UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended October 31, 2008
or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission file number: 000-50303
Hayes Lemmerz International, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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32-0072578
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(State or other jurisdiction of
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(IRS Employer
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incorporation or organization)
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Identification No.)
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15300 Centennial Drive
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48168
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Northville, Michigan
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(Zip Code)
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(Address of principal executive offices)
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Registrants 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
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company.
See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
þ
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes
o
No
þ
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to
be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court. Yes
þ
No
o
As of December 3, 2008, the number of shares of common stock outstanding of Hayes Lemmerz
International, Inc., was 101,774,690 shares.
HAYES LEMMERZ INTERNATIONAL, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
Unless otherwise indicated, references to we, us, or our mean Hayes Lemmerz International,
Inc., a Delaware corporation, and its subsidiaries. References to fiscal year means the 12-month
period commencing on February
1
st
of that year and ending January 31
st
of the
following year (e.g., fiscal 2008 means the period beginning February 1, 2008 and ending
January 31, 2009). This report contains forward looking statements with respect to our financial
condition, results of operations, and business. All statements other than statements of historical
fact made in this Quarterly Report on Form 10-Q are forward-looking. Such forward-looking
statements include, among others, those statements including the words expect, anticipate,
intend, believe, and similar language. These forward looking statements involve certain risks
and uncertainties. Our actual results may differ significantly from those projected in the
forward-looking statements. Factors that may cause actual results to differ materially from those
contemplated by such forward looking statements include, among others: (1) competitive pressure in
our industry; (2) fluctuations in the price of steel, aluminum, and other raw material and our
ability to maintain credit terms with our suppliers; (3) changes in general economic conditions;
(4) our dependence on the automotive industry (which has historically been cyclical) and on a small
number of major customers for the majority of our sales; (5) pricing pressure from automotive
industry customers and the potential for re-sourcing of business to lower-cost providers;
(6) changes in the financial markets or our debt ratings affecting our financial structure and our
cost of capital and borrowed money; (7) the uncertainties inherent in international operations and
foreign currency fluctuations;(8) our ability to obtain an amendment to the financial covenants in
our senior secured credit facilities; and (9) the risks described in our Annual Report on Form 10-K
for the fiscal year ended January 31, 2008. You are cautioned not to place undue reliance on the
forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q.
We have no duty to update the forward looking statements in this Quarterly Report on Form 10-Q and
we do not intend to provide such updates
2
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Item 1.
Financial Statements
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended October 31,
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Nine Months Ended October 31,
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2008
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2007
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2008
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2007
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(Dollars in millions, except per share amounts)
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Net sales
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$
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497.0
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$
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554.9
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$
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1,634.3
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$
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1,597.6
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Cost of goods sold
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440.4
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496.8
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1,442.1
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1,430.2
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Gross profit
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56.6
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58.1
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192.2
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167.4
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Marketing, general, and administrative
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34.1
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35.8
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112.8
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116.6
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Amortization of intangibles
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2.6
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2.5
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8.3
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7.5
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Asset impairments and other restructuring charges
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2.7
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50.0
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11.8
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54.0
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Other (income) expense, net
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(3.4
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(2.6
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)
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27.3
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4.9
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Earnings (loss) from operations
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20.6
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(27.6
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32.0
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(15.6
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Interest expense, net
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12.2
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13.9
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39.8
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47.8
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Loss on early extinguishment of debt
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21.5
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Other non-operating expense (income)
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0.1
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(1.4
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2.8
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(1.4
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Earnings (loss) from continuing operations before taxes
and minority interest
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8.3
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(40.1
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(10.6
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(83.5
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Income tax expense
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12.5
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16.7
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40.1
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38.5
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Loss from continuing operations before minority interest
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(4.2
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(56.8
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(50.7
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(122.0
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Minority interest
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3.9
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5.9
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17.2
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15.4
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Loss from continuing operations
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(8.1
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(62.7
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(67.9
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(137.4
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Discontinued operations:
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Income (loss) from operations, net of tax of
$0.0, $0.2, $0.0, $0.5, respectively
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0.1
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(1.1
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0.1
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2.3
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(Loss) gain on sale of business, net of tax of $0.0 for
all periods
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(2.4
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1.1
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(2.4
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(30.0
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Loss from discontinued operations
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(2.3
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(2.3
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(27.7
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Net loss
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$
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(10.4
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$
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(62.7
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$
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(70.2
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$
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(165.1
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Loss per common share data
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Basic and diluted:
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Loss from continuing operations
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$
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(0.08
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$
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(0.62
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$
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(0.67
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$
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(1.87
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Loss from discontinued operations
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(0.02
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(0.02
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(0.38
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Net loss
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$
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(0.10
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$
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(0.62
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$
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(0.69
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$
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(2.25
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Weighted average shares outstanding (in thousands)
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101,417
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100,382
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101,198
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73,414
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See accompanying notes to consolidated financial statements.
3
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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October 31,
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January 31,
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2008
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2008
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(Dollars in millions)
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(Unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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57.1
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$
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160.2
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Receivables, net of allowance of $1.1 and $1.5 at October 31, 2008
and January 31, 2008, respectively
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225.0
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305.6
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Other receivables
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39.4
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48.3
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Inventories
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194.6
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179.1
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Assets held for sale
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31.2
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21.4
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Deferred tax assets
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4.3
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5.0
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Prepaid expenses
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4.8
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7.2
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Total current assets
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556.4
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726.8
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Property, plant, and equipment, net of accumulated depreciation of $406.7 and
$385.0 as of October 31, 2008 and January 31, 2008, respectively
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535.1
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616.8
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Goodwill
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212.4
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240.5
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Customer relationships, net of amortization of
$20.4 and $19.7 at October 31, 2008
and January 31, 2008, respectively
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89.8
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103.7
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Other intangible assets, net of amortization of $40.3 and $40.2 at October 31, 2008
and January 31, 2008, respectively
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53.4
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65.0
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Deferred tax assets
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1.6
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4.2
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Other assets
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41.2
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48.9
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Total assets
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$
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1,489.9
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$
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1,805.9
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities:
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Bank borrowings and other notes
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$
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46.4
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$
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32.9
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Current portion of long-term debt
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4.2
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4.8
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Accounts payable
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263.4
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372.0
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Accrued payroll and employee benefits
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64.3
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76.4
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Liabilities held for sale
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8.3
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8.2
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Other accrued liabilities
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62.9
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61.6
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Total current liabilities
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449.5
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555.9
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Long-term debt, net of current portion
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519.1
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572.2
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Deferred tax liabilities
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66.2
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76.1
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Pension and other long-term liabilities
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290.0
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328.9
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Minority interest
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66.7
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70.5
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Commitments and contingencies
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Stockholders equity:
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Preferred stock, 1,000,000 shares authorized, none issued or outstanding at
October 31, 2008 or January 31, 2008
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Common stock, par value $0.01 per share:
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200,000,000 shares authorized; 101,743,162 and 101,057,966
issued and outstanding at October 31, 2008 and January 31, 2008, respectively
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1.0
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1.0
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Additional paid in capital
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885.8
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882.0
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Accumulated deficit
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(1,000.5
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(928.7
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Accumulated other comprehensive income
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212.1
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248.0
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Total stockholders equity
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98.4
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202.3
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Total liabilities and stockholders equity
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$
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1,489.9
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$
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1,805.9
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See accompanying notes to consolidated financial statements.
4
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Nine Months Ended October 31,
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2008
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2007
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(Dollars in millions)
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Cash flows from operating activities:
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Net loss
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$
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(70.2
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$
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(165.1
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Adjustments to reconcile net loss from operations to net cash provided by
(used for) operating activities:
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Net loss from discontinued operations
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2.3
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27.7
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Depreciation and amortization
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81.8
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82.8
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Amortization of deferred financing fees and accretion of discount
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1.7
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2.8
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Asset impairments
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7.8
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50.3
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Deferred income taxes
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1.4
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22.5
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Minority interest
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17.2
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15.4
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Equity compensation expense
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3.6
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8.8
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Loss on sale of assets and businesses
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35.5
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12.8
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Loss on early extinguishment of debt
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21.5
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Changes in operating assets and liabilities that increase (decrease) cash flows:
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Receivables
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43.4
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(69.0
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)
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Other receivables
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8.9
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(30.6
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Inventories
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(38.0
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(28.4
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Prepaid expenses and other
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(14.8
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5.8
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Accounts payable and accrued liabilities
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(101.7
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)
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80.1
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Cash (used for) provided by operating activities
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(21.1
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37.4
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Cash flows from investing activities:
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Purchase of property, plant, equipment, and tooling
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(67.1
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)
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(64.1
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)
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Sale of assets
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(23.4
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)
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1.5
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Cash used for investing activities
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(90.5
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)
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(62.6
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)
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Cash flows from financing activities:
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|
|
|
|
Changes in bank borrowings and credit facilities
|
|
|
20.8
|
|
|
|
0.9
|
|
Bank finance fees paid
|
|
|
|
|
|
|
(14.8
|
)
|
Proceeds from revolving credit facility
|
|
|
16.0
|
|
|
|
|
|
Repayment of long-term debt
|
|
|
(2.6
|
)
|
|
|
(136.3
|
)
|
Dividends paid to minority shareholders
|
|
|
(12.9
|
)
|
|
|
(10.1
|
)
|
Proceeds from issuance of common stock
|
|
|
|
|
|
|
193.1
|
|
Call premium on redemption of Senior Notes
|
|
|
|
|
|
|
(9.0
|
)
|
Fees paid for Rights Offering
|
|
|
|
|
|
|
(7.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by financing activities
|
|
|
21.3
|
|
|
|
16.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows of discontinued operations:
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
1.3
|
|
|
|
12.7
|
|
Net cash (used for) provided by investing activities
|
|
|
(2.4
|
)
|
|
|
42.5
|
|
Net cash used for financing activities
|
|
|
|
|
|
|
(10.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used for) provided by discontinued operations
|
|
|
(1.1
|
)
|
|
|
45.1
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(11.7
|
)
|
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents
|
|
|
(103.1
|
)
|
|
|
40.1
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
160.2
|
|
|
|
38.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
57.1
|
|
|
$
|
78.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental data:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
36.7
|
|
|
$
|
42.6
|
|
Cash paid for income taxes
|
|
$
|
39.8
|
|
|
$
|
17.2
|
|
See accompanying notes to consolidated financial statements.
5
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
Accumulated Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid in
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Par Value
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income
|
|
|
Total
|
|
|
|
(Dollars in millions, except share amounts)
|
|
Balance at January 31, 2008
|
|
|
101,057,966
|
|
|
$
|
1.0
|
|
|
$
|
882.0
|
|
|
$
|
(928.7
|
)
|
|
$
|
248.0
|
|
|
$
|
202.3
|
|
Preferred stock dividends accrued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
(0.4
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(70.2
|
)
|
|
|
|
|
|
|
(70.2
|
)
|
Currency translation adjustment, net of tax $1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36.0
|
)
|
|
|
(36.0
|
)
|
Unrealized loss on derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.7
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(105.5
|
)
|
Shares of redeemable preferred stock of
subsidiary converted into common stock
|
|
|
14,152
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
Shares issued for vested RSUs
|
|
|
671,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension measurement date adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.2
|
)
|
|
|
(0.6
|
)
|
|
|
(1.8
|
)
|
Equity compensation expense
|
|
|
|
|
|
|
|
|
|
|
3.6
|
|
|
|
|
|
|
|
|
|
|
|
3.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 31, 2008
|
|
|
101,743,162
|
|
|
$
|
1.0
|
|
|
$
|
885.8
|
|
|
$
|
(1,000.5
|
)
|
|
$
|
212.1
|
|
|
$
|
98.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31, 2007
|
|
|
38,470,434
|
|
|
$
|
0.4
|
|
|
$
|
678.6
|
|
|
$
|
(733.6
|
)
|
|
$
|
156.4
|
|
|
$
|
101.8
|
|
Preferred stock dividends accrued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
(0.5
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(165.1
|
)
|
|
|
|
|
|
|
(165.1
|
)
|
Currency translation adjustment, net of tax $0.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54.2
|
|
|
|
54.2
|
|
Unrealized gain on derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.2
|
)
|
|
|
(2.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(113.1
|
)
|
Shares of redeemable preferred stock of
subsidiary converted into common stock
|
|
|
89,932
|
|
|
|
|
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
2.1
|
|
Shares issued for vested RSUs
|
|
|
1,782,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued to note holders
|
|
|
1,049,020
|
|
|
|
|
|
|
|
5.3
|
|
|
|
|
|
|
|
|
|
|
|
5.3
|
|
Common stock issued, net of fees
|
|
|
59,423,077
|
|
|
|
0.6
|
|
|
|
184.8
|
|
|
|
|
|
|
|
|
|
|
|
185.4
|
|
Equity compensation expense
|
|
|
|
|
|
|
|
|
|
|
8.9
|
|
|
|
|
|
|
|
|
|
|
|
8.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 31, 2007
|
|
|
100,815,274
|
|
|
$
|
1.0
|
|
|
$
|
879.7
|
|
|
$
|
(899.2
|
)
|
|
$
|
208.4
|
|
|
$
|
189.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
6
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and nine months ended October 31, 2008 and 2007
(Unaudited)
(Dollars in millions, unless otherwise stated)
Note 1. Description of Business
These financial statements should be read in conjunction with our Annual Report on Form 10-K
for the fiscal year ended January 31, 2008 as filed with the Securities and Exchange Commission on
April 10, 2008.
Description of Business
Unless otherwise indicated, references to us, we, or our mean Hayes Lemmerz
International, Inc., a Delaware corporation, and our subsidiaries, and references to fiscal year
mean our fiscal year commencing on February 1 of that year and ending on January 31 of the
following year (e.g., fiscal 2008 refers to the period beginning February 1, 2008 and ending
January 31, 2009, fiscal 2007 refers to the period beginning February 1, 2007 and ending
January 31, 2008).
Originally founded in 1908, Hayes Lemmerz International, Inc. is a leading worldwide producer
of aluminum and steel wheels for passenger cars and light trucks and of steel wheels for commercial
trucks and trailers. We are also a supplier of automotive powertrain components. We have global
operations with 23 facilities, including business and sales offices and manufacturing facilities
located in 13 countries around the world. We sell our products to every major North American,
Japanese, and European manufacturer of passenger cars and light trucks and to commercial highway
vehicle customers throughout the world.
Note 2. Basis of Presentation
Our unaudited interim consolidated financial statements do not include all of the disclosures
required by U.S. generally accepted accounting principles (GAAP) for annual financial statements.
In our opinion, all adjustments considered necessary for a fair presentation of the interim period
results have been included. Operating results for the fiscal 2008 interim period presented are not
necessarily indicative of the results that may be expected for the full fiscal year ending
January 31, 2009.
The preparation of consolidated financial statements in conformity with GAAP requires us to
make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the reporting period.
Considerable judgment is often involved in making these determinations; the use of different
assumptions could result in significantly different results. We believe our assumptions and
estimates are reasonable and appropriate; however, actual results could differ from those
estimates.
Note 3. Stock-Based Compensation
We have a Long Term Incentive Plan (LTIP) that provides for the grant of incentive stock
options (ISOs), stock options that do not qualify as ISOs, restricted shares of common stock, and
restricted stock units (collectively, the awards). Any officer, director, or key employee of Hayes
Lemmerz International, Inc. or any of its subsidiaries is eligible to be designated a participant
in the LTIP. We follow the provisions of the Statement of Financial Accounting Standards (SFAS)
123R, Share-Based Payment.
In July 2008 we issued 914,364 restricted stock units and 180,006 shares of restricted stock
to our key employees and members of our Board of Directors. The 914,364 restricted stock units were
issued to our key employees and will vest in February 2011. The 180,006 shares of restricted stock
were issued to our Board of Directors and will vest in December 2008. As of October 31, 2008 there
was $1.6 million of these unvested restricted stock and restricted stock units outstanding, which
will be expensed based on the respective vesting dates.
