | 11.3 | 23.8 | (31.4 | ) | ||||||||||||||||||
Income tax provision | (4.0 | ) | 0.2 | 0.3 | 0.1 | 4.3 | — | 0.9 | |||||||||||||||||||||
Earnings (loss) before minority interest | (33.0 | ) | (19.7 | ) | (10.4 | ) | — | 7.0 | 23.8 | (32.3 | ) | ||||||||||||||||||
Minority interest | — | — | — | — | 0.7 | — | 0.7 | ||||||||||||||||||||||
Net income (loss) | $ | (33.0 | ) | $ | (19.7 | ) | $ | (10.4 | ) | $ | — | $ | 6.3 | $ | 23.8 | $ | (33.0 | ) | |||||||||||
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CONDENSED COMBINED STATEMENTS OF OPERATIONS
Guarantor | Nonguarantor | Consolidated | |||||||||||||||||||
Parent | Subsidiaries | Subsidiaries | Eliminations | Total | |||||||||||||||||
Net sales | $ | 70.4 | $ | 123.6 | $ | 349.2 | $ | (2.3 | ) | $ | 540.9 | ||||||||||
Cost of goods sold | 61.0 | 113.9 | 310.7 | (2.3 | ) | 483.3 | |||||||||||||||
Gross profit | 9.4 | 9.7 | 38.5 | — | 57.6 | ||||||||||||||||
Marketing, general and administration | 3.9 | 6.4 | 15.9 | — | 26.2 | ||||||||||||||||
Engineering and product development | 0.9 | 1.8 | 3.2 | — | 5.9 | ||||||||||||||||
Amortization of goodwill | 0.3 | 1.9 | 4.5 | — | 6.7 | ||||||||||||||||
Equity in (earnings) loss of subsidiaries and joint ventures | 53.2 | 12.4 | — | (65.2 | ) | 0.4 | |||||||||||||||
Asset impairments and other restructuring charges | — | — | 31.0 | — | 31.0 | ||||||||||||||||
Other income, net | (0.1 | ) | — | (0.1 | ) | — | (0.2 | ) | |||||||||||||
Earnings (loss) from operations | (48.8 | ) | (12.8 | ) | (16.0 | ) | 65.2 | (12.4 | ) | ||||||||||||
Interest expense, net | 14.8 | 11.0 | 18.4 | — | 44.2 | ||||||||||||||||
Earnings (loss) before taxes on income and minority interest | (63.6 | ) | (23.8 | ) | (34.4 | ) | 65.2 | (56.6 | ) | ||||||||||||
Income tax provision | 0.1 | 0.2 | 6.0 | — | 6.3 | ||||||||||||||||
Earnings (loss) before minority interest | (63.7 | ) | (24.0 | ) | (40.4 | ) | 65.2 | (62.9 | ) | ||||||||||||
Minority interest | — | — | 0.8 | — | 0.8 | ||||||||||||||||
Net income (loss) | $ | (63.7 | ) | $ | (24.0 | ) | $ | (41.2 | ) | $ | 65.2 | $ | (63.7 | ) | |||||||
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Debtors | Non-Debtors | ||||||||||||||||||||||||
Conformed | Nonguarantor | ||||||||||||||||||||||||
Guarantor | Guarantor | Debtor | Nonguarantor | ||||||||||||||||||||||
Parent | Subsidiaries | Subsidiaries | Subsidiary | Subsidiaries | Eliminations | ||||||||||||||||||||
Cash and cash equivalents | $ | 21.9 | $ | 0.2 | $ | — | $ | 0.7 | $ | 41.2 | $ | — | |||||||||||||
Receivables | 23.7 | 40.5 | 66.3 | 8.9 | 135.2 | — | |||||||||||||||||||
Inventories | 18.3 | 26.9 | 40.2 | 1.4 | 76.0 | — | |||||||||||||||||||
Prepaid expenses and other | 8.7 | 4.8 | 6.3 | 0.5 | 15.3 | (0.2 | ) | ||||||||||||||||||
Total current assets | 72.6 | 72.4 | 112.8 | 11.5 | 267.7 | (0.2 | ) | ||||||||||||||||||
Net property, plant and equipment | 120.4 | 179.6 | 241.4 | 7.3 | 389.0 | (0.4 | ) | ||||||||||||||||||
Goodwill and other assets | 902.2 | 226.0 | 397.1 | 21.7 | 291.9 | (939.9 | ) | ||||||||||||||||||
Total assets | $ | 1,095.2 | $ | 478.0 | $ | 751.3 | $ | 40.5 | $ | 948.6 | $ | (940.5 | ) | ||||||||||||
Bank borrowings and other notes | $ | — | $ | 2.0 | $ | — | $ | — | $ | 24.1 | $ | — | |||||||||||||
Current portion of long-term debt | — | — | — | — | 12.8 | — | |||||||||||||||||||
Accounts payable and accrued liabilities | 74.6 | 16.4 | 42.0 | (1.5 | ) | 171.1 | (20.1 | ) | |||||||||||||||||
Total current liabilities | 74.6 | 18.4 | 42.0 | (1.5 | ) | 208.0 | (20.1 | ) | |||||||||||||||||
Long-term debt, net of current portion | — | — | — | — | 79.9 | — | |||||||||||||||||||
Pension and other long-term liabilities | 81.0 | 59.0 | 13.9 | — | 171.5 | — | |||||||||||||||||||
Minority interest | — | — | — | — | 11.4 | — | |||||||||||||||||||
Intercompany accounts | (572.7 | ) | 354.5 | 45.2 | (0.5 | ) | 173.5 | — | |||||||||||||||||
Liabilities subject to compromise | 2,013.1 | 54.7 | 62.5 | 5.5 | — | — | |||||||||||||||||||
Common stock | 0.3 | — | — | — | — | — | |||||||||||||||||||
Additional paid-in capital | 235.1 | 197.2 | 905.4 | 53.4 | 323.8 | (1,479.8 | ) | ||||||||||||||||||
