##### Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




---

Form 10-Q

(Mark One)



|  |                                                                                            
|- | -------------------------------------------------------------------------------------------
|x | QUARTERLY REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31,
2003

or



|  |                                                                                             
|- | --------------------------------------------------------------------------------------------
|o | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period
from                     to

Commission file number: 000-50303



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Hayes Lemmerz International, Inc.

(Exact name of registrant as specified in its
charter)


|                                                                                        |  |                                                
|--------------------------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware(State or other jurisdiction of
    incorporation or organization)              |  | 32-0072578(IRS Employer Identification
    No.)
|                                                                                       
|15300 Centennial Drive Northville, Michigan(Address of principal executive
    offices) |  | 48167(Zip Code)                                

Registrants telephone number, including
area code:

(734) 737-5000


Indicate
by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days.     Yes þ          No o

Indicate
by check mark whether the registrant is an accelerated filer (as
defined in Rule 12(b)-2 of the
Act).     Yes þ          No o

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 Section 12, 13 or 15(d) of
the Act subsequent to the distributions of securities under a
plan confirmed by a
court.     Yes þ          No o

The
number of shares of common stock outstanding as of
September 15, 2003 was 30,000,000 shares.

Website Access to Company Reports

Hayes
Lemmerz International, Inc.s internet website address is
www.hayes-lemmerz.com. The Companys annual reports on
Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and any amendments to those reports
filed or furnished pursuant to section 13(a) or 15(d) of
the Exchange Act are available free of charge through the
Companys website as soon as reasonably practical after
those reports are electronically filed with, or furnished to,
the Securities and Exchange Commission.



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TABLE OF CONTENTS



|                                                                                                            |  |  |  |  |  |  |  | 
|----------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|CONSOLIDATED STATEMENTS OF OPERATIONS                                                                      
|CONSOLIDATED BALANCE SHEETS                                                                                
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                                                      
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                                 
|CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS Predecessor Company For the Four Months Ended May 31, 2003
|CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS                                                           
|PART II. OTHER INFORMATION                                                                                 
|SIGNATURES                                                                                                 
|Indemnification Agreement                                                                                  
|Ratio of Earnings to Fixed Charges                                                                         
|302 Certification of Chief Executive Officer                                                               
|302 Certification of Chief Financial Officer                                                               
|906 Certification of Chief Executive Officer                                                               
|906 Certification of Chief Financial Officer                                                               



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##### Table of Contents



HAYES LEMMERZ INTERNATIONAL, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

|                                  |  |                                                                                           |    |      |    | 
|--------------------------------- |  | ----------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                                  |  |                                                                                           |    | Page |   
|                                  |  |                                                                                           |    |      |   
|PART I.
    FINANCIAL INFORMATION
|Item 1.                           |  | Financial Statements                                                                      |    |      |    | 
|                                  |  | Consolidated Statements of Operations                                                     |    |      | 1  | 
|                                  |  | Consolidated Balance Sheets                                                               |    |      | 2  | 
|                                  |  | Consolidated Statements of Cash Flows                                                     |    |      | 3  | 
|                                  |  | Notes to Consolidated Financial Statements                                                |    |      | 4  | 
|Item 2.                           |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations |    |      | 32 | 
|Item 3.                           |  | Quantitative and Qualitative Disclosures about
    Market Risk                            |    |      | 45 | 
|Item 4.                           |  | Controls and Procedures                                                                   |    |      | 45 | 
|PART II.
    OTHER INFORMATION   
|Item 1.                           |  | Legal Proceedings                                                                         |    |      | 47 | 
|Item 2.                           |  | Changes in Securities and Use of Proceeds                                                 |    |      | 49 | 
|Item 3.                           |  | Defaults upon Senior Securities                                                           |    |      | 50 | 
|Item 4.                           |  | Submission of Matters to a Vote of Security
    Holders                                   |    |      | 50 | 
|Item 5.                           |  | Other Information                                                                         |    |      | 50 | 
|Item 6.                           |  | Exhibits and Reports on Form 8-K                                                          |    |      | 51 | 
|Signatures                        |  |                                                                                           | 52 |     

UNLESS OTHERWISE INDICATED, REFERENCES TO THE
COMPANY MEAN HAYES LEMMERZ INTERNATIONAL, INC., AND
ITS SUBSIDIARIES, AND REFERENCES TO A FISCAL YEAR MEANS THE
COMPANYS YEAR COMMENCING ON FEBRUARY 1 OF THAT YEAR
AND ENDING JANUARY 31 OF THE FOLLOWING YEAR (E.G., FISCAL
2003 MEANS THE PERIOD BEGINNING FEBRUARY 1, 2003, AND
ENDING JANUARY 31, 2004). THIS REPORT CONTAINS FORWARD
LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 WITH RESPECT TO THE FINANCIAL
CONDITION, RESULTS OF OPERATIONS, AND BUSINESS OF THE COMPANY.
THESE FORWARD LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND
UNCERTAINTIES. NO ASSURANCE CAN BE GIVEN THAT ANY OF SUCH
MATTERS WILL BE REALIZED. FACTORS THAT MAY CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD
LOOKING STATEMENTS INCLUDE, AMONG OTHERS, THE FOLLOWING
POSSIBILITIES: (1) COMPETITIVE PRESSURE IN THE
COMPANYS INDUSTRY INCREASES SIGNIFICANTLY;
(2) GENERAL ECONOMIC CONDITIONS ARE LESS FAVORABLE THAN
EXPECTED; (3) THE COMPANYS DEPENDENCE ON THE
AUTOMOTIVE INDUSTRY (WHICH HAS HISTORICALLY BEEN CYCLICAL);
(4) PRICING PRESSURE FROM AUTOMOTIVE INDUSTRY CUSTOMERS;
(5) CHANGES IN THE FINANCIAL MARKETS AFFECTING THE
COMPANYS FINANCIAL STRUCTURE AND THE COMPANYS COST
OF CAPITAL AND BORROWED MONEY; (6) THE UNCERTAINTIES
INHERENT IN INTERNATIONAL OPERATIONS AND FOREIGN CURRENCY
FLUCTUATIONS; AND (7) UNCERTAINTIES RELATED TO CONFLICT IN
THE MIDDLE EAST. THE COMPANY HAS NO DUTY UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 TO UPDATE THE FORWARD
LOOKING STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-Q
AND THE COMPANY DOES NOT INTEND TO PROVIDE SUCH UPDATES.

i



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##### Table of Contents



HAYES LEMMERZ INTERNATIONAL, INC. AND
SUBSIDIARIES






CONSOLIDATED STATEMENTS OF
OPERATIONS


(Millions of dollars, except share
amounts)


(Unaudited)


|                                                                          |                                                                                                                                                                                                           |            |       |       |             |   |         |              |   |   |             |       |   |            |         |         |   |   |        |        |  
|------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------- | ----- | ----- | ----------- | - | ------- | ------------ | - | - | ----------- | ----- | - | ---------- | ------- | ------- | - | - | ------ | ------ | -
|                                                                          |                                                                                                                                                                                                           |            |       |      
|                                                                          |                                                                                                                                                                                                           | Successor  |       |       | Predecessor |  
|                                                                          |                                                                                                                                                                                                           |            |       |       |             |  
|                                                                          |                                                                                                                                                                                                           | Two Months |       |       | One Month   |   |         | Three Months |   |   | Four Months |       |   | Six Months |        
|                                                                          |                                                                                                                                                                                                           | Ended      |       |       | Ended       |   |         | Ended        |   |   | Ended       |       |   | Ended      |        
|                                                                          |                                                                                                                                                                                                           | July 31,   |       |       | May 31,     |   |         | July 31,     |   |   | May 31,     |       |   | July 31,   |        
|                                                                          |                                                                                                                                                                                                           | 2003       |       |       | 2003        |   |         | 2002         |   |   | 2003        |       |   | 2002       |        
|                                                                          |                                                                                                                                                                                                           |            |       |       |             |   |         |              |   |   |             |       |   |            |        
|Net sales                                                                 |                                                                                                                                                                                                           | $          | 328.3 |       |             | $ | 174.5   |              |   | $ | 504.0       |       |   | $          | 689.8   |         |   | $ | 990.7  |       
|Cost of goods sold                                                        |                                                                                                                                                                                                           |            | 298.9 |       |             |   | 147.8   |              |   |   | 465.7       |       |   |            | 611.3   |         |   |   | 907.3  |       
|                                                                          |                                                                                                                                                                                                           |            |       |       |             |   |         |              |   |   |             |       |   |            |        
|                                                                          | Gross profit                                                                                                                                                                                              |            |       | 29.4  |             |   |         | 26.7         |   |   |             | 38.3  |   |            |         | 78.5    |   |   |        | 83.4   |  
|Marketing, general and administration                                     |                                                                                                                                                                                                           |            | 20.7  |       |             |   | 6.0     |              |   |   | 23.0        |       |   |            | 33.5    |         |   |   | 50.6   |       
|Engineering and product development                                       |                                                                                                                                                                                                           |            | 4.2   |       |             |   | 1.7     |              |   |   | 5.5         |       |   |            | 8.1     |         |   |   | 10.5   |       
|Asset impairments and other restructuring charges                         |                                                                                                                                                                                                           |            |      |       |             |   | 2.3     |              |   |   | 18.1        |       |   |            | 6.4     |         |   |   | 25.3   |       
|Other (income) expense, net                                               |                                                                                                                                                                                                           |            | 2.1   |       |             |   | (1.3    | )            |   |   | (1.1        | )     |   |            | (1.9    | )       |   |   | (3.7   | )     
|Reorganization items                                                      |                                                                                                                                                                                                           |            |      |       |             |   | 31.9    |              |   |   | 5.4         |       |   |            | 45.0    |         |   |   | 27.9   |       
|Fresh start accounting adjustments                                        |                                                                                                                                                                                                           |            |      |       |             |   | (63.1   | )            |   |   |            |       |   |            | (63.1   | )       |   |   |       |       
|                                                                          |                                                                                                                                                                                                           |            |       |       |             |   |         |              |   |   |             |       |   |            |        
|                                                                          | Earnings (loss) from operations                                                                                                                                                                           |            |       | 2.4   |             |   |         | 49.2         |   |   |             | (12.6 | ) |            |         | 50.5    |   |   |        | (27.2  | )
|Interest expense, net                                                     |                                                                                                                                                                                                           |            | 8.1   |       |             |   | 5.8     |              |   |   | 17.9        |       |   |            | 22.7    |         |   |   | 34.7   |       
|                                                                          |                                                                                                                                                                                                           |            |       |       |             |   |         |              |   |   |             |       |   |            |        
|                                                                          | Earnings (loss) before subsidiary preferred
    stock dividends, taxes on income, minority interest, cumulative
    effect of change in accounting principle and extraordinary gain
    on debt discharge |            |       | (5.7  | )           |   |         | 43.4         |   |   |             | (30.5 | ) |            |         | 27.8    |   |   |        | (61.9  | )
|Subsidiary preferred stock dividends                                      |                                                                                                                                                                                                           |            | 0.1   |       |             |   |        |              |   |   |            |       |   |            |        |         |   |   |       |       
|                                                                          |                                                                                                                                                                                                           |            |       |       |             |   |         |              |   |   |             |       |   |            |        
|                                                                          | Earnings (loss) before taxes on income,
    minority interest, cumulative effect of change in accounting
    principle and extraordinary gain on debt discharge                                           |            |       | (5.8  | )           |   |         | 43.4         |   |   |             | (30.5 | ) |            |         | 27.8    |   |   |        | (61.9  | )
|Income tax provision (benefit)                                            |                                                                                                                                                                                                           |            | 2.6   |       |             |   | 54.4    |              |   |   | (3.3        | )     |   |            | 60.3    |         |   |   | (2.4   | )     
|                                                                          |                                                                                                                                                                                                           |            |       |       |             |   |         |              |   |   |             |       |   |            |        
|                                                                          | Loss before minority interest, cumulative effect
    of change in accounting principle and extraordinary gain on debt
    discharge                                                                       |            |       | (8.4  | )           |   |         | (11.0        | ) |   |             | (27.2 | ) |            |         | (32.5   | ) |   |        | (59.5  | )
|Minority interest                                                         |                                                                                                                                                                                                           |            | 0.8   |       |             |   | 0.2     |              |   |   | 0.8         |       |   |            | 1.2     |         |   |   | 1.5    |       
|                                                                          |                                                                                                                                                                                                           |            |       |       |             |   |         |              |   |   |             |       |   |            |        
|                                                                          | Loss before cumulative effect of change in
    accounting principle and extraordinary gain on debt discharge                                                                                              |            |       | (9.2  | )           |   |         | (11.2        | ) |   |             | (28.0 | ) |            |         | (33.7   | ) |   |        | (61.0  | )
|Cumulative effect of change in accounting
    principle, net of tax of $0 |                                                                                                                                                                                                           |            |      |       |             |   |        |              |   |   |            |       |   |            |        |         |   |   | (554.4 | )     
|Extraordinary gain on debt discharge, net of tax
    $0                   |                                                                                                                                                                                                           |            |      |       |             |   | 1,076.7 |              |   |   |            |       |   |            | 1,076.7 |         |   |   |       |       
|                                                                          |                                                                                                                                                                                                           |            |       |       |             |   |         |              |   |   |             |       |   |            |        
|                                                                          | Net income (loss)                                                                                                                                                                                         |            | $     | (9.2  | )           |   | $       | 1,065.5      |   |   | $           | (28.0 | ) |            | $       | 1,043.0 |   |   | $      | (615.4 | )
|                                                                          |                                                                                                                                                                                                           |            |       |       |             |   |         |              |   |   |             |       |   |            |        
|Basic net loss per share:                                                 |                                                                                                                                                                                                           |            |       |       |             |   |         |              |   |   |             |       |   |            |         |         |   |   |        |       
|                                                                          | Loss before cumulative effect of change in
    accounting principle and extraordinary gain on debt discharge                                                                                              |            | $     | (0.31 | )           |   |         |              |   |   |             |       |   |            |         |         |   |   |        |        |  
|                                                                          | Cumulative effect of change in accounting
    principle, net of tax                                                                                                                                       |            |       |      |             |   |         |              |   |   |             |       |   |            |         |         |   |   |        |        |  
|                                                                          | Extraordinary gain on debt discharge, net of tax                                                                                                                                                          |            |       |      |             |   |         |              |   |   |             |       |   |            |         |         |   |   |        |        |  
|                                                                          |                                                                                                                                                                                                           |            |       |       |             |   |         |              |   |   |             |       |   |            |        
|Basic net loss per share                                                  |                                                                                                                                                                                                           | $          | (0.31 | )     |             |   |         |              |   |   |             |       |   |            |         |         |   |   |        |       
|                                                                          |                                                                                                                                                                                                           |            |       |       |             |   |         |              |   |   |             |       |   |            |        
|Diluted net loss per share:                                               |                                                                                                                                                                                                           |            |       |       |             |   |         |              |   |   |             |       |   |            |         |         |   |   |        |       
|                                                                          | Loss before cumulative effect of change in
    accounting principle and extraordinary gain on debt discharge                                                                                              |            | $     | (0.31 | )           |   |         |              |   |   |             |       |   |            |         |         |   |   |        |        |  
|                                                                          | Cumulative effect of change in accounting
    principle, net of tax                                                                                                                                       |            |       |      |             |   |         |              |   |   |             |       |   |            |         |         |   |   |        |        |  
|                                                                          | Extraordinary gain on debt discharge, net of tax                                                                                                                                                          |            |       |      |             |   |         |              |   |   |             |       |   |            |         |         |   |   |        |        |  
|                                                                          |                                                                                                                                                                                                           |            |       |       |             |   |         |              |   |   |             |       |   |            |        
|Diluted net loss per share                                                |                                                                                                                                                                                                           | $          | (0.31 | )     |             |   |         |              |   |   |             |       |   |            |         |         |   |   |        |       
|                                                                          |                                                                                                                                                                                                           |            |       |       |             |   |         |              |   |   |             |       |   |            |        

See accompanying notes to consolidated financial
statements.

1



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##### Table of Contents



HAYES LEMMERZ INTERNATIONAL, INC. AND
SUBSIDIARIES






CONSOLIDATED BALANCE SHEETS


(Millions of dollars,


except share amounts)


|                                                                                       |                                                                                                               |                                                                                                                                        |       |       |             |  |          |       |          |  
|-------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------- | ----- | ----- | ----------- |  | -------- | ----- | -------- | -
|                                                                                       |                                                                                                               | Successor                                                                                                                              |       |       | Predecessor | 
|                                                                                       |                                                                                                               |                                                                                                                                        |       |       |             | 
|                                                                                       |                                                                                                               | July 31,                                                                                                                               |       |       | January 31, | 
|                                                                                       |                                                                                                               | 2003                                                                                                                                   |       |       | 2003        | 
|                                                                                       |                                                                                                               |                                                                                                                                        |       |       |             | 
|                                                                                       |                                                                                                               | (Unaudited)                                                                                                                            |       |       |            
|ASSETS                                                                                
|Current assets:                                                                        |                                                                                                               |                                                                                                                                        |       |       |             |  |          |      
|                                                                                       | Cash and cash equivalents                                                                                     |                                                                                                                                        | $     | 140.6 |             |  | $        | 66.1  |         
|                                                                                       | Receivables                                                                                                   |                                                                                                                                        |       | 275.3 |             |  |          | 276.6 |         
|                                                                                       | Inventories                                                                                                   |                                                                                                                                        |       | 186.6 |             |  |          | 176.6 |         
|                                                                                       | Prepaid expenses and other                                                                                    |                                                                                                                                        |       | 21.1  |             |  |          | 32.5  |         
|                                                                                       |                                                                                                               |                                                                                                                                        |       |       |             | 
|                                                                                       |                                                                                                               | Total current assets                                                                                                                   |       |       | 623.6       |  |          |       | 551.8    |  
|Property, plant and equipment, net                                                     |                                                                                                               |                                                                                                                                        | 922.6 |       |             |  | 951.2    |      
|Goodwill                                                                               |                                                                                                               |                                                                                                                                        | 392.9 |       |             |  | 191.3    |      
|Intangible assets, net                                                                 |                                                                                                               |                                                                                                                                        | 228.4 |       |             |  | 102.6    |      
|Other assets                                                                           |                                                                                                               |                                                                                                                                        | 76.6  |       |             |  | 49.7     |      
|                                                                                       |                                                                                                               |                                                                                                                                        |       |       |             | 
|                                                                                       |                                                                                                               | Total assets                                                                                                                           |       | $     | 2,244.1     |  |          | $     | 1,846.6  |  
|                                                                                       |                                                                                                               |                                                                                                                                        |       |       |             | 
|LIABILITIES AND STOCKHOLDERS EQUITY
    (DEFICIT)                                    
|Current liabilities:                                                                   |                                                                                                               |                                                                                                                                        |       |       |             |  |          |      
|                                                                                       | DIP Facility                                                                                                  |                                                                                                                                        | $     |      |             |  | $        | 49.9  |         
|                                                                                       | Bank borrowings and other notes                                                                               |                                                                                                                                        |       | 12.2  |             |  |          | 15.8  |         
|                                                                                       | Current portion of long-term debt                                                                             |                                                                                                                                        |       | 14.6  |             |  |          | 40.1  |         
|                                                                                       | Accounts payable and accrued liabilities                                                                      |                                                                                                                                        |       | 349.0 |             |  |          | 268.7 |         
|                                                                                       |                                                                                                               |                                                                                                                                        |       |       |             | 
|                                                                                       |                                                                                                               | Total current liabilities                                                                                                              |       |       | 375.8       |  |          |       | 374.5    |  
|Long-term debt, net of current portion                                                 |                                                                                                               |                                                                                                                                        | 755.5 |       |             |  | 61.9     |      
|Pension and other long-term liabilities                                                |                                                                                                               |                                                                                                                                        | 536.6 |       |             |  | 334.4    |      
|Series A Warrants and Series B Warrants                                                |                                                                                                               |                                                                                                                                        | 4.8   |       |             |  |         |      
|Redeemable preferred stock of subsidiary                                               |                                                                                                               |                                                                                                                                        | 10.1  |       |             |  |         |      
|Minority interest                                                                      |                                                                                                               |                                                                                                                                        | 13.4  |       |             |  | 16.4     |      
|Liabilities subject to compromise                                                      |                                                                                                               |                                                                                                                                        |      |       |             |  | 2,133.8  |      
|Commitments and contingencies                                                          |                                                                                                               |                                                                                                                                        |       |       |             |  |          |      
|                                                                                       | Stockholders equity (deficit):                                                                               |                                                                                                                                        |       |       |             |  |          |       |         
|                                                                                       | Successor preferred stock, 1,000,000 shares
    authorized, none issued or outstanding at July 31, 2003       |                                                                                                                                        |       |      |             |  |          |      |         
|                                                                                       | Predecessor preferred stock, 25,000,000 shares
    authorized, none issued or outstanding at January 31, 2003 |                                                                                                                                        |       |      |             |  |          |      |         
|                                                                                       | Common stock, par value $0.01 per share:                                                                      |                                                                                                                                        |       |       |             |  |          |       |         
|                                                                                       |                                                                                                               | Successor Voting  100,000,000 shares
    authorized; 30,000,000 issued and outstanding at July 31,
    2003                           |       |       | 0.3         |  |          |       |         |  
|                                                                                       |                                                                                                               | Predecessor Voting  99,000,000 shares
    authorized; 27,708,419 shares issued; 25,806,969 shares
    outstanding at January 31, 2003 |       |       |            |  |          |       | 0.3      |  
|                                                                                       |                                                                                                               | Predecessor Nonvoting  5,000,000
    shares authorized; 2,649,026 shares issued and outstanding
    at January 31, 2003               |       |       |            |  |          |       |         |  
|Additional paid in capital                                                             |                                                                                                               |                                                                                                                                        | 544.1 |       |             |  | 235.1    |      
|Predecessor common stock in treasury at cost,
    1,901,450 shares at January 31, 2003 |                                                                                                               |                                                                                                                                        |      |       |             |  | (25.7    | )    
|Accumulated deficit                                                                    |                                                                                                               |                                                                                                                                        | (9.2  | )     |             |  | (1,176.9 | )    
|Accumulated other comprehensive income (loss)                                          |                                                                                                               |                                                                                                                                        | 12.7  |       |             |  | (107.2   | )    
|                                                                                       |                                                                                                               |                                                                                                                                        |       |       |             | 
|                                                                                       |                                                                                                               | Total stockholders equity (deficit)                                                                                                   |       |       | 547.9       |  |          |       | (1,074.4 | )
|                                                                                       |                                                                                                               |                                                                                                                                        |       |       |             | 
|                                                                                       |                                                                                                               | Total liabilities and stockholders equity
    (deficit)                                                                               |       | $     | 2,244.1     |  |          | $     | 1,846.6  |  
|                                                                                       |                                                                                                               |                                                                                                                                        |       |       |             | 

See accompanying notes to consolidated financial
statements.

2



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##### Table of Contents



HAYES LEMMERZ INTERNATIONAL, INC. AND
SUBSIDIARIES






CONSOLIDATED STATEMENTS OF CASH
FLOWS


(Millions of dollars)


(Unaudited)


|                                                                 |                                                                                                             |                                                                                                     |                                          |       |             |      |       |            |          |       |      |        |       |       |  
|---------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------- | ---------------------------------------- | ----- | ----------- | ---- | ----- | ---------- | -------- | ----- | ---- | ------ | ----- | ----- | -
|                                                                 |                                                                                                             |                                                                                                     |                                          |      
|                                                                 |                                                                                                             | Successor                                                                                           |                                          |       | Predecessor |     
|                                                                 |                                                                                                             |                                                                                                     |                                          |       |             |     
|                                                                 |                                                                                                             | Two Months                                                                                          |                                          |       | Four Months |      |       | Six Months |         
|                                                                 |                                                                                                             | Ended                                                                                               |                                          |       | Ended       |      |       | Ended      |         
|                                                                 |                                                                                                             | July 31,                                                                                            |                                          |       | May 31,     |      |       | July 31,   |         
|                                                                 |                                                                                                             | 2003                                                                                                |                                          |       | 2003        |      |       | 2002       |         
|                                                                 |                                                                                                             |                                                                                                     |                                          |       |             |      |       |            |         
|Cash flows from operating activities:                            |                                                                                                             |                                                                                                     |                                          |       |             |      |       |            |          |       |      |       
|                                                                 | Net income (loss)                                                                                           |                                                                                                     | $                                        | (9.2  | )           |      | $     | 1,043.0    |          |       | $    | (615.4 | )    
|                                                                 | Adjustments to reconcile net income
    (loss) to net cash provided by (used for) operating
    activities: |                                                                                                     |                                          |       |             |      |       |            |          |       |      |        |      
|                                                                 |                                                                                                             | Depreciation and amortization                                                                       |                                          |       | 26.7        |      |       |            | 46.4     |       |      |        | 65.0  |      
|                                                                 |                                                                                                             | Interest income resulting from fair value
    adjustment of Series A Warrants and Series B Warrants |                                          |       | (4.5        | )    |       |            |         |       |      |        |      |      
|                                                                 |                                                                                                             | Amortization of deferred financing fees                                                             |                                          |       | 0.6         |      |       |            | 1.6      |       |      |        | 2.6   |      
|                                                                 |                                                                                                             | Change in deferred income taxes                                                                     |                                          |       | (1.8        | )    |       |            | 52.6     |       |      |        | 0.5   |      
|                                                                 |                                                                                                             | Asset impairments and other restructuring charges                                                   |                                          |       |            |      |       |            | 6.4      |       |      |        | 25.3  |      
|                                                                 |                                                                                                             | Minority interest                                                                                   |                                          |       | 0.8         |      |       |            | 1.2      |       |      |        | 1.5   |      
|                                                                 |                                                                                                             | Subsidiary preferred stock dividend                                                                 |                                          |       | 0.1         |      |       |            |         |       |      |        |      |      
|                                                                 |                                                                                                             | Cumulative effect of change in accounting
    principle                                             |                                          |       |            |      |       |            |         |       |      |        | 554.4 |      
|                                                                 |                                                                                                             | Gain (loss) on sale of assets and businesses                                                        |                                          |       | 0.3         |      |       |            | (0.4     | )     |      |        | (0.3  | )    
|                                                                 |                                                                                                             | Changes in operating assets and liabilities:                                                        |                                          |       |             |      |       |            |          |       |      |        |       |      
|                                                                 |                                                                                                             |                                                                                                     | Receivables                              |       |             | 28.5 |       |            |          | (13.7 | )    |        |       | 1.3   |  
|                                                                 |                                                                                                             |                                                                                                     | Inventories                              |       |             | 7.1  |       |            |          | (4.0  | )    |        |       | (21.1 | )
|                                                                 |                                                                                                             |                                                                                                     | Prepaid expenses and other               |       |             | (0.7 | )     |            |          | 5.2   |      |        |       | (6.3  | )
|                                                                 |                                                                                                             |                                                                                                     | Accounts payable and accrued liabilities |       |             | 14.8 |       |            |          | (6.9  | )    |        |       | 25.1  |  
|                                                                 | Chapter 11 items:                                                                                           |                                                                                                     |                                          |       |             |      |       |            |          |       |      |        |      
|                                                                 |                                                                                                             | Reorganization items                                                                                |                                          |       |            |      |       |            | 45.0     |       |      |        | 27.9  |      
|                                                                 |                                                                                                             | Fresh start accounting adjustments                                                                  |                                          |       |            |      |       |            | (63.1    | )     |      |        |      |      
|                                                                 |                                                                                                             | Extraordinary gain on debt discharge                                                                |                                          |       |            |      |       |            | (1,076.7 | )     |      |        |      |      
|                                                                 |                                                                                                             | Accrued interest on Credit Agreement                                                                |                                          |       |            |      |       |            | 16.9     |       |      |        | 25.9  |      
|                                                                 |                                                                                                             | Payments related to Chapter 11 Filings                                                              |                                          |       | (18.3       | )    |       |            | (22.4    | )     |      |        | (36.8 | )    
|                                                                 |                                                                                                             |                                                                                                     |                                          |       |             |      |       |            |         
|                                                                 |                                                                                                             | Cash provided by operating activities                                                               |                                          |       | 44.4        |      |       |            | 31.1     |       |      |        | 49.6  |      
|                                                                 |                                                                                                             |                                                                                                     |                                          |       |             |      |       |            |         
|Cash flows from investing activities:                            |                                                                                                             |                                                                                                     |                                          |       |             |      |       |            |          |       |      |       
|                                                                 | Purchase of property, plant, equipment and tooling                                                          |                                                                                                     |                                          | (19.5 | )           |      |       | (26.3      | )        |       |      | (44.8  | )    
|                                                                 | Purchase of equipment previously leased                                                                     |                                                                                                     |                                          |      |             |      |       | (23.6      | )        |       |      |       |      
|                                                                 | Proceeds from sale of assets and businesses                                                                 |                                                                                                     |                                          |      |             |      |       | 0.8        |          |       |      | 9.0    |      
|                                                                 | Purchase of businesses                                                                                      |                                                                                                     |                                          |      |             |      |       |           |          |       |      | (7.2   | )    
|                                                                 |                                                                                                             |                                                                                                     |                                          |       |             |      |       |            |         
|                                                                 |                                                                                                             | Cash used for investing activities                                                                  |                                          |       | (19.5       | )    |       |            | (49.1    | )     |      |        | (43.0 | )    
|                                                                 |                                                                                                             |                                                                                                     |                                          |       |             |      |       |            |         
|Cash flows from financing activities:                            |                                                                                                             |                                                                                                     |                                          |       |             |      |       |            |          |       |      |       
|                                                                 | Change in borrowings under DIP Facility                                                                     |                                                                                                     |                                          |      |             |      |       | (49.9      | )        |       |      | 5.8    |      
|                                                                 | Repayment of note payable                                                                                   |                                                                                                     |                                          |      |             |      |       | (2.0       | )        |       |      |       |      
|                                                                 | Net repayments on bank borrowings                                                                           |                                                                                                     |                                          | (65.0 | )           |      |       | (9.8       | )        |       |      | (17.6  | )    
|                                                                 | Proceeds from New Senior Notes, net of discount
    and related fees                                        |                                                                                                     |                                          |      |             |      |       | 242.8      |          |       |      |       |      
|                                                                 | Proceeds from New Term Loan, net of related fees                                                            |                                                                                                     |                                          |      |             |      |       | 436.1      |          |       |      |       |      
|                                                                 | Prepetition Lenders Payment amount                                                                         |                                                                                                     |                                          |      |             |      |       | (477.3     | )        |       |      |       |      
|                                                                 | Payment to holders of Old Senior Notes                                                                      |                                                                                                     |                                          |      |             |      |       | (13.0      | )        |       |      |       |      
|                                                                 |                                                                                                             |                                                                                                     |                                          |       |             |      |       |            |         
|                                                                 |                                                                                                             | Cash provided by (used for) financing activities                                                    |                                          |       | (65.0       | )    |       |            | 126.9    |       |      |        | (11.8 | )    
|Effect of exchange rate changes on cash and cash
    equivalents |                                                                                                             |                                                                                                     | 1.6                                      |       |             |      | 4.1   |            |          |       | 3.7  |       
|                                                                 |                                                                                                             |                                                                                                     |                                          |       |             |      |       |            |         
|                                                                 | Increase(decrease) in cash and cash equivalents                                                             |                                                                                                     |                                          | (38.5 | )           |      |       | 113.0      |          |       |      | (1.5   | )    
|Cash and cash equivalents at beginning of period                 |                                                                                                             |                                                                                                     | 179.1                                    |       |             |      | 66.1  |            |          |       | 45.2 |       
|                                                                 |                                                                                                             |                                                                                                     |                                          |       |             |      |       |            |         
|Cash and cash equivalents at end of period                       |                                                                                                             | $                                                                                                   | 140.6                                    |       |             | $    | 179.1 |            |          | $     | 43.7 |       
|                                                                 |                                                                                                             |                                                                                                     |                                          |       |             |      |       |            |         
|Supplemental data:                                               |                                                                                                             |                                                                                                     |                                          |       |             |      |       |            |          |       |      |       
|                                                                 | Cash paid for interest                                                                                      |                                                                                                     |                                          | 2.0   |             |      |       | 5.8        |          |       | $    | 6.3    |      
|                                                                 | Cash paid for income taxes                                                                                  |                                                                                                     |                                          | 6.5   |             |      |       | 2.9        |          |       | $    | 3.3    |      

See accompanying notes to consolidated financial
statements.