In July 2008 we issued 1,268,984 stock options to our key employees and members of our Board
of Directors. There were 144,384 stock options issued to our Board of Directors, which will vest in
December 2008. The remaining stock options were issued to our key employees and will vest as to
one-third of the options in each of February 2009, 2010, and 2011. As of October 31, 2008 there was
$1.0 million of these unvested stock options outstanding, which will be expensed based on the
respective vesting dates.
7
In July 2008 we also issued performance cash awards to our key employees with a value of $2.4
million at target performance levels. The awards will be determined with respect to 50% of the
award based on performance through February 2010 and with respect to 50% based on performance
through February 2011.
Note 4. Inventories
The major classes of inventory were as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
January 31,
|
|
|
|
2008
|
|
|
2008
|
|
Raw materials
|
|
$
|
50.6
|
|
|
$
|
41.4
|
|
Work-in-process
|
|
|
36.7
|
|
|
|
41.8
|
|
Finished goods
|
|
|
77.4
|
|
|
|
62.4
|
|
Spare parts and supplies
|
|
|
29.9
|
|
|
|
33.5
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
194.6
|
|
|
$
|
179.1
|
|
|
|
|
|
|
|
|
Note 5. Assets Held for Sale
Assets held for sale consist of the following (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
January 31,
|
|
|
|
2008
|
|
|
2008
|
|
Nuevo Laredo, Mexico facility
|
|
$
|
28.0
|
|
|
$
|
16.0
|
|
Huntington, Indiana facility
|
|
|
1.7
|
|
|
|
2.7
|
|
Howell, Michigan facility
|
|
|
1.5
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
31.2
|
|
|
$
|
21.4
|
|
|
|
|
|
|
|
|
The balance includes our Nuevo Laredo facility, which is part of our Other segment. This
facility met the criteria for an asset held for sale during the last quarter of fiscal 2007 in
accordance with Statement of Financial Accounting Standards SFAS 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS 144). Also included in the balance are land and
idle buildings in Huntington, Indiana and Howell, Michigan, which we are currently marketing for
sale.
The assets and liabilities of our Nuevo Laredo facility were as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
January 31,
|
|
|
|
2008
|
|
|
2008
|
|
Receivables
|
|
$
|
19.5
|
|
|
$
|
11.3
|
|
Inventories
|
|
|
6.5
|
|
|
|
4.1
|
|
Prepaid expenses
|
|
|
0.2
|
|
|
|
0.1
|
|
Property, plant, and equipment, net
|
|
|
1.8
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
Total assets held for sale
|
|
$
|
28.0
|
|
|
$
|
16.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
8.3
|
|
|
$
|
8.0
|
|
|
|
|
|
|
|
|
Total liabilities held for sale
|
|
$
|
8.3
|
|
|
$
|
8.0
|
|
|
|
|
|
|
|
|
On June 13, 2008 we sold our Hoboken, Belgium subsidiary to BBS International GmbH (BBS), a
subsidiary of Punch International nv (Punch). Under the agreement, BBS acquired all of the
outstanding shares of stock of Hayes Lemmerz Belgie B.V.B.A., which had operations in Hoboken (near
Antwerp, Belgium). The Hoboken factory produced cast aluminum wheels for passenger cars and
employed approximately 315 people. The purchase price of the transaction was not material to either
party. We recorded a loss on the sale of approximately $35.7 million through October 31, 2008 and
contributed $27.0 million in cash as part of the transaction.
8
Note 6. Discontinued Operations
On November 9, 2007 we completed the sale of our Brakes business to Brembo North America, Inc.
Under the agreement, Brembo North America, Inc., a subsidiary of Brembo S.p.A., acquired all of
the stock of two subsidiary companies that ran our brake manufacturing operations in Homer,
Michigan and Monterrey, Mexico, and certain assets used in connection with the divisions sales,
marketing, and engineering group located at our headquarters in Northville, Michigan. Proceeds
from the sale were $57.0 million. We recognized a gain on the sale of approximately $16.8 million.
Operating results for the Brakes business were as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended October 31,
|
|
|
Nine Months Ended October 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Net sales
|
|
$
|
|
|
|
$
|
24.9
|
|
|
$
|
|
|
|
$
|
81.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) before income tax expense
|
|
$
|
|
|
|
$
|
(0.6
|
)
|
|
$
|
|
|
|
$
|
4.5
|
|
Income tax expense
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
|
|
|
$
|
(0.8
|
)
|
|
$
|
|
|
|
$
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On June 29, 2007 we completed the sale of all of the issued and outstanding shares of capital
stock of MGG Group B.V. (MGG Group) to an affiliate of ECF Group, a privately held company based in
the Netherlands and Switzerland. MGG Group and its subsidiaries operate aluminum casting and
machining facilities located in Tegelen and Nieuw Bergen, the Netherlands and in Antwerp, Belgium,
and represented our International Components business. We received proceeds of $17.5 million. We
recorded a loss on the sale of $29.8 million through October 31, 2008. During the third quarter of
fiscal 2008, we settled certain disputes arising out of the share purchase agreement with MGG Group
resulting in a loss of $2.4 million.
Operating results for MGG Group were as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended October 31,
|
|
|
Nine Months Ended October 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Net sales
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
55.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax expense
|
|
$
|
(2.4
|
)
|
|
$
|
|
|
|
$
|
(2.4
|
)
|
|
$
|
(27.4
|
)
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2.4
|
)
|
|
$
|
|
|
|
$
|
(2.4
|
)
|
|
$
|
(26.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the beginning of fiscal 2007 we divested Hayes Lemmerz International Bristol, Inc. and
Hayes Lemmerz International Montague, Inc., which operated our suspension business operations in
Bristol, Indiana and Montague, Michigan. We received consideration for the sale of $26.2 million,
which consisted of $21.1 million in cash plus the assumption of $5.1 million of debt under
capital leases for equipment at the facilities. The loss recorded on the sale through October 31,
2008 was $3.2 million. In October 2006 we sold the outstanding shares of stock of Hayes Lemmerz
International Southfield, Inc., our Southfield, Michigan iron suspension components machining
plant. We received net cash proceeds of $18.0 million and recorded a loss on the sale through
October 31, 2008 of $2.1 million. In fiscal 2005 we sold our suspension facility in Cadillac,
Michigan. These facilities made up our suspension components business (Suspension business) and
were part of our previous reported Components segment We divested these operations in order to
streamline our business in North America, provide us with greater financial flexibility, and focus
our global resources on core businesses.
9
As of January 31, 2008, we had a balance of $0.2 million in accrued liabilities for our
Suspension business. Operating results for the Suspension business were as follows (dollars in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended October 31,
|
|
|
Nine Months Ended October 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Net sales
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning (loss) before income tax expense
|
|
$
|
0.1
|
|
|
$
|
0.8
|
|
|
$
|
0.1
|
|
|
$
|
(4.3
|
)
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
0.1
|
|
|
$
|
0.8
|
|
|
$
|
0.1
|
|
|
$
|
(4.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The operating results of the Brakes business, MGG Group, and Suspension business were
classified as discontinued operations and prior periods have been reclassified in accordance with
SFAS 144.
Note 7. Bank Borrowings, Other Notes, and Long-Term Debt
Short term bank borrowings and other notes were $46.4 million as of October 31, 2008 with a
weighted average interest rate of 7.2% and $32.9 million as of January 31, 2008 with a weighted
average interest rate of 6.0%. These consist primarily of short-term credit facilities at our
foreign subsidiaries.
Long-term debt consists of the following (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
January 31,
|
|
|
|
2008
|
|
|
2008
|
|
Various foreign bank and government loans, weighted average interest rates of
4.8% and 4.0% at October 31, 2008 and January 31, 2008, respectively
|
|
$
|
2.4
|
|
|
$
|
3.3
|
|
Term Loan maturing 2014, weighted average interest rate of 7.3% and 7.4%
at October 31, 2008 and January 31, 2008, respectively
|
|
|
335.2
|
|
|
|
381.5
|
|
8.25% New Senior Notes due 2015
|
|
|
169.7
|
|
|
|
192.2
|
|
Revolving Credit Facility, weighted average interest rate of 6.0%
at October 31, 2008
|
|
|
16.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
523.3
|
|
|
|
577.0
|
|
Less current portion of long-term debt
|
|
|
(4.2
|
)
|
|
|
(4.8
|
)
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
519.1
|
|
|
$
|
572.2
|
|
|
|
|
|
|
|
|
Euro Denominated Debt
The balance of our Term Loan maturing 2014 was approximately 256.8 million and 258.1
million as of October 31, 2008 and January 31, 2008 respectively. The balance of our 8.25% New
Senior Notes due 2015 was 130 million as of October 31, 2008 and January 31, 2008. The US
Dollar balance of the Term Loan maturing 2014 decreased from $381.5 million as of January 31, 2008
to $335.2 million as of October 31, 2008, which was primarily due to the fluctuation of foreign
currency exchange rates. The US Dollar balance of the 8.25% New Senior Notes due 2015 decreased
from $192.2 million as of January 31, 2008 to $169.7 million as of October 31, 2008 due to the
fluctuation of foreign currency exchange rates.
Rights Offering
On March 16, 2007 we announced that our Board of Directors approved a Rights Offering of up to
$180 million of common stock to our stockholders at a subscription price of $3.25 per share. The
Board of Directors set the record date of April 10, 2007 for determining the stockholders entitled
to participate in the Rights Offering. On April 16, 2007, the Board of Directors amended the
Rights Offering, reducing the number of shares available to Deutsche Bank Securities subject to its
Direct Investment option at a price of $3.25 per share from a maximum of 5,538,462 shares to a
maximum of 4,038,462 shares. In addition, Deutsche Bank agreed that shares exercised pursuant to
the Direct Investment would be in addition to, and not reduce the number of shares of the Companys
Common Stock offered in the Rights Offering, raising the total value of the Rights Offering and
Direct Investment to $193.1 million. The Rights Offering and the Direct Investment were approved at
a special meeting of stockholders held on May 4, 2007.
10
In May 2007, we distributed to stockholders of record as of April 10, 2007 non-transferable
subscription rights to purchase shares of our common stock in connection with the Rights Offering.
Stockholders on the record date received 1.3970 rights for each share of our common stock held on
the record date. The Rights Offering included an oversubscription privilege entitling holders of
the rights to subscribe for additional shares not purchased upon exercise of rights. The Rights
Offering was fully subscribed and Deutsche Bank Securities, Inc. exercised the Direct Investment.
On May 30, 2007 we closed on the Rights Offering and Direct Investment and issued 59,423,077 new
shares of common stock. Net proceeds of $185.4 million, after fees and expenses of $7.7 million,
were used to repurchase the outstanding 10
1
/
2
% Senior Notes due 2010 (Old Notes) pursuant to the
tender offer described below, with the excess being used to provide working capital and for general
corporate purposes.
Old Notes
As of January 31, 2007, HLI Operating Company, Inc. (HLI Opco) had $162.5 million aggregate
principal amount of Old Notes that were to mature on June 15, 2010. Interest on the Old Notes
accrued at a rate of 10
1
/
2
% per annum and was payable semi-annually in arrears on June 15 and
December 15. During the first quarter of fiscal 2007, we issued common stock in exchange for $5.0
million of the Old Notes, reducing the principal amount outstanding from $162.5 million to $157.5
million. During the second quarter of fiscal 2007 these notes were repurchased by HLI Opco pursuant
to the tender offer.
Except as set forth below, the Old Notes were not redeemable at the option of HLI Opco prior
to June 15, 2007. Starting on that date, HLI Opco could redeem all or any portion of the Old Notes,
at once or over time, upon the terms and conditions set forth in the senior note indenture
agreement (Old Indenture). At any time prior to June 15, 2007, HLI Opco could redeem all or any
portion of the Old Notes, at once or over time, at a redemption price equal to 100% of the
principal amount of the Old Notes to be redeemed, plus a specified make-whole premium.
The Old Indenture provided 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
provided that a holder of the Old Notes could, under certain circumstances, have the right to
require that we repurchase such holders Old Notes upon a change of control of the Company. The Old
Notes were unconditionally guaranteed as to the payment of principal, premium, if any, and
interest, jointly and severally on a senior, unsecured basis by us and substantially all of our
domestic subsidiaries.
Tender Offer for Senior Notes
On May 8, 2007, HLI Opco commenced a cash tender offer to repurchase all of its outstanding
Old Notes, which had an aggregate principal amount outstanding of $157.5 million. Concurrently
with the tender offer, HLI Opco solicited consents to amend the indenture governing the Old Notes.
The tender offer expired at 11:59 p.m., Eastern Standard time, on Tuesday, June 5, 2007. The
purchase price for the tendered Old Notes was based on a fixed spread of 50 basis points over the
yield on the 3.625% U.S. Treasury Note due June 30, 2007. Holders who validly tendered their Old
Notes and delivered their consents to the proposed amendments to the indenture on or prior to 5:00
p.m., Eastern Standard time, on May 21, 2007, were paid, in addition to the purchase price for the
Old Notes, a consent payment equal to $30.00 per $1,000 in principal amount of Old Notes. Holders
of approximately $154.2 million principal amount tendered their Old Notes and consented to the
amendments to the Indenture. On June 6, 2007 the remaining $3.3 million in Senior Notes were
tendered for redemption.
New Senior Notes
On May 30, 2007 we closed on a new offering of 130 million 8.25% senior unsecured notes
(New Notes) issued by Hayes Lemmerz Finance LLC Luxembourg S.C.A., a newly formed European
subsidiary (Hayes Luxembourg). The New Notes mature in 2015 and contain customary covenants and
restrictions. The New Notes and the related Indenture restrict our ability to, among other things,
make certain restricted payments, incur debt and issue preferred stock, incur liens, permit
dividends and other distributions by our subsidiaries, merge, consolidate, or sell assets, and
engage in transactions with affiliates. The New Notes and the Indenture also contain customary
events of default, including failure to pay principal or interest on the Notes or the guarantees
when due, among others. The New Notes are fully and unconditionally guaranteed on a senior
unsecured basis by us and substantially all of our direct and indirect domestic subsidiaries and
certain of our indirect foreign subsidiaries. Proceeds from the issuance of the New Notes,
together with the proceeds from the New Credit Facilities (as described below), were used to
refinance obligations under our Amended and Restated Credit Agreement, dated as of April 11, 2005,
to repay in full the approximately $21.8 million mortgage note on our headquarters building in
Northville, Michigan, to pay related fees and expenses, and for working capital and other general
corporate purposes.
11
We were required to exchange the New Senior Notes for substantially identical senior notes
that have been registered with the SEC (Exchange Notes). In connection with this obligation, we
were required to file a registration statement with the SEC with respect to the Exchange Notes on
or prior to August 28, 2007, to cause such registration statement to be declared effective on or
prior to November 26, 2007 and to complete the exchange offering by December 26, 2007. We failed
to meet the obligations to cause the registration statement to be declared effective and the
exchange offer to be completed by the required dates. The registration statement was ultimately
declared effective on April 11, 2008 and the exchange offer was completed on May 12, 2008. As a
result, additional interest has accrued on the principal amount of the New Senior Notes at a rate
of 0.25% per annum from and including November 27, 2007 through February 24, 2008 and a rate of
0.50% per annum from and including February 25, 2008 through the date on which the exchange offer
was completed. The amount of additional interest expense was not material to our consolidated
financial statements.
Credit Facility
On June 3, 2003 HLI Opco, entered into a $550 million senior secured credit facility (Old
Credit Facility), which initially consisted of a $450 million six-year amortizing term loan (Term
Loan B) and a five-year $100 million revolving credit facility.
On April 11, 2005 we amended and restated the Old Credit Facility to establish a new second
lien $150 million term loan (Term Loan C), from which 50% of the net proceeds were to be used for
general corporate purposes, with the remainder of the net proceeds used to repay a portion of the
Term Loan B. The Term Loan C principal balance of $150 million was due on June 3, 2010.