Common stock in treasury at cost | (25.7 | ) | — | — | — | — | — | ||||||||||||||||||
Retained earnings (accumulated deficit) | (575.4 | ) | (192.9 | ) | (213.3 | ) | (15.7 | ) | 61.8 | 360.1 | |||||||||||||||
Accumulated other comprehensive loss | (135.1 | ) | (12.9 | ) | (104.4 | ) | (0.7 | ) | (81.3 | ) | 199.3 | ||||||||||||||
Total stockholders’ equity (deficit) | (500.8 | ) | (8.6 | ) | 587.7 | 37.0 | 304.3 | (920.4 | ) | ||||||||||||||||
Total liabilities and stockholder’s equity (deficit) | $ | 1,095.2 | $ | 478.0 | $ | 751.3 | $ | 40.5 | $ | 948.6 | $ | (940.5 | ) | ||||||||||||
[Additional columns below]
[Continued from above table, first column(s) repeated]
Consolidated | |||||
Total | |||||
Cash and cash equivalents | $ | 64.0 | |||
Receivables | 274.6 | ||||
Inventories | 162.8 | ||||
Prepaid expenses and other | 35.4 | ||||
Total current assets | 536.8 | ||||
Net property, plant and equipment | 937.3 | ||||
Goodwill and other assets | 899.0 | ||||
Total assets | $ | 2,373.1 | |||
Bank borrowings and other notes | $ | 26.1 | |||
Current portion of long-term debt | 12.8 | ||||
Accounts payable and accrued liabilities | 282.5 | ||||
Total current liabilities | 321.4 | ||||
Long-term debt, net of current portion | 79.9 | ||||
Pension and other long-term liabilities | 325.4 | ||||
Minority interest | 11.4 | ||||
Intercompany accounts | — | ||||
Liabilities subject to compromise | 2,135.8 | ||||
Common stock | 0.3 | ||||
Additional paid-in capital | 235.1 | ||||
Common stock in treasury at cost | (25.7 | ) | |||
Retained earnings (accumulated deficit) | (575.4 | ) | |||
Accumulated other comprehensive loss | (135.1 | ) | |||
Total stockholders’ equity (deficit) | (500.8 | ) | |||
Total liabilities and stockholder’s equity (deficit) | $ | 2,373.1 | |||
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Debtors | Non-Debtors | ||||||||||||||||||||||||
Conformed | Nonguarantor | ||||||||||||||||||||||||
Guarantor | Guarantor | Debtor | Nonguarantor | ||||||||||||||||||||||
Parent | Subsidiaries | Subsidiaries | Subsidiary | Subsidiaries | Eliminations | ||||||||||||||||||||
Cash and cash equivalents | $ | 11.3 | $ | 0.1 | $ | 0.3 | $ | 0.4 | $ | 33.1 | $ | — | |||||||||||||
Receivables | 19.0 | 48.6 | 57.0 | 10.2 | 131.4 | — | |||||||||||||||||||
Inventories | 16.2 | 27.1 | 39.9 | 0.3 | 71.7 | — | |||||||||||||||||||
Prepaid expenses and other | 10.9 | 6.5 | 5.2 | 0.2 | 18.9 | (5.4 | ) | ||||||||||||||||||
Total current assets | 57.4 | 82.3 | 102.4 | 11.1 | 255.1 | (5.4 | ) | ||||||||||||||||||
Net property, plant and equipment | 120.9 | 183.1 | 244.0 | 7.3 | 410.1 | — | |||||||||||||||||||
Goodwill and other assets | 932.4 | 230.2 | 395.6 | 22.1 | 282.2 | (972.7 | ) | ||||||||||||||||||
Total assets | $ | 1,110.7 | $ | 495.6 | $ | 742.0 | $ | 40.5 | $ | 947.4 | $ | (978.1 | ) | ||||||||||||
Bank borrowings | $ | — | $ | — | $ | — | $ | — | $ | 25.1 | $ | — | |||||||||||||
Current portion of long-term debt | — | — | — | — | �� | 14.5 | — | ||||||||||||||||||
Accounts payable and accrued liabilities | 51.4 | 8.9 | 26.0 | 3.2 | 167.7 | (25.2 | ) | ||||||||||||||||||
Total current liabilities | 51.4 | 8.9 | 26.0 | 3.2 | 207.3 | (25.2 | ) | ||||||||||||||||||
Long-term debt, net of current portion | 1.0 | — | — | — | 82.5 | — | |||||||||||||||||||
Pension and other long-term liabilities | 83.7 | 61.3 | 11.9 | — | 173.3 | — | |||||||||||||||||||
Minority interest | — | — | — | — | 11.8 | — | |||||||||||||||||||
Intercompany accounts | (570.5 | ) | 364.6 | 38.7 | (3.7 | ) | 170.9 | — | |||||||||||||||||
Liabilities subject to compromise | 2,005.1 | 48.7 | 63.2 | 4.0 | — | — | |||||||||||||||||||
Common stock | 0.3 | — | — | — | — | — | |||||||||||||||||||
Additional paid-in capital | 235.1 | 197.2 | 905.4 | 53.4 | 323.8 | (1,479.8 | ) | ||||||||||||||||||
Common stock in treasury at cost | (25.7 | ) | — | — | — | — | — | ||||||||||||||||||
Retained earnings (accumulated deficit) | (542.4 | ) | (173.2 | ) | (202.9 | ) | (15.7 | ) | 55.5 | 336.3 | |||||||||||||||
Accumulated other comprehensive loss | (127.3 | ) | (11.9 | ) | (100.3 | ) | (0.7 | ) | (77.7 | ) | 190.6 | ||||||||||||||
