Hayes Lemmerz Reports Results for Difficult Second Quarter
NORTHVILLE, Mich., Sept. 8 -- Hayes Lemmerz International, Inc. (HAYZ) today reported that sales for the fiscal second quarter ended July 31, 2005 rose 9.8 percent to $584.3 million from $532.1 million for the same period last year, helped by higher international volumes, partial recovery from customers of increased steel prices and favorable foreign exchange rates. The Company reported a loss from operations for the fiscal second quarter of $47.1 million, primarily due to asset impairment charges, compared to earnings from operations of $9.6 million for the second quarter last year. For the second quarter, the Company reported a net loss of $70.3 million, or $1.85 per share, compared with a year earlier loss of $9.8 million, or 26 cents per share.
For the six months ended July 31, 2005, Hayes Lemmerz reported sales of $1.2 billion, an increase of 6.8 percent from $1.1 billion a year earlier. For the six months, the Company reported a loss from operations of $32.3 million, compared with a year earlier profit from operations of $37.8 million. The net loss for the six month period was $78.0 million, compared with a year earlier net loss of $8.7 million.
The loss from operations and net loss for the second quarter reflect asset impairment and other restructuring charges of $33.0 million, of which $30.0 million arose from an asset impairment charge related to the Company's Cadillac, Michigan iron foundry, which makes engine manifolds, steering knuckles, and other cast components. The Company is currently evaluating its options for the facility, including the possible sale or closure of the facility.
"This was an extremely challenging quarter for us in North America. North American volumes for key platforms were lower than last year, reducing sales and profits," said Curtis Clawson, President, CEO and Chairman of the Board of Hayes Lemmerz. "Additionally, the Company incurred a number of one-time costs associated with impairment charges and additional costs for previously announced facilities closures," he said.
"However, we remain focused on implementing our strategic plan, which emphasizes restructuring unprofitable operations, investing in cost-efficient manufacturing technologies, and expanding capacity in low-cost countries close to our broad international customer base," he said.
Hayes Lemmerz expects the second half of the year will show improved results compared with the first half because of recently completed expansions in aluminum wheel making capacity in plants located in the United States (Gainesville, Georgia), the Czech Republic, Brazil, Thailand, Mexico and South Africa.
The Company's total liquidity as of July 31, 2005, was $129 million, consisting of cash, availability under its revolving credit facility, and availability under its North American accounts receivable securitization facility. To enhance liquidity, the Company entered into a capital lease agreement for certain production equipment from which it received approximately $15 million in the second quarter and expects to receive an additional $8 million in the second half. The Company is also in the process of negotiating a European receivables financing program, which is expected to increase liquidity by roughly $25 million if successfully completed, and is continuing to pursue the divestiture of its Commercial Highway Hubs and Drums business, which may improve liquidity by $10-15 million, as well as reduce debt.
The Company also revised its guidance and outlook for 2005. The Company expects total revenue to be approximately $2.3 billion to $2.4 billion (unchanged from prior guidance) and Adjusted EBITDA(1) to be approximately $190 million to $205 million (revised from prior guidance of $220 million to $235 million). Free cash flow(2), excluding the impact of securitization, is expected to be between negative $45 million and negative $60 million for the full year, but is expected to be positive in the second half of 2005, reflecting reduced working capital investment, lower capital expenditures, and asset sale proceeds.
Hayes Lemmerz International, Inc. is a leading global supplier of automotive and commercial highway wheels, brakes, powertrain, suspension, structural and other lightweight components. The Company has 40 facilities and has approximately 11,000 employees worldwide.
(1) Adjusted EBITDA, a measure used by management to measure operating performance, is defined as earnings from operations plus depreciation and amortization. Adjusted EBITDA is defined as EBITDA further adjusted to exclude: (i) asset impairment losses and other restructuring charges; (ii) reorganization items; and (iii) other items. Management references these non-GAAP financial measures frequently in its decision making because they provide supplemental information that facilitates internal comparisons to historical operating performance of prior periods and external comparisons to competitors' historical operating performance. Adjusted EBITDA is not a recognized term under GAAP and does not purport to be an alternative to earnings from operations as an indicator of operating performance or to cash flows from operating activities as a measure of liquidity. Because not all companies use identical calculations, these presentations of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. Additionally, Adjusted EBITDA is not intended to be a measure of free cash flow for management's discretionary use, as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements. Institutional investors generally look to Adjusted EBITDA in measuring performance, among other things. The Company uses Adjusted EBITDA to facilitate quantification of planned business activities and enhance subsequent follow-up with comparisons of actual to planned Adjusted EBITDA. The Company is disclosing these non-GAAP financial measures in order to provide transparency to investors.
(2) Free Cash Flow is used by management as a non-GAAP financial measure because it identifies the amount of cash available to meet principal debt amortization requirements, pay dividends to stockholders, or make corporate investments.