On May 30, 2007 we amended and restated the credit facility to establish three new senior
secured credit facilities in an amount of approximately $495 million (New Credit Facilities). The
proceeds from the New Credit Facilities, together with the proceeds of other financing activities,
were used to refinance our obligations under the Old Credit Facility. Additional proceeds were
used to replace existing letters of credit and to provide for working capital and other general
corporate purposes, and to pay the fees and expenses associated with the New Credit Facilities.
The New Credit Facilities consist of a term loan facility of 260 million maturing in 2014
borrowed by Hayes Luxembourg, a revolving credit facility of $125 million maturing in 2013
available to HLI Opco and Hayes Luxembourg (Revolving Credit Facility), and a synthetic letter of
credit facility of 15 million available to both borrowers. The interest rate for the term loan
is generally the EURIBOR rate plus 2.75% per annum until the first date after October 31, 2007 that
our leverage ratio is equal to or less than 2.5
to 1.0 and, thereafter, the EURIBOR rate plus 2.50% per annum. The interest rate for the
Revolving Credit Facility is generally either the LIBOR rate plus 2.75% per annum (for borrowings
by HLI Opco) or the EURIBOR rate plus 2.75% per annum (for borrowings by Hayes Luxembourg).
The obligations of HLI Opco and Hayes Luxembourg under the New Credit Facility are guaranteed
by us and substantially all of our direct and indirect domestic subsidiaries. In addition, the
obligations of Hayes Luxembourg under the New Credit Facilities are guaranteed, subject to certain
exceptions, by certain of our foreign subsidiaries. The obligations of HLI Opco and Hayes
Luxembourg under the New Credit Facilities and the guarantors obligations under their respective
guarantees of the New Credit Facilities are, subject to certain exceptions, secured by a first
priority perfected pledge of substantially all capital stock owned by the borrowers and the
guarantors (but not more than 65% of the capital stock of Hayes Luxembourg or any foreign
subsidiary can secure HLI Opcos obligations) and substantially all of the other assets owned by
the borrowers and the guarantors. All foreign guarantees and collateral are subject to applicable
restrictions on cross-stream and upstream guarantees and other legal restrictions, including
financial assistance rules, thin capitalization rules, and corporate benefit rules.
The New Credit Facilities contain negative covenants restricting our ability and the ability
of our subsidiaries to, among other actions, declare dividends or repay or repurchase capital
stock, cancel, prepay, redeem or repurchase debt, incur liens and engage in sale-leaseback
transactions, make loans and investments, incur indebtedness, amend or otherwise alter certain debt
documents, engage in mergers, acquisitions and asset sales, engage in transactions with affiliates,
and alter their respective businesses. The financial covenants under the New Credit Facilities
include covenants regarding a maximum total leverage ratio, a minimum interest coverage ratio and a
maximum capital expenditures amount. The New Credit Facilities contain customary events of default
including, without limitation, failure to pay principal and interest when due, material inaccuracy
of any representation or warranty, failure to comply with any covenant, cross-defaults, failure to
satisfy or stay execution of judgments in excess of specified amounts, bankruptcy or insolvency,
the existence of certain materially adverse employee benefit liabilities in excess of a certain
specified amount, the invalidity or impairment of any loan documents and a change of control.
12
As of October 31, 2008 there were $16.0 million of borrowings and $0.8 million in letters of
credit issued under the Revolving Credit Facility, and $19.1 million in letters of credit issued
under the synthetic letter of credit facility. As of January 31, 2008 there were no outstanding
borrowings, approximately $0.8 million in letters of credit issued under the Revolving Credit
Facility, and approximately $20.8 million in letters of credit issued under the synthetic letter of
credit facility. The amount available to borrow under the Revolving Credit Facility at October 31,
2008 and January 31, 2008 was $108.2 million and $124.2 million, respectively. The amount
available to borrow under the synthetic letter of credit at October 31, 2008 and January 31, 2008
was $0.5 million and $1.3 million, respectively.
Covenant Compliance
As of October 31, 2008, we were in compliance with all applicable covenants and restrictions
of our New Credit Facilities, although we will be increasingly unlikely to achieve compliance in
subsequent periods, absent a waiver or amendment from our lenders. We are currently pursuing an
amendment to the New Credit Facilities to enable us to comply with the covenants in future periods
and to continue to access the Revolving Credit Facility without restrictions. We can give no
assurance that we will obtain such an amendment to the covenants or that such an amendment, if
obtained, would enable us to continue to access the Revolving Credit Facility without restrictions.
If we are unable to obtain such an amendment, we will be restricted in our ability to access the
Revolving Credit Facility and will likely violate the covenants in future periods. Such a
violation could result in the acceleration of amounts due under the New Credit Facilities and the
New Notes.
Note 8. Pension Plans and Postretirement Benefits Other Than Pensions
We sponsor several defined benefit pension plans (Pension Benefits) and health care and life
insurance benefits (Other Benefits) for certain employees around the world. We fund the Pension
Benefits based upon the funding requirements of United States and international laws and
regulations in advance of benefit payments and the Other Benefits as benefits are provided to the
employees.
The fiscal 2008 and fiscal 2007 amounts shown below present the Pension Benefits and Other
Benefits expense for the three and nine months ended October 31, 2008 and 2007 (dollars in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits - US
|
|
|
Other Benefits - US
|
|
|
Pension Benefits - International
|
|
|
|
Three Months Ended October 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Service cost
|
|
$
|
0.2
|
|
|
$
|
0.3
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.1
|
|
|
$
|
0.3
|
|
Interest cost
|
|
|
2.5
|
|
|
|
2.6
|
|
|
|
2.4
|
|
|
|
2.5
|
|
|
|
1.8
|
|
|
|
1.6
|
|
Expected return on plan assets
|
|
|
(3.3
|
)
|
|
|
(3.0
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
Amortization of net loss
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
(0.7
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
2.0
|
|
|
$
|
2.4
|
|
|
$
|
1.7
|
|
|
$
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits - US
|
|
|
Other Benefits - US
|
|
|
Pension Benefits - International
|
|
|
|
Nine Months Ended October 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Service cost
|
|
$
|
0.8
|
|
|
$
|
0.8
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.5
|
|
|
$
|
0.6
|
|
Interest cost
|
|
|
7.7
|
|
|
|
7.8
|
|
|
|
7.0
|
|
|
|
7.2
|
|
|
|
5.6
|
|
|
|
4.9
|
|
Expected return on plan assets
|
|
|
(9.9
|
)
|
|
|
(9.0
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.8
|
)
|
|
|
(0.6
|
)
|
Amortization of net loss
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
(1.1
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
(2.1
|
)
|
|
$
|
(0.4
|
)
|
|
$
|
5.9
|
|
|
$
|
6.9
|
|
|
$
|
5.3
|
|
|
$
|
4.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We contributed $5.4 million to our U.S. Pension Benefits plan during the first nine months of
fiscal 2008 and expect to contribute an additional $1.2 million during the remainder of fiscal
2008. We contributed $9.7 million to our U.S. Other Benefits plan during the first nine months of
fiscal 2008 and expect to contribute an additional $4.2 million during the remainder of fiscal
2008. We contributed $8.5 million to our international Pension Benefits plan during the first nine
months of fiscal 2008 and expect to contribute an additional $1.5 million during the remainder of
fiscal 2008.
13
Effective January 31, 2007, we adopted SFAS 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans (SFAS 158), which amends SFAS 87, Employers Accounting
for Pensions, SFAS 88, Employers Accounting for Settlements and Curtailments of Defined Benefit
Pension Plan and for Termination Benefits, SFAS 106, Employers Accounting for Postretirement
Benefits Other Than Pensions, and SFAS 132 (revised 2003), Employers Disclosures about Pensions
and Other Postretirement Benefits. SFAS 158 requires an employer to recognize the over funded or
under funded status of defined benefit pension and postretirement plans (other than a multi
employer plan) as an asset or liability in its statement of financial position and to recognize
changes in that funded status in the year in which the changes occur through comprehensive income.
This Statement also requires an employer to measure the funded status of a plan as of the date of
its year-end statement of financial position, with limited exceptions. During the first quarter of
fiscal 2008, we recorded $1.2 million as a decrease of beginning retained earnings and $0.6 million
as a decrease of accumulated other comprehensive income due to the change in measurement date.
Note 9. Asset Impairments and Other Restructuring Charges
Asset impairment losses and other restructuring charges for the three and nine months ended
October 31, 2008 and 2007 were as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended October 31, 2008
|
|
|
|
Automotive
|
|
|
|
|
|
|
|
|
|
Wheels
|
|
|
Other
|
|
|
Total
|
|
Facility closure costs
|
|
$
|
1.1
|
|
|
$
|
0.1
|
|
|
$
|
1.2
|
|
Impairment of facility, machinery, and equipment
|
|
|
0.6
|
|
|
|
|
|
|
|
0.6
|
|
Severance and other restructuring costs
|
|
|
0.9
|
|
|
|
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2.6
|
|
|
$
|
0.1
|
|
|
$
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended October 31, 2007
|
|
|
|
Automotive
|
|
|
|
|
|
|
|
|
|
Wheels
|
|
|
Other
|
|
|
Total
|
|
Facility closure costs
|
|
$
|
0.1
|
|
|
$
|
|
|
|
$
|
0.1
|
|
Impairment of facility, machinery, and equipment
|
|
|
48.9
|
|
|
|
0.9
|
|
|
|
49.8
|
|
Severance and other restructuring costs
|
|
|
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
49.0
|
|
|
$
|
1.0
|
|
|
$
|
50.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended October 31, 2008
|
|
|
|
Automotive
|
|
|
|
|
|
|
|
|
|
Wheels
|
|
|
Other
|
|
|
Total
|
|
Facility closure costs
|
|
$
|
1.7
|
|
|
$
|
0.3
|
|
|
$
|
2.0
|
|
Impairment of facility, machinery, and equipment
|
|
|
7.8
|
|
|
|
|
|
|
|
7.8
|
|
Severance and other restructuring costs
|
|
|
1.9
|
|
|
|
0.1
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11.4
|
|
|
$
|
0.4
|
|
|
$
|
11.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended October 31, 2007
|
|
|
|
Automotive
|
|
|
|
|
|
|
|
|
|
Wheels
|
|
|
Other
|
|
|
Total
|
|
Facility closure costs
|
|
$
|
2.9
|
|
|
$
|
0.1
|
|
|
$
|
3.0
|
|
Impairment of facility, machinery, and equipment
|
|
|
49.4
|
|
|
|
0.9
|
|
|
|
50.3
|
|
Severance and other restructuring costs
|
|
|
|
|
|
|
0.7
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
52.3
|
|
|
$
|
1.7
|
|
|
$
|
54.0
|
|
|
|
|
|
|
|
|
|
|
|
14
In May 2008 we announced the closure of our Gainesville, Georgia aluminum wheels facility. We
also announced that Punch Property International nv (Punch Property), the property investment
company of the Punch group, entered into a definitive agreement with Hayes Lemmerz International -
Georgia, Inc. to purchase the real estate and certain equipment from Gainesville. This acquisition
is expected to be completed following cessation of production in connection with the closure of the
facility. The purchase price of the transaction was not material to either party. We incurred
$1.2 million in one-time termination benefits and severance related to this closure.
Asset Impairment Losses and Other Restructuring Charges for the Three Months Ended October 31,
2008
During the third quarter of fiscal 2008, we recorded facility closure, employee restructuring
charges, and asset impairments of $2.7 million.
In the Automotive Wheels segment we recorded expense of $2.6 million. Facility closure costs
of $1.1 million were related to ongoing costs for our idle aluminum wheel facilities in Howell,
Michigan and Huntington, Indiana, as well as our aluminum wheel facility in Gainesville, Georgia.
Asset impairments of $0.6 million was related to our aluminum wheel facility in Gainesville,
Georgia, which was written down to fair value based on current market conditions. Severance and
other restructuring costs of $0.9 million were related to our facilities in Gainesville, Georgia;
Dello, Italy; and Königswinter, Germany.
Expense of $0.1 million in the Other segment was related to facility closure costs for our
Ferndale, Michigan technical center, which was closed in fiscal 2007.
Asset Impairment Losses and Other Restructuring Charges for the Three Months Ended October 31,
2007
During the third quarter of fiscal 2007, we recorded facility closure, employee restructuring
charges, and asset impairments of $50.0 million.
In the Automotive Wheels segment we recorded expense of $49.0 million. Facility closure costs
of $0.1 million were related to ongoing costs for our idle aluminum wheel facilities in Howell,
Michigan and Huntington, Indiana. Asset impairments of $11.2 million were related to our aluminum
wheel facility in Hoboken, Belgium, which was sold on June 13, 2008 to BBS International GmbH
(BBS). Asset impairments of $20.0 million were related to our aluminum wheel facility in
Gainesville, Georgia, and the remainder of $17.7 million was primarily related to our aluminum
wheel facility in Chihuahua, Mexico.
The Other segment expense of $1.0 million was primarily related to machinery and equipment
impairments and severance expense at our facility in Nuevo Laredo, Mexico, as well as severance
expense at our corporate offices.
Asset Impairment Losses and Other Restructuring Charges for the Nine Months Ended October 31, 2008
During the first nine months of fiscal 2008, we recorded facility closure, employee
restructuring charges, and asset impairments of $11.8 million.
In the Automotive Wheels segment we recorded expense of $11.4 million. Facility closure costs
of $1.7 million were related to ongoing costs for our idle aluminum wheel facilities in Howell,
Michigan and Huntington, Indiana, as well as our aluminum wheel facility in Gainesville, Georgia.
Asset impairments of $7.8 million were related to our aluminum wheel facilities in Gainesville,
Georgia; Huntington, Indiana; Howell, Michigan; Hoboken, Belgium; and Chihuahua, Mexico. These
facilities were written down to fair value based on current market conditions. Severance and other
restructuring costs of $1.9 million were related to our facilities in Gainesville, Georgia; Dello,
Italy; and Königswinter, Germany.
Expense of $0.4 million in the Other segment was related to facility closure costs and
severance for our Ferndale, Michigan technical center, which was closed in fiscal 2007.
Asset Impairment Losses and Other Restructuring Charges for the Nine Months Ended October 31, 2007
During the first nine months of fiscal 2007, we recorded facility closure, employee
restructuring charges, and asset impairments of $54.0 million.
In the Automotive Wheels segment we recorded expense of $52.3 million. Facility closure costs
of $2.9 million were related to ongoing costs for our idle aluminum wheel facilities in Howell,
Michigan and Huntington, Indiana. Asset impairments of $11.2
15
million were related to our aluminum
wheel facility in Hoboken, Belgium, which was sold on June 13, 2008 to BBS. Asset impairments of
$20.0 million were related to our facilities in Gainesville, Georgia, and the remainder of the
impairments expense was related primarily to our aluminum wheel facility in Chihuahua, Mexico.
The Other segment expense of $1.7 million consisted of $0.1 million of facility closure costs
and severance expense at our Ferndale, Michigan technical center and $1.6 of impairment and
severance expense at our Nuevo Laredo facility in Mexico and our corporate offices.
Facility Exit Costs and Severance Accruals
The following table describes the activity in the balance sheet accounts affected by severance
and other facility exit costs during the nine months ended October 31, 2008 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of
|
|
|
|
|
|
|
January 31,
|
|
|
|
|
|
|
Foreign
|
|
|
October 31,
|
|
|
|
2008 Accrual
|
|
|
Expense
|
|
|
Currency
|
|
|
2008 Accrual
|
|
Facility closure costs
|
|
$
|
|
|
|
$
|
2.0
|
|
|
$
|
(1.3
|
)
|
|
$
|
0.7
|
|
Severance and other restructuring costs
|
|
|
0.2
|
|
|
|
2.0
|
|
|
|
(0.8
|
)
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0.2
|
|
|
$
|
4.0
|
|
|
$
|
(2.1
|
)
|
|
$
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 10. Weighted Average Shares Outstanding
Shares outstanding for the three and nine months ended October 31, 2008 and 2007 were as
follows (thousands of shares):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended October 31,
|
|
|
Nine Months Ended October 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Basic weighted average shares outstanding
|
|
|
101,417
|
|
|
|
100,382
|
|
|
|
101,198
|
|
|
|
73,414
|
|
Dilutive effect of unvested restricted stock and options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
101,417
|
|
|
|
100,382
|
|
|
|
101,198
|
|
|
|
73,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and nine months ended October 31, 2008 and 2007 all options and unvested
restricted stock units were excluded from the calculation of diluted loss per share on the
Consolidated Statements of Operations as the effect was anti-dilutive due to the net loss in those
periods.