Total stockholders’ equity (deficit) | (460.0 | ) | 12.1 | 602.2 | 37.0 | 301.6 | (952.9 | ) | |||||||||||||||||
Total liabilities and stockholder’s equity (deficit) | $ | 1,110.7 | $ | 495.6 | $ | 742.0 | $ | 40.5 | $ | 947.4 | $ | (978.1 | ) | ||||||||||||
[Additional columns below]
[Continued from above table, first column(s) repeated]
Consolidated | |||||
Total | |||||
Cash and cash equivalents | $ | 45.2 | |||
Receivables | 266.2 | ||||
Inventories | 155.2 | ||||
Prepaid expenses and other | 36.3 | ||||
Total current assets | 502.9 | ||||
Net property, plant and equipment | 965.4 | ||||
Goodwill and other assets | 889.8 | ||||
Total assets | $ | 2,358.1 | |||
Bank borrowings | $ | 25.1 | |||
Current portion of long-term debt | 14.5 | ||||
Accounts payable and accrued liabilities | 232.0 | ||||
Total current liabilities | 271.6 | ||||
Long-term debt, net of current portion | 83.5 | ||||
Pension and other long-term liabilities | 330.2 | ||||
Minority interest | 11.8 | ||||
Intercompany accounts | — | ||||
Liabilities subject to compromise | 2,121.0 | ||||
Common stock | 0.3 | ||||
Additional paid-in capital | 235.1 | ||||
Common stock in treasury at cost | (25.7 | ) | |||
Retained earnings (accumulated deficit) | (542.4 | ) | |||
Accumulated other comprehensive loss | (127.3 | ) | |||
Total stockholders’ equity (deficit) | (460.0 | ) | |||
Total liabilities and stockholder’s equity (deficit) | $ | 2,358.1 | |||
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Debtors | Non-Debtors | |||||||||||||||||||||||||||||
Conformed | Nonguarantor | |||||||||||||||||||||||||||||
Guarantor | Guarantor | Debtor | Nonguarantor | Consolidated | ||||||||||||||||||||||||||
Parent | Subsidiaries | Subsidiaries | Subsidiary | Subsidiaries | Eliminations | Total | ||||||||||||||||||||||||
Cash flows provided by (used for) operating activities | $ | 18.2 | $ | 15.0 | $ | 2.3 | $ | (3.1 | ) | $ | 17.6 | $ | — | $ | 50.0 | |||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||||||||||||
Acquisition of property, plant, equipment, and tooling | (4.9 | ) | (2.4 | ) | (6.0 | ) | — | (9.1 | ) | — | (22.4 | ) | ||||||||||||||||||
Proceeds from sale of assets and non-core businesses | — | 0.1 | — | — | 6.6 | — | 6.7 | |||||||||||||||||||||||
Other, net | (0.2 | ) | (2.4 | ) | (3.2 | ) | 0.2 | (5.7 | ) | — | (11.3 | ) | ||||||||||||||||||
Cash provided by (used for) investing activities | (5.1 | ) | (4.7 | ) | (9.2 | ) | 0.2 | (8.2 | ) | — | (27.0 | ) | ||||||||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||||||||||
Increase in bank borrowings, revolving facility, DIP facility and other notes | (0.3 | ) | — | — | — | (3.4 | ) | — | (3.7 | ) | ||||||||||||||||||||
Cash provided by (used for) financing activities | (0.3 | ) | — | — | — | (3.4 | ) | — | (3.7 | ) | ||||||||||||||||||||
Increase (decrease) in parent loans and advances | (2.2 | ) | (10.2 | ) | 6.6 | 3.2 | 2.6 | — | — | |||||||||||||||||||||
Effect of exchange rates of cash and cash equivalents | — | — | — | — | (0.5 | ) | — | (0.5 | ) | |||||||||||||||||||||
Net increase (decrease) in cash and cash equivalents | 10.6 | 0.1 | (0.3 | ) | 0.3 | 8.1 | — | 18.8 | ||||||||||||||||||||||
Cash and cash equivalents at beginning of period | 11.3 | 0.1 | 0.3 | 0.4 | 33.1 | — | 45.2 | |||||||||||||||||||||||
Cash and cash equivalents at end of period | $ | 21.9 | $ | 0.2 | $ | — | $ | 0.7 | $ | 41.2 | $ | — | $ | 64.0 | ||||||||||||||||
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Guarantor | Nonguarantor | Consolidated | ||||||||||||||||||||
Parent | Subsidiaries | Subsidiaries | Eliminations | Total | ||||||||||||||||||
Cash flows provided by (used for) operating activities | $ | 9.9 | $ | (43.2 | ) | $ | (22.1 | ) | $ | (55.4 | ) | |||||||||||
Cash flows from investing activities: | ||||||||||||||||||||||
Acquisition of property, plant and equipment, and tooling | (1.1 | ) | (1.8 | ) | (28.2 | ) | — | (31.1 | ) | |||||||||||||
Other, net | (5.7 | ) | 4.2 | 0.2 | — | (1.3 | ) | |||||||||||||||
Cash provided by (used for) investing activities | (6.8 | ) | 2.4 | (28.0 | ) | — | (32.4 | ) | ||||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||
