##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-Q


|           |  |                                                                                                                                                 
|---------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                                                                                 
|þ          |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
    For the quarterly period ended July 31, 2005    
|          
|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: 333-107539





HLI Operating Company, Inc.


(Exact name of registrant as specified in its charter)


|                                                                                    |  |                                            
|----------------------------------------------------------------------------------- |  | -------------------------------------------
|Delaware(State or other jurisdiction of incorporation or
    organization)          |  | 30-0167742(IRS Employer Identification No.)
|                                                                                   
|15300 Centennial Drive Northville, Michigan(Address of principal executive offices) |  | 48168(Zip Code)                            

Registrants telephone number, including area code:


(734) 737-5000


o þ


þ o


o o




þ o












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HLI OPERATING COMPANY, INC.


QUARTERLY REPORT ON FORM 10-Q


TABLE OF CONTENTS


|                                                                                            |  |                                                                                           |    |      |    | 
|------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                                                                                            |  |                                                                                           |    | Page |   
|                                                                                            |  |                                                                                           |    |      |   
|PART I. FINANCIAL INFORMATION                                                              
|Item 1.                                                                                     |  | Financial Statements                                                                      |    |      | 2  | 
|                                                                                            |  | Consolidated Statements of Operations                                                     |    |      | 2  | 
|                                                                                            |  | Condensed Consolidated Balance Sheets                                                     |    |      | 3  | 
|                                                                                            |  | Consolidated Statements of Cash Flows                                                     |    |      | 4  | 
|                                                                                            |  | Consolidated Statements of Changes in
    Stockholders Equity (Deficit)                  |    |      | 5  | 
|                                                                                            |  | Notes to Consolidated Financial
    Statements                                            |    |      | 6  | 
|Item 2.                                                                                     |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations |    |      | 23 | 
|Item 3.                                                                                     |  | Quantitative and Qualitative Disclosures
    about Market Risk                            |    |      | 40 | 
|Item 4.                                                                                     |  | Controls and Procedures                                                                   |    |      | 40 | 
|PART II. OTHER INFORMATION                                                                 
|Item 1.                                                                                     |  | Legal Proceedings                                                                         |    |      | 41 | 
|Item 2.                                                                                     |  | Changes in Securities and Use of
    Proceeds                                             |    |      | 42 | 
|Item 3.                                                                                     |  | Defaults upon Senior Securities                                                           |    |      | 42 | 
|Item 4.                                                                                     |  | Submission of Matters to a Vote of Security
    Holders                                   |    |      | 42 | 
|Item 5.                                                                                     |  | Other Information                                                                         |    |      | 42 | 
|Item 6.                                                                                     |  | Exhibits                                                                                  |    |      | 42 | 
|Signatures                                                                                  |  |                                                                                           | 43 |     
|First Amendment dated as of February 7, 2005                                               
|Second Amendment dated as of May 27, 2005                                                  
|Certification of Curtis J. Clawson, Chairman of the Board, President and CEO to Section 302
|Certification of James A. Yost, Vice President, Finance and CFO to Section 302             
|Certification of Curtis J. Clawson, Chairman of the Board, President and CEO to Section 906
|Certification of James A. Yost, Vice President, Finance and CFO to Section 906             



Unless otherwise indicated, references to the
Company mean HLI Operating Company, 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 2005 means
the period beginning February 1, 2005, and ending
January 31, 2006). 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.
All statements other than statements of historical fact made in
this Quarterly Report are forward-looking. Such forward-looking
statements include, among others, those statements including the
words expect, anticipate,
intend, believe and similar language.
These forward looking statements involve certain risks and
uncertainties. Our actual results may differ significantly from
those projected in the forward-looking statements. Factors that
may cause actual results to differ materially from those
contemplated by such forward looking statements include, among
others: (1) competitive pressure in the Companys
industry; (2) fluctuations in the price of steel, aluminum
and other raw materials; (3) changes in general economic
conditions; (4) the Companys dependence on the
automotive industry (which has historically been cyclical) and
on a small number of major customers for the majority of its
sales; (5) pricing pressure from automotive industry
customers and the potential for re-sourcing of business to
lower-cost providers overseas; (6) changes in the financial
markets or the Companys debt ratings affecting the Companys financial structure and the
Companys cost of capital and borrowed money; (7) the
uncertainties inherent in international operations and foreign
currency fluctuations; (8) the Companys ability to divest
non-core assets and businesses; and (9) the risks described in our
most recent Annual Report on Form 10-K. You are cautioned
not to place undue reliance on the forward-looking statements,
which speak only as of the date of this Quarterly Report on
Form 10-Q. 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.