Note 11. Taxes on Income
Income tax expense allocated to continuing operations for the three and nine months ended
October 31, 2008 and 2007 were as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended October 31,
|
|
|
2008
|
|
2007
|
|
|
US
|
|
Foreign
|
|
US
|
|
Foreign
|
Pre-tax income (loss)
|
|
$
|
(11.1
|
)
|
|
$
|
19.4
|
|
|
$
|
(43.8
|
)
|
|
$
|
3.7
|
|
Income tax expense
|
|
|
(0.2
|
)
|
|
|
12.7
|
|
|
|
(0.4
|
)
|
|
|
17.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended October 31,
|
|
|
2008
|
|
2007
|
|
|
US
|
|
Foreign
|
|
US
|
|
Foreign
|
Pre-tax income (loss)
|
|
$
|
(52.4
|
)
|
|
$
|
41.8
|
|
|
$
|
(131.9
|
)
|
|
$
|
48.4
|
|
Income tax expense
|
|
|
0.6
|
|
|
|
39.5
|
|
|
|
0.2
|
|
|
|
38.3
|
|
16
Income tax expense for the three and nine months ended October 31, 2008 and 2007 was primarily
the result of tax expense in foreign jurisdictions and various states.
We have 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
federal income tax benefit recorded against current losses incurred
at those locations.
Effective February 1, 2007, we adopted Financial Accounting Standards Board Interpretation No.
48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (FIN
48). FIN 48 provides guidance on financial statement recognition and measurement of tax positions
taken, or expected to be taken, in tax returns. The initial adoption of FIN 48 did not have a
material impact on our financial statements. As of January 31, 2008, the amount of unrecognized
tax benefits was $11.1 million, including $1.3 million of related accrued interest and penalties.
As of October 31, 2008, the amount of unrecognized tax benefits was $4.8 million, including $0.3
million of related accrued interest and penalties. The decrease
relates to tax payments made and expiration of statute of limitations
for certain international locations.
The amount of unrecognized tax benefits may increase or decrease in the future for various
reasons including adding amounts for current tax year positions, expiration of open income tax
returns due to the statutes of limitation, changes in managements judgment about the level of
uncertainty, status of examinations, litigation and legislative activity, and the addition or
elimination of uncertain tax positions. Our policy is to report interest related to unrecognized
tax benefits in interest expense and penalties, if any, related to unrecognized tax benefits in
income tax expense in our Consolidated Statements of Operations.
We have open tax years from primarily 2000 to 2007 with various significant taxing
jurisdictions including the United States, Germany, Italy, Brazil, Turkey, and Czech Republic.
These open years contain matters that could be subject to differing interpretations of applicable
tax laws and regulations as they relate to the amount, timing or inclusion of revenue and expenses
or the sustainability of income tax credits for a given audit cycle. We have recorded a tax benefit
only for those positions that meet the more-likely-than-not standard.
Note 12. Segment Reporting
We are organized based primarily on markets served and products produced. Under this
organizational structure, our operating segments have been aggregated into two reportable segments:
Automotive Wheels and Other. The Automotive Wheels segment includes results from our operations
that primarily design and manufacture fabricated steel and cast aluminum wheels for original
equipment manufacturers in the global passenger car, light vehicle, and commercial vehicle markets.
The Other segment includes results from our operations that primarily design and manufacture
powertrain components for the passenger car and light vehicle markets as well as financial results
related to the corporate office and the elimination of certain intercompany activities.
The following tables present revenues and other financial information by business segment
(dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended October 31, 2008
|
|
|
Automotive
|
|
|
|
|
|
|
Wheels
|
|
Other
|
|
Total
|
Net sales
|
|
$
|
475.6
|
|
|
$
|
21.4
|
|
|
$
|
497.0
|
|
Asset impairments and other restructuring charges
|
|
|
2.6
|
|
|
|
0.1
|
|
|
|
2.7
|
|
Earnings from operations
|
|
|
14.4
|
|
|
|
6.2
|
|
|
|
20.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended October 31, 2007
|
|
|
Automotive
|
|
|
|
|
|
|
Wheels
|
|
Other
|
|
Total
|
Net sales
|
|
$
|
543.3
|
|
|
$
|
11.6
|
|
|
$
|
554.9
|
|
Asset impairments and other restructuring charges
|
|
|
49.0
|
|
|
|
1.0
|
|
|
|
50.0
|
|
Loss from operations
|
|
|
(21.8
|
)
|
|
|
(5.8
|
)
|
|
|
(27.6
|
)
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended October 31, 2008
|
|
|
Automotive
|
|
|
|
|
|
|
Wheels
|
|
Other
|
|
Total
|
Net sales
|
|
$
|
1,587.7
|
|
|
$
|
46.6
|
|
|
$
|
1,634.3
|
|
Asset impairments and other restructuring charges
|
|
|
11.4
|
|
|
|
0.4
|
|
|
|
11.8
|
|
Earnings from operations
|
|
|
19.0
|
|
|
|
13.0
|
|
|
|
32.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended October 31, 2007
|
|
|
Automotive
|
|
|
|
|
|
|
Wheels
|
|
Other
|
|
Total
|
Net sales
|
|
$
|
1,531.3
|
|
|
$
|
66.3
|
|
|
$
|
1,597.6
|
|
Asset impairments and other restructuring charges
|
|
|
52.3
|
|
|
|
1.7
|
|
|
|
54.0
|
|
Earnings (loss) from operations
|
|
|
24.4
|
|
|
|
(40.0
|
)
|
|
|
(15.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 31, 2008
|
|
|
Automotive
|
|
|
|
|
|
|
Wheels
|
|
Other
|
|
Total
|
Total assets
|
|
$
|
1,636.3
|
|
|
$
|
(146.4
|
)
|
|
$
|
1,489.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 31, 2008
|
|
|
Automotive
|
|
|
|
|
|
|
Wheels
|
|
Other
|
|
Total
|
Total assets
|
|
$
|
1,956.6
|
|
|
$
|
(150.7
|
)
|
|
$
|
1,805.9
|
|
Note 13. Minority Interest in Equity of Consolidated Subsidiaries
The consolidated financial statements include the accounts of our majority-owned subsidiaries
in which we have control. The balance sheet and results of operations of controlled subsidiaries
where ownership is greater than 50 percent, but less than 100 percent, are included in the
consolidated financial statements and are offset by a related minority interest expense and
liability recorded for the minority interest ownership.
Minority interest includes common shares in consolidated subsidiaries where our ownership is
less than 100 percent and preferred stock issued by HLI Opco. The preferred stock is redeemable by
HLI Opco at any time after June 3, 2013, and may be exchanged at the option of the holders at any
time for shares of our common stock. The holders of the preferred stock are entitled to cash
dividends of 8% of the liquidation preference per annum when, as, and if declared by the Board of
Directors of HLI Opco. Dividends accrue without interest from the date of issuance until declared
and paid or until the shares are redeemed by HLI Opco or exchanged by the holders thereof.
The balance of minority interest is summarized as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
January 31,
|
|
|
|
2008
|
|
|
2008
|
|
Minority interest in consolidated affiliates
|
|
$
|
55.3
|
|
|
$
|
59.3
|
|
Minority interest in preferred stock
|
|
|
11.4
|
|
|
|
11.2
|
|
|
|
|
|
|
|
|
Total minority interest
|
|
$
|
66.7
|
|
|
$
|
70.5
|
|
|
|
|
|
|
|
|
Note 14. New Accounting Pronouncements
In March 2008 the FASB issued SFAS 161,
Disclosures about Derivative Instruments and Hedging
Activities an amendment of FASB Statement No. 133
(SFAS 161). This standard requires enhanced
disclosures about an entitys derivative and hedging activities. SFAS 161 requires qualitative
disclosures about objectives and strategies for using derivatives, quantitative disclosures about
fair value amounts of gains and losses on derivative instruments, and disclosures about
credit-risk-related contingent features in derivative agreements. This standard is effective for
financial statements issued for fiscal years and interim periods beginning after November 15, 2008
and only requires disclosures for earlier periods presented for comparative purposes beginning in
the first year after the year of initial adoption. We do not anticipate that the adoption of SFAS
161 will have a significant impact on our financial condition or results of operations.
18
In December 2007 the FASB issued SFAS 141R,
Business Combinations
(SFAS 141R). This
standard establishes principles and requirements for how the acquirer recognizes and measures the
acquired identifiable assets, assumed liabilities, noncontrolling interest in the acquiree, and
acquired goodwill or gain from a bargain purchase. SFAS 141R also determines what information the
acquirer must disclose to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. SFAS 141R applies prospectively to business
combinations for which the acquisition date is on or after January 1, 2009. We do not anticipate
that the adoption of SFAS 141R will have a significant impact on our financial condition or results
of operations.
In December 2007 the FASB issued SFAS 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51
(SFAS 160). This standard establishes accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of
a subsidiary. SFAS 160 clarifies that a noncontrolling interest in a subsidiary is an ownership
interest in the consolidated entity that should be reported as equity in the consolidated financial
statements. SFAS 160 is effective for us as of February 1, 2009 with early adoption prohibited.
SFAS 160 shall be applied prospectively as of the beginning of the fiscal year in which this
standard is initially applied. The presentation and disclosure requirements of this standard shall
be applied retrospectively for all periods presented and will impact how we present and disclose
noncontrolling interests and income from noncontrolling interests in our financial statements.
In September 2006 the FASB issued SFAS 157,
Fair Value Measurements
(SFAS 157). SFAS 157
establishes a framework for measuring fair value and expands disclosures about fair value
measurements. The changes to current practice resulting from the application of SFAS 157 relate to
the definition of fair value, the methods used to measure fair value, and the expanded disclosures
about fair value measurements. We adopted the provisions of SFAS 157 with our fiscal year beginning
February 1, 2008. The adoption of SFAS 157 did not have an impact on our consolidated financial
statements. SFAS 157 clarifies that fair value is an exit price, representing the amount
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants. Fair value should be determined based on assumptions that market participants would use
in pricing an asset or liability. SFAS 157 uses a three-tier hierarchy that classifies assets and liabilities
based on the inputs used in the valuation methodologies. In accordance with SFAS 157,
we measured our interest rate derivative contracts at fair value and classified as level 2 liabilities
based upon models utilizing market observable inputs and credit risk. The fair value of our interest rate
derivative contracts was $5.4 million as of October 31, 2008.
In February 2008, the FASB issued FASB Staff Position (FSP) 157-2, Effective Date of
FASB Statement No. 157 (FSP 157-2). This FSP delays the effective date of SFAS 157 for all
nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at
fair value in the financial statements on a recurring basis (at least annually). The effective date
for nonfinancial assets and nonfinancial liabilities has been delayed by one year to fiscal years
beginning after November 15, 2008 and interim periods within those fiscal years. We do not
anticipate that the adoption of FSP 157-2 will have a significant impact on our financial condition
and results of operations.
Note 15. Condensed Consolidating Financial Statements
The following condensed consolidating financial statements present the financial information
required with respect to those entities that guarantee certain of our debt.
The condensed consolidating financial statements are presented based on the equity method of
accounting. Under this method, the investments in subsidiaries are recorded at cost and adjusted
for our 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.
Guarantor and Nonguarantor Financial Statements
As of October 31, 2008 Hayes Lemmerz International, Inc. (Hayes), HLI Parent Company, Inc.
(Parent), HLI Opco, and substantially all of our domestic subsidiaries and certain of our foreign
subsidiaries (collectively, excluding Hayes, the Guarantors) fully and unconditionally guaranteed,
on a joint and several basis, the New Notes. This guarantor structure is a result of the
restructuring of our debt as discussed in Note 7, Bank Borrowings, Other Notes, and Long-term Debt.
At October 31, 2008 certain of our foreign subsidiaries were not obligated to guaranty the New
Notes, nor were our domestic subsidiaries that are special purpose entities formed for domestic
accounts receivable securitization programs (collectively, the Nonguarantor Subsidiaries). In lieu
of providing separate unaudited financial statements for each of the Guarantors, we have included
the unaudited supplemental guarantor condensed consolidating financial statements. We do not
believe that separate financial statements for each of the Guarantors are material to investors.
Therefore, separate financial statements and other disclosures concerning the Guarantors are not
presented. In
order to present comparable financial statements, we have presented them as if the current
guarantor structure had been in place for all periods presented.
19
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Nine Months Ended October 31, 2008
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Nonguarantor
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Issuer
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
Net sales
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,023.2
|
|
|
$
|
673.8
|
|
|
$
|
(62.7
|
)
|
|
$
|
1,634.3
|
|
Cost of goods sold
|
|
|
0.1
|
|
|
|
|
|
|
|
929.4
|
|
|
|
575.3
|
|
|
|
(62.7
|
)
|
|
|
1,442.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross (loss) profit
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
93.8
|
|
|
|
98.5
|
|
|
|
|
|
|
|
192.2
|
|
Marketing, general, and administrative
|
|
|
|
|
|
|
0.6
|
|
|
|
79.3
|
|
|
|
32.9
|
|
|
|
|
|
|
|
112.8
|
|
Equity in (earnings) losses of
subsidiaries and joint ventures
|
|
|
70.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(70.1
|
)
|
|
|
|
|
Amortization of intangibles
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
7.9
|
|
|
|
|
|
|
|
8.3
|
|
Asset impairments and other restructuring charges
|
|
|
|
|
|
|
|
|
|
|
10.6
|
|
|
|
1.2
|
|
|
|
|
|
|
|
11.8
|
|
Other (income) expense, net
|
|
|
|
|
|
|
|
|
|
|
(3.4
|
)
|
|
|
11.6
|
|
|
|
19.1
|
|
|
|
27.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from operations
|
|
|
(70.2
|
)
|
|
|
(0.6
|
)
|
|
|
6.9
|
|
|
|
44.9
|
|
|
|
51.0
|
|
|
|
32.0
|
|
Interest expense (income), net
|
|
|
|
|
|
|
61.5
|
|
|
|
(31.3
|
)
|
|
|
9.6
|
|
|
|
|
|
|
|
39.8
|
|
Other non-operating expense
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
|
|
1.6
|
|
|
|
0.7
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from continuing operations
before taxes and minority interest
|
|
|
(70.2
|
)
|
|
|
(62.1
|
)
|
|
|
37.7
|
|
|
|
33.7
|
|
|
|
50.3
|
|
|
|
(10.6
|
)
|
Income tax expense
|
|
|
|
|
|
|
1.9
|
|
|
|
19.5
|
|
|
|
18.7
|
|
|
|
|
|
|
|
40.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from continuing operations before
minority interest
|
|
|
(70.2
|
)
|
|
|
(64.0
|
)
|
|
|
18.2
|
|
|
|
15.0
|
|
|
|
50.3
|
|
|
|
(50.7
|
)
|
Minority interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17.2
|
|
|
|
|
|
|
|
17.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from continuing operations
|
|
|
(70.2
|
)
|
|
|
(64.0
|
)
|
|
|
18.2
|
|
|
|
(2.2
|
)
|
|
|
50.3
|
|
|
|
(67.9
|
)
|
Loss from discontinued operations .