3



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##### Table of Contents



HAYES LEMMERZ INTERNATIONAL, INC. AND
SUBSIDIARIES






NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


Two Months Ended July 31, 2003, Four
Months Ended May 31, 2003 and


Six Months Ended July 31, 2002


(Unaudited)


(Millions of Dollars Unless Otherwise
Stated)


(1) Description of Business,
Chapter 11 Filings and Emergence from
Chapter 11

These financial statements should be read in
conjunction with the financial statements included in the
Companys Annual Report on Form 10-K for the fiscal
year ended January 31, 2003 as filed with the Securities
and Exchange Commission (SEC) on April 2, 2003.

Description
of Business

Unless otherwise indicated, references to
Company mean Hayes Lemmerz International, Inc. and
its subsidiaries and references to fiscal year means the
Companys year commencing on February 1 of that year and
ending on January 31 of the following year (i.e., fiscal
2003 refers to the period beginning February 1, 2003
and ending January 31, 2004, fiscal 2002 refers
to the period beginning February 1, 2002 and ending
January 31, 2003).

The Company is a leading supplier of wheels,
wheel-end attachments, aluminum structural components and
automotive brake components. The Company is the worlds
largest manufacturer of automotive wheels. In addition, the
Company also designs and manufactures wheels and brake
components for commercial highway vehicles, and powertrain
components and aluminum non-structural components for the
automotive, commercial highway, heating and general equipment
industries.

Chapter 11
Filings

On December 5, 2001, Hayes Lemmerz
International, Inc., 30 of its wholly-owned domestic
subsidiaries and one wholly-owned Mexican subsidiary
(collectively, the Debtors) filed voluntary
petitions for reorganization relief (the Chapter 11
Filings or the Filings) under Chapter 11
of the Bankruptcy Code in the United States Bankruptcy Court for
the District of Delaware (the Bankruptcy Court).

On December 16, 2002, certain of the Debtors
filed a proposed joint plan of reorganization with the
Bankruptcy Court. On April 9, 2003, the Debtors filed a
modified first amended joint plan of reorganization (the
Plan of Reorganization) which received the requisite
support from creditors authorized to vote thereon. The following
five Debtors were not proponents of the Plan of Reorganization
and are not subject to the terms thereof: HLI Netherlands
Holdings, Inc., CMI Quaker Alloy, Inc., Hayes Lemmerz Funding
Company, LLC, Hayes Lemmerz Funding Corporation, and Hayes
Lemmerz International Import, Inc. (collectively, the
Non-reorganizing Debtors).

The Plan of Reorganization provided for the
cancellation of the existing common stock of the Company and the
issuance of cash, new common stock in the reorganized Company
and other property to certain creditors of the Company in
respect of certain classes of claims. The Plan of Reorganization
was confirmed by an order of the Bankruptcy Court on
May 12, 2003, which order has become final and
non-appealable.

Emergence
from Chapter 11

On June 3, 2003 (the Effective
Date), Hayes Lemmerz International, Inc. and each of the
27 Debtors proposing the Plan of Reorganization emerged
from Chapter 11 proceedings pursuant to the Plan of
Reorganization, which was confirmed by an order of the
Bankruptcy Court on May 12, 2003, which order has become
final and non-appealable. The Non-reorganizing Debtors were not
proponents of the Plan of Reorganization and are not subject to
the terms thereof. On June 3, 2003, the Bankruptcy Court
entered an order dismissing the Chapter 11 Filings of the
Non-reorganizing Debtors.

4



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##### Table of Contents



HAYES LEMMERZ INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Pursuant to the Plan of Reorganization, the
Company caused the formation of (i) a new holding company,
HLI Holding Company, Inc., a Delaware corporation
(HoldCo), (ii) HLI Parent Company, Inc., a
Delaware corporation and a wholly owned subsidiary of HoldCo
(ParentCo), and (iii) HLI Operating Company,
Inc, a Delaware corporation and a wholly owned subsidiary of
ParentCo (HLI). On the Effective Date,
(i) HoldCo was renamed Hayes Lemmerz International, Inc.
(New Hayes), (ii) New Hayes contributed to
ParentCo 30,0000,000 shares of its common stock, par value $.01
per share (the New Common Stock), and 957,447
series A warrants and 957,447 series B warrants to
acquire New Common Stock of New Hayes (the Series A
Warrants and Series B Warrants,
respectively), (iii) ParentCo in turn contributed such
shares of New Common Stock and Series A Warrants and
Series B Warrants to HLI and (iv) pursuant to an
Agreement and Plan of Merger, dated as of June 3, 2003 (the
Merger Agreement), between the Company and HLI, the
Company was merged with and into HLI (the Merger),
with HLI continuing as the surviving corporation.

Pursuant to the Plan of Reorganization and as a
result of the Merger, all of the issued and outstanding shares
of common stock, par value $.01 per share, of the Company
(the Old Common Stock), and any other outstanding
equity securities of the Company, including all options and
warrants, were cancelled. The holders of the existing voting
common stock of the Company immediately before confirmation did
not receive any voting shares of the emerging entity or any
other consideration under the Plan of Reorganization as a result
of their ownership interests of the Predecessor. This
represented a complete change of control in the ownership of the
Company. Promptly following the Merger, HLI distributed to
certain holders of allowed claims, under the terms of the Plan
of Reorganization, an amount in cash, the New Common Stock, the
Series A Warrants, the Series B Warrants and the
Preferred Stock (as defined below). Prior to the Merger, the Old
Common Stock was registered pursuant to Section 12(g) of
the Securities Exchange Act of 1934, as amended (the
Exchange Act). In reliance on Rule 12g-3(a) of
the Exchange Act, by virtue of the status of New Hayes as a
successor issuer to the Company, the New Common Stock is deemed
registered under Section 12(g) of the Exchange Act. The
Company filed a Form 15 with the SEC to terminate the
registration of the Old Common Stock under the Exchange Act.

Pursuant to the terms of the Plan of
Reorganization, HLI issued 100,000 shares of Preferred Stock,
par value $1.00, of HLI (the Preferred Stock) to the
holders of certain allowed claims. In accordance with the terms
of the Preferred Stock, the shares of Preferred Stock are, at
the holders option, exchangeable into a number of fully
paid and nonassessable shares of New Common Stock equal to
(i) the aggregate liquidation preference of the shares of
Preferred Stock so exchanged ($100 per share plus all accrued
and unpaid dividends thereon (whether or not declared) to the
exchange date) divided by (ii) 125% of the Emergence
Share Price. As determined pursuant to the terms of the
Plan of Reorganization, the Emergence Share Price is $18.50.

In connection with the Debtors emergence
from Chapter 11, on the Effective Date, HLI entered into a
$550.0 million senior secured credit facility (the
New Credit Facility). The New Credit Facility
consists of a $450.0 million six-year amortizing term loan
(the New Term Loan) and a five-year
$100.0 million revolving credit facility (the
Revolving Credit Facility). In addition, HLI issued
on the Effective Date an aggregate of $250.0 million
principal amount of 10 1/2% senior notes due 2010 (the
New Senior Notes). The proceeds from the initial
$450.0 million of borrowings under the New Credit Facility
and the net proceeds from the New Senior Notes were used to make
payments required under the Plan of Reorganization, including
the repayment of the Companys DIP Facility and a payment
of $477.3 million to certain prepetition lenders, to pay
related transaction costs and to refinance certain debt. See
Notes (11) and (12).

Reorganization
Items

Reorganization items as reported in the
consolidated statements of operations included herein are
comprised of income, expense and loss items that were realized
or incurred by the Debtors as a direct result of

5



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##### Table of Contents



HAYES LEMMERZ INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the Companys decision to reorganize under
Chapter 11. During the one month and four months ended
May 31, 2003 and the three months and six months ended
July 31, 2002, respectively, reorganization items were as
follows (millions of dollars):

|                                                                              |  |              |      |  |              |   |      |               |  |   |               |   |  |   |      |  
|----------------------------------------------------------------------------- |  | ------------ | ---- |  | ------------ | - | ---- | ------------- |  | - | ------------- | - |  | - | ---- | -
|                                                                              |  |             
|                                                                              |  | Predecessor  |     
|                                                                              |  |              |     
|                                                                              |  | One Month    |      |  | Four Months  |   |      | Three Months  |  |   | Six Months    |  
|                                                                              |  | Ended        |      |  | Ended        |   |      | Ended         |  |   | Ended         |  
|                                                                              |  | May 31, 2003 |      |  | May 31, 2003 |   |      | July 31, 2002 |  |   | July 31, 2002 |  
|                                                                              |  |              |      |  |              |   |      |               |  |   |               |  
|Critical employee retention plan provision                                    |  | $            | 10.5 |  |              | $ | 11.7 |               |  | $ | 2.7           |   |  | $ | 5.2  |  
|Estimated accrued liability for rejected
    prepetition leases and contracts |  |              |     |  |              |   |     |               |  |   | (3.0          | ) |  |   | 9.5  |  
|Professional fees directly related to the Filings                             |  |              | 19.3 |  |              |   | 30.8 |               |  |   | 7.0           |   |  |   | 14.6 |  
|Creditors Trust obligation                                                   |  |              | 2.0  |  |              |   | 2.0  |               |  |   |              |   |  |   |     |  
|Settlement of prepetition liabilities                                         |  |              |     |  |              |   |     |               |  |   | (1.2          | ) |  |   | (1.2 | )
|Other                                                                         |  |              | 0.1  |  |              |   | 0.5  |               |  |   | (0.1          | ) |  |   | (0.2 | )
|                                                                              |  |              |      |  |              |   |      |               |  |   |               |  
|Total                                                                         |  | $            | 31.9 |  |              | $ | 45.0 |               |  | $ | 5.4           |   |  | $ | 27.9 |  
|                                                                              |  |              |      |  |              |   |      |               |  |   |               |  

On May 30, 2002, the Bankruptcy Court
entered an order approving, among other things, the critical
employee retention plan (the CERP) filed with the
Bankruptcy Court in February 2002 which was designed to
compensate certain critical employees in order to assure their
retention and availability during the Companys
restructuring. The plan has two components which
(i) rewarded critical employees who remained with the
Company (and certain affiliates of the Company who are not
directly involved in the restructuring) during and through the
completion of the restructuring (the Retention
Bonus) and (ii) provided additional incentives to a
more limited group of the most senior critical employees if the
enterprise value upon completing the restructuring exceeded an
established baseline (the Restructuring Performance
Bonus).

Thirty-five percent, or approximately
$3.0 million, of the Retention Bonus was paid on
October 1, 2002. The remaining portion of the Retention
Bonus of approximately $5.9 million was paid on
June 13, 2003. Further, the Restructuring Performance Bonus
provided under the CERP was paid after the consummation of the
restructuring as discussed below.

Based on the Companys compromise total
enterprise value of $1,250.0 million as confirmed by the
Bankruptcy Court, the aggregate amount of the Restructuring
Performance Bonus is $12.1 million. Of the aggregate
$12.1 million, approximately $6.0 million was paid in
cash on July 1, 2003, and approximately $2.0 million
was paid on August 28, 2003 as determined by the
Companys Board of Directors. The remaining portion of the
Restructuring Performance Bonus was paid in 215,935 shares of
restricted units of New Hayes on July 28, 2003. Pursuant to
provisions contained in the CERP, the restricted units will vest
as follows, subject to the participants continued
employment:



| |   |                                                                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | one half of the restricted units will vest on the
    later of (i) the first date (the Minimum Valuation
    Date) upon which the average trading price for the New
    Common Stock during any consecutive 10 trading-day period is 80%
    or greater of the Emergence Share Price and (ii) the first
    anniversary of the Effective Date, and;
|
| |  | one half of the restricted units will vest on the
    later of (i) the Minimum Valuation Date and (ii) the
    second anniversary of the Effective Date.                                                                                                                                                                                             
|
| |  | any unvested restricted units will vest on the
    third anniversary of the Effective Date, if the participant is
    employed by the Company or a subsidiary on such date.                                                                                                                                                                          

6



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##### Table of Contents



HAYES LEMMERZ INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Cash payments with respect to other
reorganization items consisted primarily of professional fees
and were approximately $11.3 million and $21.2 million
during the two months ended July 31, 2003 and the four months
ended May 31, 2003, respectively, and $11.0 million during
the first six months of fiscal 2002.

(2) Basis of Presentation and Stock-Based
Compensation

Basis of
Presentation

As discussed in Note 1, the Company filed a
voluntary petition for reorganization relief under
Chapter 11 of the Bankruptcy Code in December 2001. Upon
emergence from Chapter 11, the Company implemented fresh
start accounting principles pursuant to American Institute of
Certified Public Accountants (AICPA) Statement of
Position 90-7, Financial Reporting by Entities in
Reorganization under the Bankruptcy Code
(SOP 90-7). See Note (3), Fresh Start
Accounting.

As a result of the application of fresh start
accounting on May 31, 2003, and in accordance with
SOP 90-7, the post-emergence financial results of the
Company for the period ending July 31, 2003 are presented
as the Successor and the pre-emergence financial
results of the Company for the period ending May 31, 2003
are presented as the Predecessor. Comparative
financial statements do not straddle the emergence date because
in effect the Successor Company represents a new entity. Per
share and share information for the Predecessor Company for all
periods presented on the consolidated statement of operations
have been omitted as such information is deemed to be not
meaningful.

The accompanying consolidated financial
statements of the Predecessor have been prepared in accordance
with SOP 90-7 and on a going concern basis. Continuing as a
going concern contemplates continuity of operations, realization
of assets, and payment of liabilities in the ordinary course of
business. The accompanying consolidated financial statements do
not reflect adjustments that might result if the Company is
unable to continue as a going concern. The Companys recent
history of significant losses, deficit in stockholders
equity and issues related to non-compliance with debt covenants,
raise substantial doubt about the Companys ability to
continue as a going concern. Continuing as a going concern is
dependent upon, among other things, the success of future
business operations and the generation of sufficient cash from
operations and financing sources to meet the Companys
obligations. SOP 90-7 requires the segregation of liabilities
subject to compromise by the Bankruptcy Court as of the
bankruptcy filing date, and identification of all transactions
and events that are directly associated with the reorganization
of the Predecessor.

The Companys unaudited interim consolidated
financial statements do not include all of the disclosures
required by accounting principles generally accepted in the
United States of America for annual financial statements. In the
opinion of management, all adjustments considered necessary for
a fair presentation of the interim period results have been
included. Operating results for the interim periods presented in
fiscal 2003 are not necessarily indicative of the results that
may be expected for the full fiscal year ending January 31,
2004.

Stock-Based
Compensation

The Company accounts for its stock-based
compensation in accordance with the provisions of Accounting
Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and
related interpretations. As such, compensation expense is
recorded on the date of grant only if the current market price
of the underlying stock exceeds the exercise price. The Company
follows the provisions of Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, and discloses pro forma net
income (loss) and pro forma earnings (loss) per share
as if employee stock option grants were treated as compensation
expense using the fair-value-based method defined in SFAS
No. 123.

In December 2002, the Financial Accounting
Standards Board (FASB) issued SFAS No. 148,
Accounting for Stock-Based Compensation 
Transition and Disclosure, an amendment of FASB Statement
No. 123. This Statement amends SFAS No. 123 to
provide alternative methods of transition for a

7



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##### Table of Contents



HAYES LEMMERZ INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

voluntary change to the fair value method of
accounting for stock-based employee compensation. In addition,
SFAS No. 148 amends the disclosure requirements of SFAS
No. 123 to require prominent disclosures in both annual and
interim financial statements.

On July 28, 2003, the Company granted
1,887,162 stock options and 1,258,107 restricted units to
certain employees and officers (excluding those restricted
shares granted under the CERP), and 65,455 options and 43,637
restricted units to non-employee members of the Companys
Board of Directors under the Long-Term Incentive Plan (see
Note (8)). There would be no additional compensation cost
as a result of applying SFAS No. 123, since the issuance of
the stock based awards coincided with the end of the quarter.

|                                  |             |               |   |       |  
|--------------------------------- | ----------- | ------------- | - | ----- | -
|                                  |             | Successor     |  
|                                  |             |               |  
|                                  |             | Two Months    |  
|                                  |             | Ended         |  
|                                  |             | July 31, 2003 |  
|                                  |             |               |  
|Net loss:                         |             |               |   |      
|                                  | As reported |               | $ | (9.2  | )
|                                  | Pro forma   |               |   | (9.2  | )
|Basic and diluted loss per share: |             |               |   |      
|                                  | As reported |               | $ | (0.31 | )
|                                  | Pro forma   |               |   | (0.31 | )

As of the Effective Date, all options under the
Predecessor Companys stock option plans were cancelled and
those plans were terminated. Accordingly, no pro forma net
income (loss) or pro forma earnings (loss) per share
have been presented for any of the stock options granted under
those terminated plans.

(3) Fresh Start Accounting

Pursuant to SOP 90-7, the accounting for the
effects of the Companys reorganization occurred once the
Plan of Reorganization was confirmed by the Bankruptcy Court and
there were no remaining contingencies material to completing the
implementation of the plan. The fresh start accounting
principles pursuant to SOP 90-7 provide, among other
things, for the Company to determine the value to be assigned to
the equity of the reorganized Company as of a date selected for
financial reporting purposes. As discussed in Note (1), the
Debtors emerged from Chapter 11 on June 3, 2003, and
the Company has selected May 31, 2003 for financial
reporting purposes as the date to implement fresh start
accounting principles.

Pursuant to SOP 90-7, the results of
operations of the Company ended May 31, 2003 include
(i) a pre-emergence extraordinary gain of
$1,076.7 million resulting from the discharge of debt and
other liabilities under the Plan of Reorganization;
(ii) pre-emergence charges to earnings of
$25.9 million recorded as Reorganization items related to
certain costs and expenses resulting from the Plan of
Reorganization becoming effective; and (iii) a
pre-emergence pre-tax gain of $63.1 million
($17.1 million, net of tax) resulting from the aggregate
remaining changes to the net carrying value of the
Companys pre-emergence assets and liabilities to reflect
the fair values under fresh start accounting.

The Companys compromise total enterprise
value is $1,250.0 million, with a total value for common
equity of $544.4 million, excluding the estimated fair
value of the Preferred Stock and the Series A Warrants and
Series B Warrants issued on the Effective Date. The
Preferred Stock is classified as a liability in the consolidated
balance sheet and referred to as redeemable preferred stock of
subsidiary. Under fresh start accounting, the compromise total
enterprise value has been allocated to the Companys assets
based on their respective fair values in conformity with the
purchase method of accounting for business combinations in
accordance with SFAS No. 141, Business
Combinations; any portion not attributed to specific
tangible or identified intangible assets has been recorded as an
indefinite-lived intangible asset referred to as
reorganization value in excess of amounts allocable to
identifiable assets and reported as goodwill. The
valuations

8



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##### Table of Contents



HAYES LEMMERZ INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

required to determine the fair value of certain
of the Companys assets as presented below represent the
results of the valuation procedures performed by the
Companys valuation specialist at May 31, 2003.



| |                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------
| | Valuation of Compromise Total Enterprise
    Value and Reorganization Value in Excess of Amounts Allocable to
    Identifiable Assets (Goodwill)

The compromise total enterprise value
(reorganization value) represents the amount of resources
available, or that become available, for the satisfaction of
post-petition liabilities and allowed claims, as negotiated
between the Debtors and the creditors (the interested
parties). This value along with other terms of the Plan of
Reorganization were determined only after extensive arms-length
negotiations amongst the interested parties. Each interested
party developed its view of what the value should be based
primarily upon expected future cash flows of the business after
emergence from Chapter 11, discounted at rates reflecting
perceived business and financial risks. This value is viewed as
the fair value of the entity before considering liabilities and
approximates the amount a willing buyer would pay for the assets
of the Company immediately after restructuring.

The amount of reorganization value in excess of
amounts allocated to identifiable assets (goodwill) is a
function of compromise total enterprise value. While the Company
believes that the compromise total enterprise value approximates
fair value, differences between the methodology used in testing
for goodwill impairment, as discussed in Note (6), and the
negotiated value could adversely impact the Companys
future results of operations.

The consolidated balance sheet presented below
gives effect to the Plan of Reorganization and the application
of fresh start accounting at May 31, 2003.

9



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##### Table of Contents



HAYES LEMMERZ INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

REORGANIZED CONDENSED CONSOLIDATED BALANCE
SHEET

May 31, 2003


(Millions of dollars)


(Unaudited)


|                                                   |                                          |                                                          |         |          |               |   |          |              |         |   |             |        |           |         |        |        |        |   |       |       |         | 
|-------------------------------------------------- | ---------------------------------------- | -------------------------------------------------------- | ------- | -------- | ------------- | - | -------- | ------------ | ------- | - | ----------- | ------ | --------- | ------- | ------ | ------ | ------ | - | ----- | ----- | ------- | 
|                                                   |                                          | Predecessor                                              |         |          | Discharge of  |   |          | Cancellation |         |   |             |        | Successor |        
|                                                   |                                          | May 31,                                                  |         |          | Debt and Exit |   |          | of           |         |   | Fresh Start |        |           | May 31, |       
|                                                   |                                          | 2003                                                     |         |          | Financing     |   |          | Old Equity   |         |   | Adjustments |        |           | 2003    |       
|                                                   |                                          |                                                          |         |          |               |   |          |              |         |   |             |        |           |         |       
|ASSETS                                             |                                          |                                                          |         |          |               |   |          |              |         |   |             |        |           |         |        |        |        |   |       |      
|Current assets:                                    |                                          |                                                          |         |          |               |   |          |              |         |   |             |        |           |         |        |        |        |   |       |      
|                                                   | Cash and cash equivalents                |                                                          | $       | 89.3     |               |   | $        | 89.8         | (a)     |   | $           |       |           |         | $      |       |        |   | $     | 179.1 |        
|                                                   | Receivables                              |                                                          |         | 299.9    |               |   |          |             |         |   |             |       |           |         |        |       |        |   |       | 299.9 |        
|                                                   | Inventories                              |                                                          |         | 186.0    |               |   |          |             |         |   |             |       |           |         |        | 5.2    | (j)    |   |       | 191.2 |        
|                                                   | Prepaid expenses and other               |                                                          |         | 27.0     |               |   |          | 1.3          | (b)     |   |             |       |           |         |        | (7.8   | )(k)   |   |       | 20.5  |        
|                                                   |                                          |                                                          |         |          |               |   |          |              |         |   |             |        |           |         |       
|                                                   |                                          | Total current assets                                     |         |          | 602.2         |   |          |              | 91.1    |   |             |        |          |         |        |        | (2.6   | ) |       |       | 690.7   | 
|Property, plant and equipment, net                 |                                          |                                                          | 959.7   |          |               |   | 54.0     | (c)          |         |   |            |        |           |         | (95.3  | )(l)   |        |   | 918.4 |      
|Old goodwill                                       |                                          |                                                          | 198.3   |          |               |   |         |              |         |   |            |        |           |         | (198.3 | )(m)   |        |   |      |      
|New goodwill                                       |                                          |                                                          |        |          |               |   |         |              |         |   |            |        |           |         | 390.9  | (n)    |        |   | 390.9 |      
|Intangible assets                                  |                                          |                                                          | 103.8   |          |               |   |         |              |         |   |            |        |           |         | 121.9  | (o)    |        |   | 225.7 |      
|Other assets                                       |                                          |                                                          | 60.9    |          |               |   | 19.9     | (d)          |         |   |            |        |           |         | 0.4    | (k)(l) |        |   | 81.2  |      
|                                                   |                                          |                                                          |         |          |               |   |          |              |         |   |             |        |           |         |       
|                                                   |                                          | Total assets                                             |         | $        | 1,924.9       |   |          | $            | 165.0   |   |             | $      |          |         |        | $      | 217.0  |   |       | $     | 2,306.9 | 
|                                                   |                                          |                                                          |         |          |               |   |          |              |         |   |             |        |           |         |       
|LIABILITIES AND STOCKHOLDERS EQUITY
    (DEFICIT) |                                          |                                                          |         |          |               |   |          |              |         |   |             |        |           |         |        |        |        |   |       |      
|Current liabilities:                               |                                          |                                                          |         |          |               |   |          |              |         |   |             |        |           |         |        |        |        |   |       |      
|                                                   | DIP facility                             |                                                          | $       | 59.7     |               |   | $        | (59.7        | )(e)    |   | $           |       |           |         |        |       |        |   | $     |      |        
|                                                   | Bank borrowings and other notes          |                                                          |         | 13.0     |               |   |          |             |         |   |             |       |           |         |        |       |        |   |       | 13.0  |        
|                                                   | Current portion of long-term debt        |                                                          |         | 39.6     |               |   |          | 4.5          | (f)     |   |             |       |           |         |        |       |        |   |       | 44.1  |        
|                                                   | Accounts payable and accrued liabilities |                                                          |         | 303.8    |               |   |          | 33.6         | (g)     |   |             |       |           |         |        | 9.1    | (k)(p) |   |       | 346.5 |        
|                                                   |                                          |                                                          |         |          |               |   |          |              |         |   |             |        |           |         |       
|                                                   |                                          | Total current liabilities                                |         |          | 416.1         |   |          |              | (21.6   | ) |             |        |          |         |        |        | 9.1    |   |       |       | 403.6   | 
|Long-term debt, net of current portion             |                                          |                                                          | 62.0    |          |               |   | 31.0     | (f)          |         |   |            |        |           |         |       |        |        |   | 93.0  |      
|New Term Loan                                      |                                          |                                                          |        |          |               |   | 445.5    | (f)          |         |   |            |        |           |         |       |        |        |   | 445.5 |      
|New Senior Notes, net of discount                  |                                          |                                                          |        |          |               |   | 248.5    | (f)          |         |   |            |        |           |         |       |        |        |   | 248.5 |      
|Pension and other long-term liabilities            |                                          |                                                          | 343.5   |          |               |   | 0.5      | (g)          |         |   |            |        |           |         | 195.5  | (k)(p) |        |   | 539.5 |      
|Series A Warrants and Series B Warrants            |                                          |                                                          |        |          |               |   | 9.3      | (f)          |         |   |            |        |           |         |       |        |        |   | 9.3   |      
|Redeemable preferred stock of subsidiary           |                                          |                                                          |        |          |               |   | 10.0     | (f)          |         |   |            |        |           |         |       |        |        |   | 10.0  |      
|Minority interest                                  |                                          |                                                          | 17.8    |          |               |   |         |              |         |   |            |        |           |         | (4.7   | )(q)   |        |   | 13.1  |      
|Liabilities subject to compromise                  |                                          |                                                          | 2,153.4 |          |               |   | (2,153.4 | )(h)         |         |   |            |        |           |         |       |        |        |   |      |      
|Commitments and contingencies                      |                                          |                                                          |         |          |               |   |          |              |         |   |            |        |           |         |        |        |        |   |       |      
|Stockholders equity (deficit):                    |                                          |                                                          |         |          |               |   |          |              |         |   |            |        |           |         |        |        |        |   |       |      
|                                                   | New Common Stock                         |                                                          |         |         |               |   |          | 0.3          | (f)     |   |             |       |           |         |        |       |        |   |       | 0.3   |        
|                                                   | New additional paid-in capital           |                                                          |         |         |               |   |          | 544.1        | (f)     |   |             |       |           |         |        |       |        |   |       | 544.1 |        
|                                                   | Old Common Stock                         |                                                          |         | 0.3      |               |   |          |             |         |   |             | (0.3   | )(i)      |         |        |       |        |   |       |      |        
|                                                   | Old additional paid in capital           |                                                          |         | 235.1    |               |   |          |             |         |   |             | (235.1 | )(i)      |         |        |       |        |   |       |      |        
|                                                   | Old common stock in treasury at cost     |                                                          |         | (25.7    | )             |   |          |             |         |   |             | 25.7   | (i)       |         |        |       |        |   |       |      |        
|                                                   | Accumulated deficit                      |                                                          |         | (1,201.8 | )             |   |          | 1,050.8      | (h)     |   |             | 209.7  | (i)       |         |        | (58.7  | )(m)   |   |       |      |        
|                                                   | Accumulated other comprehensive loss     |                                                          |         | (75.8    | )             |   |          |             |         |   |             |       |           |         |        | 75.8   | (m)    |   |       |      |        
|                                                   |                                          |                                                          |         |          |               |   |          |              |         |   |             |        |           |         |       
|                                                   |                                          | Total stockholders equity (deficit)                     |         |          | (1,067.9      | ) |          |              | 1,595.2 |   |             |        |          |         |        |        | 17.1   |   |       |       | 544.4   | 
|                                                   |                                          |                                                          |         |          |               |   |          |              |         |   |             |        |           |         |       
|                                                   |                                          | Total liabilities and stockholders equity
    (deficit) |         | $        | 1,924.9       |   |          | $            | 165.0   |   |             | $      |          |         |        | $      | 217.0  |   |       | $     | 2,306.9 | 
|                                                   |                                          |                                                          |         |          |               |   |          |              |         |   |             |        |           |         |       