Increase in bank borrowings and revolver | 67.3 | — | 5.8 | — | 73.1 | |||||||||||||||||
Proceeds from accounts receivable securitization | 17.6 | 16.9 | 13.1 | — | 47.6 | |||||||||||||||||
Financing fees | (2.3 | ) | — | — | — | (2.3 | ) | |||||||||||||||
Cash provided by financing activities | 82.6 | 16.9 | 18.9 | — | 118.4 | |||||||||||||||||
Increase (decrease) in parent loans and advances | (63.6 | ) | 23.8 | 39.8 | — | — | ||||||||||||||||
Effect of exchange rates of cash and cash equivalents | — | — | (1.7 | ) | — | (1.7 | ) | |||||||||||||||
Net increase (decrease) in cash and cash equivalents | 22.1 | (0.1 | ) | 6.9 | — | 28.9 | ||||||||||||||||
Cash and cash equivalents at beginning of period | (19.3 | ) | 0.2 | 19.1 | — | — | ||||||||||||||||
Cash and cash equivalents at end of period | $ | 2.8 | $ | 0.1 | $ | 26.0 | $ | 28.9 | ||||||||||||||
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(12) Recent Income Tax Law Changes
On March 9, 2002, the Jobs Creation and Worker Assistance Act of 2002 was signed into law. Among other provisions, the law permits a five-year carryback for tax losses generated in tax years ending in 2001 and 2002. As a result of this tax law change, the Company is entitled to file a claim for a refund of federal income taxes. The Company’s preliminary estimate of the amount of carryback refunds is $4.1 million. This amount has been recorded during the current period and has reduced the current provision for income taxes in the consolidated statement of operations. The Company is continuing to study the effect of this change in the law and, upon completion of the study, the Company’s estimate of the amount of the carryback refunds may increase.
(13) New Accounting Pronouncements
Effective February 1, 2002, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 requires that goodwill and indefinite-lived intangible assets be reviewed for impairment annually, rather than amortized into earnings. The Company has discontinued amortizing such assets into earnings, but has not yet completed testing for impairment of the amount of goodwill recorded as of February 1, 2002 as is required by the pronouncement. As of February 1, 2002, the Company had unamortized goodwill and other intangibles of approximately $822.4 million, which will be subject to the transition provisions of SFAS No. 142. The Company believes it will incur a significant write-down in the value of its goodwill upon completion of the adoption of SFAS No. 142 and, in accordance with SFAS No. 142, any loss will be recognized as a cumulative effect of a change in accounting principle. The pro forma effect of SFAS No. 142 on the Company’s earnings for the three months ended April 30, 2002 and 2001 is as follows:
2002 | 2001 | |||||||
Reported net loss | $ | (33.0 | ) | $ | (63.7 | ) | ||
Addback goodwill amortization | — | 6.7 | ||||||
Adjusted net loss | $ | (33.0 | ) | $ | (57.0 | ) | ||
Basic and diluted loss per share: | ||||||||
Reported net loss | $ | (1.16 | ) | $ | (2.24 | ) | ||
Addback goodwill amortization | — | 0.24 | ||||||
Adjusted net loss | $ | (1.16 | ) | $ | (2.00 | ) | ||
Effective February 1, 2002, the Company also adopted SFAS No. 141, “Business Combinations” and SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” The adoption of these pronouncements did not have a material effect on the Company’s consolidated financial statements.
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Business and Chapter 11 Filings
This discussion should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year 2001 as filed with the Securities and Exchange Commission on May 1, 2002 and the other information included herein.
Description of Business
Unless otherwise indicated, references to “Company” mean Hayes Lemmerz International, Inc. and its subsidiaries and references to fiscal year means the Company’s year ended January 31 of the following year (e.g., “fiscal 2002” refers to the period beginning February 1, 2002 and ending January 31, 2003, “fiscal 2001” refers to the period beginning February 1, 2001 and ending January 31, 2002.