|
|
|
|
|
|
|
|
|
|
|
(2.3
|
)
|
|
|
|
|
|
|
|
|
|
|
(2.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(70.2
|
)
|
|
$
|
(64.0
|
)
|
|
$
|
15.9
|
|
|
$
|
(2.2
|
)
|
|
$
|
50.3
|
|
|
$
|
(70.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Nine Months Ended October 31, 2007
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Nonguarantor
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Issuer
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
Net sales
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,150.8
|
|
|
$
|
500.8
|
|
|
$
|
(54.0
|
)
|
|
$
|
1,597.6
|
|
Cost of goods sold
|
|
|
0.1
|
|
|
|
|
|
|
|
1,054.3
|
|
|
|
429.8
|
|
|
|
(54.0
|
)
|
|
|
1,430.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross (loss) profit
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
96.5
|
|
|
|
71.0
|
|
|
|
|
|
|
|
167.4
|
|
Marketing, general, and administrative
|
|
|
|
|
|
|
|
|
|
|
95.2
|
|
|
|
21.4
|
|
|
|
|
|
|
|
116.6
|
|
Equity in (earnings) losses of
subsidiaries and joint ventures
|
|
|
165.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(165.0
|
)
|
|
|
|
|
Asset impairments and other restructuring charges
|
|
|
|
|
|
|
|
|
|
|
42.7
|
|
|
|
11.3
|
|
|
|
|
|
|
|
54.0
|
|
Other (income) expense, net
|
|
|
|
|
|
|
(18.1
|
)
|
|
|
4.8
|
|
|
|
(113.6
|
)
|
|
|
139.3
|
|
|
|
12.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from operations
|
|
|
(165.1
|
)
|
|
|
18.1
|
|
|
|
(46.2
|
)
|
|
|
151.9
|
|
|
|
25.7
|
|
|
|
(15.6
|
)
|
Interest expense, net
|
|
|
|
|
|
|
19.5
|
|
|
|
15.5
|
|
|
|
12.8
|
|
|
|
|
|
|
|
47.8
|
|
Loss on early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
21.5
|
|
|
|
|
|
|
|
|
|
|
|
21.5
|
|
Other non-operating (income) expense
|
|
|
|
|
|
|
|
|
|
|
(4.1
|
)
|
|
|
(15.1
|
)
|
|
|
17.8
|
|
|
|
(1.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from continuing operations
before taxes and minority interest
|
|
|
(165.1
|
)
|
|
|
(1.4
|
)
|
|
|
(79.1
|
)
|
|
|
154.2
|
|
|
|
7.9
|
|
|
|
(83.5
|
)
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
27.4
|
|
|
|
11.1
|
|
|
|
|
|
|
|
38.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from continuing operations before
minority interest
|
|
|
(165.1
|
)
|
|
|
(1.4
|
)
|
|
|
(106.5
|
)
|
|
|
143.1
|
|
|
|
7.9
|
|
|
|
(122.0
|
)
|
Minority interest
|
|
|
|
|
|
|
|
|
|
|
0.6
|
|
|
|
14.8
|
|
|
|
|
|
|
|
15.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from continuing operations
|
|
|
(165.1
|
)
|
|
|
(1.4
|
)
|
|
|
(107.1
|
)
|
|
|
128.3
|
|
|
|
7.9
|
|
|
|
(137.4
|
)
|
(Loss) earnings from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(35.0
|
)
|
|
|
7.3
|
|
|
|
|
|
|
|
(27.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(165.1
|
)
|
|
$
|
(1.4
|
)
|
|
$
|
(142.1
|
)
|
|
$
|
135.6
|
|
|
$
|
7.9
|
|
|
$
|
(165.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
CONDENSED CONSOLIDATING BALANCE SHEETS
As of October 31, 2008
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Nonguarantor
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Issuer
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
15.8
|
|
|
$
|
11.7
|
|
|
$
|
29.6
|
|
|
$
|
|
|
|
$
|
57.1
|
|
Receivables, net
|
|
|
|
|
|
|
|
|
|
|
116.8
|
|
|
|
108.2
|
|
|
|
|
|
|
|
225.0
|
|
Other receivables
|
|
|
|
|
|
|
|
|
|
|
39.4
|
|
|
|
39.4
|
|
|
|
(39.4
|
)
|
|
|
39.4
|
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
128.7
|
|
|
|
65.9
|
|
|
|
|
|
|
|
194.6
|
|
Assets held for sale .
|
|
|
|
|
|
|
|
|
|
|
31.2
|
|
|
|
|
|
|
|
|
|
|
|
31.2
|
|
Prepaid expenses and other current assets
|
|
|
|
|
|
|
|
|
|
|
5.3
|
|
|
|
4.6
|
|
|
|
(0.8
|
)
|
|
|
9.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
15.8
|
|
|
|
333.1
|
|
|
|
247.7
|
|
|
|
(40.2
|
)
|
|
|
556.4
|
|
Property, plant, and equipment, net
|
|
|
|
|
|
|
|
|
|
|
323.4
|
|
|
|
211.7
|
|
|
|
|
|
|
|
535.1
|
|
Goodwill and other assets, net
|
|
|
98.3
|
|
|
|
715.2
|
|
|
|
45.1
|
|
|
|
299.6
|
|
|
|
(759.8
|
)
|
|
|
398.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
98.3
|
|
|
$
|
731.0
|
|
|
$
|
701.6
|
|
|
$
|
759.0
|
|
|
$
|
(800.0
|
)
|
|
$
|
1,489.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank borrowings and other notes
|
|
$
|
|
|
|
$
|
|
|
|
$
|
36.7
|
|
|
$
|
9.7
|
|
|
$
|
|
|
|
$
|
46.4
|
|
Current portion of long-term debt
|
|
|
|
|
|
|
3.4
|
|
|
|
0.1
|
|
|
|
0.7
|
|
|
|
|
|
|
|
4.2
|
|
Liabilities held for sale
|
|
|
|
|
|
|
|
|
|
|
8.3
|
|
|
|
|
|
|
|
|
|
|
|
8.3
|
|
Accounts payable and other accrued liabilities
|
|
|
|
|
|
|
9.3
|
|
|
|
239.9
|
|
|
|
180.8
|
|
|
|
(39.4
|
)
|
|
|
390.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
|
|
|
12.7
|
|
|
|
285.0
|
|
|
|
191.2
|
|
|
|
(39.4
|
)
|
|
|
449.5
|
|
Long-term debt, net of current portion
|
|
|
|
|
|
|
501.5
|
|
|
|
16.5
|
|
|
|
1.1
|
|
|
|
|
|
|
|
519.1
|
|
Pension and other long-term liabilities
|
|
|
|
|
|
|
|
|
|
|
267.9
|
|
|
|
92.7
|
|
|
|
(4.4
|
)
|
|
|
356.2
|
|
Minority interest
|
|
|
|
|
|
|
|
|
|
|
11.4
|
|
|
|
56.3
|
|
|
|
(1.0
|
)
|
|
|
66.7
|
|
Parent loans
|
|
|
|
|
|
|
425.8
|
|
|
|
(526.7
|
)
|
|
|
120.8
|
|
|
|
(19.9
|
)
|
|
|
|
|
Common stock
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.0
|
|
Additional paid-in capital
|
|
|
885.8
|
|
|
|
(54.3
|
)
|
|
|
1,125.2
|
|
|
|
330.5
|
|
|
|
(1,401.4
|
)
|
|
|
885.8
|
|
Retained earnings (accumulated deficit)
|
|
|
(1,000.6
|
)
|
|
|
(213.5
|
)
|
|
|
(555.9
|
)
|
|
|
(124.4
|
)
|
|
|
893.9
|
|
|
|
(1,000.5
|
)
|
Accumulated other comprehensive
income (loss)
|
|
|
212.1
|
|
|
|
58.8
|
|
|
|
78.2
|
|
|
|
90.8
|
|
|
|
(227.8
|
)
|
|
|
212.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
98.3
|
|
|
|
(209.0
|
)
|
|
|
647.5
|
|
|
|
296.9
|
|
|
|
(735.3
|
)
|
|
|
98.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
98.3
|
|
|
$
|
731.0
|
|
|
$
|
701.6
|
|
|
$
|
759.0
|
|
|
$
|
(800.0
|
)
|
|
$
|
1,489.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
CONDENSED CONSOLIDATING BALANCE SHEETS
As of January 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Nonguarantor
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Issuer
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
84.7
|
|
|
$
|
30.3
|
|
|
$
|
45.2
|
|
|
$
|
|
|
|
$
|
160.2
|
|
Receivables, net
|
|
|
|
|
|
|
|
|
|
|
151.1
|
|
|
|
154.5
|
|
|
|
|
|
|
|
305.6
|
|
Other receivables
|
|
|
|
|
|
|
|
|
|
|
48.3
|
|
|
|
48.3
|
|
|
|
(48.3
|
)
|
|
|
48.3
|
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
111.3
|
|
|
|
67.8
|
|
|
|
|
|
|
|
179.1
|
|
Assets held for sale
|
|
|
|
|
|
|
|
|
|
|
21.4
|
|
|
|
|
|
|
|
|
|
|
|
21.4
|
|
Prepaid expenses and other current assets
|
|
|
|
|
|
|
|
|
|
|
7.0
|
|
|
|
5.3
|
|
|
|
(0.1
|
)
|
|
|
12.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
84.7
|
|
|
|
369.4
|
|
|
|
321.1
|
|
|
|
(48.4
|
)
|
|
|
726.8
|
|
Property, plant, and equipment, net
|
|
|
|
|
|
|
|
|
|
|
376.5
|
|
|
|
240.4
|
|
|
|
(0.1
|
)
|
|
|
616.8
|
|
Goodwill and other assets, net
|
|
|
202.3
|
|
|
|
811.0
|
|
|
|
112.6
|
|
|
|
346.3
|
|
|
|
(1,009.9
|
)
|
|
|
462.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
202.3
|
|
|
$
|
895.7
|
|
|
$
|
858.5
|
|
|
$
|
907.8
|
|
|
$
|
(1,058.4
|
)
|
|
$
|
1,805.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank borrowings and other notes
|
|
$
|
|
|
|
$
|
|
|
|
$
|
29.6
|
|
|
$
|
3.3
|
|
|
$
|
|
|
|
$
|
32.9
|
|
Current portion of long-term debt
|
|
|
|
|
|
|
3.8
|
|
|
|
|
|
|
|
1.0
|
|
|
|
|
|
|
|
4.8
|
|
Liabilities held for sale
|
|
|
|
|
|
|
|
|
|
|
8.2
|
|
|
|
|
|
|
|
|
|
|
|
8.2
|
|
Accounts payable and other accrued liabilities
|
|
|
|
|
|
|
6.2
|
|
|
|
288.5
|
|
|
|
263.7
|
|
|
|
(48.4
|
)
|
|
|
510.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
|
|
|
10.0
|
|
|
|
326.3
|
|
|
|
268.0
|
|
|
|
(48.4
|
)
|
|
|
555.9
|
|
Long-term debt, net of current portion
|
|
|
|
|
|
|
569.9
|
|
|
|
0.6
|
|
|
|
1.7
|
|
|
|
|
|
|
|
572.2
|
|
Pension and other long-term liabilities
|
|
|
|
|
|
|
|
|
|
|
287.8
|
|
|
|
117.2
|
|
|
|
|
|
|
|
405.0
|
|
Minority interest
|
|
|
|
|
|
|
|
|
|
|
11.2
|
|
|
|
60.5
|
|
|
|
(1.2
|
)
|
|
|
70.5
|
|
Parent loans
|
|
|
|
|
|
|
487.9
|
|
|
|
(543.3
|
)
|
|
|
78.1
|
|
|
|
(22.7
|
)
|
|
|
|
|
Common stock
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.0
|
|
Additional paid-in capital
|
|
|
882.0
|
|
|
|
(54.3
|
)
|
|
|
1,249.4
|
|
|
|
304.5
|
|
|
|
(1,499.6
|
)
|
|
|
882.0
|
|
Retained earnings (accumulated deficit)
|
|
|
(928.7
|
)
|
|
|
(149.2
|
)
|
|
|
(590.4
|
)
|
|
|
(101.5
|
)
|
|
|
841.1
|
|
|
|
(928.7
|
)
|
Accumulated other comprehensive
income (loss)
|
|
|
248.0
|
|
|
|
31.4
|
|
|
|
116.9
|
|
|
|
179.3
|
|
|
|
(327.6
|
)
|
|
|
248.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
202.3
|
|
|
|
(172.1
|
)
|
|
|
775.9
|
|
|
|
382.3
|
|
|
|
(986.1
|
)
|
|
|
202.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
202.3
|
|
|
$
|
895.7
|
|
|
$
|
858.5
|
|
|
$
|
907.8
|
|
|
$
|
(1,058.4
|
)
|
|
$
|
1,805.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Nine Months Ended October 31, 2008
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Nonguarantor
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Issuer
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
Cash flows (used for) provided by operating activities
|
|
$
|
(0.1
|
)
|
|
$
|
(59.2
|
)
|
|
$
|
26.6
|
|
|
$
|
12.2
|
|
|
$
|
(0.6
|
)
|
|
$
|
(21.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant,
equipment, and tooling
|
|
|
|
|
|
|
|
|
|
|
(25.0
|
)
|
|
|
(42.1
|
)
|
|
|
|
|
|
|
(67.1
|
)
|
Investments in subsidiaries
|
|
|
0.1
|
|
|
|
(0.5
|
)
|
|
|
(29.6
|
)
|
|
|
75.6
|
|
|
|
(45.6
|
)
|
|
|
|
|
Sale of assets
|
|
|
|
|
|
|
|
|
|
|
0.8
|
|
|
|
(27.4
|
)
|
|
|
3.2
|
|
|
|
(23.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used for) investing activities
|
|
|
0.1
|
|
|
|
(0.5
|
)
|
|
|
(53.8
|
)
|
|
|
6.1
|
|
|
|
(42.4
|
)
|
|
|
(90.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in bank borrowings and credit facilities
|
|
|
|
|
|
|
|
|
|
|
12.4
|
|
|
|
8.4
|
|
|
|
|
|
|
|
20.8
|
|
Proceeds from revolving credit facility
|
|
|
|
|
|
|
|
|
|
|
16.0
|
|
|
|
|
|
|
|
|
|
|
|
16.0
|
|
Repayment of long-term debt
|
|
|
|
|
|
|
(2.0
|
)
|
|
|
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
(2.6
|
)
|
Dividends paid to minority shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12.9
|
)
|
|
|
|
|
|
|
(12.9
|
)
|
Proceeds from parent investments
|
|
|
|
|
|
|
|
|
|
|
39.4
|
|
|
|
(82.8
|
)
|
|
|
43.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash (used
for) provided by financing activities
|
|
|
|
|
|
|
(2.0
|
)
|
|
|
67.8
|
|
|
|
(87.9
|
)
|
|
|
43.4
|
|
|
|
21.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in parent loans
and advances
|
|
|
|
|
|
|
(6.1
|
)
|
|
|
(56.6
|
)
|
|
|
63.1
|
|
|
|
(0.4
|
)
|
|
|
|
|
Cash flows from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(1.1
|
)
|
Effect of exchange rates on cash and cash
equivalents
|
|
|
|
|
|
|
(1.1
|
)
|
|
|
(1.5
|
)
|
|
|
(9.1
|
)
|
|
|
|
|
|
|
(11.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents
|
|
|
|
|
|
|
(68.9
|
)
|
|
|
(18.6
|
)
|
|
|
(15.6
|
)
|
|
|
|
|
|
|
(103.1
|
)
|
Cash and cash equivalents at beginning
of period
|
|
|
|
|
|
|
84.7
|
|
|
|
30.3
|
|
|
|
45.2
|
|
|
|
|
|
|
|
160.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
|
|
|
$
|
15.8
|
|
|
$
|
11.7
|
|
|
$
|
29.6
|
|
|
$
|
|
|
|
$
|
57.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Nine Months Ended October 31, 2007
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Nonguarantor
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Issuer
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
Cash flows (used for) provided by
operating activities
|
|
$
|
(0.1
|
)
|
|
$
|
(10.3
|
)
|
|
$
|
(1.9
|
)
|
|
$
|
67.8
|
|
|
$
|
(18.1
|
)
|
|
$
|
37.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant,
equipment, and tooling
|
|
|
|
|
|
|
|
|
|
|
(29.6
|
)
|
|
|
(34.5
|
)
|
|
|
|
|
|
|
(64.1
|
)
|
Investments in subsidiaries
|
|
|
|
|
|
|
(429.0
|
)
|
|
|
745.6
|
|
|
|
(188.6
|
)
|
|
|
(128.0
|
)
|
|
|
|
|
Sale of assets
|
|
|
|
|
|
|
|
|
|
|
1.3
|
|
|
|
0.2
|
|
|
|
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash (used for) provided by investing activities
|
|
|
|
|
|
|
(429.0
|
)
|
|
|
717.3
|
|
|
|
(222.9
|
)
|
|
|
(128.0
|
)
|
|
|
(62.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in bank borrowings and credit facilities
|
|
|
|
|
|
|
|
|
|
|
(0.6
|
)
|
|
|
1.5
|
|
|
|
|
|
|
|
0.9
|
|
Bank finance fees paid
|
|
|
|
|
|
|
(9.2
|
)
|
|
|
(5.6
|
)
|
|
|
|
|
|
|
|
|
|
|
(14.8
|
)
|
Borrowing (Repayment) of long-term debt
|
|
|
|
|
|
|
525.7
|
|
|
|
(661.2
|
)
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
(136.3
|
)
|
Dividends paid to minority shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10.1
|
)
|
|
|
|
|
|
|
(10.1
|
)
|
Proceeds from issuance of common stock
|
|
|
193.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
193.1
|
|
Proceeds from parent investments
|
|
|
|
|
|
|
|
|
|
|
442.8
|
|
|
|
(392.2
|
)
|
|
|
(50.6
|
)
|
|
|
|
|
Call premium on Senior Notes
|
|
|
|
|
|
|
|
|
|
|
(9.0
|
)
|
|
|
|
|
|
|
|
|
|
|
(9.0
|
)
|
Fees paid for Rights Offering
|
|
|
|
|
|
|
|
|
|
|
(7.7
|
)
|
|
|
|
|
|
|
|
|
|
|
(7.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used for) financing activities
|
|
|
193.1
|
|
|
|
516.5
|
|
|
|
(241.3
|
)
|
|
|
(401.6
|
)
|
|
|
(50.6
|
)
|
|
|
16.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in parent loans
and advances
|
|
|
(193.0
|
)
|
|
|
(52.9
|
)
|
|
|
(441.0
|
)
|
|
|
490.2
|
|
|
|
196.7
|
|
|
|
|
|
Cash flows from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(21.3
|
)
|
|
|
66.4
|
|
|
|
|
|
|
|
45.1
|
|
Effect of exchange rates on cash and cash
equivalents
|
|
|
|
|
|
|
|
|
|
|
0.9
|
|
|
|
3.2
|
|
|
|
|
|
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
|
|
|
|
24.3
|
|
|
|
12.7
|
|
|
|
3.1
|
|
|
|
|
|
|
|
40.1
|
|
Cash and cash equivalents at beginning
of period
|
|
|
|
|
|
|
|
|
|
|
8.7
|
|
|
|
29.8
|
|
|
|
|
|
|
|
38.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
|
|
|
$
|
24.3
|
|
|
$
|
21.4
|
|
|
$
|
32.9
|
|
|
$
|
|
|
|
$
|
78.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary
This discussion should be read in conjunction with the our Annual Report on Form 10-K for the
fiscal year ended January 31, 2008 as filed with the Securities and Exchange Commission on April
10, 2008, and the other information included herein.