10



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##### Table of Contents



HAYES LEMMERZ INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Adjustments reflected in the reorganized
condensed consolidated balance sheet are as follows:



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | Represents adjustment to reflect a portion of the
    proceeds from the New Senior Notes and the New Credit Facility,
    net of a $13.0 million cash payment to former holders of
    the Companys 11 7/8% senior notes due 2006 (the
    Old Senior Notes).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | b) | Represents escrowed property taxes and insurance
    required in connection with exit financing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | c) | Represents capitalization of $54.0 million
    of assets resulting from repayment or refinancing of certain
    synthetic leases.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | d) | Represents recognition of debt issuance costs
    recorded as other assets consisting of fees and expenses of the
    New Credit Facility of $13.9 million, and fees and expenses
    of the New Senior Notes of $6.0 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | e) | Represents repayment of the DIP Facility on the
    Effective Date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | f) | Represents new capitalization structure after
    giving effect to the Plan of Reorganization. The Company
    recorded the Series A Warrants and Series B Warrants
    at fair value. The Company also determined that its
    Series A Warrants and Series B Warrants met the
    criteria for classification as liabilities. As such they will be
    measured at fair value at each reporting period with changes in
    fair value recognized in interest expense. The Company also has
    recorded the redeemable preferred stock at fair value which
    equals the stated liquidation preference. The fair value of the
    redeemable preferred stock was $10.0 million and the
    Series A Warrants and Series B Warrants fair value was
    approximately $9.3 million at emergence. The Series A
    Warrants and Series B Warrants were valued utilizing the
    Black-Scholes model that requires the estimation of several
    variables in the formula. The redeemable preferred stock of
    subsidiary was valued using a market/capitalization
    approach that capitalizes the dividend stream of similar
    instruments issued by a comparative group using capitalization
    rates that reflect prevailing market yields. The use of this
    approach provides a range of possible fair values. This range
    was evaluated by the Company before it selected a capitalization
    rate of 8% which approximated the mean rate of the comparative
    group. The use of different valuation techniques could have
    resulted in different conclusions of the fair value of these
    instruments.
|
| | g) | Represents accrual or settlement of short- and
    long-term liabilities upon emergence under the Plan of
    Reorganization as follows (millions of dollars):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

|                                                                                                           |                                                                                                          |   |       |      | 
|---------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------- | - | ----- | ---- | 
|Accrual of contingent professional fees                                                                    |                                                                                                          | $ | 8.5   |     
|Accrual of the portion of the Restructuring
    Performance Bonus component of the CERP to be paid in cash |                                                                                                          |   | 9.0   |     
|Accrual of obligation to fund the Creditors
    Trust                                                     |                                                                                                          |   | 1.5   |     
|Payment of accrued professional fees                                                                       |                                                                                                          |   | (13.1 | )   
|Payment of accrued interest on the DIP Facility                                                            |                                                                                                          |   | (0.4  | )   
|Deferral of cure payments for assumed contracts
    and other priority and administrative claims           |                                                                                                          |   | 19.2  |     
|Accrual of state tax liability for restructuring
    transactions upon emergence                           |                                                                                                          |   | 6.5   |     
|Other accrued liabilities incurred upon emergence                                                          |                                                                                                          |   | 2.9   |     
|                                                                                                           |                                                                                                          |   |      
|                                                                                                           | Net adjustment to accounts payable, accrued
    liabilities, and pension and other long-term liabilities |   | $     | 34.1 | 
|                                                                                                           |                                                                                                          |   |      

11



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##### Table of Contents



HAYES LEMMERZ INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |    |                                                                                                                                             
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------
| | h) | Represents the elimination of pre-petition
    liabilities discharged under the Plan of Reorganization as
    follows (millions of dollars):

|                                                                                                                                                                                                    |                                                                                                                                                                                                                                                   |                                       |         |        |         | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------- | ------- | ------ | ------- | 
|Liabilities subject to compromise                                                                                                                                                                   |                                                                                                                                                                                                                                                   | $                                     | 2,153.4 |       
|Form of settlement:                                                                                                                                                                                 |                                                                                                                                                                                                                                                   |                                       |         |       
|                                                                                                                                                                                                    | Issuance of New Common Stock of HoldCo.                                                                                                                                                                                                           |                                       |         | (544.4 | )      
|                                                                                                                                                                                                    | Issuance of New Preferred Stock of HLI                                                                                                                                                                                                            |                                       |         | (10.0  | )      
|                                                                                                                                                                                                    | Issuance of Series A Warrants and
    Series B Warrants                                                                                                                                                                                           |                                       |         | (9.3   | )      
|                                                                                                                                                                                                    | Repayment of remaining Old Senior Note proceeds                                                                                                                                                                                                   |                                       |         | (13.0  | )      
|                                                                                                                                                                                                    | Prepetition Lenders Payment Amount                                                                                                                                                                                                               |                                       |         | (477.3 | )      
|                                                                                                                                                                                                    | Amounts reclassified to accounts payable and
    accrued liabilities for certain estimated cure payments with
    respect to assumption of prepetition executory contracts and
    unexpired leases, and other priority and administrative claims |                                       |         | (22.7  | )      
|                                                                                                                                                                                                    |                                                                                                                                                                                                                                                   |                                       |        
|                                                                                                                                                                                                    |                                                                                                                                                                                                                                                   | Gain on discharge of debt             |         |        | 1,076.7 | 
|Accrual of estimated contingent professional
    fees, cash portion of the Restructuring Performance Bonus,
    Creditors Trust obligation and tax expense related to
    restructuring activities |                                                                                                                                                                                                                                                   |                                       | (25.9   | )     
|                                                                                                                                                                                                    |                                                                                                                                                                                                                                                   |                                       |        
|                                                                                                                                                                                                    |                                                                                                                                                                                                                                                   | Net adjustment to accumulated deficit |         | $      | 1,050.8 | 
|                                                                                                                                                                                                    |                                                                                                                                                                                                                                                   |                                       |        



| |    |                                                                                                                                                                                                                                                                                                                                                   
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | i) | Represents cancellation of Old Common Stock under
    fresh start accounting.                                                                                                                                                                                                                                                                     
|
| | j) | Represents adjustment to reflect the increase in
    the fair value of inventory under fresh start accounting.
    Work-in-process and finished goods were valued at the expected
    selling price less costs to complete, selling and disposal cost
    and a normal profit. Raw materials and supplies were valued
    using the cost approach.
|
| | k) | Represents the adjustment of deferred tax assets
    and liabilities resulting from fair value adjustments under
    fresh start accounting as follows:                                                                                                                                                                                           

|                                         |                |   |       |       |  
|---------------------------------------- | -------------- | - | ----- | ----- | -
|Prepaid expenses and other               |                | $ | (7.8  | )    
|Other assets                             |                |   | 4.5   |      
|Accounts payable and accrued liabilities |                |   | (2.4  | )    
|Pension and other long-term liabilities  |                |   | (46.3 | )    
|                                         | Net adjustment |   |       | (52.0 | )



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | l) | Primarily represents net adjustments to reflect
    the decrease of property, plant, equipment and tooling to fair
    value under fresh start accounting based on results of valuation
    procedures performed by the Companys valuation specialist.
    The valuation methodologies employed included the use of the
    market value and replacement cost approach for personal property
    and the use of the cost, income and sales comparison approaches
    for real property.
|
| | m) | Represents elimination of pre-emergence goodwill,
    equity accounts and retained earnings under fresh start
    accounting.                                                                                                                                                                                                                                                                                                                                                           
|
| | n) | Represents new goodwill resulting from the excess
    of reorganization value over the amounts allocable to the fair
    value of identifiable assets and liabilities.                                                                                                                                                                                                                                                                                                                  
|
| | o) | Represents adjustment of $121.9 million to
    reflect the fair value of identified intangible assets based on
    results of valuation procedures performed by the Companys
    valuation specialist. See                                                                                                                                                                                                                                                                             

12



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##### Table of Contents



HAYES LEMMERZ INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    | Note (6) for additional disclosure
    regarding the category of intangibles and a description of the
    valuation methodology.                                                                                                                                                                                                                                                                                                                   
|
| | p) | Primarily reflects the additional liability of
    $155.2 million under fresh-start accounting for any pension
    and retiree medical plan costs as determined by the
    Companys actuaries. This net additional liability had been
    deferred pre-emergence in accordance with Statement of Financial
    Accounting Standards (SFAS) Nos. 87 and 106.
    The actuarial assumptions used in computing the liabilities were
    as follows:

|                               |  |                      |       |               |                |  |      |                  |  |  |          | 
|------------------------------ |  | -------------------- | ----- | ------------- | -------------- |  | ---- | ---------------- |  |  | -------- | 
|                               |  |                      |       | International |               
|                               |  | North American Plans |       |               | Plans          | 
|                               |  |                      |       |               |                | 
|                               |  | Pension Benefits     |       |               | Other Benefits |  |      | Pension Benefits | 
|                               |  |                      |       |               |                |  |      |                  | 
|Weighted average assumptions:  |  |                      |       |               |                |  |      |                  |  |  |          | 
|Discount Rate                  |  |                      | 5.75% |               |                |  | 5.75 | %                |  |  | 5.0-5.5% | 
|Expected return on plan assets |  |                      | 8.0 % |               |                |  | N/A  |                  |  |  | 5.0%     | 
|Rate of compensation increase  |  |                      | 4.75% |               |                |  | N/A  |                  |  |  | 2.1%     | 



| |    |                                                                                                                     
| | -- | --------------------------------------------------------------------------------------------------------------------
| | q) | Reflects the adjustment to minority interest as a
    result of fair value adjustments under fresh start accounting.

(4) Inventories

The major classes of inventory are as follows
(millions of dollars):

|                         |       |           |      |       |             |   |      |       | 
|------------------------ | ----- | --------- | ---- | ----- | ----------- | - | ---- | ----- | 
|                         |       | Successor |      |       | Predecessor |  
|                         |       |           |      |       |             |  
|                         |       | July 31,  |      |       | January 31, |  
|                         |       | 2003      |      |       | 2003        |  
|                         |       |           |      |       |             |  
|Raw materials            |       | $         | 44.9 |       |             | $ | 48.3 |      
|Work-in-process          |       |           | 40.9 |       |             |   | 36.5 |      
|Finished goods           |       |           | 64.2 |       |             |   | 56.2 |      
|Spare parts and supplies |       |           | 36.6 |       |             |   | 35.6 |      
|                         |       |           |      |       |             |  
|                         | Total |           | $    | 186.6 |             |   | $    | 176.6 | 
|                         |       |           |      |       |             |  

13



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##### Table of Contents



HAYES LEMMERZ INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(5) Property, Plant and
Equipment

The major classes of property, plant and
equipment are as follows (millions of dollars):

|                         |                                    |           |       |       |             |   |         |       | 
|------------------------ | ---------------------------------- | --------- | ----- | ----- | ----------- | - | ------- | ----- | 
|                         |                                    | Successor |       |       | Predecessor |  
|                         |                                    |           |       |       |             |  
|                         |                                    | July 31,  |       |       | January 31, |  
|                         |                                    | 2003      |       |       | 2003        |  
|                         |                                    |           |       |       |             |  
|Land                     |                                    | $         | 39.6  |       |             | $ | 30.4    |      
|Buildings                |                                    |           | 202.2 |       |             |   | 256.0   |      
|Machinery and equipment  |                                    |           | 670.1 |       |             |   | 1,134.5 |      
|Capital lease assets:    |                                    |           |       |       |             |   |         |      
|                         | Land                               |           |       | 0.7   |             |   |         |      | 
|                         | Buildings                          |           |       | 7.7   |             |   |         |      | 
|                         | Machinery and equipment            |           |       | 23.1  |             |   |         |      | 
|                         |                                    |           |       |       |             |  
|                         |                                    |           | 943.4 |       |             |   | 1,420.9 |      
|Accumulated depreciation |                                    |           | (20.8 | )     |             |   | (469.7  | )    
|                         |                                    |           |       |       |             |  
|                         | Property, plant and equipment, net |           | $     | 922.6 |             |   | $       | 951.2 | 
|                         |                                    |           |       |       |             |  

(6) Goodwill and Other Intangible
Assets

Effective February 1, 2002, the Company
adopted SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 142 requires that goodwill and
indefinite-lived intangible assets be reviewed for impairment
annually, rather than amortized into earnings. Any impairment to
the amount of goodwill existing at the date of adoption is to be
recognized as a cumulative effect of a change in accounting
principle on that date.

As a result of applying fresh start accounting,
the changes in the net carrying amount of goodwill during the
first six months of fiscal 2003 represent the elimination of
$198.3 million of the Predecessors goodwill, the
establishment of $390.9 million of the Successors
goodwill and the impact of foreign currency translation.
Goodwill by segment for the Successor as of July 31, 2003
and for the Predecessor as of January 31, 2003 is presented
in Note (13).

Upon adoption of SFAS No. 142 in fiscal
2002, the Company discontinued amortizing goodwill and
indefinite-lived intangible assets into earnings. In connection
with the transitional provisions of the Statement, the Company
performed an assessment of whether there was an indication that
goodwill was impaired as of the adoption date. To accomplish
this, the Company determined the carrying value of each of its
reporting units (i.e., one step below the segment level) by
assigning the assets and liabilities, including existing
goodwill and intangible assets, to the reporting units on
February 1, 2002. As of that date, the Company had
unamortized goodwill and other indefinite-lived intangibles of
approximately $758.7 million that were subject to the
transition provisions of SFAS No. 142. The Company
determined the fair value of each reporting unit and compared
those fair values to the carrying values of each reporting unit.
To the extent the carrying amount of a reporting unit exceeded
the fair value of the reporting unit (indicating that goodwill
may be impaired), the Company performed the second step of the
transitional impairment test. This test was required for five
reporting units.

In the second step, the Company compared the
implied fair value of the reporting units goodwill with
the carrying value of that goodwill, both of which were measured
at the adoption date. The implied fair value of goodwill was
determined by allocating the fair value of the reporting units
to all of the assets (both recognized and unrecognized) and
liabilities of the reporting units in a similar manner to a
purchase price allocation in accordance with SFAS No. 141,
Business Combinations. The residual fair value after
this allocation was the

14



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##### Table of Contents



HAYES LEMMERZ INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

implied fair value of the reporting units
goodwill. The carrying amounts of these reporting units exceeded
the fair values, and the Company recorded an impairment charge
of $554.4 million as of February 1, 2002 as a
cumulative effect of a change in accounting principle as
described above.

Intangible assets and goodwill consist of the
following (millions of dollars):

|                                 |                                      |               |       |       |                  |   |      |          |   |       |          |       |  |              |      |       |          |   |       |      |   |   |      |      | 
|-------------------------------- | ------------------------------------ | ------------- | ----- | ----- | ---------------- | - | ---- | -------- | - | ----- | -------- | ----- |  | ------------ | ---- | ----- | -------- | - | ----- | ---- | - | - | ---- | ---- | 
|                                 |                                      |               |       |      
|                                 |                                      | Successor     |       |       | Predecessor      |  
|                                 |                                      |               |       |       |                  |  
|                                 |                                      |               |       |      
|                                 |                                      | July 31, 2003 |       |       | January 31, 2003 |  
|                                 |                                      |               |       |       |                  |  
|                                 |                                      | Gross         |       |       |                  |   | Net  |          |   | Gross |          |       |  |              | Net  |      
|                                 |                                      | Carrying      |       |       | Accumulated      |   |      | Carrying |   |       | Carrying |       |  | Accumulated  |      |       | Carrying |  
|                                 |                                      | Amount        |       |       | Amortization     |   |      | Amount   |   |       | Amount   |       |  | Amortization |      |       | Amount   |  
|                                 |                                      |               |       |       |                  |   |      |          |   |       |          |       |  |              |      |       |          |  
|Amortized intangible assets:     |                                      |               |       |       |                  |   |      |          |   |       |          |       |  |              |      |       |          |   |       |      |   |   |      |     
|                                 | Customer relationships and contracts |               | $     | 159.1 |                  |   | $    | (1.6     | ) |       | $        | 157.5 |  |              | $    | 26.5  |          |   | $     | (4.0 | ) |   | $    | 22.5 | 
|                                 | Licenses                             |               |       |      |                  |   |      |         |   |       |          |      |  |              |      | 13.4  |          |   |       | (2.4 | ) |   |      | 11.0 | 
|                                 | Unpatented technology                |               |       | 33.5  |                  |   |      | (0.7     | ) |       |          | 32.8  |  |              |      | 33.5  |          |   |       | (8.8 | ) |   |      | 24.7 | 
|                                 | Other                                |               |       |      |                  |   |      |         |   |       |          |      |  |              |      | 1.9   |          |   |       | (1.0 | ) |   |      | 0.9  | 
|                                 |                                      |               |       |       |                  |   |      |          |   |       |          |       |  |              |      |       |          |  
|                                 |                                      | $             | 192.6 |       |                  | $ | (2.3 | )        |   | $     | 190.3    |       |  | $            | 75.3 |       |          | $ | (16.2 | )    |   | $ | 59.1 |     
|                                 |                                      |               |       |       |                  |   |      |          |   |       |          |       |  |              |      |       |          |  
|Non amortized intangible assets: |                                      |               |       |       |                  |   |      |          |   |       |          |       |  |              |      |       |          |   |       |      |   |   |      |     
|                                 | Tradenames                           |               | $     | 38.1  |                  |   |      |          |   |       |          |       |  |              | $    | 43.5  |          |   |       |      |   |   |      |      | 
|                                 | Goodwill                             |               | $     | 392.9 |                  |   |      |          |   |       |          |       |  |              | $    | 191.3 |          |   |       |      |   |   |      |      | 

The Company expects that ongoing amortization
expense will approximate between $13 million and
$16 million in each of the next five fiscal years.



| |                                                                           
| | --------------------------------------------------------------------------
| | Valuation of Intangible Assets as a result of
    Fresh Start Accounting

The Company worked with and relied extensively on
the expertise of external valuation consultants in arriving at
its assigned values for intangible assets. In managements
opinion, the valuations appear reasonable and appropriate.

Customer
Contracts

Value was based on a review of contracts, award
letters and purchase orders in existence for the Companys
Domestic Wheels, Domestic Components, and International Wheels
reporting units. At the Companys International Components
and Commercial Highway reporting units, sales are not generated
or attributed to contracts but rather to customer relationships
and therefore contracts were not valued. Value was determined on
economic profits which exceeded a fair return on assets
employed. The amortization period is based on the remaining
contract terms.

Customer
Relationships

This refers to likely new business from existing
customers that is not currently booked. Automotive suppliers
often receive future business as a result of being the incumbent
on a program. Management and its outside valuation consultants
had discussions on expected future business based on historic
relationships and trends. Economic profit was based on expected
future sales with a growth rate of 2% less projected contract
sales. The amortization period was based on a review of
historical data and discounting of cash flows. The International
Components and Commercial Highway valuations were based on a
review of projections provided which identified sales generated
by existing customers with an attrition rate provided for loss
of customers and indicated that no intangible asset existed for
these reporting units.

15



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##### Table of Contents



HAYES LEMMERZ INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Trade
Names

The Hayes Lemmerz trade name was valued using a
royalty savings method. It assumes a third party would be
willing to pay for the use of a name which represents a cost
savings to the Company. Our outside valuation consultants
identified other licensing agreements similar to ones that could
be used by the Company as a benchmark for royalty rates. Using
this data and historical use of the Companys name,
premiums earned on our products, excess earnings analysis and
projected profitability identified that the International Wheels
reporting unit could economically support a trade name. The name
is a perpetual, non-wasting asset and therefore an indefinite
life was assigned.

Technology

Discussions were held between management and the
external valuation consultant to identify specific technologies
valuable to a potential acquirer. Additional discussions were
then held with product development and engineering personnel to
gain an understanding of the distinctiveness, development stage,
third party agreements, royalty rates charged, and expected
remaining useful life of each technology. The technologies were
valued using a royalty savings method applied to sales
projections for 2003 through 2007. Royalty rates were determined
based on a review of discussions between management and the
external valuation consultant and a review of royalty data for
similar or comparable technologies. The amortization periods are
based on the expected useful lives of the product or product
program to which the technology relates.

(7) Asset Impairments and Other
Restructuring Charges

The Company recorded asset impairment losses and
other restructuring charges of $6.4 million in the
Predecessor four months ended May 31, 2003 and
$25.3 million in the Predecessor six months ended
July 31, 2002 as follows:

|                                                              |       |             |     |     |            |   |      |      | 
|------------------------------------------------------------- | ----- | ----------- | --- | --- | ---------- | - | ---- | ---- | 
|                                                              |       |            
|                                                              |       | Predecessor |    
|                                                              |       |             |    
|                                                              |       | Four Months |     |     | Six Months |  
|                                                              |       | Ended       |     |     | Ended      |  
|                                                              |       | May 31,     |     |     | July 31,   |  
|                                                              |       | 2003        |     |     | 2002       |  
|                                                              |       |             |     |     |            |  
|Impairment of manufacturing facilities                        |       | $           | 0.6 |     |            | $ | 0.3  |     
|Impairment of machinery, equipment and tooling                |       |             | 4.8 |     |            |   | 17.3 |     
|Facility closure, severance and other
    restructuring costs |       |             | 1.0 |     |            |   | 7.7  |     
|                                                              |       |             |     |     |            |  
|                                                              | Total |             | $   | 6.4 |            |   | $    | 25.3 | 
|                                                              |       |             |     |     |            |  

Impairment of
Facilities

During the first quarter of fiscal 2003, the
Predecessor Company recorded asset impairment losses of
$0.6 million to write down the fair value of its
Petersburg, Michigan facility and its Thailand greenfield site
based on current real estate market conditions. These
non-operating facilities are currently held for sale by the
Company at July 31, 2003. The Thailand greenfield site was
subsequently sold by the Company in August 2003.

During the second quarter of fiscal 2002, an
impairment charge of $0.3 million was recorded to write
down the Petersburg facility to fair value based on real estate
market conditions at that time.

Impairment of
Machinery, Equipment and Tooling

In May 2003, the Predecessor Company recorded
asset impairment losses of $1.6 million on certain
machinery and equipment in its Components segment due primarily
to a change in managements plan for the

16



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##### Table of Contents



HAYES LEMMERZ INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

future use of idled machinery and equipment. Such
investments in fixed assets were written down to fair value
based on the expected scrap value, if any, of such machinery and
equipment.

During the first quarter of fiscal 2003, the
Company recorded asset impairment losses of $3.2 million on
certain machinery and equipment in its Automotive Wheels and
Components segments due primarily to a change in
managements plan for the future use of idled machinery and
equipment. Such investments in fixed assets were written down to
fair value based on the expected scrap value, if any, of such
machinery, equipment and tooling.

In the second quarter of fiscal 2002, the Company
determined, based on its most recent sales projections for the
facility, that its current estimate of the future undiscounted
cash flows from its manufacturing facility in La Mirada,
California will not be sufficient to recover the carrying value
of the facilitys fixed assets and production tooling.
Accordingly, the Company recorded an estimated impairment loss
of $15.5 million in the second quarter of fiscal 2002 on
those assets.

During the second quarter of fiscal 2002, the
Company also recognized asset impairment losses of
$1.8 million on certain machinery and equipment due
primarily to a change in managements plan for the future
use of idled machinery and equipment.

Facility
Closures

During the first four months of fiscal 2003, the
Predecessor Company recognized additional restructuring charges
of $0.9 million related to the closure of its Bowling
Green, Kentucky facility. These charges relate to additional
plant closure costs and terminated employee health care
benefits. Of these and other closure costs previously
recognized, approximately $1.8 million remain unpaid as of
July 31, 2003 and are expected to be paid during fiscal
2003.

In February 2002, the Company committed to a plan
to close its manufacturing facility in Somerset, Kentucky. In
connection with the closure of the Somerset facility (which
commenced during February 2002), the Company recorded an
estimated restructuring charge of $6.7 million in the first
quarter of fiscal 2002. This charge included amounts related to
lease termination costs and other closure costs including
security and maintenance costs subsequent to the shut down date.
The amount of the charge related to leases was $3.5 million
and was classified as a liability subject to compromise until
May 31, 2003. The lease termination costs were ultimately
discharged under the Plan of Reorganization upon emergence from
Chapter 11. Of the other closure costs, approximately
$1.1 million remained unpaid as of July 31, 2003 and
are expected to be paid during fiscal 2003.

Facility Exit
Cost and Severance Accruals

The following table describes the activity in the
balance sheet accounts affected by the severance and other
restructuring charges noted above during the six months ended
July 31, 2003 (millions of dollars):

|                    |  |             |      |           |               |   |     |                  |  |      |          |          |      |         |      |   |  |   |     | 
|------------------- |  | ----------- | ---- | --------- | ------------- | - | --- | ---------------- |  | ---- | -------- | -------- | ---- | ------- | ---- | - |  | - | --- | 
|                    |  |             |      | Severance |               |   |     |                  |  |      |         
|                    |  | January 31, |      |           | and Other     |   |     |                  |  |      |          | July 31, |     
|                    |  | 2003        |      |           | Restructuring |   |     |                  |  | Cash |          |          | 2003 |        
|                    |  | Accrual     |      |           | Charges       |   |     | Reclassification |  |      | Payments |          |      | Accrual |     
|                    |  |             |      |           |               |   |     |                  |  |      |          |          |      |         |     
|Facility exit costs |  | $           | 12.6 |           |               | $ | 0.9 |                  |  | $    | (7.5     | )        |      | $       | (2.8 | ) |  | $ | 3.2 | 
|Severance           |  |             | 4.0  |           |               |   | 0.1 |                  |  |      |         |          |      |         | (2.3 | ) |  |   | 1.8 | 
|                    |  |             |      |           |               |   |     |                  |  |      |          |          |      |         |     
|                    |  | $           | 16.6 |           |               | $ | 1.0 |                  |  | $    | (7.5     | )        |      | $       | (5.1 | ) |  | $ | 5.0 | 
|                    |  |             |      |           |               |   |     |                  |  |      |          |          |      |         |     

Of the facility exit costs accrued as of
January 31, 2003, $7.5 million relates to lease
termination costs which were reclassified to liabilities subject
to compromise and ultimately discharged under the Plan of
Reorganization upon emergence from Chapter 11.