The Company is a leading supplier of wheels, wheel-end attachments, aluminum structural components and automotive brake components. The Company is the world’s largest manufacturer of automotive wheels. In
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Chapter 11 Filings
On December 5, 2001, Hayes Lemmerz International, Inc., 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 pendency 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.
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 and pre-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.
On May 30, 2002, an order was entered with the Bankruptcy Court approving, among other things, a critical employee retention plan filed with the Bankruptcy Court in February, 2002 which is designed to compensate certain critical employees in order to assure their retention and availability during the Company’s restructuring. The plan has two components which will (i) reward critical employees who remain with the Company (and certain affiliates of the Company who are not directly involved in the restructuring) during and through the completion of the restructuring (the “Retention Bonus”) and (ii) provide additional incentives to a more limited group of the most senior critical employees if the enterprise value upon completing the restructuring exceeds an established baseline (the “Restructuring Performance Bonus”).
The maximum possible aggregate amount of Retention Bonus is approximately $8.5 million and is payable in cash and is due upon the consummation of the restructuring, provided, however, that 35% of such bonus will be paid on October 1, 2002, if the restructuring has not been consummated by that date. The maximum possible aggregate amount of any Restructuring Performance Bonus is $37.5 million and will be payable as soon as reasonably practicable after the consummation of the restructuring. Up to 70% of the amount by which a Restructuring Performance Bonus exceeds a participant’s Retention Bonus may be paid in restricted shares or units of any common stock of the Company that is issued as part of a confirmed plan of reorganization in connection with the restructuring, if the Company’s Board of Directors elects, within the time period specified in the plan, to elect such option. The amount of any Restructuring Performance Bonus to be earned is not currently estimatable.
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Reorganization items as reported in the accompanying consolidated statement of operations for the three months ended April 30, 2002 is comprised of:
Critical employee retention plan provision | $ | 2.5 | |||
Estimated accrued liability for rejected prepetition leases | 12.5 | ||||
Professional fees directly related to the filing | 7.6 | ||||
Interest earned during Chapter 11 reorganization proceedings | (0.1 | ) | |||
Total | $ | 22.5 | |||
Cash payments of $1.4 million were paid during this period with respect to such reorganization items.
The condensed financial statements of the Debtors are presented in Note 11, “Condensed Combined Financial Statements.”
Results of Operations
Sales of the Company’s wheels, wheel-end attachments, aluminum structural components 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 design and manufacture 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 design and manufacture 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 design and manufacture wheel and brake products for commercial highway and aftermarket customers in North America. The Other segment also includes financial results related to the Company’s tire and wheel operations in Europe, the corporate office and elimination of certain intercompany activities.
Three Months Ended April 30, 2002 Compared to Three Months Ended April 30, 2001
Net Sales
2002 | 2001 | % Change | |||||||||||
(millions) | |||||||||||||
Automotive Wheels | $ | 285.4 | $ | 324.3 | (12.0% | ) | |||||||
Components | 176.5 | 176.9 | (0.2% | ) | |||||||||
Other | 24.8 | 39.7 | (37.6% | ) | |||||||||
Total | $ | 486.7 | $ | 540.9 | (10.0% | ) | |||||||
The Company’s Wheels operations net sales were $38.9 million lower in the first quarter of fiscal 2002 compared to the same period in fiscal 2001. Net sales from the North American Wheels business unit were $11.4 million lower in the first quarter of fiscal 2002 compared to the same period in fiscal 2001. The ramp-down of production and subsequent closure of the Company’s Somerset, KY facility accounted for approximately $9.4 million of this decrease. Higher production volumes in the Company’s remaining North American wheel operations increased sales by $7.0 million in the first quarter of fiscal 2002, which was offset by $6.3 million in lower pricing. Lower aluminum pricing, which is passed on to the Company’s customers and therefore has a minimal effect on profit margins, also decreased sales by $2.7 million. Net sales from the
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The Company’s Components operations net sales were slightly lower in the first quarter of fiscal 2002 compared to the same period in fiscal 2001. Net sales from the Company’s North American suspension components operations increased $8.6 million in the first quarter of fiscal 2002 compared to the same period in fiscal 2001. Sales from recently launched new customer programs increased sales by $15.7 million in the first quarter of fiscal 2002. This was partially offset by approximately $8.3 million lower sales to Ford related to the Ranger, F-Series truck and other SUV programs. The remainder of the sales variance in the suspension operations is due to changes in volume, pricing and sales mix between periods. Net sales from the Company’s powertrain and brakes operations were $3.6 million lower in the first quarter of fiscal 2002 compared to the same period in fiscal 2001. The impact of the closure of the Company’s Petersburg, MI facility during the fourth quarter of fiscal 2001 decreased sales by $6.0 million in the first quarter of fiscal 2002. Other volume and pricing variances accounted for the remainder of the difference in sales in those operations. The Company also recorded $5.6 million lower net sales from its European component operations. In the European components operations, the impact of foreign exchange rate fluctuations relative to the U.S. dollar decreased sales by $1.8 million. The remaining differences in the net sales from the European components operations were due to lower customer demand.