Company Overview
Unless otherwise indicated, references to we, us, or our mean Hayes Lemmerz
International, Inc., a Delaware corporation, and its subsidiaries. References to a fiscal year
means the 12-month period commencing on February 1 of that year and ending on January 31 of the
following year (i.e., fiscal 2008 refers to the period beginning February 1, 2008 and ending
January 31, 2009, fiscal 2007 refers to the period beginning February 1, 2007 and ending January
31, 2008).
Originally founded in 1908, we are a leading worldwide producer of aluminum and steel wheels
for passenger cars and light trucks and of steel wheels for commercial trucks and trailers. We are
also a supplier of automotive powertrain components. We have global operations with 23 facilities,
including business and sales offices and manufacturing facilities located in 13 countries around
the world. We sell our products to every major North American, Japanese, and European manufacturer
of passenger cars and light trucks and to commercial highway vehicle customers throughout the
world.
Sales of our wheels and powertrain 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 our wheels in Europe are directly affected by the overall
vehicle production in Europe. The North American and European automotive industries are sensitive
to the overall strength of their respective economies.
We are organized based primarily on markets served and products produced. Under this
organizational structure, our operating segments have been aggregated into two reportable segments:
Automotive Wheels and Other. The Automotive Wheels segment includes results from our operations
that primarily design and manufacture fabricated steel and cast aluminum wheels for original
equipment manufacturers in the global passenger car, light vehicle, and commercial vehicle markets.
The Other segment includes results from our operations that primarily design and manufacture
powertrain components for passenger car and light vehicle markets as well as financial results
related to the corporate office and the elimination of certain intercompany activities.
In the first nine months of fiscal 2008 we had net sales of $1.6 billion with approximately
83% derived from international markets. In the nine months of fiscal 2007 we had net sales of $1.6
billion with approximately 77% derived from international markets. We had earnings from operations
of $32.0 million for the first nine months of fiscal 2008 compared to a loss of $15.6 million for
the first nine months of fiscal 2007.
26
Results of Operations
Consolidated Results Comparison of the Three Months Ended October 31, 2008 to the Three Months
Ended October 31, 2007
The following table presents selected information about our consolidated results of operations
for the periods indicated (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended October 31,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
$ Change
|
|
|
% Change
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive Wheels
|
|
$
|
475.6
|
|
|
$
|
543.3
|
|
|
$
|
(67.7
|
)
|
|
|
(12.5
|
%)
|
Other
|
|
|
21.4
|
|
|
|
11.6
|
|
|
|
9.8
|
|
|
|
84.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
497.0
|
|
|
$
|
554.9
|
|
|
$
|
(57.9
|
)
|
|
|
(10.4
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
56.6
|
|
|
$
|
58.1
|
|
|
$
|
(1.5
|
)
|
|
|
(2.6
|
%)
|
Marketing, general, and administrative
|
|
|
34.1
|
|
|
|
35.8
|
|
|
|
(1.7
|
)
|
|
|
(4.7
|
%)
|
Amortization of intangibles
|
|
|
2.6
|
|
|
|
2.5
|
|
|
|
0.1
|
|
|
|
4.0
|
%
|
Asset impairments and other restructuring charges
|
|
|
2.7
|
|
|
|
50.0
|
|
|
|
(47.3
|
)
|
|
|
(94.6
|
%)
|
Other income, net
|
|
|
(3.4
|
)
|
|
|
(2.6
|
)
|
|
|
(0.8
|
)
|
|
|
30.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from operations
|
|
|
20.6
|
|
|
|
(27.6
|
)
|
|
|
48.2
|
|
|
|
174.6
|
%
|
Interest expense, net
|
|
|
12.2
|
|
|
|
13.9
|
|
|
|
(1.7
|
)
|
|
|
(12.2
|
%)
|
Other non-operating expense (income)
|
|
|
0.1
|
|
|
|
(1.4
|
)
|
|
|
1.5
|
|
|
|
107.1
|
%
|
Income tax expense
|
|
|
12.5
|
|
|
|
16.7
|
|
|
|
(4.2
|
)
|
|
|
(25.1
|
%)
|
Minority interest
|
|
|
3.9
|
|
|
|
5.9
|
|
|
|
(2.0
|
)
|
|
|
(33.9
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(8.1
|
)
|
|
|
(62.7
|
)
|
|
|
54.6
|
|
|
|
87.1
|
%
|
Loss from discontinued operations, net of tax
|
|
|
(2.3
|
)
|
|
|
|
|
|
|
(2.3
|
)
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(10.4
|
)
|
|
$
|
(62.7
|
)
|
|
$
|
52.3
|
|
|
|
83.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
Our net sales decreased 10.4% or $57.9 million to $497.0 million in the third quarter of
fiscal 2008 from $554.9 million in the third quarter of fiscal 2007. Lower volumes decreased sales
by $69.0 million due to ongoing trends and conditions facing North American and European vehicle
manufacturers, which have been negatively impacted due to the global credit crisis, troubled
capital markets, volatile commodity prices, and plunging consumer confidence. The sales decrease
from lower volumes was partially offset by favorable mix of $30.8 million due to a higher
proportion of wheels sold to the commercial vehicle market. The sale of our Hoboken, Belgium
facility during the second quarter of fiscal 2008 caused net sales to decrease by $16.2 million.
Unfavorable foreign currency exchange rates relative to the US Dollar decreased sales by $3.9
million as the Euro and other currencies have declined during the quarter ended October 31, 2008 as
compared to the same period of time in the prior year.
Gross profit
Our gross profit decreased 2.6% or $1.5 million in the third quarter of fiscal 2008 to $56.6
million from $58.1 million in the third quarter of fiscal 2007. Lower volumes decreased gross
profit by $17.5 million, partially offset by favorable mix of $10.2 million. Unfavorable
fluctuations in foreign currency exchange rates decreased gross profit by $3.3 million. The sale
of the Hoboken, Belgium plant during the second quarter of fiscal 2008, which had been experiencing
losses, improved gross profit by $5.0 million. Higher utility costs of $5.5 million were more than
offset by $9.4 million of lower material costs and manufacturing efficiencies, including reduced
spending on supplies and labor as well as lower depreciation expense.
Marketing, general, and administrative
Our marketing, general, and administrative expense decreased $1.7 million to $34.1 million
during the third quarter of fiscal 2008 from $35.8 million in the third quarter of fiscal 2007,
primarily due to lower audit services and bank fees.
Asset impairments and other restructuring charges
Impairments and restructuring charges were reduced by $47.3 million as compared to the same
period in the prior year. The prior year consisted primarily of asset impairments related to our
aluminum wheel facilities in Gainesville, Georgia; Hoboken, Belgium; and Chihuahua, Mexico. We
announced the closure of our Gainesville facility in May 2008, and expect the facility to be closed
by the end of fiscal 2008. The Hoboken facility was sold during the second quarter of fiscal 2008.
27
Interest expense, net
Interest expense decreased $1.7 million to $12.2 million for the third quarter of fiscal 2008
from $13.9 million for the third quarter of fiscal 2007. The decrease was driven by the
restructuring of our debt during the second quarter of fiscal 2007, which resulted in lower debt
levels and interest rates on both fixed and variable rate debt.
Income taxes
Income tax expense was $12.5 million for the third quarter of fiscal 2008 compared to $16.7
million for the third quarter of fiscal 2007. The decrease was primarily due to lower profitability in jurisdictions where we pay taxes,
without an offsetting tax benefit. The income tax rate varies from the United States
statutory income tax rate of 35% due primarily to losses in the United States and certain
foreign jurisdictions without recognition of a corresponding income tax benefit, as well as
effective income tax rates in certain foreign jurisdictions that are different than the
United States statutory rates. Accordingly, our worldwide tax expense may not bear a normal
relationship to earnings before taxes on income.
Discontinued operations
The loss from discontinued operations for the three months ended October 31, 2008 is related
to subsequent loss adjustments recorded on the sale of our MGG Group B.V. business (MGG Group),
which was sold in June 2007. The MGG Group had aluminum casting and machining facilities located
in Tegelen and Nieuw Bergen, the Netherlands and in Antwerp, Belgium, and represented our
International Components business. During the third quarter of fiscal 2008, we settled certain
disputes arising out of the share purchase agreement with MGG Group resulting in a loss of $2.4
million.
Net loss
Due to the factors mentioned above, the net loss during the third quarter of fiscal 2008 was
$10.4 million compared to $62.7 million in the third quarter of fiscal 2007.
Segment Results Comparison of the Three Months Ended October 31, 2008 to the Three Months Ended
October 31, 2007
Automotive Wheels
The following table presents net sales, earnings (loss) from operations, and other information
for the Automotive Wheels segment for the periods indicated (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended October 31,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
$ Change
|
|
Net sales
|
|
$
|
475.6
|
|
|
$
|
543.3
|
|
|
$
|
(67.7
|
)
|
Asset impairments and other restructuring charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility closure costs
|
|
$
|
1.1
|
|
|
$
|
0.1
|
|
|
$
|
1.0
|
|
Impairment of facility, machinery, and equipment
|
|
|
0.6
|
|
|
|
48.9
|
|
|
|
(48.3
|
)
|
Severance and other restructuring costs
|
|
|
0.9
|
|
|
|
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
Total asset impairments and other restructuring charges
|
|
$
|
2.6
|
|
|
$
|
49.0
|
|
|
$
|
(46.4
|
)
|
Earnings (loss) from operations
|
|
$
|
14.4
|
|
|
$
|
(21.8
|
)
|
|
$
|
36.2
|
|
Net sales
Net sales from our Automotive Wheels segment decreased $67.7 million to $475.6 million in the
third quarter of fiscal 2008 from $543.3 million during the third quarter of fiscal 2007. Lower
volumes due to the recent downturn in the global economy decreased sales by $78.1 million,
partially offset by favorable mix of $30.8 million due to a higher proportion of wheels sold to the
commercial vehicle market. Unfavorable foreign currency exchange rates relative to the U.S. dollar
decreased sales by $3.9 million as the Euro and other currencies have declined during the quarter
ended October 31, 2008 as compared to the same period in the prior year. The sale of the Hoboken,
Belgium facility during the second quarter of fiscal 2008 resulted in a loss of sales of $16.2
million.
Asset impairments and other restructuring charges
The prior year impairment and restructuring expense consisted primarily of asset impairments
related to our aluminum wheel facilities in Gainesville, Georgia; Hoboken, Belgium; and Chihuahua,
Mexico. We announced the closure of our Gainesville facility in May 2008, and expect the facility
to be closed by the end of fiscal 2008. The Hoboken facility was sold during the second quarter of
fiscal 2008.
28
Earnings (loss) from operations
We recorded earnings from operations of $14.4 million for the quarter ended October 31, 2008
as compared to a loss of $21.8 million during the same period of time in the prior year. The $36.2
million improvement in earnings from operations is due to lower impairment and restructuring
expenses of $46.4 million, partially offset by the impact of foreign currency exchange fluctuations
as well as higher utility costs. Higher utility costs were more than offset by manufacturing
efficiencies.
Other
The following table presents net sales, total asset impairments and other restructuring
charges, and earnings (loss) from operations for the Other segment for the periods indicated
(dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended October 31,
|
|
|
|
|
2008
|
|
2007
|
|
$ Change
|
Net sales
|
|
$
|
21.4
|
|
|
$
|
11.6
|
|
|
$
|
9.8
|
|
Total asset impairments and other restructuring charges
|
|
|
0.1
|
|
|
|
1.0
|
|
|
|
(0.9
|
)
|
Earnings (loss) from operations
|
|
|
6.2
|
|
|
|
(5.8
|
)
|
|
|
12.0
|
|
Net Sales
Net sales increased by $9.8 million from $11.6 million in the third quarter of fiscal 2007 to
$21.4 million in the third quarter of fiscal 2008. The increase is primarily related to a new
program in the current year for intake manifold sales for the GMC Acadia, which is produced at our
powertrain plant in Nuevo Laredo, Mexico.
Asset impairments and other restructuring charges
Asset impairment and restructuring charges were $0.9 million lower as compared to the prior
year, down from $1.0 million for the quarter ended October 31, 2007 as compared to $0.1 million for
the quarter ended October 31, 2008. The prior year expense was related to machinery and equipment
impairments and severance expense at our facility in Nuevo Laredo, Mexico, as well as severance
expense at our corporate offices. The current year expense was related to ongoing closure costs at
our Ferndale, Michigan technical center, which was closed in fiscal 2007.