17



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##### Table of Contents



HAYES LEMMERZ INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(8) Long-Term Incentive Plan

Upon the Effective Date, all options under the
Predecessor Companys stock option plans were cancelled and
those plans were terminated in accordance with the Plan of
Reorganization.

In conjunction with the Plan of Reorganization,
the Company filed a proposed Long-Term Incentive Plan with the
Bankruptcy Court. The Long-Term Incentive Plan was approved by
the Bankruptcy Court on May 12, 2003 in connection with the
confirmation of the Plan of Reorganization, and in accordance
with Section 303 of the Delaware General Corporation Law,
such approval constituted stockholder approval of the Long-Term
Incentive Plan. The Long-Term Incentive Plan became effective on
July 23, 2003, the date that the Plan was approved by the
Companys Board of Directors. No award may be granted under
the Long-Term Incentive Plan after July 23, 2013.

The Long-Term Incentive Plan provides for the
grant of incentive stock options (ISOs), stock
options that do not qualify as ISOs, restricted shares of common
stock, and restricted stock units (collectively, the
awards). The number of shares subject to awards
under the Long-Term Incentive Plan is 3,734,554 (subject to
adjustment in certain circumstances as provided for in the
plan). Any officer, director or key employee of the Company or
any of its subsidiaries is eligible to be designated a
participant in the Long-Term Incentive Plan.

On July 28, 2003, the Company granted
1,887,162 stock options and 1,258,107 restricted units
to certain employees and officers, and 65,455 options and
43,637 restricted units to non-employee members of the
Companys Board of Directors. The exercise price of the
stock options was $13.93 per share. The stock options granted to
certain employees and officers of the Company vest 25% per year
over a four year period. The restricted units granted to certain
employees and officers of the Company vest one third after three
years and the remaining two thirds after four years. The stock
options and restricted units granted to the non-employee
directors vest over a two year period.

As a result of issuing the restricted units
discussed above, and the restricted units issued under the CERP
(see Note (1)), the Company recorded deferred compensation
expense of $21.1 million which will be recognized in
results of operations over the respective vesting periods.

(9) Earnings (Loss) Per Share

Basic earnings (loss) per share are
calculated by dividing net income (loss) by the weighted
average number of common shares outstanding. Diluted earnings
(loss) per share are computed by dividing net income
(loss) by the diluted weighted average shares outstanding.
Diluted weighted average shares assume the exercise of stock
options and warrants, so long as they are not anti-dilutive.

Shares outstanding for the two months ended
July 31, 2003 were as follows (thousands of shares):

|                                        |  |  |        | 
|--------------------------------------- |  |  | ------ | 
|Weighted average shares outstanding     |  |  | 30,100 | 
|Dilutive effect of options and warrants |  |  |       | 
|                                        |  |  |       
|Diluted shares outstanding              |  |  | 30,100 | 
|                                        |  |  |       

For the two month period ended July 31,
2003, all options and warrants were excluded from the
calculation of diluted earnings (loss) per share as the
effect was anti-dilutive due to the net loss before cumulative
effect of change in accounting principle and extraordinary gain
on debt discharge reflected for such periods.

18



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HAYES LEMMERZ INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(10) Comprehensive Income
(Loss)

The components of comprehensive income (loss) for
the two months ended July 31, 2003, the four months ended
May 31, 2003 and the six months ended July 31, 2002
are as follows (millions of dollars):

|                                                                              |                                   |            |      |      |             |   |         |          |  |   |        |        |  
|----------------------------------------------------------------------------- | --------------------------------- | ---------- | ---- | ---- | ----------- | - | ------- | -------- |  | - | ------ | ------ | -
|                                                                              |                                   |            |      |     
|                                                                              |                                   | Successor  |      |      | Predecessor |  
|                                                                              |                                   |            |      |      |             |  
|                                                                              |                                   |            |      | Four |             |   | Six     |         
|                                                                              |                                   | Two Months |      |      | Months      |   |         | Months   | 
|                                                                              |                                   | Ended      |      |      | Ended       |   |         | Ended    | 
|                                                                              |                                   | July 31,   |      |      | May 31,     |   |         | July 31, | 
|                                                                              |                                   | 2003       |      |      | 2003        |   |         | 2002     | 
|                                                                              |                                   |            |      |      |             |   |         |          | 
|Net income (loss)                                                             |                                   | $          | (9.2 | )    |             | $ | 1,043.0 |          |  | $ | (615.4 | )     
|Currency translation adjustments                                              |                                   |            | 12.7 |      |             |   | 31.4    |          |  |   | 34.8   |       
|Elimination of Predecessor equity accounts under
    fresh start accounting   |                                   |            |     |      |             |   | 75.8    |          |  |   |       |       
|Reclassification adjustment for amount included
    in fresh start adjustment |                                   |            |     |      |             |   | (75.8   | )        |  |   |       |       
|                                                                              |                                   |            |      |      |             |   |         |          | 
|                                                                              | Total comprehensive income (loss) |            | $    | 3.5  |             |   | $       | 1,074.4  |  |   | $      | (580.6 | )
|                                                                              |                                   |            |      |      |             |   |         |          | 

(11) Bank Borrowings, Other Notes and
Long-Term Debt

Bank
Borrowings and Other Notes

Bank borrowings and other notes of the Successor
of $12.2 million at July 31, 2003 consists primarily
of short-term revolving credit facilities of the Companys
foreign subsidiaries which bear interest at rates ranging from
1.85% to 14.5%. Bank borrowings and other notes of the
Predecessor of $15.8 million at January 31, 2003
consists of short-term revolving credit facilities of the
Companys foreign subsidiaries which bear interest at rates
ranging from 2.25% to 10.75%, and a note issued in conjunction
with the purchase of the Companys Wheland foundry which
was repaid on March 7, 2003.

19



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##### Table of Contents



HAYES LEMMERZ INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Long-Term
Debt

Long-term debt consists of the following
(millions of dollars):

|                                                                                                                                                                |                |           |       |       |             |   |         |      | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | --------- | ----- | ----- | ----------- | - | ------- | ---- | 
|                                                                                                                                                                |                | Successor |       |       | Predecessor |  
|                                                                                                                                                                |                |           |       |       |             |  
|                                                                                                                                                                |                | July 31,  |       |       | January 31, |  
|                                                                                                                                                                |                | 2003      |       |       | 2003        |  
|                                                                                                                                                                |                |           |       |       |             |  
|DIP Facility                                                                                                                                                    |                | $         |      |       |             | $ | 49.9    |     
|Bank term loan facility maturing February 3,
    2005, weighted average interest rate of 8.4% at January 31,
    2003                                           |                |           |      |       |             |   | 176.8   |     
|Bank revolving credit facility maturing through
    2005, weighted average interest rate of 6.9% at January 31,
    2003                                        |                |           |      |       |             |   | 573.8   |     
|Various foreign bank and government loans
    maturing through 2006, weighted average interest rates of 8.0%
    and 6.1% at July 31, 2003 and January 31, 2003 |                |           | 31.7  |       |             |   | 91.3    |     
|8 1/4% Senior Subordinated Notes due 2008                                                                                                                       |                |           |      |       |             |   | 224.3   |     
|9 1/8% Senior Subordinated Notes due 2007                                                                                                                       |                |           |      |       |             |   | 389.1   |     
|11% Senior Subordinated Notes due 2006                                                                                                                          |                |           |      |       |             |   | 239.4   |     
|11 7/8% Senior Notes due 2006                                                                                                                                   |                |           |      |       |             |   | 300.0   |     
|New Term Loan maturing 2009, weighted average
    interest rate of 5.9%                                                                                         |                |           | 450.0 |       |             |   |        |     
|10 1/2% New Senior Notes, net of discount,
    due 2010                                                                                                         |                |           | 248.5 |       |             |   |        |     
|Mortgage note payable                                                                                                                                           |                |           | 22.6  |       |             |   |        |     
|Capital lease obligations                                                                                                                                       |                |           | 17.3  |       |             |   | 10.7    |     
|                                                                                                                                                                |                |           |       |       |             |  
|                                                                                                                                                                |                |           | 770.1 |       |             |   | 2,055.3 |     
|Less current portion of DIP Facility                                                                                                                            |                |           |      |       |             |   | 49.9    |     
|Less current portion of long-term debt                                                                                                                          |                |           | 14.6  |       |             |   |        |     
|Less current portion not subject to compromise                                                                                                                  |                |           |      |       |             |   | 40.1    |     
|Less liabilities subject to compromise                                                                                                                          |                |           |      |       |             |   | 1,903.4 |     
|                                                                                                                                                                |                |           |       |       |             |  
|                                                                                                                                                                | Long-term debt |           | $     | 755.5 |             |   | $       | 61.9 | 
|                                                                                                                                                                |                |           |       |       |             |  

As discussed in Note (1), the Debtors emerged
from Chapter 11 on June 3, 2003. In connection with
the Debtors emergence on the Effective Date, HLI entered
into a $550.0 million senior secured credit facility (the
New Credit Facility). The New Credit Facility
consists of a $450.0 million six-year amortizing term loan
(the New Term Loan) and a five-year
$100.0 million revolving credit facility (the
Revolving Credit Facility). In addition, HLI issued
on the Effective Date an aggregate of $250.0 million
principal amount of 10 1/2% senior notes due 2010 (the
New Senior Notes). The proceeds from the initial
$450.0 million of borrowings under the New Credit Facility
and the net proceeds from the New Senior Notes were used to make
payments required under the Plan of Reorganization, including
the repayment of the Companys DIP Facility and a payment
of $477.3 million to certain prepetition lenders, to pay
related transaction costs and to refinance certain debt.

New
Credit Facility

The Term Loan Facility was made available to HLI
in a single drawing on the Effective Date, payable in quarterly
installments equal to 0.25% of the principal amount outstanding
immediately following effectiveness of the Plan of
Reorganization with the remaining balance payable on the sixth
anniversary of the Effective Date. The Revolving Credit Facility
will be available until the fifth anniversary of the Effective
Date, on which date all loans outstanding under the Revolving
Credit Facility will become due and payable.

20



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HAYES LEMMERZ INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The interest rates per annum under the New Credit
Facility will, at HLIs option, be: (A) for the Term
Loan, either the LIBOR rate plus 4.75% or the alternate base
rate plus 3.75%; and (B) for the Revolving Credit Facility:
(i) for the first two fiscal quarters after the closing
date of the New Credit Facility, either the LIBOR rate plus
3.50% or the alternate base rate plus 2.50%, and
(ii) thereafter, such higher or lower rates determined by
reference to the Companys leverage ratio.

The New Credit Facility contains covenants
restricting the Companys ability and the ability of its
subsidiaries to issue more debt, pay dividends, repurchase
stock, make investments, merge or consolidate, transfer assets
and enter into transactions with affiliates. These restrictive
covenants are customary for such facilities and subject to
certain exceptions. The New Credit Facility also contains
certain financial covenants regarding a maximum total leverage
ratio, a minimum interest coverage ratio and a minimum fixed
charge coverage ratio. HLIs obligations under the New
Credit Facility are guaranteed by the Company and all of its
material direct and indirect domestic subsidiaries.

As of July 31, 2003, there were no
outstanding borrowings and $31.5 million in letters of
credit issued under the Revolving Credit Facility. The amount
available to borrow under the Revolving Credit Facility at
July 31, 2003 was approximately $68.5 million.

New Senior
Notes

HLI issued $250.0 million aggregate
principal amount of New Senior Notes on June 3, 2003. The
New Senior Notes will mature on June 15, 2010. Interest on
the New Senior Notes will accrue at a rate of 10 1/2% per
annum and will be payable semi-annually in arrears on
June 15 and December 15.

The New Senior Notes are senior, unsecured
obligations of HLI and are effectively subordinated in right of
payment to all existing and future secured debt of HLI to the
extent of the value of the assets securing that debt, equal in
right of payment with all existing and future senior debt of
HLI, senior in right of payment to all subordinated debt of HLI.

Except as set forth below, the New Senior Notes
will not be redeemable at the option of HLI prior to
June 15, 2007. Starting on that date, HLI may redeem all or
any portion of the New Senior Notes, at once or over time, upon
the terms and conditions set forth in the senior note indenture
agreement (the Indenture).

At any time prior to June 15, 2007, HLI may
redeem all or any portion of the New Senior Notes, at once or
over time, at a redemption price equal to 100% of the principal
amount of the New Senior Notes to be redeemed, plus a specified
make-whole premium.

In addition, at any time and from time to time
prior to June 15, 2006, HLI may redeem up to a maximum of
35% of the aggregate principal amount of the New Senior Notes
with the proceeds of one or more public equity offerings at a
redemption price equal to 110.50% of the principal amount
thereof, plus accrued and unpaid interest.

The Indenture provides for certain restrictions
regarding additional debt, dividends and other distributions,
additional stock of subsidiaries, certain investments, liens,
transactions with affiliates, mergers, consolidations, and the
transfer and sales of assets. The Indenture also provides that a
holder of the New Senior Notes may, under certain circumstances,
have the right to require that the Company repurchase such
holders New Senior Notes upon a change of control of the
Company. The New Senior Notes are unconditionally guaranteed as
to the payment of principal, premium, if any, and interest,
jointly and severally on a senior, unsecured basis by the
Company and substantially all of its domestic subsidiaries (see
Note (15)).

21



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HAYES LEMMERZ INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Other
Financing

In addition to the New Credit Facility and New
Senior Notes as described above, the Company had other debt
financing of $71.6 million as of July 31, 2003. These
included borrowings under various foreign debt facilities in an
aggregate amount of $31.7 million, capital lease
obligations of $17.3 million and a mortgage note payable of
$22.6 million.

(12) Liabilities Subject to
Compromise

The principal categories of claims that were
classified as liabilities subject to compromise under the
reorganization proceedings are identified below.

Recorded
Liabilities

Prior to emergence, on a consolidated basis,
recorded liabilities subject to compromise under the
Chapter 11 proceedings consisted of the following (millions
of dollars):

|                                                                                  |                    |         |       |         |             |   |       |         |         | 
|--------------------------------------------------------------------------------- | ------------------ | ------- | ----- | ------- | ----------- | - | ----- | ------- | ------- | 
|                                                                                  |                    | May 31, |       |         | January 31, |  
|                                                                                  |                    | 2003    |       |         | 2003        |  
|                                                                                  |                    |         |       |         |             |  
|Accounts payable and accrued liabilities,
    principally trade Credit Agreement: |                    | $       | 155.8 |         |             | $ | 152.1 |        
|                                                                                  | Term loans         |         |       | 176.8   |             |   |       | 176.8   |        
|                                                                                  | Revolving facility |         |       | 573.8   |             |   |       | 573.8   |        
|                                                                                  | Accrued interest   |         |       | 45.2    |             |   |       | 29.3    |        
|Old Senior Notes and Old Senior Subordinated
    Notes:                           |                    |         |       |         |             |   |       |        
|                                                                                  | Face value         |         |       | 1,152.8 |             |   |       | 1,152.8 |        
|                                                                                  | Accrued interest   |         |       | 49.0    |             |   |       | 49.0    |        
|                                                                                  |                    |         |       |         |             |  
|                                                                                  |                    | Total   |       | $       | 2,153.4     |   |       | $       | 2,133.8 | 
|                                                                                  |                    |         |       |         |             |  

The Bankruptcy Code generally disallows the
payment of interest that would otherwise accrue postpetition
with respect to unsecured or undersecured claims. The Company
continued to record interest expense accruing postpetition with
respect to the Companys Third Amended and Restated Credit
Agreement dated as of February 3, 1999 (the
Prepetition Credit Agreement) because a significant
portion of such accrued interest would be an allowed claim as
part of the Plan of Reorganization. The amount of such unpaid
interest recorded as of May 31, 2003 was
$45.2 million, net of the May payment noted below, and was
classified as a liability subject to compromise in the
consolidated balance sheet as of that date.

The DIP Facility provided for the postpetition
cash payment at certain intervals of interest and fees accruing
postpetition under the Companys Prepetition Credit
Agreement, if certain tests are satisfied relating to the
liquidity position and earnings of the Company and its
subsidiaries, and the repatriation of funds from foreign
subsidiaries. On May 1, 2003, a payment of
$1.2 million was made for a portion of accrued interest and
fees with respect to this provision.

The Company did not continue to record interest
expense accruing postpetition with respect to the Old Senior
Notes and the Companys 11% Senior Subordinated Notes due
2006, 9 1/8% Senior Subordinated Notes due 2007, and
8 1/4% Senior Subordinated Notes due 2008 (the Old
Senior Subordinated Notes) because such interest would not
be an allowed claim as part of the Plan of Reorganization. The
amount of such interest accruing postpetition that had not been
recorded as of May 31, 2003 and January 31, 2003 was
$174.9 million and $136.3 million, respectively. The
recorded amount of prepetition accrued interest was
$49.0 million, which was classified as a liability subject
to compromise in the consolidated balance sheets as of
May 31, 2003 and January 31, 2003.

22



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##### Table of Contents



HAYES LEMMERZ INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Contingent Liabilities

Contingent liabilities of the Debtors as of the
Chapter 11 Filing date are also subject to compromise. The
Company is a party to litigation matters and claims that are
normal in the course of its operations. Generally, litigation
related to claims, as defined by the Bankruptcy
Code, is stayed. Also, as a normal part of their operations, the
Companys subsidiaries undertake certain contractual
obligations, warranties and guarantees in connection with the
sale of products or services. Resolution of these matters cannot
be predicted with certainty.

(13) Segment Reporting

The Company is organized based primarily on
markets served and products produced. Under this organization
structure, the Companys operating segments have been
aggregated into three reportable segments: Automotive Wheels,
Components, and Other. The Other category includes Commercial
Highway products, the corporate office and elimination of
intercompany activities, none of which meet the requirements of
being classified as an operating segment.

The following tables present revenues and other
financial information by business segment (millions of dollars):

|                                |  |                                                  |         |  |            |   |       |       |  |   |       |   |  |   |         | 
|------------------------------- |  | ------------------------------------------------ | ------- |  | ---------- | - | ----- | ----- |  | - | ----- | - |  | - | ------- | 
|                                |  |                                                 
|                                |  | Successor                                        |        
|                                |  |                                                  |        
|                                |  |                                                 
|                                |  | As of and for the Two Months Ended July 31, 2003 |        
|                                |  |                                                  |        
|                                |  | Automotive                                       |         |  |           
|                                |  | Wheels                                           |         |  | Components |   |       | Other |  |   | Total |  
|                                |  |                                                  |         |  |            |   |       |       |  |   |       |  
|Net sales                       |  | $                                                | 199.3   |  |            | $ | 110.6 |       |  | $ | 18.4  |   |  | $ | 328.3   | 
|Earnings (loss) from operations |  |                                                  | 8.5     |  |            |   | (1.4  | )     |  |   | (4.7  | ) |  |   | 2.4     | 
|Goodwill                        |  |                                                  | 303.2   |  |            |   | 89.7  |       |  |   |      |   |  |   | 392.9   | 
|Total assets                    |  |                                                  | 1,494.2 |  |            |   | 606.0 |       |  |   | 143.9 |   |  |   | 2,244.1 | 

|                                                  |  |                                |       |   |            |   |       |       |  |   |       |   |  |   |         |  
|------------------------------------------------- |  | ------------------------------ | ----- | - | ---------- | - | ----- | ----- |  | - | ----- | - |  | - | ------- | -
|                                                  |  |                               
|                                                  |  | Predecessor                    |      
|                                                  |  |                                |      
|                                                  |  |                               
|                                                  |  | Four Months Ended May 31, 2003 |      
|                                                  |  |                                |      
|                                                  |  | Automotive                     |       |   |           
|                                                  |  | Wheels                         |       |   | Components |   |       | Other |  |   | Total |  
|                                                  |  |                                |       |   |            |   |       |       |  |   |       |  
|Net sales                                         |  | $                              | 403.5 |   |            | $ | 248.1 |       |  | $ | 38.2  |   |  | $ | 689.8   |  
|Earnings (loss) from operations                   |  |                                | 85.4  |   |            |   | 37.2  |       |  |   | (72.1 | ) |  |   | 50.5    |  
|Asset impairments and other restructuring charges |  |                                | (3.0  | ) |            |   | (3.4  | )     |  |   |      |   |  |   | (6.4    | )
|Reorganization items                              |  |                                | (0.1  | ) |            |   | 0.2   |       |  |   | (45.1 | ) |  |   | (45.0   | )
|Fresh start adjustments                           |  |                                | 57.9  |   |            |   | 27.7  |       |  |   | (22.5 | ) |  |   | 63.1    |  
|Extraordinary gain on debt discharge              |  |                                | 81.1  |   |            |   | 58.3  |       |  |   | 937.3 |   |  |   | 1,076.7 |  

|             |  |                        |         |  |            |   |       |       |  |   |       |  |  |   |         | 
|------------ |  | ---------------------- | ------- |  | ---------- | - | ----- | ----- |  | - | ----- |  |  | - | ------- | 
|             |  |                       
|             |  | Predecessor            |        
|             |  |                        |        
|             |  |                       
|             |  | As of January 31, 2003 |        
|             |  |                        |        
|             |  | Automotive             |         |  |           
|             |  | Wheels                 |         |  | Components |   |       | Other |  |   | Total | 
|             |  |                        |         |  |            |   |       |       |  |   |       | 
|Goodwill     |  | $                      | 189.6   |  |            | $ |      |       |  | $ | 1.7   |  |  | $ | 191.3   | 
|Total assets |  |                        | 1,049.0 |  |            |   | 546.4 |       |  |   | 251.2 |  |  |   | 1,846.6 | 

23



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##### Table of Contents



HAYES LEMMERZ INTERNATIONAL, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                        |  |                                |        |   |            |   |        |       |  |   |       |   |  |   |        |  
|------------------------------------------------------- |  | ------------------------------ | ------ | - | ---------- | - | ------ | ----- |  | - | ----- | - |  | - | ------ | -
|                                                        |  |                               
|                                                        |  | Predecessor                    |       
|                                                        |  |                                |       
|                                                        |  |                               
|                                                        |  | Six Months Ended July 31, 2002 |       
|                                                        |  |                                |       
|                                                        |  | Automotive                     |        |   |           
|                                                        |  | Wheels                         |        |   | Components |   |        | Other |  |   | Total |  
|                                                        |  |                                |        |   |            |   |        |       |  |   |       |  
|Net sales                                               |  | $                              | 576.0  |   |            | $ | 364.8  |       |  | $ | 49.9  |   |  | $ | 990.7  |  
|Earnings (loss) from operations                         |  |                                | (4.7   | ) |            |   | 5.2    |       |  |   | (27.7 | ) |  |   | (27.2  | )
|Asset impairments and other restructuring charges       |  |                                | (23.7  | ) |            |   | (1.1   | )     |  |   | (0.5  | ) |  |   | (25.3  | )
|Reorganization items                                    |  |                                | (9.2   | ) |            |   | 1.0    |       |  |   | (19.7 | ) |  |   | (27.9  | )
|Cumulative effect of change in accounting
    principle |  |                                | (127.1 | ) |            |   | (342.8 | )     |  |   | (84.5 | ) |  |   | (554.4 | )

(14) Taxes on Income

Income tax expense was $2.6 million for the
Successor two months ended July 31, 2003. This expense is
the result of tax related to operations in foreign jurisdictions
as well as various states.

Income tax expense was $60.3 million for the
Predecessor four months ended May 31, 2003. This expense is
the result of recording deferred tax liabilities related to
fresh start accounting adjustments in foreign jurisdictions,
$6.5 million of state tax related to the merger between the
Predecessor and HLI, and tax related to operations in foreign
jurisdictions as well as various states.

The Company has determined that a valuation
allowance is required against all net deferred tax assets in the
United States and certain deferred tax assets in foreign
jurisdictions. As such, there is no United States federal income
tax benefit recorded against current losses.

(15) Condensed Consolidating Financial
Statements

The following condensed consolidating financial
statements present the financial information required with
respect to those entities which guarantee certain of the
Companys debt.

The condensed consolidating financial statements
are presented on the equity method. Under this method, the
investments in subsidiaries are recorded at cost and adjusted
for the Companys share of the 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 further discussed in Notes (1) and (11),
in connection with the Plan of Reorganization, HLI issued
$250.0 million aggregate principal amount of the New Senior
Notes. The New Senior Notes are guaranteed by New Hayes and
substantially all of New Hayes domestic subsidiaries
(other than HLI as the issuer of the New Senior Notes)
(collectively, the Guarantor Subsidiaries). None of
New Hayes foreign subsidiaries have guaranteed the New
Senior Notes, nor have two of New Hayes domestic
subsidiaries owned by foreign subsidiaries of New Hayes
(collectively, the Nonguarantor Subsidiaries).
Following emergence, all the operations, assets and liabilities
of New Hayes and ParentCo (collectively, the Parent)
and the New Guarantor Subsidiaries reflected in the table below
are owned and operated by HLI and the New Guarantor Subsidiaries.