The Company’s Other segment recorded $14.9 million lower net sales in the first quarter of fiscal 2002 compared to the same period in fiscal 2001. This decrease is primarily due to the $10.2 million decrease in net sales from the Company’s commercial highway and aftermarket operations. This decrease was driven by significantly lower production volumes at the Company’s heavy-duty truck and trailer customers. The impact of the sale of the Company’s system service business in the fourth quarter of fiscal 2001 was the other primary reason for the decrease in Other sales.
Gross Profit
The Company’s gross profit decreased from $57.6 million in the first quarter of fiscal 2001 to $45.1 million in the same period in fiscal 2002.
The Company’s Wheels segment reported $4.3 million lower gross profit in the first quarter of fiscal 2002 compared to the same period in fiscal 2001. Gross profit from the Company’s North American wheels operations increased $7.0 million from the first quarter of fiscal 2001 to the first quarter of fiscal 2002. The ramp-down of production and subsequent closure of the Company’s Somerset, KY facility during the first quarter of fiscal 2002 increased gross profit by approximately $10.6 million. This increase was primarily due to the poor operating performance of that facility in fiscal 2001. The Company also reached a favorable settlement agreement related to a historical dispute with a certain customer that improved gross profit by $1.9 million during the first quarter of 2002. The Company also recorded higher depreciation costs at its Gainesville, GA facility to recognize a change in its estimate of the remaining useful life of certain assets, which reduced gross profit by $2.7 million in the first quarter of fiscal 2002. Higher volumes, manufacturing variances and lower pricing comprise the remaining differences in gross profit from the Company’s North American wheel operations. The Company’s foreign wheel operations gross profit decreased $11.3 million during this period. The impact of lower sales decreased gross profit by $5.3 million in the Company’s foreign wheel operations. The impact of foreign exchange rate fluctuations relative to the U.S. dollar decreased gross profit by approximately $1.9 million. The remaining difference in gross profit is primarily due to lower operating performance in the Company’s foreign fabricated wheel operations.
Gross profit at the Company’s Components segment decreased by $4.3 million in the first quarter of fiscal 2002 compared to the same period in fiscal 2001. The North American suspension operations recorded $2.8 million lower gross profit. The favorable impact on gross profit due to higher production volumes was more than offset by one-time start-up costs recorded on the many new program launches that took place in the
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Other gross profit decreased $3.9 million in the first quarter of fiscal 2002 compared to the same period in fiscal 2001. The Company’s commercial highway and aftermarket operations recorded $1.5 million lower gross profit in the first quarter of fiscal 2002 due primarily to lower sales and production volumes. The effects of higher retiree medical costs during the first quarter of fiscal 2002 combined with the sale of the Company’s system service business in the fourth quarter of fiscal 2001 are the other primary reasons for the decrease in Other gross profit.
Marketing, General and Administrative
The Company’s marketing, general and administrative expenses increased $1.4 million from the first quarter of fiscal 2001 to the same period in fiscal 2002.
Marketing, general and administrative expenses at the Company’s Wheels segment decreased by $1.9 million. The Company’s North American wheels operations recorded $0.9 million lower marketing, general and administrative expenses primarily due to lower headcount arising from the Reduction-In-Force and Early Retirement Incentive Programs that the Company implemented in its North American locations during the fourth quarter of fiscal 2001. The Company’s foreign wheel operations recorded $1.0 million lower marketing, general and administrative expenses primarily due to exchange rate fluctuations and the cost reduction impact of various restructuring initiatives.
The Company’s Components segment marketing, general and administrative expenses were essentially unchanged. The North American suspension operations marketing, general and administrative expenses increased $0.3 million in the three months ended April 30, 2002 compared to the same period in fiscal 2001 due primarily to higher recruiting, relocation and other expenses related to the development of a new management team in the business unit and the many customer program launches. Marketing, general and administrative expenses at the Company’s powertrain and brakes operations increased $0.4 million. These increases were offset by lower marketing, general and administrative expenses at the Company’s foreign component operations.
Marketing, general and administrative expenses in the Company’s other segment increased by $3.3 million from the first quarter of fiscal 2001 to the first quarter of fiscal 2002. This increase is primarily due to higher auditing, consulting and legal fees incurred in the first quarter of fiscal 2002 compared to the same period in fiscal 2001.
Engineering and Product Development
Engineering expenses were $0.9 million lower in the first quarter of fiscal 2002 compared to the same period in fiscal 2001. The Wheels segment reported $0.8 million lower engineering expenses in the first quarter of fiscal 2002 primarily at the Company’s foreign fabricated wheel operations due to the cost reduction impact of various restructuring initiatives.
Equity in Losses (Earnings) of Joint Ventures
The Company did not record equity in losses of joint ventures in the first quarter of fiscal 2002 due to the permanent impairment of these investments in fiscal 2001.
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Asset Impairments and Other Restructuring Charges
Asset impairments and other restructuring charges recorded by the Company during the three months ended April 30, 2002 and 2001 are as follows (millions of dollars):
2002 | 2001 | ||||||||
Impairment of manufacturing facilities | $ | — | $ | 28.5 | |||||
Impairment of machinery and equipment | — | 2.5 | |||||||
Facility closures | 6.7 | — | |||||||
Other restructuring | 0.5 | — | |||||||
Total | $ | 7.2 | $ | 31.0 | |||||
Impairment of Manufacturing Facilities
As a consequence of the notifications received in April 2001 by the Company from certain customers of its Petersburg, Michigan manufacturing facility regarding significantly lower future product orders and the failure to obtain adequate customer support required to relocate production, management revised its estimate of future undiscounted cash flows expected to be generated by the facility. The Company concluded that this estimated amount was less than the carrying value of the long-lived assets related to the Petersburg facility and, accordingly, recognized an impairment charge of $28.5 million in the first quarter of fiscal 2001.