Earnings (loss) from operations
We recorded earnings from operations in the third quarter of fiscal 2008 of $6.2 million
compared to a loss of $5.8 million during the third quarter of fiscal 2007. Higher volumes
improved earnings from operations in the current quarter by $2.6 million, and lower impairment and
restructuring expenses improved earnings from operations by $0.9 million. The remainder of the
improvement is primarily related to lower spending on audit fees and bank services.
29
Consolidated Results Comparison of the Nine Months Ended October 31, 2008 to the Nine Months
Ended October 31, 2007
The following table presents selected information about our consolidated results of operations
for the periods indicated (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended October 31,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
$ Change
|
|
|
% Change
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive Wheels
|
|
$
|
1,587.7
|
|
|
$
|
1,531.3
|
|
|
$
|
56.4
|
|
|
|
3.7
|
%
|
Other
|
|
|
46.6
|
|
|
|
66.3
|
|
|
|
(19.7
|
)
|
|
|
(29.7
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,634.3
|
|
|
$
|
1,597.6
|
|
|
$
|
36.7
|
|
|
|
2.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
192.2
|
|
|
$
|
167.4
|
|
|
$
|
24.8
|
|
|
|
14.8
|
%
|
Marketing, general, and administrative
|
|
|
112.8
|
|
|
|
116.6
|
|
|
|
(3.8
|
)
|
|
|
(3.3
|
%)
|
Amortization of intangibles
|
|
|
8.3
|
|
|
|
7.5
|
|
|
|
0.8
|
|
|
|
10.7
|
%
|
Asset impairments and other restructuring charges
|
|
|
11.8
|
|
|
|
54.0
|
|
|
|
(42.2
|
)
|
|
|
(78.1
|
%)
|
Other expense, net
|
|
|
27.3
|
|
|
|
4.9
|
|
|
|
22.4
|
|
|
|
457.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from operations
|
|
|
32.0
|
|
|
|
(15.6
|
)
|
|
|
47.6
|
|
|
|
305.1
|
%
|
Interest expense, net
|
|
|
39.8
|
|
|
|
47.8
|
|
|
|
(8.0
|
)
|
|
|
(16.7
|
%)
|
Loss on early extinguishment of debt
|
|
|
|
|
|
|
21.5
|
|
|
|
(21.5
|
)
|
|
|
(100.0
|
%)
|
Other non-operating expense (income)
|
|
|
2.8
|
|
|
|
(1.4
|
)
|
|
|
4.2
|
|
|
|
300.0
|
%
|
Income tax expense
|
|
|
40.1
|
|
|
|
38.5
|
|
|
|
1.6
|
|
|
|
4.2
|
%
|
Minority interest
|
|
|
17.2
|
|
|
|
15.4
|
|
|
|
1.8
|
|
|
|
11.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(67.9
|
)
|
|
|
(137.4
|
)
|
|
|
69.5
|
|
|
|
50.6
|
%
|
Loss from discontinued operations, net of tax
|
|
|
(2.3
|
)
|
|
|
(27.7
|
)
|
|
|
25.4
|
|
|
|
91.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(70.2
|
)
|
|
$
|
(165.1
|
)
|
|
$
|
94.9
|
|
|
|
57.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
Our net sales increased 2.3% or $36.7 million to $1,634.3 million in the first nine months of
fiscal 2008 from $1,597.6 million in the first nine months of fiscal 2007. Favorable foreign
currency exchange rates relative to the US Dollar increased sales by $118.1 million due to
favorable exchange rates during the first half of fiscal 2008 as compared to the prior year. Lower
volumes decreased sales by $67.7 million due to the trends and conditions facing North American and
European vehicle manufacturers, which have been negatively impacted due to the global credit
crisis, troubled capital markets, volatile commodity prices, and plunging consumer confidence. The
impact of lower sales volumes were partially offset by favorable mix of $34.1 million. Sales
declined $47.7 million due to lower pricing with our customers and the sale of our Hoboken, Belgium
facility in June 2008, which were partially offset by higher metal pass-through pricing.
Gross profit
Our gross profit increased 14.8% or $24.8 million in the first nine months of fiscal 2008 to
$192.2 million from $167.4 million in the first nine months of fiscal 2007. Favorable fluctuations
in foreign currency exchange rates increased gross profit by $10.6 million. Lower volumes
decreased gross profit by $18.9 million, which was offset by favorable scrap price increases due to
higher spot market scrap steel pricing early in the year. The sale of the Hoboken, Belgium
facility in June 2008 improved gross profit by $7.3 million. The remainder of the improvement is
primarily due to lower depreciation costs and other manufacturing efficiencies as compared to the
prior year.
Marketing, general, and administrative
Our marketing, general, and administrative expense decreased $3.8 million to $112.8 million
during the first nine months of fiscal 2008 from $116.6 million in the first nine months of fiscal
2007. The improvement is primarily due to a decrease in audit costs, lower bank fees, and lower
employee stock compensation expense, partially offset by unfavorable fluctuations in foreign
currencies.
Asset impairments and other restructuring charges
Impairments and restructuring charges were reduced by $42.2 million as compared to the same
period in the prior year. The prior year consisted primarily of asset impairments related to our
aluminum wheel facilities in Gainesville, Georgia; Hoboken,
30
Belgium; Santo Andre, Brazil; and Chihuahua, Mexico. We announced the closure of our
Gainesville facility in May 2008, and expect the facility to be closed by the end of fiscal 2008.
The Hoboken facility was sold during the second quarter of fiscal 2008.
The current year expense consists primarily of asset impairments related to our aluminum
wheel facilities in Gainesville, Georgia; Huntington, Indiana; Howell, Michigan; Hoboken, Belgium;
and Chihuahua, Mexico. These facilities were written down to fair value based on current market
conditions. The Huntington and Howell facilities are currently being marketed for sale.
Other expense, net
The increase in other expense is primarily due to the loss recorded for the sale of our
Hoboken, Belgium facility, which was sold during the second quarter of fiscal 2008. The prior year
balance consisted primarily of the loss on the sale of our Wabash, Indiana facility, which was sold
during the second quarter of fiscal 2007.
Interest expense, net
Interest expense decreased $8.0 million to $39.8 million for the first nine months of fiscal
2008 from $47.8 million for the first nine months of fiscal 2007. The decrease was driven by the
restructuring of our debt during the second quarter of fiscal 2007, which resulted in lower debt
levels and interest rates on both fixed and variable rate debt.
Income taxes
Income tax expense was $40.1 million for the first nine months of fiscal 2008 compared to
$38.5 million for the first nine months of fiscal 2007. The increase was primarily due to higher profitability in jurisdictions where we pay taxes,
without an offsetting tax benefit. The income tax rate varies from the United States
statutory income tax rate of 35% due primarily to losses in the United States and certain
foreign jurisdictions without recognition of a corresponding income tax benefit, as well as
effective income tax rates in certain foreign jurisdictions that are different than the
United States statutory rates. Accordingly, our worldwide tax expense may not bear a normal
relationship to earnings before taxes on income.
Discontinued operations
The loss during the first nine months of fiscal 2008 was primarily due to adjustments recorded
on the sale of our MGG Group business, which we sold in June 2007. The loss during the first nine
months of fiscal 2007 primarily consists of a loss of $26.7 million for MGG Group; a loss of $4.3
million for our Suspension business, which we sold in the first quarter of fiscal 2007; and income
from our Brakes Business of $3.3 million, which we sold during the fourth quarter of fiscal 2007.
During the third quarter of fiscal 2008, we settled certain disputes arising out of the share
purchase agreement with MGG Group resulting in a loss of $2.4 million.
Net loss
Due to the factors mentioned above, net loss during the first nine months of fiscal 2008 was
$70.2 million compared to $165.1 million in the first nine months of fiscal 2007, which is an
improvement of $94.9 million.
Segment Results Comparison of the Nine Months Ended October 31, 2008 to the Nine Months Ended
October 31, 2007
Automotive Wheels
The following table presents net sales, earnings from operations, and other information for
the Automotive Wheels segment for the periods indicated (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended October 31,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
$ Change
|
|
Net sales
|
|
$
|
1,587.7
|
|
|
$
|
1,531.3
|
|
|
$
|
56.4
|
|
Asset impairments and other restructuring charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility closure costs
|
|
$
|
1.7
|
|
|
$
|
2.9
|
|
|
$
|
(1.2
|
)
|
Impairment of facility, machinery, and equipment
|
|
|
7.8
|
|
|
|
49.4
|
|
|
|
(41.6
|
)
|
Severance and other restructuring costs
|
|
|
1.9
|
|
|
|
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total asset impairments and other restructuring charges
|
|
$
|
11.4
|
|
|
$
|
52.3
|
|
|
$
|
(40.9
|
)
|
|
Earnings from operations
|
|
$
|
19.0
|
|
|
$
|
24.4
|
|
|
$
|
(5.4
|
)
|
31
Net sales
Net sales from our Automotive Wheels segment increased $56.4 million to $1,587.7 million in
the first nine months of fiscal 2008 from $1,531.3 million during the first nine months of fiscal
2007. Favorable foreign currency exchange rates relative to the US dollar in the first half of
fiscal 2008 increased sales by $118.1 million. Lower volumes decreased sales by $74.9 million,
which was partially offset by favorable mix of $34.1 million. Our sales were $20.9 million lower
due to the sale of our Hoboken, Belgium facility in June 2008 and unfavorable pricing with our
customers, partially offset by higher metal pass-through pricing.
Asset impairments and other restructuring charges
Impairments and restructuring charges were reduced by $40.9 million as compared to the same
period in the prior year. The prior year consisted primarily of asset impairments related to our
aluminum wheel facilities in Gainesville, Georgia; Hoboken, Belgium; Santo Andre, Brazil; and
Chihuahua, Mexico. We announced the closure of our Gainesville facility in May 2008, and expect
the facility to be closed by the end of fiscal 2008. The Hoboken facility was sold during the
second quarter of fiscal 2008.
The current year expense consists primarily of asset impairments related to our aluminum
wheel facilities in Gainesville, Georgia; Huntington, Indiana; Howell, Michigan; Hoboken, Belgium;
and Chihuahua, Mexico. These facilities were written down to fair value based on current market
conditions. The Huntington and Howell facilities are currently being marketed for sale.
Earnings from operations
Earnings from operations from our Automotive Wheels segment decreased $5.4 million to
$19.0 million in the first nine months of fiscal 2008 from $24.4 million in the first nine months
of fiscal 2007. The loss on the sale of the Hoboken, Belgium facility reduced earnings from
operations in the current year by $27.7 million, however this was more than offset by reduced
impairments as compared to the prior year of $41.5 million. Higher utility costs reduced earnings
from operations by $12.3 million. We also experienced favorable mix of $8.1 million and favorable
foreign currency exchange fluctuations of $10.6 million. Intercompany royalty and trademark fees
decreased earnings from operations by $17.5 million, which is eliminated in the consolidated
financial statements. The remainder of the reduction is due to lower volumes and pricing, which
was mitigated by lower material costs.
Other
The following table presents net sales, total asset impairments and other restructuring
charges, and earnings (loss) from operations for the Other segment for the periods indicated
(dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended October 31,
|
|
|
|
|
2008
|
|
2007
|
|
$ Change
|
Net sales
|
|
$
|
46.6
|
|
|
$
|
66.3
|
|
|
$
|
(19.7
|
)
|
Total asset impairments and other restructuring charges
|
|
|
0.4
|
|
|
|
1.7
|
|
|
|
(1.3
|
)
|
Earnings (loss) from operations
|
|
|
13.0
|
|
|
|
(40.0
|
)
|
|
|
53.0
|
|
Net Sales
Net sales decreased by $19.7 million from $66.3 million in the first nine months of fiscal
2007 to $46.6 million in the first nine months of fiscal 2008. We had lower sales of $28.3 million
due to the sale of our Wabash, Indiana facility, which we sold in the second quarter of fiscal
2007. This decrease was partially offset by a $7.1 million increase in sales due to a new program
in the current year for intake manifold sales for the GMC Acadia, which is produced at our
powertrain plant in Nuevo Laredo, Mexico.
Asset impairments and other restructuring charges
During the first nine months of fiscal 2008, we recorded expense of $0.4 of facility closure
costs and severance for our Ferndale, Michigan technical center, which was closed in fiscal 2007.
During the first nine months of fiscal 2007, we recorded expense of $1.7 million, which consisted
of $0.1 million of facility closure cost and severance expense at our Ferndale, Michigan technical
center and $1.6 of asset impairment and severance expense at our Nuevo Laredo facility in Mexico
and our corporate offices.
32
Earnings (loss) from operations
Earnings from operations in the first nine months of fiscal 2008 were $13.0 million compared
to a loss of $40.0 million during the first nine months of fiscal 2007, which is a $53.0 million
improvement. Intercompany royalty and trademark fees increased earnings from operations by $17.5
million, which is eliminated in the consolidated financial statements. Earnings from operations
were $12.8 million higher due to the sale of the Wabash, Indiana facility in the prior year, which
had been experiencing operating losses and was also sold at a loss. Lower employee costs,
decreased audit services, and lower bank fees also improved earnings from operations by $14.4
million. Improved sales and mix at the Nuevo Laredo, Mexico plant increased earnings from
operations by $2.8 million.
Liquidity and Capital Resources
Sources of Liquidity
The principal sources of liquidity for our future operating, capital expenditure, facility
closure, restructuring, and reorganization requirements are expected to be (i) cash flows from
continuing operations, (ii) cash and cash equivalents on hand, (iii) proceeds related to our trade
receivable securitization and financing programs, and (iv) borrowings from our New Credit
Facilities. Borrowings under our New Credit Facilities could be restricted by the financial
covenants of the New Credit Facilities, and violations of financial covenants could have
significant negative consequences for our business. We intend to seek amendments to the covenants
to continue to allow us access to borrowings under our New Credit Facilities. There can be no
assurances that such a covenant amendment will be obtained or that such sources will prove to be
sufficient to meet our future requirements, in part, due to inherent uncertainties about applicable
future business and capital market conditions. See Item 1A, Risk Factors, for more information on
our New Credit Facilities.
Capital Resources
We have a domestic accounts receivable securitization facility with a program limit of $25
million. Due to concentration limits and restrictions on financing certain receivables, the entire
program limit is not available. There were $15 million of borrowings under this program as of
October 31, 2008 and no borrowings under this program as of January 31, 2008.
We have an accounts receivable financing program in Germany with a local financial
institution. The program limit was 25 million as of
October 31, 2008 and 20 million as of
January 31, 2008. Borrowings under this program of approximately 25 million or $32.6 million
and 20 million or $29.6 million at October 31, 2008 and January 31, 2008, respectively, are
included in short term bank borrowings.
We also have an accounts receivable factoring program in the Czech Republic with a local
financial institution. The program limit is 480 million Czech Crown or approximately $26 million
and $28 million as of October 31, 2008 and January 31, 2008, respectively. As of October 31, 2008
and January 31, 2008, approximately 341.9 million Czech Crown or $18.4 million and 344.0 million
Czech Crown or $19.7 million, respectively, was factored under this program. The transactions are
accounted for as sales of receivables under the provisions of SFAS 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities (SFAS 140) and the
receivables are removed from the Consolidated Balance Sheets.
Cash Flows
Operating Activities:
Cash used for operations was $21.1 million in the first nine months of
fiscal 2008 compared to cash provided by operations of $37.4 million in the first nine months of
fiscal 2007. The $58.5 million increased use of cash resulted from decreased accounts payable due
to the expiration of special year end payment terms at the end of fiscal 2007 as well as lower
volumes. This was partially offset by cash provided by operations as our receivables have
decreased from the prior year due to the drop in sales volumes. The increased use of cash for
accounts payable purposes was also somewhat offset by use of our accounts receivable securitization
programs in the current year, whereas in the prior year our availability and use of the
securitization facilities decreased due to the sale of businesses.