24



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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENTS OF
OPERATIONS

Successor Company


For the Two Months Ended July 31,
2003


(Millions of dollars)


(Unaudited)


|                                                                   |                                                                                                        |        |      |       |        |           |      |              |              |   |              |      |   |              |       |      |       |   |       |      |  |   |       |      |  
|------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------ | ------ | ---- | ----- | ------ | --------- | ---- | ------------ | ------------ | - | ------------ | ---- | - | ------------ | ----- | ---- | ----- | - | ----- | ---- |  | - | ----- | ---- | -
|                                                                   |                                                                                                        |        |      |       |        | Guarantor |      |              | Nonguarantor |   |              |      |   |             
|                                                                   |                                                                                                        | Parent |      |       | Issuer |           |      | Subsidiaries |              |   | Subsidiaries |      |   | Eliminations |       |      | Total |  
|                                                                   |                                                                                                        |        |      |       |        |           |      |              |              |   |              |      |   |              |       |      |       |  
|Net sales                                                          |                                                                                                        | $      |     |       |        | $         | 0.8  |              |              | $ | 159.5        |      |   | $            | 173.8 |      |       | $ | (5.8  | )    |  | $ | 328.3 |     
|Cost of goods sold                                                 |                                                                                                        |        |     |       |        |           | 3.9  |              |              |   | 150.4        |      |   |              | 150.4 |      |       |   | (5.8  | )    |  |   | 298.9 |     
|                                                                   |                                                                                                        |        |      |       |        |           |      |              |              |   |              |      |   |              |       |      |       |  
|                                                                   | Gross profit (loss)                                                                                    |        |      |      |        |           |      | (3.1         | )            |   |              | 9.1  |   |              |       | 23.4 |       |   |       |     |  |   |       | 29.4 |  
|Marketing, general and administration                              |                                                                                                        |        |     |       |        |           | 2.5  |              |              |   | 9.1          |      |   |              | 9.1   |      |       |   |      |      |  |   | 20.7  |     
|Engineering and product development                                |                                                                                                        |        |     |       |        |           | 1.5  |              |              |   | 1.3          |      |   |              | 1.4   |      |       |   |      |      |  |   | 4.2   |     
|Equity in (earnings) losses of subsidiaries and
    joint ventures |                                                                                                        |        | 13.7 |       |        |           |     |              |              |   | 0.3          |      |   |              |      |      |       |   | (14.0 | )    |  |   |      |     
|Other expense (income), net                                        |                                                                                                        |        |     |       |        |           | 0.2  |              |              |   | (0.8         | )    |   |              | 2.7   |      |       |   |      |      |  |   | 2.1   |     
|                                                                   | Earnings (loss) from operations                                                                        |        |      | (13.7 | )      |           |      | (7.3         | )            |   |              | (0.8 | ) |              |       | 10.2 |       |   |       | 14.0 |  |   |       | 2.4  |  
|Interest (income) expense, net                                     |                                                                                                        |        | (4.5 | )     |        |           | (2.4 | )            |              |   | 8.5          |      |   |              | 6.5   |      |       |   |      |      |  |   | 8.1   |     
|                                                                   |                                                                                                        |        |      |       |        |           |      |              |              |   |              |      |   |              |       |      |       |  
|                                                                   | Earnings (loss) before subsidiary preferred stock
    dividends, taxes on income and minority interest |        |      | (9.2  | )      |           |      | (4.9         | )            |   |              | (9.3 | ) |              |       | 3.7  |       |   |       | 14.0 |  |   |       | (5.7 | )
|Subsidiary preferred stock dividends                               |                                                                                                        |        |     |       |        |           | 0.1  |              |              |   |             |      |   |              |      |      |       |   |      |      |  |   | 0.1   |     
|                                                                   |                                                                                                        |        |      |       |        |           |      |              |              |   |              |      |   |              |       |      |       |  
|                                                                   | Earnings (loss) before taxes on income and
    minority interest                                       |        |      | (9.2  | )      |           |      | (5.0         | )            |   |              | (9.3 | ) |              |       | 3.7  |       |   |       | 14.0 |  |   |       | (5.8 | )
|Income tax provision                                               |                                                                                                        |        |     |       |        |           |      |              |              |   | 0.5          |      |   |              | 2.1   |      |       |   |      |      |  |   | 2.6   |     
|                                                                   |                                                                                                        |        |      |       |        |           |      |              |              |   |              |      |   |              |       |      |       |  
|                                                                   | Earnings (loss) before minority interest                                                               |        |      | (9.2  | )      |           |      | (5.0         | )            |   |              | (9.8 | ) |              |       | 1.6  |       |   |       | 14.0 |  |   |       | (8.4 | )
|Minority interest                                                  |                                                                                                        |        |     |       |        |           |     |              |              |   |             |      |   |              | 0.8   |      |       |   |      |      |  |   | 0.8   |     
|                                                                   |                                                                                                        |        |      |       |        |           |      |              |              |   |              |      |   |              |       |      |       |  
|                                                                   | Net income (loss)                                                                                      |        | $    | (9.2  | )      |           | $    | (5.0         | )            |   | $            | (9.8 | ) |              | $     | 0.8  |       |   | $     | 14.0 |  |   | $     | (9.2 | )
|                                                                   |                                                                                                        |        |      |       |        |           |      |              |              |   |              |      |   |              |       |      |       |  

25



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##### Table of Contents








CONDENSED CONSOLIDATING STATEMENTS OF
OPERATIONS


Predecessor Company


For the Four Months Ended May 31,
2003


(Millions of dollars)


(Unaudited)


|                                                                   |                                                                                                        |        |        |           |              |   |              |              |   |   |              |      |  |       |       |        |   |   |         |         |  
|------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------ | ------ | ------ | --------- | ------------ | - | ------------ | ------------ | - | - | ------------ | ---- |  | ----- | ----- | ------ | - | - | ------- | ------- | -
|                                                                   |                                                                                                        |        |        | Guarantor |              |   | Nonguarantor |              |   |   |              |     
|                                                                   |                                                                                                        | Parent |        |           | Subsidiaries |   |              | Subsidiaries |   |   | Eliminations |      |  | Total |      
|                                                                   |                                                                                                        |        |        |           |              |   |              |              |   |   |              |      |  |       |      
|Net sales                                                          |                                                                                                        | $      | 61.0   |           |              | $ | 330.3        |              |   | $ | 307.0        |      |  | $     | (8.5  | )      |   | $ | 689.8   |        
|Cost of goods sold                                                 |                                                                                                        |        | 61.3   |           |              |   | 297.6        |              |   |   | 260.9        |      |  |       | (8.5  | )      |   |   | 611.3   |        
|                                                                   |                                                                                                        |        |        |           |              |   |              |              |   |   |              |      |  |       |      
|                                                                   | Gross profit (loss)                                                                                    |        |        | (0.3      | )            |   |              | 32.7         |   |   |              | 46.1 |  |       |       |       |   |   |         | 78.5    |  
|Marketing, general and administration                              |                                                                                                        |        | 2.6    |           |              |   | 16.3         |              |   |   | 16.1         |      |  |       | (1.5  | )      |   |   | 33.5    |        
|Engineering and product development                                |                                                                                                        |        | 2.9    |           |              |   | 2.8          |              |   |   | 2.4          |      |  |       |      |        |   |   | 8.1     |        
|Equity in (earnings) losses of subsidiaries and
    joint ventures |                                                                                                        |        | (132.1 | )         |              |   | (7.9         | )            |   |   | (0.1         | )    |  |       | 140.1 |        |   |   |        |        
|Asset impairments and other restructuring charges                  |                                                                                                        |        | 0.3    |           |              |   | 4.9          |              |   |   | 1.2          |      |  |       |      |        |   |   | 6.4     |        
|Other expense (income), net                                        |                                                                                                        |        | (0.3   | )         |              |   | (1.4         | )            |   |   | (1.0         | )    |  |       | 0.8   |        |   |   | (1.9    | )      
|Fresh Start accounting adjustments                                 |                                                                                                        |        |       |           |              |   | (18.9        | )            |   |   | (44.2        | )    |  |       |      |        |   |   | (63.1   | )      
|Reorganization items                                               |                                                                                                        |        | 13.3   |           |              |   | 31.7         |              |   |   |             |      |  |       |      |        |   |   | 45.0    |        
|                                                                   |                                                                                                        |        |        |           |              |   |              |              |   |   |              |      |  |       |      
|                                                                   | Earnings (loss) from operations                                                                        |        |        | 113.0     |              |   |              | 5.2          |   |   |              | 71.7 |  |       |       | (139.4 | ) |   |         | 50.5    |  
|Interest expense, net                                              |                                                                                                        |        | 2.8    |           |              |   | 16.4         |              |   |   | 3.5          |      |  |       |      |        |   |   | 22.7    |        
|                                                                   |                                                                                                        |        |        |           |              |   |              |              |   |   |              |      |  |       |      
|                                                                   | Earnings (loss) before taxes on income, minority
    interest and extraordinary gain on debt discharge |        |        | 110.2     |              |   |              | (11.2        | ) |   |              | 68.2 |  |       |       | (139.4 | ) |   |         | 27.8    |  
|Income tax provision                                               |                                                                                                        |        | (0.3   | )         |              |   | 7.4          |              |   |   | 53.2         |      |  |       |      |        |   |   | 60.3    |        
|                                                                   |                                                                                                        |        |        |           |              |   |              |              |   |   |              |      |  |       |      
|                                                                   | Earnings (loss) before minority interest and
    extraordinary gain on debt discharge                  |        |        | 110.5     |              |   |              | (18.6        | ) |   |              | 15.0 |  |       |       | (139.4 | ) |   |         | (32.5   | )
|Minority interest                                                  |                                                                                                        |        |       |           |              |   |             |              |   |   | 1.2          |      |  |       |      |        |   |   | 1.2     |        
|                                                                   |                                                                                                        |        |        |           |              |   |              |              |   |   |              |      |  |       |      
|Earnings (loss) before extraordinary gain on debt
    discharge    |                                                                                                        |        | 110.5  |           |              |   | (18.6        | )            |   |   | 13.8         |      |  |       |      |        |   |   | (33.7   | )      
|Extraordinary gain on debt discharge                               |                                                                                                        |        | 932.5  |           |              |   | 142.9        |              |   |   | 1.3          |      |  |       |      |        |   |   | 1,076.7 |        
|                                                                   |                                                                                                        |        |        |           |              |   |              |              |   |   |              |      |  |       |      
|                                                                   | Net income (loss)                                                                                      |        | $      | 1,043.0   |              |   | $            | 124.3        |   |   | $            | 15.1 |  |       | $     | (139.4 | ) |   | $       | 1,043.0 |  
|                                                                   |                                                                                                        |        |        |           |              |   |              |              |   |   |              |      |  |       |      

26



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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENTS OF
OPERATIONS

Predecessor Company


For the Six Months Ended July 31,
2002


(Millions of dollars)


(Unaudited)


|                                                                    |                                                                                                                       |        |       |           |              |   |              |              |   |   |              |              |   |       |        |       |  |   |       |        |  
|------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | ------ | ----- | --------- | ------------ | - | ------------ | ------------ | - | - | ------------ | ------------ | - | ----- | ------ | ----- |  | - | ----- | ------ | -
|                                                                    |                                                                                                                       |        |       | Guarantor |              |   | Nonguarantor |              |   |   |              | Consolidated |  
|                                                                    |                                                                                                                       | Parent |       |           | Subsidiaries |   |              | Subsidiaries |   |   | Eliminations |              |   | Total |       
|                                                                    |                                                                                                                       |        |       |           |              |   |              |              |   |   |              |              |   |       |       
|Net sales                                                           |                                                                                                                       | $      | 117.6 |           |              | $ | 495.0        |              |   | $ | 392.5        |              |   | $     | (14.4  | )     |  | $ | 990.7 |       
|Cost of goods sold                                                  |                                                                                                                       |        | 121.9 |           |              |   | 465.2        |              |   |   | 335.0        |              |   |       | (14.8  | )     |  |   | 907.3 |       
|                                                                    |                                                                                                                       |        |       |           |              |   |              |              |   |   |              |              |   |       |       
|                                                                    | Gross profit (loss)                                                                                                   |        |       | (4.3      | )            |   |              | 29.8         |   |   |              | 57.5         |   |       |        | 0.4   |  |   |       | 83.4   |  
|Marketing, general and administration                               |                                                                                                                       |        | 8.1   |           |              |   | 22.9         |              |   |   | 19.6         |              |   |       |       |       |  |   | 50.6  |       
|Engineering and product development                                 |                                                                                                                       |        | 2.2   |           |              |   | 5.3          |              |   |   | 3.0          |              |   |       |       |       |  |   | 10.5  |       
|Equity in (earnings) losses of subsidiaries and
    joint ventures  |                                                                                                                       |        | 563.0 |           |              |   | (7.8         | )            |   |   | (0.7         | )            |   |       | (554.5 | )     |  |   |      |       
|Asset impairments and other restructuring charges                   |                                                                                                                       |        | 1.0   |           |              |   | 23.3         |              |   |   | 1.0          |              |   |       |       |       |  |   | 25.3  |       
|Other expense (income), net                                         |                                                                                                                       |        | 4.3   |           |              |   | (3.3         | )            |   |   | (4.7         | )            |   |       |       |       |  |   | (3.7  | )     
|Reorganization items                                                |                                                                                                                       |        | 19.7  |           |              |   | 8.0          |              |   |   | 0.2          |              |   |       |       |       |  |   | 27.9  |       
|                                                                    |                                                                                                                       |        |       |           |              |   |              |              |   |   |              |              |   |       |       
|                                                                    | Earnings (loss) from operations                                                                                       |        |       | (602.6    | )            |   |              | (18.6        | ) |   |              | 39.1         |   |       |        | 554.9 |  |   |       | (27.2  | )
|Interest expense, net                                               |                                                                                                                       |        | 2.8   |           |              |   | 21.3         |              |   |   | 10.6         |              |   |       |       |       |  |   | 34.7  |       
|                                                                    |                                                                                                                       |        |       |           |              |   |              |              |   |   |              |              |   |       |       
|                                                                    | Earnings (loss) before taxes on income, minority
    interest and cumulative effect of change in accounting principle |        |       | (605.4    | )            |   |              | (39.9        | ) |   |              | 28.5         |   |       |        | 554.9 |  |   |       | (61.9  | )
|Income tax provision                                                |                                                                                                                       |        | (12.7 | )         |              |   | 0.9          |              |   |   | 9.4          |              |   |       |       |       |  |   | (2.4  | )     
|                                                                    |                                                                                                                       |        |       |           |              |   |              |              |   |   |              |              |   |       |       
|                                                                    | Earnings (loss) before minority interest and
    cumulative effect of change in accounting principle                  |        |       | (592.7    | )            |   |              | (40.8        | ) |   |              | 19.1         |   |       |        | 554.9 |  |   |       | (59.5  | )
|Minority interest                                                   |                                                                                                                       |        |      |           |              |   |             |              |   |   | 1.5          |              |   |       |       |       |  |   | 1.5   |       
|                                                                    | Earnings (loss) before cumulative effect of
    change in accounting principle                                        |        |       | (592.7    | )            |   |              | (40.8        | ) |   |              | 17.6         |   |       |        | 554.9 |  |   |       | (61.0  | )
|Cumulative effect of change in accounting
    principle, net of tax |                                                                                                                       |        | 22.7  |           |              |   | 498.5        |              |   |   | 33.2         |              |   |       |       |       |  |   | 554.4 |       
|                                                                    |                                                                                                                       |        |       |           |              |   |              |              |   |   |              |              |   |       |       
|                                                                    | Net income (loss)                                                                                                     |        | $     | (615.4    | )            |   | $            | (539.3       | ) |   | $            | (15.6        | ) |       | $      | 554.9 |  |   | $     | (615.4 | )
|                                                                    |                                                                                                                       |        |       |           |              |   |              |              |   |   |              |              |   |       |       

27



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##### Table of Contents



CONDENSED CONSOLIDATING BALANCE
SHEETS

Successor Company


As of July 31, 2003


(Millions of dollars)


(Unaudited)


|                                         |                                                          |        |       |       |        |           |         |              |  |   |              |       |           |              |       |         |              |   |          |          |   |   |       |         | 
|---------------------------------------- | -------------------------------------------------------- | ------ | ----- | ----- | ------ | --------- | ------- | ------------ |  | - | ------------ | ----- | --------- | ------------ | ----- | ------- | ------------ | - | -------- | -------- | - | - | ----- | ------- | 
|                                         |                                                          |        |       |       |        |           |         |              |  |   |              | Total |          
|                                         |                                                          |        |       |       |        | Guarantor |         |              |  |   |              |       | Guarantor |             
|                                         |                                                          | Parent |       |       | Issuer |           |         | Subsidiaries |  |   | Nonguarantor |       |           | Eliminations |       |         | Nonguarantor |  
|                                         |                                                          |        |       |       |        |           |         |              |  |   |              |       |           |              |       |         |              |  
|Cash and cash equivalents                |                                                          | $      |      |       |        | $         | 54.1    |              |  | $ | 0.1          |       |           | $            | 86.4  |         |              | $ |         |          |   | $ | 140.6 |        
|Receivables                              |                                                          |        |      |       |        |           | 1.4     |              |  |   | 91.9         |       |           |              | 182.0 |         |              |   |         |          |   |   | 275.3 |        
|Inventories                              |                                                          |        |      |       |        |           | 5.7     |              |  |   | 84.5         |       |           |              | 96.4  |         |              |   |         |          |   |   | 186.6 |        
|Prepaid expenses and other               |                                                          |        |      |       |        |           | 28.2    |              |  |   | 17.6         |       |           |              | 8.1   |         |              |   | (32.8    | )        |   |   | 21.1  |        
|                                         |                                                          |        |       |       |        |           |         |              |  |   |              |       |           |              |       |         |              |  
|                                         | Total current assets                                     |        |       |      |        |           |         | 89.4         |  |   |              | 194.1 |           |              |       | 372.9   |              |   |          | (32.8    | ) |   |       | 623.6   | 
|Net property, plant and equipment        |                                                          |        |      |       |        |           | 30.6    |              |  |   | 359.3        |       |           |              | 532.7 |         |              |   |         |          |   |   | 922.6 |        
|Goodwill and other assets                |                                                          |        | 562.8 |       |        |           | 1,572.8 |              |  |   | 140.0        |       |           |              | 352.6 |         |              |   | (1,930.3 | )        |   |   | 697.9 |        
|                                         |                                                          |        |       |       |        |           |         |              |  |   |              |       |           |              |       |         |              |  
|                                         | Total assets                                             |        | $     | 562.8 |        |           | $       | 1,692.8      |  |   | $            | 693.4 |           |              | $     | 1,258.2 |              |   | $        | (1,963.1 | ) |   | $     | 2,244.1 | 
|                                         |                                                          |        |       |       |        |           |         |              |  |   |              |       |           |              |       |         |              |  
|                                        
|Bank borrowings and other notes          |                                                          | $      |      |       |        | $         |        |              |  | $ |             |       |           | $            | 12.2  |         |              | $ |         |          |   | $ | 12.2  |        
|Current portion of long-term debt        |                                                          |        |      |       |        |           | 4.5     |              |  |   |             |       |           |              | 10.1  |         |              |   |         |          |   |   | 14.6  |        
|Accounts payable and accrued liabilities |                                                          |        |      |       |        |           | 95.3    |              |  |   | 80.6         |       |           |              | 206.4 |         |              |   | (33.3    | )        |   |   | 349.0 |        
|                                         |                                                          |        |       |       |        |           |         |              |  |   |              |       |           |              |       |         |              |  
|                                         | Total current liabilities                                |        |       |      |        |           |         | 99.8         |  |   |              | 80.6  |           |              |       | 228.7   |              |   |          | (33.3    | ) |   |       | 375.8   | 
|Long-term debt, net of current portion   |                                                          |        |      |       |        |           | 716.6   |              |  |   | 8.4          |       |           |              | 30.5  |         |              |   |         |          |   |   | 755.5 |        
|Pension and other long-term liabilities  |                                                          |        |       |       |        |           | 277.0   |              |  |   | 1.5          |       |           |              | 258.1 |         |              |   |         |          |   |   | 536.6 |        
|Series A Warrants and Series B Warrants  |                                                          |        | 4.8   |       |        |           |        |              |  |   |             |       |           |              |      |         |              |   |         |          |   |   | 4.8   |        
|Redeemable preferred stock of subsidiary |                                                          |        | 10.1  |       |        |           |        |              |  |   |              |       |           |              |       |         |              |   |          |          |   |   | 10.1  |        
|Minority interest                        |                                                          |        |      |       |        |           |        |              |  |   |             |       |           |              | 13.4  |         |              |   |         |          |   |   | 13.4  |        
|Parent loans                             |                                                          |        |      |       |        |           | 32.5    |              |  |   | (7.8         | )     |           |              | 267.3 |         |              |   | (292.0   | )        |   |   |      |        
|Common stock                             |                                                          |        | 0.3   |       |        |           |        |              |  |   |             |       |           |              |      |         |              |   |         |          |   |   | 0.3   |        
|Additional paid-in capital               |                                                          |        | 544.1 |       |        |           | 553.7   |              |  |   | 620.4        |       |           |              | 454.8 |         |              |   | (1,628.9 | )        |   |   | 544.1 |        
|Preferred stock                          |                                                          |        |      |       |        |           | 10.1    |              |  |   |             |       |           |              |      |         |              |   | (10.1    | )        |   |   |      |        
|Retained earnings (accumulated deficit)  |                                                          |        | (9.2  | )     |        |           | (5.1    | )            |  |   | (9.7         | )     |           |              | 0.7   |         |              |   | 14.1     |          |   |   | (9.2  | )      
|Accumulated other comprehensive loss     |                                                          |        | 12.7  |       |        |           | 8.2     |              |  |   |             |       |           |              | 4.7   |         |              |   | (12.9    | )        |   |   | 12.7  |        
|                                         |                                                          |        |       |       |        |           |         |              |  |   |              |       |           |              |       |         |              |  
|                                         | Total stockholders equity (deficit)                     |        |       | 547.9 |        |           |         | 566.9        |  |   |              | 610.7 |           |              |       | 460.2   |              |   |          | (1,637.8 | ) |   |       | 547.9   | 
|                                         |                                                          |        |       |       |        |           |         |              |  |   |              |       |           |              |       |         |              |  
|                                         | Total liabilities and stockholders equity
    (deficit) |        | $     | 562.8 |        |           | $       | 1,692.8      |  |   | $            | 693.4 |           |              | $     | 1,258.2 |              |   | $        | (1,963.1 | ) |   | $     | 2,244.1 | 
|                                         |                                                          |        |       |       |        |           |         |              |  |   |              |       |           |              |       |         |              |  

28



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##### Table of Contents



CONDENSED CONSOLIDATING BALANCE
SHEETS

Predecessor Company


As of January 31, 2003


(Millions of dollars)


|                                         |                                                          |        |          |           |              |   |              |              |  |   |              |              |  |       |          |        |   |   |          |          |  
|---------------------------------------- | -------------------------------------------------------- | ------ | -------- | --------- | ------------ | - | ------------ | ------------ |  | - | ------------ | ------------ |  | ----- | -------- | ------ | - | - | -------- | -------- | -
|                                         |                                                          |        |          | Guarantor |              |   | Nonguarantor |              |  |   |              | Consolidated | 
|                                         |                                                          | Parent |          |           | Subsidiaries |   |              | Subsidiaries |  |   | Eliminations |              |  | Total |         
|                                         |                                                          |        |          |           |              |   |              |              |  |   |              |              |  |       |         
|Cash and cash equivalents                |                                                          | $      | 13.3     |           |              | $ |             |              |  | $ | 52.8         |              |  | $     |         |        |   | $ | 66.1     |         
|Receivables                              |                                                          |        | 29.9     |           |              |   | 98.9         |              |  |   | 147.8        |              |  |       |         |        |   |   | 276.6    |         
|Inventories                              |                                                          |        | 26.1     |           |              |   | 72.2         |              |  |   | 78.3         |              |  |       |         |        |   |   | 176.6    |         
|Prepaid expenses and other               |                                                          |        | 4.9      |           |              |   | 20.7         |              |  |   | 6.9          |              |  |       |         |        |   |   | 32.5     |         
|                                         |                                                          |        |          |           |              |   |              |              |  |   |              |              |  |       |         
|                                         | Total current assets                                     |        |          | 74.2      |              |   |              | 191.8        |  |   |              | 285.8        |  |       |          |       |   |   |          | 551.8    |  
|Net property, plant and equipment        |                                                          |        | 111.5    |           |              |   | 393.2        |              |  |   | 446.5        |              |  |       |         |        |   |   | 951.2    |         
|Goodwill and other assets                |                                                          |        | 378.5    |           |              |   | 172.4        |              |  |   | 269.3        |              |  |       | (476.6   | )      |   |   | 343.6    |         
|                                         |                                                          |        |          |           |              |   |              |              |  |   |              |              |  |       |         
|                                         | Total assets                                             |        | $        | 564.2     |              |   | $            | 757.4        |  |   | $            | 1,001.6      |  |       | $        | (476.6 | ) |   | $        | 1,846.6  |  
|                                         |                                                          |        |          |           |              |   |              |              |  |   |              |              |  |       |         
|DIP Facility                             |                                                          | $      | 49.9     |           |              | $ |             |              |  | $ |             |              |  | $     |         |        |   | $ | 49.9     |         
|Bank borrowings and other notes          |                                                          |        |         |           |              |   | 2.0          |              |  |   | 13.8         |              |  |       |         |        |   |   | 15.8     |         
|Current portion of long-term debt        |                                                          |        |         |           |              |   |             |              |  |   | 40.1         |              |  |       |         |        |   |   | 40.1     |         
|Accounts payable and accrued liabilities |                                                          |        | 58.9     |           |              |   | 59.1         |              |  |   | 172.0        |              |  |       | (21.3    | )      |   |   | 268.7    |         
|                                         |                                                          |        |          |           |              |   |              |              |  |   |              |              |  |       |         
|                                         | Total current liabilities                                |        |          | 108.8     |              |   |              | 61.1         |  |   |              | 225.9        |  |       |          | (21.3  | ) |   |          | 374.5    |  
|Long-term debt, net of current portion   |                                                          |        |         |           |              |   |             |              |  |   | 61.9         |              |  |       |         |        |   |   | 61.9     |         
|Pension and other long-term liabilities  |                                                          |        | 106.2    |           |              |   | 51.7         |              |  |   | 176.5        |              |  |       |         |        |   |   | 334.4    |         
|Minority interest                        |                                                          |        |         |           |              |   |             |              |  |   | 16.4         |              |  |       |         |        |   |   | 16.4     |         
|Parent loans                             |                                                          |        | (598.2   | )         |              |   | 411.3        |              |  |   | 186.9        |              |  |       |         |        |   |   |         |         
|Liabilities subject to compromise        |                                                          |        | 2,021.8  |           |              |   | 110.5        |              |  |   | 1.5          |              |  |       |         |        |   |   | 2,133.8  |         
|Common stock                             |                                                          |        | 0.3      |           |              |   |             |              |  |   |             |              |  |       |         |        |   |   | 0.3      |         
|Additional paid-in capital               |                                                          |        | 235.1    |           |              |   | 1,144.9      |              |  |   | 328.3        |              |  |       | (1,473.2 | )      |   |   | 235.1    |         
|Common stock in treasury at cost         |                                                          |        | (25.7    | )         |              |   |             |              |  |   |             |              |  |       |         |        |   |   | (25.7    | )       
|Retained earnings (accumulated deficit)  |                                                          |        | (1,176.9 | )         |              |   | (951.9       | )            |  |   | 67.8         |              |  |       | 884.1    |        |   |   | (1,176.9 | )       
|Accumulated other comprehensive loss     |                                                          |        | (107.2   | )         |              |   | (70.2        | )            |  |   | (63.6        | )            |  |       | 133.8    |        |   |   | (107.2   | )       
|                                         |                                                          |        |          |           |              |   |              |              |  |   |              |              |  |       |         
|                                         | Total stockholders equity (deficit)                     |        |          | (1,074.4  | )            |   |              | 122.8        |  |   |              | 332.5        |  |       |          | (455.3 | ) |   |          | (1,074.4 | )
|                                         |                                                          |        |          |           |              |   |              |              |  |   |              |              |  |       |         
|                                         | Total liabilities and stockholders equity
    (deficit) |        | $        | 564.2     |              |   | $            | 757.4        |  |   | $            | 1,001.6      |  |       | $        | (476.6 | ) |   | $        | 1,846.6  |  
|                                         |                                                          |        |          |           |              |   |              |              |  |   |              |              |  |       |         

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CONDENSED CONSOLIDATING STATEMENTS OF CASH
FLOWS

Successor Company


For the Two Months Ended July 31,
2003


(Millions of dollars)


(Unaudited)


|                                                           |                                                                                           |                                                  |   |           |   |   |              |       |      |              |       |      |              |       |           |       |       |   |   |   |   |   |       |       |       |  
|---------------------------------------------------------- | ----------------------------------------------------------------------------------------- | ------------------------------------------------ | - | --------- | - | - | ------------ | ----- | ---- | ------------ | ----- | ---- | ------------ | ----- | --------- | ----- | ----- | - | - | - | - | - | ----- | ----- | ----- | -
|                                                           |                                                                                           |                                                  |   | Issuer    |   |   | Guarantor    |       |      |              |       |      |              | Total |          
|                                                           |                                                                                           | Parent                                           |   | Component |   |   | Subsidiaries |       |      | Nonguarantor |       |      | Eliminations |       | Guarantor |      
|                                                           |                                                                                           |                                                  |   |           |   |   |              |       |      |              |       |      |              |       |           |      
|Cash flows provided by (used for) operating
    activities |                                                                                           | $                                                |  |           |   | $ | (85.8        | )     |      | $            | 29.8  |      |              | $     | 100.4     |       |       | $ |  |   |   | $ | 44.4  |      
|Cash flows from investing activities:                      |                                                                                           |                                                  |   |           |   |   |              |       |      |              |       |      |              |       |           |       |       |   |   |   |   |   |       |      
|                                                           | Acquisition of property, plant, equipment, and
    tooling                                |                                                  |   |          |   |   |              | (0.6  | )    |              |       | (7.6 | )            |       |           | (11.3 | )     |   |   |  |   |   |       | (19.5 | )    
|                                                           |                                                                                           |                                                  |   |           |   |   |              |       |      |              |       |      |              |       |           |       |       |  
|                                                           |                                                                                           | Cash provided by (used for) investing activities |   |           |  |   |              |       | (0.6 | )            |       |      | (7.6         | )     |           |       | (11.3 | ) |   |   |  |   |       |       | (19.5 | )
|                                                           |                                                                                           |                                                  |   |           |   |   |              |       |      |              |       |      |              |       |           |       |       |  
|Cash flows from financing activities:                      |                                                                                           |                                                  |   |           |   |   |              |       |      |              |       |      |              |       |           |       |       |   |   |   |   |   |       |      
|                                                           | Increase in bank borrowings, revolving facility
    and DIP facility                      |                                                  |   |          |   |   |              |      |      |              |       |     |              |       |           | (65.0 | )     |   |   |  |   |   |       | (65.0 | )    
|                                                           | Repayment of bank borrowings, revolving facility,
    and long term debt from refinancing |                                                  |   |          |   |   |              |      |      |              |       |     |              |       |           |      |       |   |   |  |   |   |       |      |      
|                                                           |                                                                                           |                                                  |   |           |   |   |              |       |      |              |       |      |              |       |           |       |       |  
|                                                           | Cash provided by (used for) financing activities                                          |                                                  |   |          |   |   |              |      |      |              |       |     |              |       |           | (65.0 | )     |   |   |  |   |   |       | (65.0 | )    
|Increase (decrease) in parent loans and
    advances       |                                                                                           |                                                  |  |           |   |   | 32.5         |       |      |              | (21.8 | )    |              |       | (10.7     | )     |       |   |  |   |   |   |      |      
|Effect of exchange rates of cash and cash
    equivalents  |                                                                                           |                                                  |  |           |   |   |             |       |      |              |      |      |              |       | 1.6       |       |       |   |  |   |   |   | 1.6   |      
|                                                           |                                                                                           |                                                  |   |           |   |   |              |       |      |              |       |      |              |       |           |       |       |  
|                                                           | Net increase (decrease) in cash and cash
    equivalents                                  |                                                  |   |          |   |   |              | (53.9 | )    |              |       | 0.4  |              |       |           | 15.0  |       |   |   |  |   |   |       | (38.5 | )    
|Cash and cash equivalents at beginning of period           |                                                                                           |                                                  |  |           |   |   | 108.0        |       |      |              | (0.3  | )    |              |       | 71.4      |       |       |   |  |   |   |   | 179.1 |      
|                                                           |                                                                                           |                                                  |   |           |   |   |              |       |      |              |       |      |              |       |           |       |       |  
|Cash and cash equivalents at end of period                 |                                                                                           | $                                                |  |           |   | $ | 54.1         |       |      | $            | 0.1   |      |              | $     | 86.4      |       |       | $ |  |   |   | $ | 140.6 |      
|                                                           |                                                                                           |                                                  |   |           |   |   |              |       |      |              |       |      |              |       |           |       |       |  