Facility Closures
In February 2002, the Company committed to a plan to close its manufacturing facility in Somerset, Kentucky. In connection with the closure of the Somerset facility (which commenced during February 2002), the Company recorded an estimated restructuring charge of $6.7 million in the first quarter of fiscal 2002. This charge includes amounts related to lease termination costs and other closure costs including security and maintenance costs subsequent to the shutdown date. The amount of the charge related to leases was $3.5 million and is classified as a liability subject to compromise at April 30, 2002. The other closure costs are expected to be paid during fiscal 2002 and 2003.
The following table describes the activity in the balance sheet accounts affected by the severance and other restructuring charges noted above during the three months ended April 30, 2002:
Severance | ||||||||||||||||||||
January 31, | and Other | April 30, | ||||||||||||||||||
2002 | Restructuring | Cash | 2002 | |||||||||||||||||
Accrual | Charges | Reclassification | Payments | Accrual | ||||||||||||||||
Facility exit costs | $ | 11.7 | $ | 6.7 | $ | (3.5 | ) | $ | (0.6 | ) | $ | 14.3 | ||||||||
Severance | 6.0 | 0.5 | — | (1.7 | ) | 4.8 | ||||||||||||||
$ | 17.7 | $ | 7.2 | $ | (3.5 | ) | $ | (2.3 | ) | $ | 19.1 | |||||||||
In connection with an early retirement program in the fourth quarter of fiscal 2001, a charge of $3.9 million related to supplemental retirement benefits was included in the above table at January 31, 2002. This amount is recorded as a component of the Company’s accrued benefit cost of the applicable defined benefit plans and will be funded as part of the requirements of the entire plans. Accordingly, for purposes of the current presentation of the above table, this amount has not been included.
Other Income, net
Other income, net in the consolidated statement of operations of $2.6 million includes a gain on the sale of the Company’s Brazilian agricultural business of approximately $0.9 million. The Company received $5.2 million in cash in connection with this sale. Gains on the sale of equipment at various other locations accounted for most of the remainder of the balance in this account.
The Company’s Suspension business unit recorded $0.3 million of income during the first quarter of fiscal 2001 related to certain customer tooling agreements.
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Interest Expense, net
Interest expense was $16.8 million for the first quarter 2002 compared to $44.2 million for the first quarter 2001. This decrease reflects the discontinuation of interest accrued on the Company’s subordinated debt as well as lower interest rates.
Income Taxes
The income tax provision for the quarter is primarily the result of tax expense in foreign jurisdictions and various states. The Company has determined that a valuation allowance is required against all net deferred tax assets in the United States and certain deferred tax assets in foreign jurisdictions. As such, there is no United States federal income tax benefit recorded against current losses.
On March 9, 2002, the Jobs Creation and Worker Assistance Act of 2002 was signed into law. Among other provisions, the law permits a five-year carryback for tax losses generated in tax years ending in 2001 and 2002. As a result of this tax law change, the Company is entitled to file a claim for a refund of federal income taxes. The Company’s preliminary estimate of the amount of carryback refunds is $4.1 million. This amount has been recorded during the current period and has reduced the current provision for income taxes in the consolidated statement of operations. The Company is continuing to study the effect of this change in the law and, upon completion of the study, the Company’s estimate of the amount of the carryback refunds may increase.
Liquidity and Capital Resources
Chapter 11 Filings
As discussed above, the Company and certain subsidiaries filed voluntary petitions for reorganization relief 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.
Cash Flows
The Company’s operations provided $50.0 million in cash in the first quarter of fiscal 2002 compared to a use of $55.4 million in the first quarter of fiscal 2001. This improvement resulted primarily from the effect of (i) lower supplier payments during the current period, (ii) lower interest payments during the current period and (iii) a lower investment in receivables in the current period. These improvements were partially offset by lower gross profits during the current period.
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.
Capital expenditures for the first quarter of fiscal 2002 were $22.4 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. The Company anticipates capital expenditures for fiscal 2002 will be approximately $100.0 million relating primarily to new vehicle platforms, and maintenance and cost reduction programs.
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Other Liquidity Matters
As of April 30, 2002, there were no amounts of outstanding borrowings under the Company’s Debtor-In-Possession facility (the “DIP Facility”). As of the date of this filing $5.2 million in letters of credit were issued in connection with the DIP Facility and the amount of availability under the DIP Facility was $109.9 million, net of the amount of issued letters of credit.
During the current fiscal quarter, the Company received $6.7 million in cash proceeds from the sale of certain non-core assets and businesses, primarily the sale of the Company’s Brazilian agricultural business.
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.