Investing Activities:
Cash used for investing activities was $90.5 million during the first
nine months of fiscal 2008 compared to $62.6 million in the first nine months of fiscal 2007. The
increased use of cash was primarily due to the disposition of the Hoboken, Belgium facility during
the second quarter of fiscal 2008.
Financing Activities:
Cash provided by financing activities was $21.3 million in the first
nine months of fiscal 2008 compared to $16.1 million in the first nine months of fiscal 2007.
During the second quarter of fiscal 2007, proceeds from the Rights Offering, net of fees, of $161.6
million were used to pay off $133.3 million of long-term debt. During fiscal 2008, we increased
short-term
33
borrowings by $20.8 million mainly through securitization and factoring of accounts
receivable. We also utilized our revolving credit facility in the third quarter of fiscal 2008,
resulting in higher proceeds from financing activities of $16.0 million. We have restricted cash
of $4.7 and $3.0 million as of October 31, 2008 and January 31, 2008 primarily related to the
German securitization program as well as the collateral at our Spain facility for our steel
supplier in order to get favorable pricing.
Off Balance Sheet Arrangements
We have a $25 million domestic accounts receivable securitization facility. The facility has
an expiration date of May 30, 2013 and an interest rate equal to LIBOR plus 2.25%. The actual
amount of funding available at any given time is based on availability of eligible receivables and
other customary factors.
Pursuant to the securitization facility, certain of our consolidated subsidiaries sell
substantially all U.S. short term receivables to a non-consolidated special purpose entity (SPE I)
at face value and no gains or losses are recognized in connection with the sales. The purchase
price for the receivables sold to SPE I is paid in a combination of cash and short term notes. The
short term notes appear in Other Receivables on our Consolidated Balance Sheets and represent the
difference between the face amount of accounts receivables sold and the cash received for the
sales. SPE I resells the receivables to a non-consolidated qualifying special purpose entity (SPE
II) at an annualized discount of 2.4% to 4.4%. SPE II pays the purchase price for the receivables
with cash received from borrowings and a short term note to SPE I for the excess of the purchase
price of the receivables over the cash payment. SPE II pledges the receivables to secure
borrowings from commercial lenders. This debt is not included in our consolidated financial
statements.
Collections for the receivables are held by HLI Opco, and deposited into an account controlled
by the program agent. The servicing fees payable to HLI Opco are set off against interest and
other fees payable to the program agent and lenders. The program agent uses the proceeds to pay
off the short term borrowings from commercial lenders and returns the excess collections to SPE II,
which in turn pays down the short term note issued to SPE I. SPE I then pays down the short term
notes issued to the consolidated subsidiaries.
The securitization transactions are accounted for as sales of the receivables under the
provisions of SFAS 140 and are removed from the Consolidated Balance Sheets. The proceeds received
are included in cash flows from operating activities in the Consolidated Statements of Cash Flows.
Costs associated with the receivables facility are recorded as other expense in the Consolidated
Statements of Operations.
At October 31, 2008 and January 31, 2008 the outstanding balances of receivables sold to
special purpose entities were $54.4 million and $48.3 million, respectively. Our net retained
interests at October 31, 2008 and January 31, 2008 were $39.4 million and $48.3 million,
respectively, which are disclosed as Other Receivables on the Consolidated Balance Sheets and in
cash flows from operating activities in the Consolidated Statements of Cash Flows. There was $15.0
million in advances from lenders at October 31, 2008 and no advances at January 31, 2008.
Credit Ratings
As of October 31, 2008 our credit ratings were as follows:
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|
|
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S&P
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Moodys
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|
Fitch
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Corporate rating
|
|
B
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|
B3
|
|
B
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Bank debt rating
|
|
BB-
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B2
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|
BB/RR1
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New Senior Note rating
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B-
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Caa2
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B-/RR5
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34
Contractual Obligations
The following table identifies our significant contractual obligations as of October 31, 2008
(dollars in millions):
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|
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|
|
|
|
|
|
|
|
|
|
|
Payment Due by Period
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|
|
Less than 1
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
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|
|
2-3 Years
|
|
|
4-5 Years
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After 5 Years
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Total
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Short-term borrowings
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|
$
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46.4
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|
|
$
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|
|
|
$
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|
|
|
$
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|
|
|
$
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46.4
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Long-term debt
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|
|
4.2
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|
|
|
7.9
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|
|
|
22.8
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|
|
|
488.4
|
|
|
|
523.3
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Operating leases
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|
|
3.9
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|
|
|
2.1
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|
|
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0.6
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|
|
|
0.1
|
|
|
|
6.7
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Capital expenditures
|
|
|
11.9
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.9
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|
United States pension contribution
|
|
|
4.4
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|
|
|
7.4
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|
|
|
4.2
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|
|
|
|
|
|
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16.0
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Tax reserves
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|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
4.7
|
|
|
|
4.8
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total obligations
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|
$
|
70.8
|
|
|
$
|
17.5
|
|
|
$
|
27.6
|
|
|
$
|
493.2
|
|
|
$
|
609.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Other Cash Requirements
We anticipate the following significant cash requirements to be paid during the remainder of
fiscal 2008 (dollars in millions):
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|
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Interest
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|
$
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16.1
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Taxes
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|
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6.6
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International pension and other post-retirement benefits funding
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|
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5.7
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New Accounting Pronouncements
In March 2008 the Financial Accounting Standards Board issued SFAS 161,
Disclosures about
Derivative Instruments and Hedging Activities an amendment of FASB Statement No. 133
(SFAS 161).
This standard requires enhanced disclosures about an entitys derivative and hedging
activities. SFAS 161 requires qualitative disclosures about objectives and strategies for using
derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative
instruments, and disclosures about credit-risk-related contingent features in derivative
agreements. This standard is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008 and only requires disclosures for earlier periods
presented for comparative purposes beginning in the first year after the year of initial
adoption. We do not anticipate that the adoption of SFAS 161 will have a significant impact on our
financial condition or results of operations.
In December 2007 the FASB issued SFAS 141R,
Business Combinations
(SFAS 141R). This
standard establishes principles and requirements for how the acquirer recognizes and measures the
acquired identifiable assets, assumed liabilities, noncontrolling interest in the acquiree, and
acquired goodwill or gain from a bargain purchase. SFAS 141R also determines what information the
acquirer must disclose to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. SFAS 141R applies prospectively to business
combinations for which the acquisition date is on or after January 1, 2009. We do not anticipate
that the adoption of SFAS 141R will have a significant impact on our financial condition or results
of operations.
In December 2007 the FASB issued SFAS 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51
(SFAS 160). This standard establishes accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of
a subsidiary. SFAS 160 clarifies that a noncontrolling interest in a subsidiary is an ownership
interest in the consolidated entity that should be reported as equity in the consolidated financial
statements. SFAS 160 is effective for us as of February 1, 2009 with early adoption
prohibited. SFAS 160 shall be applied prospectively as of the beginning of the fiscal year in
which this standard is initially applied. The presentation and disclosure requirements of this
standard shall be applied retrospectively for all periods presented and will impact how we present
and disclose noncontrolling interests and income from noncontrolling interests in our financial
statements.
In September 2006 the FASB issued SFAS 157,
Fair Value Measurements
(SFAS 157). SFAS 157
establishes a framework for measuring fair value and expands disclosures about fair value
measurements. The changes to current practice resulting from the application of SFAS 157 relate to
the definition of fair value, the methods used to measure fair value, and the expanded disclosures
about fair value measurements. We adopted the provisions of SFAS 157 with our fiscal year beginning
February 1, 2008. The adoption of SFAS 157 did not have an impact on our consolidated financial
statements. SFAS 157 clarifies that fair value is an exit price, representing the amount that would
be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.
Fair value should be determined based on assumptions that market participants would use in pricing an asset or liability.
SFAS 157 uses a three-tier hierarchy that classifies assets and liabilities based on the inputs used in
the valuation methodologies. In accordance with SFAS 157, we measured our interest rate derivative contracts
at fair value and classified as level 2 liabilities based upon models utilizing market observable inputs
and credit risk. The fair value of our interest rate derivative contracts was $5.4 million as of October 31, 2008.
35
In February 2008, the FASB issued FASB Staff Position (FSP) 157-2, Effective Date of
FASB Statement No. 157 (FSP 157-2). This FSP delays the effective date of SFAS 157 for all
nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at
fair value in the financial statements on a recurring basis (at least annually). The effective date
for nonfinancial assets and nonfinancial liabilities has been delayed by one year to fiscal years
beginning after November 15, 2008 and interim periods within those fiscal years. We do not
anticipate that the adoption of FSP 157-2 will have a significant impact on our financial condition
and results of operations.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business we are exposed to market risks arising from changes in
foreign exchange rates, interest rates, raw material, and utility prices. We selectively use
derivative financial instruments to manage these risks, but do not enter into any derivative
financial instruments for trading purposes.
Foreign Exchange
We have global operations and thus make investments and enter into transactions in various
foreign currencies. In order to minimize the risks associated with foreign currency fluctuations,
we first seek to internally net foreign exchange exposures, and may use derivative financial
instruments to hedge any remaining net exposure. We use 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.
The value of our consolidated assets and liabilities located outside the United States
(translated at period-end exchange rates) and income and expenses (translated using average rates
prevailing during the period), generally denominated in the Euro, Czech Crown, and the Brazilian
Real, are affected by the translation into our reporting currency (the U.S. Dollar). Such
translation adjustments are reported as a separate component of stockholders equity. In future
periods, foreign exchange rate fluctuations could have an increased impact on our reported results
of operations. However, due to the self-sustaining nature of our foreign operations, we believe we
can effectively manage the effect of these currency fluctuations. In addition, in order to further
hedge against such currency rate fluctuations, we have, from time to time, entered into certain
foreign currency swap arrangements.
In January 2006 we entered into a foreign currency swap agreement in Euros with a total
notional value of $50 million to hedge our net investment in certain of our foreign subsidiaries.
During the first quarter of fiscal 2007 the foreign currency swap agreement was effective. During
the second quarter of 2007 we terminated the swap due to our debt restructuring. During the fourth
quarter of fiscal 2007 we recognized the loss associated with the swap due to the liquidation of
the related foreign subsidiaries.
At October 31, 2008 and January 31, 2008 approximately 417 million or $544 million and
410 million or $607 million, respectively, of our debt was denominated in Euros.
Interest Rates
We generally manage our risk associated with interest rate movements through the use of a
combination of variable and fixed rate debt. We have from time to time entered into interest rate
swap arrangements to further hedge against interest rate fluctuations. In January 2006 we entered
into an interest rate swap agreement with a total notional value of $50 million to hedge the
variability of interest payments associated with our variable-rate term debt. The swap agreement
was expected to settle in January 2009, and qualified for cash flow hedge accounting treatment.
During the first quarter of fiscal 2007 the swap was effective. During the second quarter of 2007
we terminated the swap due to our debt restructuring and recognized the loss associated with the
swap. During the second quarter of fiscal 2007 we entered into interest rate swaps with total
notional amount of 70 million. The swaps became effective on August 28, 2007 and mature on
August 28, 2012. During the third quarter of fiscal 2007 we entered into interest rate swaps with
total notional amount of 50 million. The swaps became effective on September 30, 2007 and
mature on September 30, 2012. During the first quarter of fiscal 2008 we entered into interest
rate swaps with total notional amount of 50 million. The swaps became effective on February 28,
2008 and mature on February 28, 2012.
At October 31, 2008 and January 31, 2008 approximately $162 million and $234 million,
respectively, of our debt was variable rate debt after considering the impact of the swaps.
Commodities
We rely on the supply of certain raw materials and other inputs in our production process,
including aluminum, steel, and natural gas. We manage the exposure associated with these
commitments primarily through the terms of our supply and procurement
36
contracts. We have entered
into firm purchase commitments or other arrangements for substantially all of our aluminum and
steel requirements for fiscal 2008, although as prices increase, suppliers may seek to impose
surcharges or other price increases above those in our purchase agreements. Additionally, in
accordance with industry practice, we generally pass through fluctuations in the price of aluminum
to our customers. We have also been successful in negotiating with some of our customers to pass
through a portion of fluctuations in the price of steel. If our costs for steel increase, we will
attempt to mitigate the impact of the higher material costs through pricing actions with our
customers, although those actions may not be sufficient to offset increased costs. We typically use
forward-fixed contracts to hedge against changes in commodity prices for a majority of our
outstanding purchase commitments. We also enter into forward purchase commitments for natural gas
to mitigate market fluctuations in natural gas prices.
Item 4.
Controls and Procedures
We maintain a disclosure committee (the Disclosure Committee) reporting to our Chief Executive
Officer to assist the Chief Executive Officer and Chief Financial Officer in fulfilling their
responsibility in designing, establishing, maintaining, and reviewing our Disclosure Controls and
Procedures. The Disclosure Committee is currently chaired by our Vice President and Chief
Financial Officer and includes our Chief Operating Officer and President, Global Wheel Group; Vice
President, General Counsel and Secretary; Director of Compensation and Benefits; Treasurer;
Assistant General Counsel; Director of Internal Audit; Director of Tax; and Corporate Controller as
its other members.
As of the end of the period covered by this report, our Chief Executive Officer and Chief
Financial Officer, along with the Disclosure Committee, evaluated the effectiveness of the design
and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e)
of the Securities Exchange Act of 1934. Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures were effective as of
October 31, 2008 to ensure that information required to be disclosed by the Company in the reports
that it files and submits under the Securities Exchange Act of 1934 is accumulated and submitted to
the Companys management as appropriate to allow timely decisions regarding required disclosure.
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
There have been no material developments to our legal proceedings since our Annual Report on
Form 10-K filed on April 10, 2008.
Item 1A.
Risk Factors
There have been no material changes from the risk factors as previously disclosed in our most
recent Annual Report on Form 10-K other than the risk relating to compliance with our debt
covenants. As of October 31, 2008, we were in compliance with all applicable covenants and
restrictions of our New Credit Facilities, although we will be increasingly unlikely to achieve
compliance in subsequent periods, absent a waiver or amendment from our lenders. We are currently
pursuing an amendment to the New Credit Facilities to enable us to comply with the covenants in
future periods and to continue to access the Revolving Credit Facility without restrictions. We
can give no assurance that we will obtain such an amendment to the covenants or that such an
amendment, if obtained, would enable us to continue to access the Revolving Credit Facility without
restrictions. If we are unable to obtain such an amendment, we will be restricted in our ability
to access the Revolving Credit Facility and will likely violate the covenants in future periods.
Such a violation could result in the acceleration of amounts due under the New Credit Facilities
and the New Notes.
Item 2.
Changes in Securities and Use of Proceeds
None.
Item 3.
Defaults upon Senior Securities
None.
Item 4.
Submission of Matters to a Vote of Security Holders
None.
37
Item 5.
Other Information
None.
Item 6.
Exhibits
31.1
|
|
Certification of Curtis J. Clawson, Chairman of the Board, President,
and Chief Executive Officer, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.*
|
|
31.2
|
|
Certification Mark A. Brebberman, Vice President, Chief Financial
Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
|
|
32.1
|
|
Certification of Curtis J. Clawson, Chairman of the Board, President,
and Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
|
|
32.2
|
|
Certification of Mark A. Brebberman, Vice President, Chief Financial
Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.*
|
|
|
|
*
|
|
Filed electronically herewith.
|
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/ MARK A. BREBBERMAN
|
|
|
Mark A. Brebberman
|
|
|
Vice President and Chief Financial Officer
|
|
|
December 5, 2008
38
HAYES LEMMERZ INTERNATIONAL, INC.
10-Q EXHIBIT INDEX
31.1
|
|
Certification of Curtis J. Clawson, Chairman of the Board, President,
and Chief Executive Officer, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.*
|
|
31.2
|
|
Certification Mark A. Brebberman, Vice President, Chief Financial
Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
|
|
32.1
|
|
Certification of Curtis J. Clawson, Chairman of the Board, President,
and Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
|
|
32.2
|
|
Certification of Mark A. Brebberman, Vice President, Chief Financial
Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.*
|
|
|
|
*
|
|
Filed electronically herewith.
|
39
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