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CONDENSED CONSOLIDATING STATEMENTS OF CASH
FLOWS


Predecessor Company


For the Four Months Ended May 31,
2003


(Millions of dollars)


(Unaudited)


|                                                           |                                                                                           |                                                  |       |           |              |   |      |              |       |   |              |      |           |   |   |   |   |   |       |       |       |  
|---------------------------------------------------------- | ----------------------------------------------------------------------------------------- | ------------------------------------------------ | ----- | --------- | ------------ | - | ---- | ------------ | ----- | - | ------------ | ---- | --------- | - | - | - | - | - | ----- | ----- | ----- | -
|                                                           |                                                                                           |                                                  |       | Guarantor |              |   |      |              |       |   | Total        |     
|                                                           |                                                                                           | Parent                                           |       |           | Subsidiaries |   |      | Nonguarantor |       |   | Eliminations |      | Guarantor |  
|                                                           |                                                                                           |                                                  |       |           |              |   |      |              |       |   |              |      |           |  
|Cash flows provided by (used for) operating
    activities |                                                                                           | $                                                | (7.5  | )         |              | $ | 14.7 |              |       | $ | 23.9         |      |           | $ |  |   |   | $ | 31.1  |      
|Cash flows from investing activities:                      |                                                                                           |                                                  |       |           |              |   |      |              |       |   |              |      |           |   |   |   |   |   |       |      
|                                                           | Acquisition of property, plant, equipment, and
    tooling                                |                                                  |       | (24.9     | )            |   |      | (15.4        | )     |   |              | (9.6 | )         |   |   |  |   |   |       | (49.9 | )    
|                                                           | Proceeds from sale of non-core businesses                                                 |                                                  |       |          |              |   |      | 0.5          |       |   |              | 0.3  |           |   |   |  |   |   |       | 0.8   |      
|                                                           | Purchase of businesses                                                                    |                                                  |       |          |              |   |      |             |       |   |              |     |           |   |   |  |   |   |       |      |      
|                                                           | Other, net                                                                                |                                                  |       |          |              |   |      |             |       |   |              |     |           |   |   |  |   |   |       |      |      
|                                                           |                                                                                           |                                                  |       |           |              |   |      |              |       |   |              |      |           |   |  
|                                                           |                                                                                           | Cash provided by (used for) investing activities |       |           | (24.9        | ) |      |              | (14.9 | ) |              |      | (9.3      | ) |   |   |  |   |       |       | (49.1 | )
|                                                           |                                                                                           |                                                  |       |           |              |   |      |              |       |   |              |      |           |   |  
|Cash flows from financing activities:                      |                                                                                           |                                                  |       |           |              |   |      |              |       |   |              |      |           |   |   |   |   |   |       |      
|                                                           | Increase in bank borrowings, revolving facility
    and DIP facility                      |                                                  |       | (49.9     | )            |   |      |             |       |   |              |     |           |   |   |  |   |   |       | (49.9 | )    
|                                                           | Repayment of bank borrowings, revolving facility,
    and long term debt from refinancing |                                                  |       | 178.8     |              |   |      | (2.0         | )     |   |              |     |           |   |   |  |   |   |       | 176.8 |      
|                                                           |                                                                                           |                                                  |       |           |              |   |      |              |       |   |              |      |           |   |  
|                                                           | Cash provided by (used for) financing activities                                          |                                                  |       | 128.9     |              |   |      | (2.0         | )     |   |              |     |           |   |   |  |   |   |       | 126.9 |      
|Increase (decrease) in parent loans and advances           |                                                                                           |                                                  | (1.9  | )         |              |   | 2.2  |              |       |   | (0.3         | )    |           |   |  |   |   |   |      |      
|Effect of exchange rates of cash and cash
    equivalents  |                                                                                           |                                                  |      |           |              |   |     |              |       |   | 4.1          |      |           |   |  |   |   |   | 4.1   |      
|                                                           |                                                                                           |                                                  |       |           |              |   |      |              |       |   |              |      |           |   |  
|                                                           | Net increase (decrease) in cash and cash
    equivalents                                  |                                                  |       | 94.6      |              |   |      |             |       |   |              | 18.4 |           |   |   |  |   |   |       | 113.0 |      
|Cash and cash equivalents at beginning of period           |                                                                                           |                                                  | 13.3  |           |              |   |     |              |       |   | 52.8         |      |           |   |  |   |   |   | 66.1  |      
|                                                           |                                                                                           |                                                  |       |           |              |   |      |              |       |   |              |      |           |   |  
|Cash and cash equivalents at end of period                 |                                                                                           | $                                                | 107.9 |           |              | $ |     |              |       | $ | 71.2         |      |           | $ |  |   |   | $ | 179.1 |      
|                                                           |                                                                                           |                                                  |       |           |              |   |      |              |       |   |              |      |           |   |  

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CONDENSED CONSOLIDATING STATEMENTS OF CASH
FLOWS

Predecessor Company


For the Six Months Ended July 31,
2002


(Millions of dollars)


(Unaudited)


|                                                           |                                                                                           |                                                  |      |           |              |   |              |              |       |   |              |              |       |   |   |   |   |   |      |       |       |  
|---------------------------------------------------------- | ----------------------------------------------------------------------------------------- | ------------------------------------------------ | ---- | --------- | ------------ | - | ------------ | ------------ | ----- | - | ------------ | ------------ | ----- | - | - | - | - | - | ---- | ----- | ----- | -
|                                                           |                                                                                           |                                                  |      | Guarantor |              |   | Nonguarantor |              |       |   |              | Consolidated |      
|                                                           |                                                                                           | Parent                                           |      |           | Subsidiaries |   |              | Subsidiaries |       |   | Eliminations |              | Total |  
|                                                           |                                                                                           |                                                  |      |           |              |   |              |              |       |   |              |              |       |  
|Cash flows provided by (used for) operating
    activities |                                                                                           | $                                                | 0.1  |           |              | $ | 18.9         |              |       | $ | 30.6         |              |       | $ |  |   |   | $ | 49.6 |      
|Cash flows from investing activities:                      |                                                                                           |                                                  |      |           |              |   |              |              |       |   |              |              |       |   |   |   |   |   |      |      
|                                                           | Acquisition of property, plant, equipment, and
    tooling                                |                                                  |      | (4.5      | )            |   |              | (20.9        | )     |   |              | (19.4        | )     |   |   |  |   |   |      | (44.8 | )    
|                                                           | Proceeds from sale of non-core businesses                                                 |                                                  |      |          |              |   |              | 0.8          |       |   |              | 8.2          |       |   |   |  |   |   |      | 9.0   |      
|                                                           | Purchase of businesses                                                                    |                                                  |      |          |              |   |              | (2.1         | )     |   |              | (5.1         | )     |   |   |  |   |   |      | (7.2  | )    
|                                                           |                                                                                           |                                                  |      |           |              |   |              |              |       |   |              |              |       |   |  
|                                                           |                                                                                           | Cash provided by (used for) investing activities |      |           | (4.5         | ) |              |              | (22.2 | ) |              |              | (16.3 | ) |   |   |  |   |      |       | (43.0 | )
|Cash flows from financing activities:                      |                                                                                           |                                                  |      |           |              |   |              |              |       |   |              |              |       |   |   |   |   |   |      |      
|                                                           | Increase in bank borrowings, revolving facility
    and DIP facility                      |                                                  |      | 5.8       |              |   |              |             |       |   |              | (17.6        | )     |   |   |  |   |   |      | (11.8 | )    
|                                                           | Repayment of bank borrowings, revolving facility,
    and long term debt from refinancing |                                                  |      |          |              |   |              | 1.0          |       |   |              | (1.0         | )     |   |   |  |   |   |      |      |      
|                                                           |                                                                                           |                                                  |      |           |              |   |              |              |       |   |              |              |       |   |  
|                                                           |                                                                                           | Cash provided by (used for) financing activities |      |           | 5.8          |   |              |              | 1.0   |   |              |              | (18.6 | ) |   |   |  |   |      |       | (11.8 | )
|Increase (decrease) in parent loans and
    advances       |                                                                                           |                                                  | (2.0 | )         |              |   | 1.7          |              |       |   | 0.3          |              |       |   |  |   |   |   |     |      
|Effect of exchange rates of cash and cash
    equivalents  |                                                                                           |                                                  |     |           |              |   |             |              |       |   | 3.7          |              |       |   |  |   |   |   | 3.7  |      
|                                                           |                                                                                           |                                                  |      |           |              |   |              |              |       |   |              |              |       |   |  
|                                                           | Net increase (decrease) in cash and cash
    equivalents                                  |                                                  |      | (0.6      | )            |   |              | (0.6         | )     |   |              | (0.3         | )     |   |   |  |   |   |      | (1.5  | )    
|Cash and cash equivalents at beginning of period           |                                                                                           |                                                  | 11.3 |           |              |   | 0.4          |              |       |   | 33.5         |              |       |   |  |   |   |   | 45.2 |      
|                                                           |                                                                                           |                                                  |      |           |              |   |              |              |       |   |              |              |       |   |  
|Cash and cash equivalents at end of period                 |                                                                                           | $                                                | 10.7 |           |              | $ | (0.2         | )            |       | $ | 33.2         |              |       | $ |  |   |   | $ | 43.7 |      
|                                                           |                                                                                           |                                                  |      |           |              |   |              |              |       |   |              |              |       |   |  

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

Description of Business, Chapter 11
Filings and Emergence from Chapter 11

This discussion should be read in conjunction
with the Companys Annual Report on Form 10-K for the
fiscal year ended January 31, 2003 as filed with the
Securities and Exchange Commission on April 2, 2003 and the
other information included herein.

Description
of Business

Unless otherwise indicated, references to
Company mean Hayes Lemmerz International, Inc. and
its subsidiaries and references to fiscal year means the
Companys year commencing on February 1 of that year and
ending on January 31 of the following year (i.e.,
fiscal 2003 refers to the period beginning
February 1, 2003 and ending January 31, 2004,
fiscal 2002 refers to the period beginning
February 1, 2002 and ending January 31, 2003).

The Company is a leading supplier of wheels,
wheel-end attachments, aluminum structural components and
automotive brake components. The Company is the worlds
largest manufacturer of automotive wheels. In addition, the
Company also designs and manufactures wheels and brake
components for commercial highway vehicles, and powertrain
components and aluminum non-structural components for the
automotive, commercial highway, heating and general equipment
industries.

The Company is organized based primarily on
markets served and products produced. Under this organization
structure, the Companys operating segments have been
aggregated into three reportable segments: Automotive
Wheels, Components and Other. The Automotive Wheels segment
includes results from the Companys operations that
primarily design and manufacture fabricated steel and cast
aluminum wheels for original equipment manufacturers in the
global passenger car and light vehicle markets. The Components
segment includes results from the Companys operations that
primarily design and manufacture suspension, brake and
powertrain components for original equipment manufacturers and
Tier 1 suppliers in the global passenger car and light
vehicle markets. The Other segment includes results from the
Companys operations that primarily design and manufacture
wheel and brake products for commercial highway and aftermarket
customers in North America. The Other category includes
Commercial Highway products, the corporate office and
elimination of intercompany activities, none of which meet the
requirements of being classified as an operating segment.

Chapter 11
Filings

On December 5, 2001, Hayes Lemmerz
International, Inc., 30 of its wholly-owned domestic
subsidiaries and one wholly-owned Mexican subsidiary
(collectively, the Debtors) filed voluntary
petitions for reorganization relief (the Chapter 11
Filings or the Filings) under Chapter 11
of the Bankruptcy Code in the United States Bankruptcy Court for
the District of Delaware (the Bankruptcy Court).

On December 16, 2002, certain of the Debtors
filed a proposed joint plan of reorganization with the
Bankruptcy Court. On April 9, 2003, the Debtors filed a
modified first amended joint plan of reorganization (the
Plan of Reorganization) which received the requisite
support from creditors authorized to vote thereon. The following
five Debtors were not proponents of the Plan of Reorganization
and are not subject to the terms thereof: HLI Netherlands
Holdings, Inc., CMI Quaker Alloy, Inc., Hayes Lemmerz Funding
Company, LLC, Hayes Lemmerz Funding Corporation, and Hayes
Lemmerz International Import, Inc. (collectively, the
Non-reorganizing Debtors).

The Plan of Reorganization provided for the
cancellation of the existing common stock of the Company and the
issuance of cash, new common stock in the reorganized Company
and other property to certain creditors of the Company in
respect of certain classes of claims. The Plan of Reorganization
was confirmed by an order of the Bankruptcy Court on
May 12, 2003, which order has become final and
non-appealable.

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##### Table of Contents



Emergence
from Chapter 11

On June 3, 2003 (the Effective
Date), Hayes Lemmerz International, Inc. and each of the
27 Debtors proposing the Plan of Reorganization emerged
from Chapter 11 proceedings pursuant to the Plan of
Reorganization, which was confirmed by an order of the
Bankruptcy Court on May 12, 2003, which order has become
final and non-appealable. The Non-reorganizing Debtors were not
proponents of the Plan of Reorganization and are not subject to
the terms thereof. On June 3, 2003, the Bankruptcy Court
entered an order dismissing the Chapter 11 Filings of the
Non-reorganizing Debtors.

Pursuant to the Plan of Reorganization, the
Company caused the formation of (i) a new holding company,
HLI Holding Company, Inc., a Delaware corporation
(HoldCo), (ii) HLI Parent Company, Inc., a
Delaware corporation and a wholly owned subsidiary of HoldCo
(ParentCo), and (iii) HLI Operating Company,
Inc, a Delaware corporation and a wholly owned subsidiary of
ParentCo (HLI). On the Effective Date,
(i) HoldCo was renamed Hayes Lemmerz International, Inc.
(New Hayes), (ii) New Hayes contributed to
ParentCo 30,0000,000 shares of its common stock, par value $.01
per share (the New Common Stock), and 957,447
series A warrants and 957,447 series B warrants to
acquire New Common Stock of New Hayes (the Series A
Warrants and Series B Warrants,
respectively), (iii) ParentCo in turn contributed such
shares of New Common Stock and Series A Warrants and
Series B Warrants to HLI and (iv) pursuant to an
Agreement and Plan of Merger, dated as of June 3, 2003 (the
Merger Agreement), between the Company and HLI, the
Company was merged with and into HLI (the Merger),
with HLI continuing as the surviving corporation.

Pursuant to the Plan of Reorganization and as a
result of the Merger, all of the issued and outstanding shares
of common stock, par value $.01 per share, of the Company
(the Old Common Stock), and any other outstanding
equity securities of the Company, including all options and
warrants, were cancelled. The holders of the existing voting
common stock of the Company immediately before confirmation did
not receive any voting shares of the emerging entity or any
other consideration under the Plan of Reorganization as a result
of their ownership interests of the Predecessor. This
represented a complete change of control in the ownership of the
Company. Promptly following the Merger, HLI distributed to
certain holders of allowed claims, under the terms of the Plan
of Reorganization, an amount in cash, the New Common Stock, the
Series A Warrants, the Series B Warrants and the
Preferred Stock (as defined below). Prior to the Merger, the Old
Common Stock was registered pursuant to Section 12(g) of
the Securities Exchange Act of 1934, as amended (the
Exchange Act). In reliance on Rule 12g-3(a) of
the Exchange Act, by virtue of the status of New Hayes as a
successor issuer to the Company, the New Common Stock is deemed
registered under Section 12(g) of the Exchange Act. The
Company filed a Form 15 with the SEC to terminate the
registration of the Old Common Stock under the Exchange Act.

Pursuant to the terms of the Plan of
Reorganization, HLI issued 100,000 shares of Preferred Stock,
par value $1.00, of HLI (the Preferred Stock) to the
holders of certain allowed claims. In accordance with the terms
of the Preferred Stock, the shares of Preferred Stock are, at
the holders option, exchangeable into a number of fully
paid and nonassessable shares of New Common Stock equal to
(i) the aggregate liquidation preference of the shares of
Preferred Stock so exchanged ($100 per share plus all accrued
and unpaid dividends thereon (whether or not declared) to the
exchange date) divided by (ii) 125% of the Emergence
Share Price. As determined pursuant to the terms of the
Plan of Reorganization, the Emergence Share Price is $18.50.

In connection with the Debtors emergence
from Chapter 11, on the Effective Date, HLI entered into a
$550.0 million senior secured credit facility (the
New Credit Facility). The New Credit Facility
consists of a $450.0 million six-year amortizing term loan
(the New Term Loan) and a five-year
$100.0 million revolving credit facility (the
Revolving Credit Facility). In addition, HLI issued
on the Effective Date an aggregate of $250.0 million
principal amount of 10 1/2% senior notes due 2010 (the
New Senior Notes). The proceeds from the initial
$450.0 million of borrowings under the New Credit Facility
and the net proceeds from the New Senior Notes were used to make
payments required under the Plan of Reorganization, including
the repayment of the Companys DIP Facility and a payment
of $477.3 million to certain prepetition lenders, to pay
related transaction costs and to refinance certain debt.

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##### Table of Contents



Reorganization
Items

Reorganization items as reported in the
consolidated statements of operations included herein are
comprised of income, expense and loss items that were realized
or incurred by the Debtors as a direct result of the
Companys decision to reorganize under Chapter 11.
During the one month and four months ended May 31, 2003 and
the three months and six months ended July 31, 2002,
respectively, reorganization items were as follows (millions of
dollars):

|                                                                              |  |              |      |  |              |   |      |               |  |   |               |   |  |   |      |  
|----------------------------------------------------------------------------- |  | ------------ | ---- |  | ------------ | - | ---- | ------------- |  | - | ------------- | - |  | - | ---- | -
|                                                                              |  |             
|                                                                              |  | Predecessor  |     
|                                                                              |  |              |     
|                                                                              |  | One Month    |      |  | Four Months  |   |      | Three Months  |  |   | Six Months    |  
|                                                                              |  | Ended        |      |  | Ended        |   |      | Ended         |  |   | Ended         |  
|                                                                              |  | May 31, 2003 |      |  | May 31, 2003 |   |      | July 31, 2002 |  |   | July 31, 2002 |  
|                                                                              |  |              |      |  |              |   |      |               |  |   |               |  
|Critical employee retention plan provision                                    |  | $            | 10.5 |  |              | $ | 11.7 |               |  | $ | 2.7           |   |  | $ | 5.2  |  
|Estimated accrued liability for rejected
    prepetition leases and contracts |  |              |     |  |              |   |     |               |  |   | (3.0          | ) |  |   | 9.5  |  
|Professional fees directly related to the Filing                              |  |              | 19.3 |  |              |   | 30.8 |               |  |   | 7.0           |   |  |   | 14.6 |  
|Creditors Trust obligation                                                   |  |              | 2.0  |  |              |   | 2.0  |               |  |   |              |   |  |   |     |  
|Settlement of prepetition liabilities                                         |  |              |     |  |              |   |     |               |  |   | (1.2          | ) |  |   | (1.2 | )
|Other                                                                         |  |              | 0.1  |  |              |   | 0.5  |               |  |   | (0.1          | ) |  |   | (0.2 | )
|                                                                              |  |              |      |  |              |   |      |               |  |   |               |  
|Total                                                                         |  | $            | 31.9 |  |              | $ | 45.0 |               |  | $ | 5.4           |   |  | $ | 27.9 |  
|                                                                              |  |              |      |  |              |   |      |               |  |   |               |  

On May 30, 2002, the Bankruptcy Court
entered an order approving, among other things, the critical
employee retention plan (the CERP) filed with the
Bankruptcy Court in February 2002 which was designed to
compensate certain critical employees in order to assure their
retention and availability during the Companys
restructuring. The plan has two components which
(i) rewarded critical employees who remained with the
Company (and certain affiliates of the Company who are not
directly involved in the restructuring) during and through the
completion of the restructuring (the Retention
Bonus) and (ii) provided additional incentives to a
more limited group of the most senior critical employees if the
enterprise value upon completing the restructuring exceeded an
established baseline (the Restructuring Performance
Bonus).

Thirty-five percent, or approximately
$3.0 million, of the Retention Bonus was paid on
October 1, 2002. The remaining portion of the Retention
Bonus of approximately $5.9 million was paid on
June 13, 2003. Further, the Restructuring Performance Bonus
provided under the CERP was paid after the consummation of the
restructuring as discussed below.

Based on the Companys compromise total
enterprise value of $1,250.0 million as confirmed by the
Bankruptcy Court, the aggregate amount of the Restructuring
Performance Bonus is $12.1 million. Of the aggregate
$12.1 million, approximately $6.0 million was paid in
cash on July 1, 2003, and approximately $2.0 million
was paid on August 28, 2003 as determined by the
Companys Board of Directors. The remaining portion of the
Restructuring Performance Bonus was paid in 215,935 shares of
restricted units of New Hayes on July 28, 2003. Pursuant to
provisions contained in the CERP, the restricted units will vest
as follows, subject to the participants continued
employment:



| |   |                                                                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | one half of the restricted units will vest on the
    later of (i) the first date (the Minimum Valuation
    Date) upon which the average trading price for the New
    Common Stock during any consecutive 10 trading-day period is 80%
    or greater of the Emergence Share Price and (ii) the first
    anniversary of the Effective Date, and;
|
| |  | one half of the restricted units will vest on the
    later of (i) the Minimum Valuation Date and (ii) the
    second anniversary of the Effective Date.                                                                                                                                                                                             
|
| |  | any unvested restricted units will vest on the
    third anniversary of the Effective Date, if the participant is
    employed by the Company or a subsidiary on such date.                                                                                                                                                                          

35



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Cash payments with respect to other
reorganization items consisted primarily of professional fees
and were approximately $11.3 million and $21.2 million
during the two months ended July 31, 2003 and the four months
ended May 31, 2003, respectively, and $11.0 million during
the first six months of fiscal 2002.

As a result of the application of fresh start
accounting on May 31, 2003, and in accordance with
SOP 90-7, the post-emergence financial results of the
Company for the period ending July 31, 2003 are presented
as the Successor and the pre-emergence financial
results of the Company for the period ending May 31, 2003
are presented as the Predecessor. Comparative
financial statements do not straddle the emergence date because
in effect the Successor Company represents a new entity. As a
result of applying fresh start accounting the successor will
have increased depreciation and amortization expense in
comparison to the Predecessor.

For purposes of the periods presented in
Managements Discussion and Analysis of Financial Condition
and Result of Operations, the Successor two months ended
July 31, 2003 and the Predecessor one month ended
May 31, 2003 are collectively referred to as
fiscal 2003 second quarter. The Successor
two months ended July 31, 2003 and the Predecessor
four months ended May 31, 2003 are collectively
referred to as fiscal 2003 six months.

Results of Operations

Sales of the Companys wheels, wheel-end
attachments, aluminum structural components and brake components
produced in North America are directly affected by the overall
level of passenger car, light truck and commercial highway
vehicle production of North American OEMs and the relative
performance of its customers product lines in the North
American market. The Companys sales of its wheels and
automotive castings in foreign locations are directly affected
by the overall vehicle production in those locations and the
relative performance of its customers product lines in the
those markets. The North American and European automotive
industries are sensitive to the overall strength of their
respective economies.



| |                                                                                      
| | -------------------------------------------------------------------------------------
| | Three Months Ended July 31, 2003
    Compared to Three Months Ended July 31,
    2002



| |          
| | ---------
| | Net Sales

|                  |       |                             |       |       |      |   |       |          |  |   |       |      |  
|----------------- | ----- | --------------------------- | ----- | ----- | ---- | - | ----- | -------- |  | - | ----- | ---- | -
|                  |       |                            
|                  |       | Three Months Ended July 31, |      
|                  |       |                             |      
|                  |       | 2003                        |       |       | 2002 |   |       | $ Change | 
|                  |       |                             |       |       |      |   |       |          | 
|                  |       |                            
|                  |       | (millions)                  |      
|Automotive Wheels |       | $                           | 299.8 |       |      | $ | 288.9 |          |  | $ | 10.9  |     
|Components        |       |                             | 174.6 |       |      |   | 188.3 |          |  |   | (13.7 | )   
|Other             |       |                             | 28.4  |       |      |   | 26.8  |          |  |   | 1.6   |     
|                  |       |                             |       |       |      |   |       |          | 
|                  | Total |                             | $     | 502.8 |      |   | $     | 504.0    |  |   | $     | (1.2 | )
|                  |       |                             |       |       |      |   |       |          | 

The Companys net sales for the second
quarter of fiscal 2003 decreased $1.2 million from
$504.0 million in the second quarter of 2002 to
$502.8 million in the second quarter of 2003. After
adjusting for the net impact of favorable exchange rate
fluctuations, relative to the U.S. dollar, net sales for
the second quarter of 2003 declined 7.8% or approximately
$40 million as compared to the same period in 2002.

Net sales from the Companys Automotive
Wheels segment increased $10.9 million to
$299.8 million in the second quarter of fiscal 2003
from $288.9 million in the second quarter of
fiscal 2002. The net impact of favorable foreign exchange
rate fluctuations, relative to the U.S. dollar, increased
sales by approximately $31 million. This was partially
offset by the termination and balancing out of certain programs
at our primary customers in North America, as well as lower
industry production volumes globally.

Net sales from Components decreased
$13.7 million to $174.6 million in the second quarter
of 2003 from $188.3 in the same quarter in 2002. The impact of
the closure of the Companys Petersburg, Michigan facility
and the sale of the Companys Maulbronn, Germany foundry
during fiscal 2002 reduced net sales by approximately
$6 million during the second quarter of 2003 compared to
the same period in fiscal 2002. The remainder of the
decrease in Components net sales was primarily due to lower
industry production, the

36



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expiration of certain programs and lower unit
pricing. These reductions were partially offset by the impact of
favorable foreign exchange rate fluctuations and a more
favorable product mix, which combined, increased net sales by
approximately $11 million.


Other net sales increased $1.6 million to
$28.4 million in the second quarter of 2003 from
$26.8 million in the second quarter of 2002 primarily due
to higher volumes in the Companys commercial highway and
aftermarket operations.

Earnings
(loss) from operations excluding fresh start and
reorganization items

|                                                                                   |                                    |                |      |       |      |   |       |     | 
|---------------------------------------------------------------------------------- | ---------------------------------- | -------------- | ---- | ----- | ---- | - | ----- | --- | 
|                                                                                   |                                    |               
|                                                                                   |                                    | Three Months   |     
|                                                                                   |                                    | Ended July 31, |     
|                                                                                   |                                    |                |     
|                                                                                   |                                    | 2003           |      |       | 2002 |  
|                                                                                   |                                    |                |      |       |      |  
|Earnings (loss) from operations                                                    |                                    | $              | 51.6 |       |      | $ | (12.6 | )  
|Excluding:                                                                         |                                    |                |      |       |      |   |       |    
|                                                                                   | Fresh start accounting adjustments |                |      | (63.1 | )    |   |       |    | 
|                                                                                   | Reorganization items               |                |      | 31.9  |      |   |       | 5.4 | 
|                                                                                   |                                    |                |      |       |      |  
|Earnings (loss) from operations excluding
    fresh start and reorganization items |                                    | $              | 20.4 |       |      | $ | (7.2  | )  
|                                                                                   |                                    |                |      |       |      |  

Earnings (loss) from operations excluding
fresh start and reorganization items is used as a non-GAAP
measure of the Companys primary profitability measure
because it excludes fresh start accounting adjustments and
reorganization items which do not represent normal operating
performance of the Company as these items relate only to the
Companys Chapter 11 Filings and emergence.