1



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##### Table of Contents








|        |                     
|------- | --------------------
|Item 1. | Financial Statements

HLI OPERATING COMPANY, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                                            |                                                                                                              |                       |       |       |                       |   |       |       |   |   |         |       |   |   |         |       |   |  | 
|--------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------ | --------------------- | ----- | ----- | --------------------- | - | ----- | ----- | - | - | ------- | ----- | - | - | ------- | ----- | - |  | 
|                                                                            |                                                                                                              | Three Months Ended    |       |       | Six Months Ended      |  
|                                                                            |                                                                                                              | July 31,              |       |       | July 31,              |  
|                                                                            |                                                                                                              |                       |       |       |                       |  
|                                                                            |                                                                                                              | 2005                  |       |       | 2004                  |   |       | 2005  |   |   | 2004    |      
|                                                                            |                                                                                                              |                       |       |       |                       |   |       |       |   |   |         |      
|                                                                            |                                                                                                              | (Unaudited)           |       |       | (Unaudited)           |  
|                                                                            |                                                                                                              | (Dollars in millions) |       |       | (Dollars in millions) |  
|Net sales                                                                   |                                                                                                              | $                     | 584.3 |       |                       | $ | 532.1 |       |   | $ | 1,202.3 |       |   | $ | 1,126.1 |      
|Cost of goods sold                                                          |                                                                                                              |                       | 544.8 |       |                       |   | 482.5 |       |   |   | 1,100.6 |       |   |   | 1,002.2 |      
|                                                                            |                                                                                                              |                       |       |       |                       |   |       |       |   |   |         |      
|                                                                            | Gross profit                                                                                                 |                       |       | 39.5  |                       |   |       | 49.6  |   |   |         | 101.7 |   |   |         | 123.9 |  
|Marketing, general, and administrative                                      |                                                                                                              |                       | 46.9  |       |                       |   | 40.1  |       |   |   | 90.7    |       |   |   | 83.2    |      
|Asset impairments and other restructuring charges                           |                                                                                                              |                       | 33.0  |       |                       |   | 0.9   |       |   |   | 33.8    |       |   |   | 3.3     |      
|Other (income) expense, net                                                 |                                                                                                              |                       | 6.7   |       |                       |   | (1.0  | )     |   |   | 9.5     |       |   |   | (0.4    | )    
|                                                                            |                                                                                                              |                       |       |       |                       |   |       |       |   |   |         |      
|                                                                            | Earnings (loss) from operations                                                                              |                       |       | (47.1 | )                     |   |       | 9.6   |   |   |         | (32.3 | ) |   |         | 37.8  |  
|Interest expense, net                                                       |                                                                                                              |                       | 16.3  |       |                       |   | 14.0  |       |   |   | 31.4    |       |   |   | 27.4    |      
|Other non-operating expense                                                 |                                                                                                              |                       | 0.2   |       |                       |   | 0.2   |       |   |   | 0.4     |       |   |   | 0.2     |      
|Loss on early extinguishment of debt                                        |                                                                                                              |                       |      |       |                       |   |      |       |   |   |        |       |   |   | 12.2    |      
|                                                                            |                                                                                                              |                       |       |       |                       |   |       |       |   |   |         |      
|                                                                            | Earnings (loss) before taxes, minority interest, and cumulative
    effect of change in accounting principle |                       |       | (63.6 | )                     |   |       | (4.6  | ) |   |         | (64.1 | ) |   |         | (2.0  | )
|Income tax expense                                                          |                                                                                                              |                       | 4.0   |       |                       |   | 4.9   |       |   |   | 9.0     |       |   |   | 10.7    |      
|                                                                            |                                                                                                              |                       |       |       |                       |   |       |       |   |   |         |      
|                                                                            | Loss before minority interest and cumulative effect of change in
    accounting principle                    |                       |       | (67.6 | )                     |   |       | (9.5  | ) |   |         | (73.1 | ) |   |         | (12.7 | )
|Minority interest                                                           |                                                                                                              |                       | 2.5   |       |                       |   | 1.6   |       |   |   | 5.1     |       |   |   | 3.8     |      
|                                                                            |                                                                                                              |                       |       |       |                       |   |       |       |   |   |         |      
|                                                                            | Loss before cumulative effect of change in accounting principle                                              |                       |       | (70.1 | )                     |   |       | (11.1 | ) |   |         | (78.2 | ) |   |         | (16.5 | )
|Cumulative effect of change in accounting principle, net of tax
    of $0.8 |                                                                                                              |                       |      |       |                       |   |      |       |   |   |        |       |   |   | (2.6    | )    
|                                                                            |                                                                                                              |                       |       |       |                       |   |       |       |   |   |         |      
|                                                                            | Net loss                                                                                                     |                       | $     | (70.1 | )                     |   | $     | (11.1 | ) |   | $       | (78.2 | ) |   | $       | (13.9 | )
|                                                                            |                                                                                                              |                       |       |       |                       |   |       |       |   |   |         |      