Critical Accounting Policies
Asset impairment losses and other restructuring charges
The Company’s consolidated statements of operations included herein reflect an element of operating expenses described as asset impairments and other restructuring charges. The Company periodically evaluates whether events and circumstances have occurred that indicate that the remaining useful life of any of its long lived assets may warrant revision or that the remaining balance might not be recoverable. When factors indicate that the long lived assets should be evaluated for possible impairment, the Company uses an estimate of the future undiscounted cash flows generated by the underlying assets to determine if a write-down is required. If a write-down is required, the Company adjusts the book value of the impaired long-lived assets to their estimated fair values. Fair value is determined through third party appraisals or discounted cash flow calculations. The related charges are recorded as an asset impairment or, in the case of certain exit costs in connection with a plant closure or restructuring, a restructuring or other charge in the consolidated statements of operations.
The Company believes that the Chapter 11 Filings in December 2001 and the ongoing comprehensive review of all of its operations as part of formulating its plan or plans of reorganization in order to emerge from Chapter 11 will take some time to complete. As discussed above and in the notes to the Company’s consolidated financial statements included herein, a number of decisions have occurred or other factors have indicated that these types of charges are required to be currently recognized. As the review continues during the Company’s reorganization, there can be no assurance that there will not be additional charges based on future events and that the additional charges would not have a materially adverse impact on the Company’s financial position and results of operations.
See discussion of SFAS No. 142 below.
Valuation allowances on deferred income tax assets
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. The Company expects the deferred tax assets, net of the valuation allowance to be realized as a result of the reversal of existing taxable temporary differences in the United States and as a result of projected future taxable income and the reversal of existing taxable temporary differences in certain foreign locations. As a result of management’s assessment, a valuation allowance was recorded. In view of the substantial doubt regarding the Company’s ability to continue as a going concern, the Company determined that it could not conclude that it was more likely than not that the benefits of certain deferred income tax
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New Accounting Pronouncements
Effective February 1, 2002, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 requires that goodwill and indefinite-lived intangible assets be reviewed for impairment annually, rather than amortized into earnings. The Company has discontinued amortizing such assets into earnings, but has not yet completed testing for impairment the amount of goodwill recorded as of February 1, 2002 as is required by the pronouncement. As of February 1, 2002, the Company had unamortized goodwill and other intangibles of approximately $822.4 million, which will be subject to the transition provisions of SFAS No. 142. The Company believes it will incur a significant write-down in the value of its goodwill upon completion of the adoption of SFAS No. 142 and, in accordance with SFAS No. 142, any loss will be recognized as a cumulative effect of a change in accounting principle. The pro forma effect of SFAS No. 142 on the Company’s earnings for the three months ended April 30, 2002 and 2001 is as follows:
2002 | 2001 | |||||||
Reported net loss | $ | (33.0 | ) | $ | (63.7 | ) | ||
Addback goodwill amortization | — | 6.7 | ||||||
Adjusted net loss | $ | (33.0 | ) | $ | (57.0 | ) | ||
Basic and diluted loss per share: | ||||||||
Reported net loss | $ | (1.16 | ) | $ | (2.24 | ) | ||
Addback goodwill amortization | — | 0.24 | ||||||
Adjusted net loss | $ | (1.16 | ) | $ | (2.00 | ) | ||
Effective February 1, 2002, the Company also adopted SFAS No. 141, “Business Combinations” and SFAS No. 144, “Accounting For the Impairment or Disposal of Long-Lived Assets.” The adoption of this pronouncement did not have a material effect on the Company’s consolidated financial statements.
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 reconciliation 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.
For the period ended April 30, 2002, 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 for the year ended January 31, 2002.
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On May 3, 2002, a group of purported purchasers of the Company’s bonds commenced a putative class action lawsuit against thirteen present or former directors and officers of the Company (but not the Company) and KPMG LLP, the Company’s independent auditor, in the United States District Court for the Eastern District of Michigan. The complaint seeks damages for an alleged class of persons who purchased Company bonds between June 3, 1999 and September 5, 2001 and claim to have been injured because they relied on the Company’s allegedly materially false and misleading financial statements.
Additionally, before the date the Company commenced its chapter 11 bankruptcy case, four other putative class actions were filed in the United States District Court for the Eastern District of Michigan against the Company and certain of its directors and officers, on behalf of a class of purchasers of Company common stock from June 3, 1999 to December 13, 2001, based on similar allegations of securities fraud. On May 10, 2002, the plaintiffs filed a consolidated and amended class action complaint seeking damages against the Company’s present and former officers and directors and KPMG.
None
In accordance with the Senior Notes, the Senior Subordinated Notes and the note under the Credit Agreement, interest accrues at default rates, however, the payment of such interest is subject to the Bankruptcy Code and a plan or plans of reorganization as may be approved by the Bankruptcy Court. See Note (9), Liabilities Subject To Compromise, to the Consolidated Financial Statements herein.
None
None
(a) | Exhibits |
10.41* Critical Employee Retention Plan as entered by the United States Bankruptcy Court for the District of Delaware on May 30, 2002.
(b) Reports on Form 8-K
None
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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 |
June 14, 2002
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Exhibit No. | Description | |||
10.41 | Critical Employee Retention Plan as entered by the United States Bankruptcy Court for the District of Delaware on May 30, 2002. |
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