The following tables present earnings
(loss) from operations excluding fresh start adjustments
and reorganization items, as well as other information by
segment:

|                                                                                   |  |                                  |      |   |            |   |      |       |  |   |       |   |  |   |       |  
|---------------------------------------------------------------------------------- |  | -------------------------------- | ---- | - | ---------- | - | ---- | ----- |  | - | ----- | - |  | - | ----- | -
|                                                                                   |  |                                 
|                                                                                   |  | Three Months Ended July 31, 2003 |     
|                                                                                   |  |                                  |     
|                                                                                   |  | Automotive                       |      |   |           
|                                                                                   |  | Wheels                           |      |   | Components |   |      | Other |  |   | Total |  
|                                                                                   |  |                                  |      |   |            |   |      |       |  |   |       |  
|Earnings (loss) from operations excluding
    fresh start and reorganization items |  | $                                | 18.9 |   |            | $ | 4.7  |       |  | $ | (3.2  | ) |  | $ | 20.4  |  
|Fresh start adjustments                                                            |  |                                  | 57.9 |   |            |   | 27.7 |       |  |   | (22.5 | ) |  |   | 63.1  |  
|Reorganization items                                                               |  |                                  | (0.1 | ) |            |   |     |       |  |   | (31.8 | ) |  |   | (31.9 | )
|Asset impairments and other restructuring charges                                  |  |                                  | (0.7 | ) |            |   | (1.6 | )     |  |   |      |   |  |   | (2.3  | )

|                                                                                   |  |                                  |       |   |            |   |      |       |  |   |       |   |  |   |       |  
|---------------------------------------------------------------------------------- |  | -------------------------------- | ----- | - | ---------- | - | ---- | ----- |  | - | ----- | - |  | - | ----- | -
|                                                                                   |  |                                 
|                                                                                   |  | Three Months Ended July 31, 2002 |      
|                                                                                   |  |                                  |      
|                                                                                   |  | Automotive                       |       |   |           
|                                                                                   |  | Wheels                           |       |   | Components |   |      | Other |  |   | Total |  
|                                                                                   |  |                                  |       |   |            |   |      |       |  |   |       |  
|Earnings (loss) from operations excluding
    fresh start and reorganization items |  | $                                | (7.6  | ) |            | $ | 0.9  |       |  | $ | (0.5  | ) |  | $ | (7.2  | )
|Reorganization items                                                               |  |                                  | 3.3   |   |            |   | 1.0  |       |  |   | (9.7  | ) |  |   | (5.4  | )
|Asset impairments and other restructuring charges                                  |  |                                  | (17.0 | ) |            |   | (1.1 | )     |  |   |      |   |  |   | (18.1 | )

Earnings from operations excluding fresh start
accounting adjustments and reorganization items increased by
$27.6 million in the second quarter of fiscal 2003 to
$20.4 million, from a loss of $7.2 million in the
second quarter of 2002. Adjusted for the net impact of foreign
exchange rate fluctuations relative to the U.S. dollar, the
Companys earnings from operations excluding fresh start
accounting adjustments and reorganization items increased by
approximately $25 million from the second quarter of fiscal
2002.

Earnings from operations excluding fresh start
accounting adjustments and reorganization items from the
Companys Automotive Wheels operations increased
$26.5 million in the second quarter of fiscal 2003 from the
same period in fiscal 2002. During the second quarter of fiscal
2002, Automotive Wheels recorded $16.5 million of asset
impairment losses primarily related to its La Mirada,
California facility where it was estimated that the future
undiscounted cash flow projections for that facility would not
be sufficient to recover

37



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##### Table of Contents



the carrying value of the facilitys fixed
assets and production tooling. Earnings from the Companys
Automotive Wheels operations were favorably impacted due to
improved operating performance, capacity rationalization at its
Bowling Green facility in Kentucky, and favorable fluctuations
in foreign exchange rates relative to the U.S. dollar. This was
partially offset by lower OEM production requirements, increased
depreciation expense related to the change in useful lives of
fixed assets upon emergence from Chapter 11, as well as the
$3.6 million fair value adjustment to inventory included in
the Successors opening balance sheet, which was recognized
in June and July and negatively impacted earnings.


Components earnings from operations excluding
fresh start accounting adjustments and reorganization items
increased by $3.8 million in the second quarter of fiscal
2003 compared to the same period in fiscal 2002. During the
second quarters of fiscal 2002 and 2003, Components recorded
asset impairment losses of $1.1 million and
$1.6 million, respectively. These losses were recorded
primarily due to a change in managements plan for the
future use of idled machinery and equipment. The Companys
programs aimed at improving both ongoing operations as well as
the abnormally high start-up costs and inefficiencies associated
with the new program launches in the first quarter of 2002, at
the Companys Montague, Michigan facility, resulted in
improved operating performance during the second quarter of 2003
which increased earnings. This increase was partially offset by
decreased OEM production requirements and lower overall unit
pricing in the second quarter of 2003 as compared to the second
quarter of 2002 as well as the $1.6 million fair value
adjustment to inventory included in the Successors opening
balance sheet, which was recognized in June and July and
negatively impacted earnings. The remaining difference is
primarily the result of favorable foreign exchange rate
fluctuations relative to the U.S. dollar in the Companys
foreign Components business.

The Companys Other segment recorded a loss
from operations excluding fresh start accounting adjustments and
reorganization items of approximately $3.2 million in the
second quarter of fiscal 2003 compared to a loss of $0.5 million
in the second quarter of 2003. The difference is primarily
attributable to increased post-emergence professional fees in
fiscal 2003.

Interest
Expense, net

Interest expense was $13.9 million for the
second quarter of fiscal 2003 and $17.9 million for the
second quarter of fiscal 2002. Interest expense between the two
periods are not comparable because of the Companys new
capital structure established upon emergence from
Chapter 11. See Notes (1) and (11) to the consolidated
financial statements included herein regarding the
Companys new capital structure.

Additionally, interest expense, net, for the
second quarter of fiscal 2003 includes a $4.5 million
reduction to interest expense as the result of adjusting to fair
value the Companys outstanding Series A Warrants and
Series B Warrants, which are recorded as liabilities on the
consolidated balance sheet as of July 31, 2003.

Income
Taxes

Income tax expense was $57.0 million for the
second quarter of fiscal 2003. This expense is the result of the
following items; deferred tax related to fresh start accounting
adjustments in foreign jurisdictions, $6.5 million of state
tax related to the merger between the Predecessor and HLI, and
tax related to operations in foreign jurisdictions as well as in
various states. The Company has determined that a valuation
allowance is required against all net deferred tax assets in the
United States and certain deferred tax assets in foreign
jurisdictions. As such, there is no United States federal income
tax benefit recorded against current losses.

Net
Income (Loss)

The net income for the three months ended
July 31, 2003 includes an extraordinary gain on discharge
of debt and other liabilities of $1,076.7 million realized
upon emergence from Chapter 11.

38



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##### Table of Contents



Six Months
Ended July 31, 2003, Compared to Six Months Ended
July 31, 2002

Net
Sales

|                  |       |                           |       |         |      |   |       |          |  |   |      |      | 
|----------------- | ----- | ------------------------- | ----- | ------- | ---- | - | ----- | -------- |  | - | ---- | ---- | 
|                  |       |                          
|                  |       | Six Months Ended July 31, |      
|                  |       |                           |      
|                  |       | 2003                      |       |         | 2002 |   |       | $ Change | 
|                  |       |                           |       |         |      |   |       |          | 
|                  |       |                          
|                  |       | (millions)                |      
|Automotive Wheels |       | $                         | 602.8 |         |      | $ | 576.0 |          |  | $ | 26.8 |     
|Components        |       |                           | 358.7 |         |      |   | 364.8 |          |  |   | (6.1 | )   
|Other             |       |                           | 56.6  |         |      |   | 49.9  |          |  |   | 6.7  |     
|                  |       |                           |       |         |      |   |       |          | 
|                  | Total |                           | $     | 1,018.1 |      |   | $     | 990.7    |  |   | $    | 27.4 | 
|                  |       |                           |       |         |      |   |       |          | 

The Companys net sales for the six months
ended July 31, 2003 increased $27.4 million from
$990.7 million in the six months ended July 31, 2002
to $1,018.1 million in the six months ended July 31,
2003. After adjusting for the net impact of favorable exchange
rate fluctuations, relative to the U.S. dollar, net sales for
the first six months of 2003 declined 4.1% or approximately
$40 million as compared to the same period in 2002.

Net sales from the Companys Automotive
Wheels segment increased $26.8 million to
$602.8 million during the first six months of fiscal 2003
from $576.0 million during the first six months of fiscal
2002. The Companys net sales were favorably impacted by
favorable foreign exchange rate fluctuations relative to the
U.S. dollar, which increased sales by approximately
$55 million and a favorable product mix. This increase was
partially offset by decreased unit pricing and lower volumes in
North America, primarily due to the termination and balancing
out of certain programs.

Net sales from Components decreased
$6.1 million to $358.7 million during the first six
months of 2003 from $364.8 million during the same period
in 2002. The decrease in Components net sales was due to lower
industry production, the termination and balancing out of
certain programs and lower unit pricing, and was partially
offset by a more favorable product mix primarily at the
Companys Montague, Michigan facility, which launched
several new programs in 2002. The impact of the closure of the
Companys Petersburg, Michigan facility and the sale of the
Companys Maulbronn, Germany foundry during the first
six months of fiscal 2002 reduced net sales by
approximately $15 million during the first six months of
2003 compared to the same period in fiscal 2002. This was
partially offset by the impact of favorable foreign exchange
rate fluctuations, which increased net sales by approximately
$10 million.

Other net sales increased $6.7 million to
$56.6 million during the first six months of 2003 from
$49.9 million during the first six months of 2002 due
primarily to higher volumes in the Companys commercial
highway and aftermarket operations.



| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | Earnings (loss) from operations excluding
    fresh start accounting and reorganization items

|                                |                                    |                                                                                    |      |       |      |   |       |      |     | 
|------------------------------- | ---------------------------------- | ---------------------------------------------------------------------------------- | ---- | ----- | ---- | - | ----- | ---- | --- | 
|                                |                                    |                                                                                   
|                                |                                    | Six Months Ended                                                                   |     
|                                |                                    | July 31,                                                                           |     
|                                |                                    |                                                                                    |     
|                                |                                    | 2003                                                                               |      |       | 2002 |  
|                                |                                    |                                                                                    |      |       |      |  
|Earnings (loss) from operations |                                    | $                                                                                  | 52.9 |       |      | $ | (27.2 | )   
|Excluding:                      |                                    |                                                                                    |      |       |      |   |       |     
|                                | Fresh start accounting adjustments |                                                                                    |      | (63.1 | )    |   |       |     |    
|                                | Reorganization items               |                                                                                    |      | 45.0  |      |   |       | 27.9 |    
|                                |                                    |                                                                                    |      |       |      |  
|                                |                                    | Earnings (loss) from operations excluding
    fresh start and reorganization items |      | $     | 34.8 |   |       | $    | 0.7 | 
|                                |                                    |                                                                                    |      |       |      |  

Earnings (loss) from operations excluding
fresh start and reorganization items is used as a non-GAAP
measure of the Companys primary profitability measure
because it excludes fresh start accounting adjustments and
reorganization items which do not represent normal operating
performance of the Company as these items relate only to the
Companys Chapter 11 Filings and emergence.

39



---



##### Table of Contents



The following tables present earnings
(loss) from operations excluding fresh start adjustments
and reorganization items, as well as other information by
segment:

|                                                                                   |  |                                |      |   |            |   |      |       |  |   |       |   |  |   |       |  
|---------------------------------------------------------------------------------- |  | ------------------------------ | ---- | - | ---------- | - | ---- | ----- |  | - | ----- | - |  | - | ----- | -
|                                                                                   |  |                               
|                                                                                   |  | Six Months Ended July 31, 2003 |     
|                                                                                   |  |                                |     
|                                                                                   |  | Automotive                     |      |   |           
|                                                                                   |  | Wheels                         |      |   | Components |   |      | Other |  |   | Total |  
|                                                                                   |  |                                |      |   |            |   |      |       |  |   |       |  
|Earnings (loss) from operations excluding fresh
    start and reorganization items |  | $                              | 36.2 |   |            | $ | 7.9  |       |  | $ | (9.3  | ) |  | $ | 34.8  |  
|Fresh start adjustments                                                            |  |                                | 57.9 |   |            |   | 27.7 |       |  |   | (22.5 | ) |  |   | 63.1  |  
|Reorganization items                                                               |  |                                | (0.1 | ) |            |   | 0.2  |       |  |   | (45.1 | ) |  |   | (45.0 | )
|Asset impairments and other restructuring charges                                  |  |                                | (3.0 | ) |            |   | (3.4 | )     |  |   |      |   |  |   | (6.4  | )

|                                                                                   |  |                                |       |   |            |   |      |       |  |   |       |   |  |   |       |  
|---------------------------------------------------------------------------------- |  | ------------------------------ | ----- | - | ---------- | - | ---- | ----- |  | - | ----- | - |  | - | ----- | -
|                                                                                   |  |                               
|                                                                                   |  | Six Months Ended July 31, 2002 |      
|                                                                                   |  |                                |      
|                                                                                   |  | Automotive                     |       |   |           
|                                                                                   |  | Wheels                         |       |   | Components |   |      | Other |  |   | Total |  
|                                                                                   |  |                                |       |   |            |   |      |       |  |   |       |  
|Earnings (loss) from operations excluding fresh
    start and reorganization items |  | $                              | 4.5   |   |            | $ | 4.3  |       |  | $ | (8.1  | ) |  | $ | 0.7   |  
|Reorganization items                                                               |  |                                | (9.2  | ) |            |   | 1.0  |       |  |   | (19.7 | ) |  |   | (27.9 | )
|Asset impairments and other restructuring charges                                  |  |                                | (23.7 | ) |            |   | (1.1 | )     |  |   | (0.5  | ) |  |   | (25.3 | )

The Companys earnings from operations
excluding fresh start accounting adjustments and reorganization
items increased by $34.1 million in the first six months of
fiscal 2003 to $34.8 million, up from earnings of
$0.7 million in the first six months of 2002. Adjusted
for the net impact of foreign exchange rate fluctuations
relative to the U.S. dollar, the Companys earnings from
operations excluding fresh start accounting adjustments and
reorganization items increased by approximately $28 million
from the first six months of 2002.

Earnings from operations excluding fresh start
accounting adjustments and reorganization items at the
Companys Automotive Wheels operations increased
$31.7 million from the first six months of fiscal 2002
compared to the same period in 2003. During the first six months
of fiscal 2003, Automotive Wheels recorded asset impairment
losses and restructuring charges of $3.0 million. During
the first six months of fiscal 2002, Automotive Wheels recorded
$23.7 million of asset impairment losses and restructuring
charges including $15.5 million of asset impairment losses
related to its La Mirada, California facility and $6.7 million
in facility closure costs related to its Somerset, Kentucky
facility. Automotive Wheels recorded asset impairment losses
when it determined, based on its most recent sales projections,
that its current estimate of the future undiscounted cash flows
from its La Mirada facility would not be sufficient to recover
the carrying value of that facilitys fixed assets and
production tooling and also when managements plan for the
future use of machinery and equipment changed. The charges
recorded at Somerset included amounts related to lease
termination costs and other closure costs subsequent to the shut
down date. The remaining increase in earnings from the
Companys Automotive Wheels operations excluding fresh
start accounting adjustments and reorganization items is due
primarily to improved operating performance, favorable
fluctuations in foreign exchange rates relative to the U.S.
dollar and a favorable product mix. This was partially offset by
lower OEM production requirements in North America, lower
overall pricing worldwide, and increased depreciation expense
related to the change in useful lives of fixed assets upon
emergence from Chapter 11, as well as the $3.6 million
fair value adjustment to inventory included in the
Successors opening balance sheet which negatively impacted
earnings.

Components earnings from operations excluding
fresh start accounting adjustments and reorganization items
increased by $3.6 million in the first six months of fiscal
2003 compared to the same period in fiscal 2002. During the
first six months of fiscal 2002 and 2003, Components recorded
asset impairment losses of $1.1 million and
$3.4 million respectively. These losses were recorded
primarily due to a change in managements plan for the
future use of idled machinery and equipment. Improved operating
performance at the Companys Montague, MI facility,
increased earnings from operations excluding fresh start
accounting adjustments and reorganization items during the first
six months of 2003 due to the abnormally high start-up

40



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##### Table of Contents



costs associated with new program launches at
this facility during the first six months of 2002. This increase
was partially offset by lower OEM production requirements and
lower overall unit pricing.


Other loss from operations excluding fresh start
accounting adjustments and reorganization items was
$9.3 million in the first six months of fiscal 2003
compared to $8.1 million in the same period in 2002. This
difference is due primarily to higher post-emergence
professional fees in fiscal 2003.

Interest
Expense, net

Interest expense was $30.8 million for the
first six months of fiscal 2003 and $34.7 million for the
same period of fiscal 2002. Interest expense amounts between the
two periods are not comparable, due to the Companys new
capital structure established upon emergence from
Chapter 11. See Notes (1) and (11) to the consolidated
financial statements included herein regarding the
Companys new capital structure.

Additionally, interest expense, net, for the
first six months of fiscal 2003 includes a $4.5 million
reduction to interest expense as the result of adjusting to fair
value the Companys outstanding Series A Warrants and
Series B Warrants, which are recorded as liabilities on the
consolidated balance sheet as of July 31, 2003.

Income
Taxes

Income tax expense was $62.9 million for the
first six months of fiscal 2003. This expense is the result of
deferred taxes related to fresh start accounting adjustments in
foreign jurisdictions, $6.5 million of state tax related to
the merger between the Predecessor and HLI, and tax related to
operations in foreign jurisdictions as well as in various
states. The Company has determined that a valuation allowance is
required against all net deferred tax assets in the United
States and certain deferred tax assets in foreign jurisdictions.
As such, there is no United States federal income tax benefit
recorded against current losses.

Net
Income (Loss)

The net income for the six months ended
July 31, 2003 includes an extraordinary gain on discharge
of debt of $1,076.7 million realized upon emergence from
Chapter 11. The net loss for the six months ended
July 31, 2002 includes the cumulative effect of change in
accounting principle of $544.4 million related to the
adoption of SFAS No. 142 and the impairment of goodwill of
the Predecessor.

Liquidity and
Capital Resources

Cash
Flows

The Companys operations provided
$75.5 million in cash in the first six months of fiscal
2003 compared to $49.6 million in the first six months of
fiscal 2002. This increase is partially due to an early domestic
customer payment received in the second quarter of 2003,
improved days sales outstanding in the Companys foreign
operations, the improvement in payment terms with domestic
vendors and lower payments related to the Chapter 11
filings.

The principal sources of liquidity for the
Companys future operating, capital expenditure, facility
closure, restructuring and reorganization requirements are
expected to be (i) cash flows from operations,
(ii) proceeds from the sale of non-core assets and
businesses, (iii) cash on hand, and (iv) borrowings
under the $100 million Revolving Credit Facility under the
New Credit Facility. While the Company expects that such sources
will meet these requirements, there can be no assurances that
such sources will prove to be sufficient, in part, due to
inherent uncertainties about applicable future capital market
conditions.

Capital expenditure for the first six months of
fiscal 2003 were $45.8 million. These expenditures were
primarily for additional machinery and equipment to improve
productivity and reduce costs, to meet demand for new vehicle
platforms and to meet expected requirements for the
Companys products. The Company anticipates capital
expenditures for fiscal 2003 will be approximately
$115 million to $125 million relating primarily to
meet demand for new vehicle platforms and to support maintenance
and cost reduction programs.

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Other
Liquidity Matters

As more fully discussed above, on June 3,
2003, in connection with the Companys emergence from
Chapter 11, HLI entered into the $550.0 million New
Credit Facility, consisting of the $450.0 million New Term
Loan and the $100.0 million Revolving Credit Facility. HLI
also issued an aggregate of $250.0 million New Senior
Notes. The Company and substantially all of its material direct
and indirect domestic subsidiaries have guaranteed HLIs
obligations under the New Credit Facility, and the Company and
substantially all of its domestic subsidiaries have guaranteed
HLIs obligations under the New Senior Notes. The proceeds
from the initial $450.0 million of borrowings under the New
Credit Facility and the net proceeds from the New Senior Notes
were used to make payments required under the Plan of
Reorganization. As of July 31, 2003, there were no
outstanding borrowings and $31.5 million in letters of
credit issued under the Revolving Credit Facility. The amount
available to borrow under the revolving credit facility at
July 31, 2003 was approximately $68.5 million.

In addition, upon the Companys emergence
from bankruptcy, all of the Companys existing securities,
including the Old Common Stock, Old Senior Notes and Old
Subordinated Notes, were cancelled. All amounts outstanding
under the Prepetition Credit Agreement were satisfied in
exchange for: (i) a cash payment of $477.3 million;
(ii) 15,930,000 shares of New Common Stock; and
(iii) 53,100 shares of Preferred Stock. All amounts
outstanding under the Old Senior Notes were satisfied in
exchange for: (i) a cash payment of approximately
$13.0 million; (ii) 13,470,000 shares of New Common
Stock; (iii) 44,900 shares of Preferred Stock; and (iv) a
portion of the distributions from the trust established under
the Plan of Reorganization for the benefit of the prepetition
creditors (the Creditors Trust). All amounts
outstanding under the Old Subordinated Notes were satisfied in
exchange for a distribution of Series A Warrants and a
portion of the distributions under the Creditors Trust. In
addition, holders of unsecured claims will receive an aggregate
amount of 600,000 shares of New Common Stock,
2,000 shares of Preferred Stock, the Series B Warrants
and a portion of the distributions under the Creditors
Trust.

Upon emergence from Chapter 11, the Company:
(i) repaid the DIP Facility in full; (ii) settled
certain of the operating leases discussed below; and
(iii) paid certain other costs and expenses pursuant to the
Plan of Reorganization.

Certain of the operating leases covering leased
assets with an original cost of approximately $68.0 million
contain provisions which, if certain events occur or conditions
are met, including termination of the lease, might require the
Company to purchase or re-sell the leased assets within a
specified period of time, generally one year, based on amounts
specified in the lease agreements. In connection with the
Companys emergence from Chapter 11, the Company
purchased these assets for $23.6 million.

Outlook

The Company derived approximately half of its
fiscal 2002 net sales on a worldwide basis from Ford,
DaimlerChrysler and General Motors and their subsidiaries. The
Companys sales levels and margins could be adversely
affected as a result of pricing pressures caused by new
competitors in foreign markets, such as China. These factors
have led to selective resourcing of future business to
competitors. Additionally, these customers have been
experiencing decreasing market share in North America which
could result in lower sales volumes for the Company.

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Contractual
Obligations

The following table identifies the Companys
significant contractual obligations (millions of dollars):

|                                             |  |                       |      |  |           |   |         |           |  |   |       |  |  |       |       |  |  |   |       | 
|-------------------------------------------- |  | --------------------- | ---- |  | --------- | - | ------- | --------- |  | - | ----- |  |  | ----- | ----- |  |  | - | ----- | 
|                                             |  |                      
|                                             |  | Payment due by Period |     
|                                             |  |                       |     
|                                             |  | Less than             |      |  |           |   | After 5 |           |  |  
|                                             |  | 1 year                |      |  | 1-3 years |   |         | 4-5 years |  |   | years |  |  | Total |      
|                                             |  |                       |      |  |           |   |         |           |  |   |       |  |  |       |      
|Long-term debt and capital lease obligations |  | $                     | 14.6 |  |           | $ | 17.6    |           |  | $ | 489.4 |  |  | $     | 248.5 |  |  | $ | 770.1 | 
|Redeemable preferred stock of subsidiary     |  |                       |     |  |           |   |        |           |  |   |      |  |  |       | 10.1  |  |  |   | 10.1  | 
|Short-term borrowings                        |  |                       | 12.2 |  |           |   |        |           |  |   |      |  |  |       |      |  |  |   | 12.2  | 
|Operating leases                             |  |                       | 19.1 |  |           |   | 24.2    |           |  |   | 6.0   |  |  |       |      |  |  |   | 49.3  | 
|Capital expenditures                         |  |                       | 29.3 |  |           |   |        |           |  |   |      |  |  |       |      |  |  |   | 29.3  | 
|                                             |  |                       |      |  |           |   |         |           |  |   |       |  |  |       |      
|Total obligations                            |  | $                     | 75.2 |  |           | $ | 41.8    |           |  | $ | 495.4 |  |  | $     | 258.6 |  |  | $ | 871.0 | 
|                                             |  |                       |      |  |           |   |         |           |  |   |       |  |  |       |      

Other
Matters

The Company does not believe that sales of its
products are materially affected by inflation, although there
can be no assurance that such an effect will not occur in the
future. In accordance with industry practice, the costs or
benefits of fluctuations in aluminum prices are passed through
to customers. In the United States, the Company adjusts the
sales prices of its aluminum wheels every three to six months,
if necessary, to fully reflect any increase or decrease in the
price of aluminum. As a result, the Companys net sales of
aluminum wheels are adjusted, although gross profit per wheel is
not materially affected. From time to time, the Company enters
into futures contracts or purchase commitments solely to hedge
against possible aluminum price changes that may occur between
the dates of aluminum wheel price adjustments. Pricing and
purchasing practices are similar in Europe, but opportunities to
recover increased material costs from customers are more limited
than in the United States.

The Companys net sales are continually
affected by pressure from its major customers to reduce prices.
The Companys emphasis on reduction of production costs,
increased productivity and improvement of production facilities
has enabled the Company to respond to this pressure.

Accounting
Policies

The preparation of consolidated financial
statements in conformity with accounting principles generally
accepted in the United States of America requires management 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.
Management believes its assumptions and estimates are reasonable
and appropriate, however actual results could differ from those
estimates.

Asset
impairment losses and other restructuring charges

The Companys consolidated statements of
operations included herein reflect an element of operating
expenses described as asset impairments and other restructuring
charges. The Company periodically evaluates whether events and
circumstances have occurred that indicate that the remaining
useful life of any of its long lived assets may warrant revision
or that the remaining balance might not be recoverable. When
factors indicate that the long lived assets should be evaluated
for possible impairment, the Company uses an estimate of the
future undiscounted cash flows generated by the underlying
assets to determine if a write-down is required. If a write-down
is required, the Company adjusts the book value of the impaired
long-lived assets to their estimated fair values. Fair value is
determined through third party appraisals or discounted cash
flow calculations. The related charges are recorded as an asset
impairment or, in the case of certain exit costs in connection
with a plant closure or restructuring, a restructuring or other
charge in the consolidated statements of operations.

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As discussed above and in the notes to the
Companys consolidated financial statements included
herein, a number of decisions have occurred or other factors
have indicated that these types of charges are required to be
currently recognized. There can be no assurance that there will
not be additional charges based on future events and that the
additional charges would not have a materially adverse impact on
the Companys financial position and results of operations.

Pension
and Postretirement Benefits Other than Pensions

Annual net periodic expense and benefit
liabilities under the Companys defined benefit plans are
determined on an actuarial basis. Assumptions used in the
actuarial calculations have a significant impact on plan
obligations and expense. Each October, the Company reviews the
actual experience compared to the more significant assumptions
used and makes adjustments to the assumptions, if warranted. The
healthcare trend rates are reviewed with the actuaries based
upon the results of their review of claims experience. Discount
rates are based upon an expected benefit payments duration
analysis and the equivalent average yield rate for high-quality
fixed-income investments.

Pension benefits are funded through deposits with
trustees and the expected long-term rate of return on fund
assets is based upon actual historical returns modified for
known changes in the market and any expected change in
investment policy. Postretirement benefits are not funded and
our policy is to pay these benefits as they become due.

Certain accounting guidance, including the
guidance applicable to pensions, does not require immediate
recognition of the effects of a deviation between actual and
assumed experience or the revision of an estimate. This approach
allows the favorable and unfavorable effects that fall within an
acceptable range to be netted. Although this netting occurs
outside the basic financial statements, the net amount is
disclosed as an unrecognized gain or loss in the footnotes to
the Companys financial statements. The Company expects to
incur approximately $3.7 million of pension expense and
$14.1 million of retiree benefit costs in fiscal 2003.

Goodwill
Impairment Testing

During fiscal 2002, the Company completed the
implementation of SFAS 142, Goodwill and Other
Intangible Assets. Under SFAS 142, goodwill is no
longer amortized. Instead, goodwill and indefinite-lived
intangible assets are tested for impairment in accordance with
the provisions of SFAS 142. To accomplish this, the Company
determined the carrying value of each of its reporting units
(i.e., one step below the segment level) by assigning the assets
and liabilities, including existing goodwill and intangible
assets, to the reporting units on February 1, 2002. As of
that date, the Company had unamortized goodwill and other
indefinite-lived intangibles of approximately
$758.7 million that were subject to the transition
provisions of SFAS No. 142. The Company determined the fair
value of each reporting unit and compared those fair values to
the carrying values of each reporting unit. To the extent the
carrying amount of a reporting unit exceeded the fair value of
the reporting unit (indicating that goodwill may be impaired),
the Company performed the second step of the transitional
impairment test. This test was required for five reporting units.

In the second step, the Company compared the
implied fair value of the reporting units goodwill with
the carrying value of that goodwill, both of which were measured
at the adoption date. The implied fair value of goodwill was
determined by allocating the fair value of the reporting units
to all of the assets (both recognized and unrecognized) and
liabilities of the reporting units in a similar manner to a
purchase price allocation in accordance with SFAS No. 141,
Business Combinations. The residual fair value after
this allocation was the implied fair value of the reporting
units goodwill. The carrying amounts of these reporting
units exceeded the fair values, and the Company recorded an
impairment charge of $554.4 million as of February 1,
2002 as a cumulative effect of a change in accounting principle
as described above.

The Company employed a discounted cash flow
analysis in conducting its impairment tests. Fair value was
determined based upon the discounted cash flows of the reporting
units. Future cash flows are affected by future operating
performance, which will be impacted by economic conditions, car
builds, financial, business and other factors, many of which are
beyond the Companys control.