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions, except per share amounts)
Unaudited
Three Months Ended Three Months Ended
July 31, 2005 July 31, 2004
Net sales $584.3 $532.1
Cost of goods sold 544.8 482.5
Gross profit 39.5 49.6
Marketing, general, and
administrative 46.9 40.1
Asset impairments and other
restructuring charges 33.0 0.9
Other (income) expense, net 6.7 (1.0)
Earnings (loss) from operations (47.1) 9.6
Interest expense, net 16.5 12.7
Other non-operating expense 0.2 0.2
Loss before taxes on income and
minority interest (63.8) (3.3)
Income tax expense 4.0 4.9
Loss before minority interest (67.8) (8.2)
Minority interest 2.5 1.6
Net loss $(70.3) $(9.8)
Loss per common share data
Basic and diluted:
Net loss $(1.85) $(0.26)
Weighted average shares outstanding
(in millions) 37.9 37.8
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions, except per share amounts)
Unaudited
Six Months Ended Six Months Ended
July 31, 2005 July 31, 2004
Net sales $1,202.3 $1,126.1
Cost of goods sold 1,100.6 1,002.2
Gross profit 101.7 123.9
Marketing, general, and
administrative 90.7 83.2
Asset impairments and other
restructuring charges 33.8 3.3
Other (income) expense, net 9.5 (0.4)
Earnings (loss) from operations (32.3) 37.8
Interest expense, net 31.2 22.2
Other non-operating expense 0.4 0.2
Loss on early extinguishment of debt - 12.2
Earnings (loss) before taxes on
income, minority interest, and
cumulative effect of change in
accounting principle (63.9) 3.2
Income tax expense 9.0 10.7
Loss before minority interest and
cumulative effect of change
in accounting principle (72.9) (7.5)
Minority interest 5.1 3.8
Loss before cumulative effect of
change in accounting principle (78.0) (11.3)
Cumulative effect of change in
accounting principle, net of tax of $0.8 - (2.6)
Net loss $(78.0) $(8.7)
Loss per common share data
Basic and diluted:
Loss before cumulative effect of
change in accounting principle $(2.06) $(0.30)
Cumulative effect of change in
accounting principle, net of tax of $0.8 - (0.07)
Net loss $(2.06) $(0.23)
Weighted average shares outstanding
(in millions) 37.9 37.3
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
Unaudited
July 31, 2005 January 31, 2005
ASSETS
Current assets:
Cash and cash equivalents $38.5 $35.2
Receivables 271.3 241.4
Other Receivables 79.8 77.0
Inventories 221.2 212.6
Prepaid expenses and other
current assets 29.2 29.3
Total current assets 640.0 595.5
Property, plant, and equipment, net 926.9 1,000.3
Goodwill 385.4 417.9
Intangible assets, net 215.1 233.3
Other assets 60.1 55.0
Total assets $2,227.5 $2,302.0
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank borrowings and other notes $0.5 $0.6
Current portion of long-term debt 7.7 10.5
Accounts payable and accrued
liabilities 405.4 405.3
Total current liabilities 413.6 416.4
Long-term debt, net of current portion 721.1 631.1
Pension and other long-term liabilities 484.3 507.7
Series A warrants and Series B warrants 0.3 0.5
Redeemable preferred stock of
subsidiary 11.7 11.3
Minority interest 33.5 33.7
Stockholders' equity 563.0 701.3
Total liabilities and stockholders'
equity $2,227.5 $2,302.0
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
(Dollars in millions)
Unaudited
Six Months Ended Six Months Ended
July 31, 2005 July 31, 2004
Cash flows from operating activities:
Net loss $(78.0) $(8.7)
Adjustments to reconcile net loss to net
cash provided by operations:
Depreciation and amortization 91.0 86.0
Amortization of deferred financing fees and
accretion of discount 3.8 1.9
Interest income resulting from fair value
adjustment of Series A Warrants and
Series B Warrants (0.2) (5.2)
Change in deferred income taxes (11.9) (1.9)
Asset impairments 30.8 -
Minority interest 5.1 3.8
Subsidiary preferred stock dividends accrued 0.4 0.4
Equity compensation expense 2.9 3.2
Loss on early extinguishment of debt - 12.2
(Gain) loss on disposal of assets and businesses 3.4 (0.3)
Changes in operating assets and liabilities that
increase
(decrease) cash flows:
Receivables (41.4) (5.2)
Other receivables (2.8) -
Inventories (15.1) (12.5)
Prepaid expenses and other (8.6) (1.9)
Accounts payable and accrued liabilities 3.0 (5.9)
Payments related to Chapter 11 filings - (1.1)
Cash provided by (used for) operating
activities $(17.6) $64.8
Cash flows from investing activities:
Purchase of property, plant, equipment, and
tooling (68.1) (72.0)
Proceeds from sale of assets (0.1) 1.9
Cash used for investing activities (68.2) (70.1)
Cash flows from financing activities:
Changes in bank borrowings and credit
facilities (0.1) 0.6
Net proceeds from issuance of common stock - 117.0
Redemption of Senior Notes, net of discount and
related fees - (96.7)
Repayment of Term Loan B, net of
related fees (72.7) (16.0)
Borrowings from Term Loan C 150.0 -
Repayment of long-term debt 12.3 (5.4)
Repayment of notes payable issued in
connection with purchases of businesses - (13.1)
Cash provided by (used for) financing
activities 89.5 (13.6)
Effect of exchange rate changes on cash and
cash equivalents (0.4) (0.8)
Increase (decrease) in cash and cash
equivalents 3.3 (19.7)
Adjustment for the elimination of the one
month lag - 1.4
Cash and cash equivalents at beginning
of period 35.2 48.5
Cash and cash equivalents at end of period $38.5 $30.2