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Allowance
for uncollectible accounts

The allowance for uncollectible accounts provides
for losses believed to be inherent within the Companys
Receivables, (primarily trade receivables).
Management evaluates both the creditworthiness of specific
customers and the overall probability of losses based upon an
analysis of the overall aging of receivables, past collection
trends and general economic conditions. Management believes,
based on its review, that the allowance for uncollectibles is
adequate to cover potential losses. Actual results may vary as a
result of unforeseen economic events and the impact those events
could have on the Companys customers.

Valuation
allowances on deferred income tax assets

In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be
realized. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and
tax planning strategies in making this assessment. The Company
expects the deferred tax assets, net of the valuation allowance
to be realized as a result of the reversal of existing taxable
temporary differences in the United States and as a result of
projected future taxable income and the reversal of existing
taxable temporary differences in certain foreign locations. As a
result of managements assessment, a valuation allowance
was recorded. The Company determined that it could not conclude
that it was more likely than not that the benefits of certain
deferred income tax assets would be realized. The valuation
allowance recorded by the Company reduces to zero the net
carrying value of all United States and certain foreign net
deferred tax assets.



| |                                                         
| | --------------------------------------------------------
| | Valuation of Series A Warrants and
    Series B Warrants

The Companys Series A Warrants and
Series B Warrants are classified as liabilities that were
initially measured at fair value and will subsequently be
measured at fair value with changes in fair value recognized in
interest expense. The fair value of the Series A Warrants
and Series B Warrants at emergence was approximately
$9.3 million. As of July 31, 2003, the fair value of
the Series A Warrants and Series B Warrants was
approximately $4.8 million. The Series A Warrants and
Series B Warrants were valued utilizing the Black-Scholes
model that requires the estimation of several variables in the
formula.

New
Accounting Pronouncements

In May 2003, the FASB issued Statement
No. 150, Accounting for Certain Financial Instruments
with Characteristics of Both Liabilities and Equity
(SFAS No. 150). SFAS No. 150 requires that
certain classes of free-standing financial instruments that
embody obligations for entities be classified as liabilities.
Generally, SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003 and
is otherwise effective at the beginning of the first interim
period beginning after June 15, 2003. The adoption of SFAS
No. 150 did not have a material impact on the financial
position or results of operations of the Company.

In April 2003, the FASB issued Statement
No. 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities (SFAS
No. 149). SFAS No. 149 amends and clarifies
financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for
hedging activities under FASB Statement No. 133,
Accounting for Derivative Instruments and Hedging
Activities. SFAS 149 is generally effective for
contracts entered into or modified after June 30, 2003. The
provisions of SFAS No. 149 are required to be applied
prospectively. The adoption of SFAS No. 149 did not have a
material impact on its financial position or results of
operations.

In January 2003, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest
Entities. Interpretation No. 46 provides guidance for
identifying a controlling interest in a Variable Interest Entity
(VIE) established by means other than voting interests.
Interpretation No. 46 also requires consolidation of a VIE
by an enterprise that holds such a controlling interest when it
is determined that the investor will absorb a majority of the
VIEs expected losses or residual returns, if they occur.
The effective date for this

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Interpretation is July 1, 2003.


Adoption of this pronouncement did not have any
effect on the Companys financial position or results of
operations.

In December 2002, the Emerging Issues Task Force
(EITF) issued EITF Issue 00-21, Accounting for
Revenue Arrangements with Multiple Deliverables. EITF
00-21 provides guidance on determining whether a revenue
arrangement contains multiple deliverable items and if so,
requires revenue be allocated amongst the different items based
on fair value. EITF 00-21 also requires revenue on any item in a
revenue arrangement with multiple deliverables not delivered
completely must be deferred until delivery of the item is
completed. The effective date of this Issue for the Company is
July 1, 2003. Adoption of this pronouncement did not have a
material effect on the financial statements of the Company.

Item 3.     Quantitative
and Qualitative Disclosures about Market Risk

In the normal course of business the Company is
exposed to market risks arising from changes in foreign exchange
rates, interest rates and raw material and utility prices. The
Company may selectively use derivative financial instruments to
manage these risks, but does not enter into any derivative
financial instruments for trading purposes.

Foreign
Exchange

The Company has global operations and thus makes
investments and enters into transactions in various foreign
currencies. In order to minimize the risks associated with
global diversification, the Company first seeks to internally
net foreign exchange exposures, and uses derivative financial
instruments to hedge any remaining net exposure. The Company
uses forward foreign currency exchange contracts on a limited
basis to reduce the 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.

Interest
Rates

The Company generally manages its risk associated
with interest rate movements through the use of a combination of
variable and fixed rate debt. Under the Companys
post-emergence capital structure at July 31, 2003,
approximately $450 million of the Companys debt was
variable rate debt. The Company believes that a 10% increase or
decrease in the interest rate on variable rate debt would not
materially affect earnings.

Except as previously discussed, for the period
ended July 31, 2003, the Company did not experience any
other material change in market risk exposures affecting the
quantitative and qualitative disclosures as presented in the
Companys Annual Report on Form 10-K for the year
ended January 31, 2003.

Item 4.     Controls
and Procedures

On February 19, 2002, the Company issued
restated consolidated financial statements included in its
filings with the Securities and Exchange Commission (the
SEC) as of and for the fiscal years ended
January 31, 2001 and 2000, and related quarterly periods
(the 10-K/A), and for the fiscal quarter ended
April 30, 2001 (the 10-Q/A). The restatement
was the result of failure by the Company to properly apply
certain accounting standards generally accepted in the United
States of America, and because certain accounting errors and
irregularities in the Companys financial statements were
identified. As discussed in the Companys Annual Report on
Form 10-K for the fiscal year 2001 filed with the SEC on
May 1, 2002, the Company has been advised that the SEC is
conducting an investigation into the facts and circumstances
giving rise to the restatement, and the Company has been and
intends to continue cooperating with the SEC. The Company cannot
predict the outcome of such an investigation.

Following the commencement of an internal review
of its accounting records and procedures and the investigation
initiated by the Companys Audit Committee of the Board of
Directors in connection with the restatement process (the
Audit Committee Investigation), the Company
initiated a significant restructuring which included, among
other things, (i) a new management team under the
leadership of a new chief

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executive officer and the hiring of a new chief
financial officer (initially an interim chief financial
officer), (ii) a number of key operating initiatives
including an ongoing process to rationalize the manufacturing
capacity of the company on a global basis and (iii) the
Chapter 11 Filings.


These activities, while critical to the
restructuring of the Company, complicate the Companys
ability to assess the overall effectiveness of
(i) disclosure controls and procedures, as defined in
Exchange Act Rules 13a-14 and 15d-14 (the Disclosure
Controls and Procedures) and (ii) internal controls,
including those internal controls and procedures for financial
reporting (the Internal Controls). These activities
also complicate the Companys ability to implement certain
improvements to its disclosure controls and procedures and
internal controls. As a result, we will continue to be subjected
to a number of risks relating to these controls that are
inherent in our transition following emergence from
Chapter 11.

Since the inception of the restatement process
and Audit Committee Investigation, the Company has made a number
of significant changes that strengthened its Disclosure Controls
and Procedures and Internal Controls. These changes included,
but were not necessarily limited to, (i) communicating
clearly and consistently a tone from new senior management
regarding the proper conduct in these matters,
(ii) terminating or reassigning key managers, (iii) hiring
(or retaining on an interim basis), in addition to the chief
financial officer position noted above, a new chief accounting
officer, a new chief information officer, and several new
experienced business unit controllers, (iv) strengthening
the North American financial management organizational reporting
chain, (v) requiring stricter account reconciliation
standards, (vi) establishing an anonymous TIPLINE
monitored by the general counsel of the Company,
(vii) updating and expanding the distribution of the
Companys business conduct questionnaire,
(viii) conducting more face-to-face quarterly financial
reviews with business unit management, (ix) requiring
quarterly as well as annual plant and business unit written
representations, (x) expanding the financial accounting
procedures in the current year internal audit plan,
(xi) temporarily supplementing the Companys existing
staff with additional contractor-based support to collect and
analyze the information necessary to prepare the Companys
financial statements, related disclosures and other information
requirements contained in the Companys SEC periodic
reporting until the Company implements changes to the current
organization and staffing, and (xii) commencing a
comprehensive, team-based process to further assess and enhance
the efficiency and effectiveness of the Companys financial
processes, including support efforts which better integrate
current and evolving financial information system initiatives,
and addressing any remaining critical weaknesses, including any
reported by the Companys internal audit function and
independent public accountants.

As more fully discussed in the American Institute
of Certified Public Accountants (AICPA) auditing
standards pronouncement Consideration Of Internal Control
in a Financial Statement Audit, AU Section 319,
paragraphs .21 to .24, an internal control system no matter
how well designed and operated, can provide only reasonable, not
absolute, assurance that the control objectives will be met.
Limitations inherent in any system of internal controls might
include, among other things, (i) faulty human judgment and
simple errors or mistakes, (ii) collusion of two or more
people or inappropriate management override of procedures,
(iii) imprecision in estimating and judging cost-benefit
relationships in designing controls and (iv) reductions in
the effectiveness of one deterring component (such as a strong
cultural and governance environment) by a conflicting component
(such as may be found in certain management incentive plans).

The Company, including its Chief Executive
Officer and Chief Financial Officer, believes that the
aforementioned limitations apply to any applicable system of
internal controls, including the Disclosure Control and
Procedures and Internal Controls. The Company will continue the
process of identifying and implementing corrective actions where
required to improve the effectiveness of its Disclosure Controls
and Procedures and Internal Controls. Significant supplemental
resources will continue to be required to prepare the required
financial and other information during this process. The changes
made to date as discussed above have enabled the Company to
restate its previous filings where required, as well as
subsequently prepare and file the remainder of the required
periodic reports for fiscal 2001, 2002 and 2003 on a timely
basis.

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Evaluation of Disclosure Controls and
Procedures

During fiscal 2002, the Company formed a
disclosure committee reporting to the Chief Executive Officer of
the Company to assist the Chief Executive Officer and Chief
Financial Officer in fulfilling their responsibility in
designing, establishing, maintaining and reviewing the
Companys Disclosure Controls and Procedures (the
Disclosure Committee). The Disclosure Committee is
currently chaired by the Companys Chief Financial Officer
and includes the Companys General Counsel, Vice President
of Human Resources and Administration, Corporate Controller,
Treasurer, Director of Corporate Accounting, Director of
Internal Audit, Senior Counsel, and Manager of Financial
Reporting and Governance as its other members. As of the end of
the period covered by this report, the Companys Chief
Executive Officer and Chief Financial Officer, along with the
Disclosure Committee, evaluated the Companys Disclosure
Controls and Procedures. The Companys Chief Executive
Officer and Chief Financial Officer have concluded that the
Disclosure Controls and Procedures are effective based on such
evaluation.

Changes in Internal Controls

Since the date of the last quarterly filing, the
Company has continued to take steps intended to increase the
effectiveness of its compensating control procedures while it
completes a program that, over time, will address the financial
process and information systems objectives noted above. As
previously discussed above, the Company emerged from
Chapter 11 on June 3, 2003. The Company has completed
a transition period after which AlixPartners LLC and other
outside consultants are no longer retained by the Company, and
some of the services provided by these professionals are now
performed by current employees. Certain of these services
represent a significant portion of the Companys current
key accounting and financial reporting processes and related
controls. As part of this transition, the Company has recently
hired a new Director of Corporate Accounting, a new Director of
Internal Audit and a new Manager of Financial Reporting and
Governance.

Other than the aforementioned items, there were
no other significant changes in the Companys Internal
Controls or in other factors that could significantly affect
Internal Controls over financial reporting during the most
recent fiscal quarter.






PART II.


OTHER INFORMATION

Item 1.     Legal
Proceedings

On February 19, 2002, the Company issued
restated consolidated financial statements as of and for the
fiscal years ended January 31, 2001 and 2000, and related
quarterly periods (the 10-K/ A), and for the fiscal
quarter ended April 30, 2001 (the 10-Q/ A). The
restatement was the result of failure by the Company to properly
apply certain accounting standards generally accepted in the
United States of America, and because certain accounting errors
and irregularities in the Companys financial statements
were identified. The Company has been advised that the
Securities and Exchange Commission (SEC) is
conducting an investigation into the facts and circumstances
giving rise to the restatement, and the Company has been and
intends to continue cooperating with the SEC by providing
requested documents and cooperating with depositions of Company
employees. The Company cannot predict the outcome of the
investigation.

On May 3, 2002, a group of purported
purchasers of the Companys bonds commenced a putative
class action lawsuit against thirteen present or former
directors and officers of the Company (but not the Company) and
KPMG LLP, the Companys independent auditor, in the United
States District Court for the Eastern District of Michigan. The
complaint seeks damages for an alleged class of persons who
purchased Company bonds between June 3, 1999 and
September 5, 2001 and claim to have been injured because
they relied on the Companys allegedly materially false and
misleading financial statements. On June 27, 2002, the
plaintiffs filed an amended class action complaint adding CIBC
World Markets Corp. and Credit Suisse First Boston Corporation,
underwriters for certain bonds issued by the Company, as
defendants. These claims were not

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discharged upon the effectiveness of the Plan of
Reorganization because they are against the Companys
present and former directors and officers and KPMG LLP, and not
against the Company.


Additionally, before the date the Company
commenced its Chapter 11 Bankruptcy case, four other
putative class actions were filed in the United States District
Court for the Eastern District of Michigan against the Company
and certain of its directors and officers, on behalf of a class
of purchasers of the Companys Old Common Stock from
June 3, 1999 to December 13, 2001, based on similar
allegations of securities fraud. These claims, as against the
Company, but not as against the Companys officers and
directors, were discharged upon the effectiveness of the Plan of
Reorganization. On May 10, 2002, the plaintiffs filed a
consolidated and amended class action complaint seeking damages
against the Companys present and former officers and
directors (but not the Company) and KPMG LLP. Pursuant to the
Companys Plan of Reorganization, the Company purchased
directors and officers liability insurance for
certain of these current and former directors and officers and
agreed to indemnify such individuals against certain
liabilities, including those matters described above, up to an
aggregate of $10 million in excess of any coverage to or
for the benefit of all indemnitees.

On June 13, 2002, the Company filed an
adversary complaint and motion for a preliminary injunction in
the Bankruptcy Court requesting the Court to stay the class
action litigation commenced by the bond purchasers and equity
purchasers. Additionally, on July 25, 2002, the Company
filed with the Bankruptcy Court a motion to lift the automatic
stay in the Chapter 11 Filings to allow the insurance
company that provides officer and director liability insurance
to the Company to pay the defense costs of the Companys
present and former officers and directors in such litigation.
The Bankruptcy Court has since entered an order permitting the
insurance company to pay up to $500,000 in defense costs
incurred by the Companys present and former officers and
directors in the litigation subject to certain conditions, which
amount has subsequently been increased to $800,000 pursuant to
further authority in the order. The Company has withdrawn its
motion for a preliminary injunction.

During the pendency of the Chapter 11
Filings, the Company took action to terminate certain marketing
and support services, technology license and technical
assistance and shareholders agreements (the
Agreements) relating to the Companys 40%
interest in Hayes Wheels de Mexico, S.A. de C.V., a Mexican
corporation manufacturing aluminum and steel wheels (HW de
Mexico). In the event that such termination is not
effective for any reason, the Company also filed a protective
motion with the Bankruptcy Court seeking to reject the
Agreements. DESC Automotriz, S.A. de C.V. (the 60% owner of
HW-Mexico) (DESC), HW de Mexico, and Hayes Wheels
Aluminio, S.A. de C.V. (a subsidiary of HW de Mexico) have
asserted administrative expense claims against the Company in an
amount not less than $20.6 million relating to allegedly
improper actions taken by the Company with respect to HW de
Mexico and certain of the Agreements during the Chapter 11
Filings. As part of the resolution of its objection to
confirmation of the Plan of Reorganization, the Company has
agreed with DESC that if either the Company or Hayes Lemmerz
International-Mexico, Inc. is found liable on these claims and
such claims are entitled to administrative expense claim status,
the Company will pay such liabilities in full in cash in the
amount determined by the court to be entitled to administrative
expense claim status. On June 30, 2003, the Bankruptcy
Court ordered Hayes Mexico to arbitrate the claims in Mexico
City, Mexico. The Company and Hayes Mexico have appealed that
order to the District Court. This appeal is pending. The Company
is presently in discussions with DESC regarding a resolution of
these claims; however, there can be no assurance that such
discussions will result in a resolution of this dispute or what
the terms of any resolution may be.

The Company is a defendant in a patent
infringement matter filed in 1997 in the United States District
Court, Eastern District of Michigan. Lacks Incorporated
(Lacks) alleged that the Company infringed on three
patents held by Lacks relating to chrome-plated plastic cladding
for steel wheels. Prior to fiscal 2000, the Federal District
Court dismissed all claims relating to two of the three patents
that Lacks claimed were infringed and dismissed many of the
claims relating to the third patent. The remaining claims
relating to the third patent were submitted to a special master.
In January 2001, the special master issued a report finding that
Lacks third patent was invalid and recommending that
Lacks remaining claims be dismissed, the trial court
accepted these recommendations. Lacks appealed this matter to
the Federal Circuit Court. The Federal Circuit Court vacated the
trial courts ruling that the third patent was invalid and
remanded the matter back to

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the trial court for further proceedings. In
addition to the Companys defenses in the lawsuit, the
Company has certain rights of indemnification against a
co-defendant in the matter that supplied the allegedly
infringing products to the Company. If it is ultimately
determined that the third patent is valid and the Company is
unable to collect on the indemnification rights, it may have an
adverse impact on the Company.


The Company was party to a license agreement with
Kuhl Wheels, LLC (Kuhl), whereby Kuhl granted the
Company an exclusive patent license concerning high
vent steel wheel technology known as the Kuhl Wheel (the
Kuhl Wheel), which agreement was terminated as of
January 10, 2003 pursuant to a stipulation between the
Company and Kuhl entered in connection with the Companys
bankruptcy proceeding. The original license agreement (as
amended, the License Agreement), dated May 11,
1999, granted the Company a non-exclusive license for the Kuhl
Wheel technology. The License Agreement was subsequently amended
to provide the Company with an exclusive worldwide license. On
January 14, 2003, the Company filed a Complaint for Declaratory
and Injunctive Relief against Kuhl and its affiliate, Epilogics
Group, in the United States District Court for the Eastern
District of Michigan. The Company commenced such action seeking
a declaration of noninfringement of two United States patents
and injunctive relief to prevent Epilogics Group and Kuhl from
asserting claims of patent infringement against the Company, and
disclosing and using the Companys technologies, trade
secrets and confidential information to develop, market,
license, manufacture or sell automotive wheels. The Company is
unable to predict the outcome of this litigation at this time.
However, if the Company is not successful in such litigation, it
may have an adverse impact on the Company.

In the ordinary course of its business, the
Company is a party to other judicial and administrative
proceedings involving its operations and products, which may
include allegations as to manufacturing quality, design and
safety. After reviewing the proceedings that are currently
pending (including the probable outcomes, reasonably anticipated
costs and expenses, availability and limits of insurance rights
under indemnification agreements and established reserves for
uninsured liabilities), management believes that the outcome of
these proceedings will not have a material adverse effect on the
financial condition or ongoing results of operations of the
Company.

Item 2.     Changes
in Securities and Use of Proceeds

On June 3, 2003 (the Effective
Date), Hayes Lemmerz International, Inc., (the
Company or Old Hayes) emerged from
Chapter 11 proceedings pursuant to the Modified First
Amended Joint Plan of Reorganization of Hayes Lemmerz
International, Inc. and Its Affiliated Debtors and Debtors in
Possession, filed with the United States Bankruptcy Court for
the District of Delaware (the Bankruptcy Court) on
April 9, 2003 (the Plan of Reorganization),
which was confirmed by the Bankruptcy Court on May 12, 2003.

Pursuant to the Plan of Reorganization, the
Company caused the formation of (i) a new holding company,
HLI Holding Company, Inc., a Delaware corporation
(HoldCo), (ii) HLI Parent Company, Inc., a
Delaware corporation and a wholly owned subsidiary of HoldCo
(ParentCo), and (iii) HLI Operating Company,
Inc, a Delaware corporation and a wholly owned subsidiary of
ParentCo (HLI). On the Effective Date,
(i) HoldCo was renamed Hayes Lemmerz International, Inc.
(New Hayes), (ii) New Hayes contributed to
ParentCo 30,0000,000 shares of its common stock, par value $.01
per share (the New Common Stock), and 957,447 series
A warrants and 957,447 series B warrants to acquire New Common
Stock of New Hayes (the Series A Warrants and
Series B Warrants, respectively),
(iii) ParentCo in turn contributed such shares of New
Common Stock and Series A Warrants and Series B
Warrants to HLI and (iv) pursuant to an Agreement and Plan
of Merger, dated as of June 3, 2003 (the Merger
Agreement), between the Company and HLI, the Company was
merged with and into HLI (the Merger), with HLI
continuing as the surviving corporation.

Pursuant to the Plan of Reorganization and as a
result of the Merger, all of the issued and outstanding shares
of common stock, par value $.01 per share, of the Company (the
Old Common Stock), and any other outstanding equity
securities of the Company, including all options and warrants,
were cancelled. Promptly following the Merger, HLI distributed
to certain holders of allowed claims, under the terms of the

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Plan of Reorganization, an amount in cash, the
New Common Stock, the Series A Warrants, the Series B
Warrants and the Preferred Stock (as defined below). Prior to
the Merger, the Old Common Stock was registered pursuant to
Section 12(g) of the Securities Exchange Act of 1934, as
amended (the Exchange Act). In reliance on
Rule 12g-3(a) of the Exchange Act, by virtue of the status
of New Hayes as a successor issuer to the Company, the New
Common Stock is deemed registered under Section 12(g) of
the Exchange Act. The Company filed a Form 15 with the SEC
to terminate the registration of the Old Common Stock under the
Exchange Act.


Pursuant to the terms of the Plan of
Reorganization, HLI issued 100,000 shares of Series A
Exchangeable Preferred Stock, par value $1.00, of HLI (the
Preferred Stock) to the holders of certain allowed
claims. In accordance with the terms of the Preferred Stock, the
shares of Preferred Stock are, at the holders option,
exchangeable into a number of fully paid and nonassessable
shares of New Common Stock equal to (i) the aggregate
liquidation preference of the shares of Preferred Stock so
exchanged ($100 per share plus all accrued and unpaid dividends
thereon (whether or not declared) to the exchange date) divided
by (ii) 125% of the Emergence Share Price. As
determined pursuant to the terms of the Plan of Reorganization,
the Emergence Share Price is $18.50.

Following consummation of the Plan, 30,000,000
shares of the total 100,000,000 shares of authorized New Common
Stock and 100,000 shares of the total 100,000 shares of the
authorized New Preferred Stock were issued and outstanding as a
result of the distribution to certain holders of allowed claims
as described above. The issued shares of New Common Stock of New
Hayes will be subject to dilution as a result of
(i) exercise of the Series A Warrants and
Series B Warrants, each series of which will entitle the
holders thereof to purchase in the aggregate up to 957,447
shares of New Common Stock which New Hayes will reserve for
issuance, (ii) the grant of certain shares in an amount to
be determined and options to acquire New Common Shares to be
issued to management which New Hayes will reserve for issuance,
and (iii) the issuance of a currently indeterminable number
of shares of New Common Stock upon the exchange of shares of New
Preferred Stock for shares of New Common Stock at the election
of the holders thereof. In addition to those shares being issued
to certain holders of allowed claims under the Plan, New Hayes
will have 1,000,000 shares of preferred stock authorized for
issuance, of which no shares were issued and outstanding at the
time the Plan became effective, and HLI has 600,000 shares of
common stock authorized for issuance, of which
590,000 shares are outstanding and held by ParentCo at the
time the Plan became effective.

Item 3.     Defaults
Upon Senior Securities

None

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

None

Item 5.     Other
Information

Membership of Board of Directors

Upon emergence from bankruptcy, all of the
Companys initial board members, other than Curtis J.
Clawson, President, Chief Executive Officer and Chairman of the
Board of the Company, were newly appointed. The six newly
appointed board members have been selected pursuant to the Plan
of Reorganization. As of this filing, all of the six newly
appointed board members were in place. They are:
Mr. Laurence Berg, Senior Partner, Apollo Management L.P.;
Mr. Steve Martinez, Principal, Apollo Management L.P.;
Dr. William H. Cunningham, James L. Bayless Chair
of Free Enterprise, University of Texas at Austin;
Mr. Henry D.G. Wallace, retired Group Vice President,
Ford Motor Company; Mr. Richard F. Wallman, retired
Senior Vice President and Chief Financial Officer, Honeywell
International, Inc.; and Mr. George T. Haymaker, Jr.,
Chairman of the Board of Kaiser Aluminum Corporation.

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Item 6.     Exhibits
and Reports on Form 8-K

(a) Exhibits

| |       |  |  |                                                                                                                                                                                                                                                                                                                                                                 
| | ----- |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4.1   |  |  | First Supplemental Indenture, dated as of
    June 19, 2003, by and between HLI Operating Company,
    certain listed Guarantors, and U.S. Bank National Association,
    as Trustee (Incorporated be reference to Exhibit 4.2 to the
    Companys Registration Statement No. 333-107539 on
    Form S-4, filed with the SEC on July 31, 2003, as
    amended).
| | 10.49 |  |  | Form of Directors Indemnification Agreement.*                                                                                                                                                                                                                                                                                                                   
| | 12.1  |  |  | Ratio of earnings to fixed charges.*                                                                                                                                                                                                                                                                                                                            
| | 31.1  |  |  | Certification of Curtis J. Clawson, Chairman of
    the Board, President and Chief Executive Officer, pursuant to
    Sections 302 of the Sarbanes-Oxley Act of 2002.*                                                                                                                                                                                          
| | 31.2  |  |  | Certification of James A. Yost, Vice President,
    Finance, and Chief Financial Officer, pursuant to
    Sections 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 James A. Yost, Vice President,
    Finance, and 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.

(b) Reports on Form 8-K

During the fiscal quarter ended July 31,
2003, the Company filed Current Reports on Form 8-K with
the SEC as follows:

|              |  |                   |  |                                                                                                                               
|------------- |  | ----------------- |  | ------------------------------------------------------------------------------------------------------------------------------
|May 5, 2003   |  | Items 9 and 12,   |  | Regulation FD Disclosure, and Results of
    Operations and Financial Condition                                               
|May 12, 2003  |  | Items 9 and 12,   |  | Regulation FD Disclosure, and Results of
    Operations and Financial Condition                                               
|May 13, 2003  |  | Items 5 and 7,    |  | Other Events and Regulation FD Disclosure,
    and Financial Statements and Exhibits                                          
|May 14, 2003  |  | Items 9 and 12,   |  | Regulation FD Disclosure, and Results of
    Operations and Financial Condition                                               
|May 21, 2003  |  | Item 3,           |  | Bankruptcy or Receivership                                                                                                    
|May 23, 2003  |  | Items 5 and 7,    |  | Other Events and Regulation FD Disclosure,
    and Financial Statements and Exhibits                                          
|June 3, 2003  |  | Items 2, 5 and 7, |  | Acquisition or Disposition of Assets, Other
    Events and Regulation FD Disclosure, and Financial
    Statements and Exhibits
|June 17, 2003 |  | Items 7 and 12,   |  | Financial Statements and Exhibits, and Results of
    Operations and Financial Condition                                      
|June 19, 2003 |  | Items 7 and 12,   |  | Financial Statements and Exhibits, and Results of
    Operations and Financial Condition                                      

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SIGNATURES


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



| |                                                         
| | --------------------------------------------------------
| | HAYES LEMMERZ INTERNATIONAL, INC.                       
|
| | /s/ JAMES A. YOST                                       
| | James A. Yost                                           
| | Vice President, Finance, and Chief Financial
    Officer

September 15, 2003

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EXHIBIT INDEX

|            |       |  |             |                                                                                                                                                                                                                                                                                                                                                                 
|----------- | ----- |  | ----------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |       |  | Description
|            |       |  |            
|            | 4.1   |  |             | First Supplemental Indenture, dated as of
    June 19, 2003, by and between HLI Operating Company,
    certain listed Guarantors, and U.S. Bank National Association,
    as Trustee (Incorporated be reference to Exhibit 4.2 to the
    Companys Registration Statement No. 333-107539 on
    Form S-4, filed with the SEC on July 31, 2003, as
    amended).
|            | 10.49 |  |             | Form of Directors Indemnification Agreement.*                                                                                                                                                                                                                                                                                                                   
|            | 12.1  |  |             | Ratio of earnings to fixed charges.*                                                                                                                                                                                                                                                                                                                            
|            | 31.1  |  |             | Certification of Curtis J. Clawson, Chairman of
    the Board, President and Chief Executive Officer, pursuant to
    Sections 302 of the Sarbanes-Oxley Act of 2002.*                                                                                                                                                                                          
|            | 31.2  |  |             | Certification of James A. Yost, Vice President,
    Finance, and Chief Financial Officer, pursuant to
    Sections 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 James A. Yost, Vice President,
    Finance, and 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.