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HLI OPERATING COMPANY, INC. AND SUBSIDIARIES





CONDENSED CONSOLIDATED BALANCE SHEETS


|                                        |                                           |                                                                                                                       |                                            |        |             |         |         |        |   |         | 
|--------------------------------------- | ----------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | ----------- | ------- | ------- | ------ | - | ------- | 
|                                        |                                           | July 31,                                                                                                              |                                            |        | January 31, |        
|                                        |                                           | 2005                                                                                                                  |                                            |        | 2005        |        
|                                        |                                           |                                                                                                                       |                                            |        |             |        
|                                        |                                           | (Unaudited)                                                                                                           |                                           
|                                        |                                           | (Dollars in millions)                                                                                                 |                                           
|ASSETS                                 
|Current assets:                         |                                           |                                                                                                                       |                                            |        |             |         |         |       
|                                        | Cash and cash equivalents                 |                                                                                                                       | $                                          | 38.5   |             |         | $       | 35.2   |  
|                                        | Receivables                               |                                                                                                                       |                                            | 271.3  |             |         |         | 241.4  |  
|                                        | Other receivables                         |                                                                                                                       |                                            | 79.8   |             |         |         | 77.0   |  
|                                        | Inventories                               |                                                                                                                       |                                            | 221.2  |             |         |         | 212.6  |  
|                                        | Prepaid expenses and other current assets |                                                                                                                       |                                            | 29.2   |             |         |         | 29.3   |  
|                                        |                                           |                                                                                                                       |                                            |        |             |        
|                                        |                                           |                                                                                                                       | Total current assets                       |        |             | 640.0   |         |        |   | 595.5   | 
|Property, plant, and equipment, net     |                                           |                                                                                                                       | 926.9                                      |        |             |         | 1,000.3 |       
|Goodwill                                |                                           |                                                                                                                       | 385.4                                      |        |             |         | 417.9   |       
|Intangible assets, net                  |                                           |                                                                                                                       | 215.1                                      |        |             |         | 233.3   |       
|Other assets                            |                                           |                                                                                                                       | 60.1                                       |        |             |         | 55.0    |       
|                                        |                                           |                                                                                                                       |                                            |        |             |        
|                                        |                                           |                                                                                                                       | Total assets                               |        | $           | 2,227.5 |         |        | $ | 2,302.0 | 
|                                        |                                           |                                                                                                                       |                                            |        |             |        
|                                       
|LIABILITIES AND STOCKHOLDERS EQUITY   
|Current liabilities:                    |                                           |                                                                                                                       |                                            |        |             |         |         |       
|                                        | Bank borrowings and other notes           |                                                                                                                       | $                                          | 0.5    |             |         | $       | 0.6    |  
|                                        | Current portion of long-term debt         |                                                                                                                       |                                            | 7.7    |             |         |         | 10.5   |  
|                                        | Accounts payable and accrued liabilities  |                                                                                                                       |                                            | 405.4  |             |         |         | 405.3  |  
|                                        |                                           |                                                                                                                       |                                            |        |             |        
|                                        |                                           |                                                                                                                       | Total current liabilities                  |        |             | 413.6   |         |        |   | 416.4   | 
|Long-term debt, net of current portion  |                                           |                                                                                                                       | 721.1                                      |        |             |         | 631.1   |       
|Pension and other long-term liabilities |                                           |                                                                                                                       | 484.3                                      |        |             |         | 507.7   |       
|Redeemable preferred stock              |                                           |                                                                                                                       | 11.7                                       |        |             |         | 11.3    |       
|Minority interest                       |                                           |                                                                                                                       | 33.5                                       |        |             |         | 33.7    |       
|Stockholders equity:                   |                                           |                                                                                                                       |                                            |        |             |         |         |       
|                                        | Common stock, par value $0.01 per share:  |                                                                                                                       |                                            |        |             |         |         |        |  
|                                        |                                           | 600,000 shares authorized; 590,000
    issued and outstanding at July 31, 2005 and
    January 31, 2005, respectively |                                            |        |            |         |         |        |  |        
|                                        | Additional paid in capital                |                                                                                                                       |                                            | 683.2  |             |         |         | 680.3  |  
|                                        | Accumulated deficit                       |                                                                                                                       |                                            | (195.8 | )           |         |         | (117.6 | )
|                                        | Accumulated other comprehensive income    |                                                                                                                       |                                            | 75.9   |             |         |         | 139.1  |  
|                                        |                                           |                                                                                                                       |                                            |        |             |        
|                                        |                                           |                                                                                                                       | Total stockholders equity                 |        |             | 563.3   |         |        |   | 701.8   | 
|                                        |                                           |                                                                                                                       |                                            |        |             |        
|                                        |                                           |                                                                                                                       | Total liabilities and stockholders equity |        | $           | 2,227.5 |         |        | $ | 2,302.0 | 
|                                        |                                           |                                                                                                                       |                                            |        |             |        



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HLI OPERATING COMPANY, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                               |                                                                                      |                                          |                                                  |       |       |       |       |       |       |       |  
|---------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------ | ---------------------------------------- | ------------------------------------------------ | ----- | ----- | ----- | ----- | ----- | ----- | ----- | -
|                                                                                               |                                                                                      | Six Months Ended                         |                                                 
|                                                                                               |                                                                                      | July 31,                                 |                                                 
|                                                                                               |                                                                                      |                                          |                                                 
|                                                                                               |                                                                                      | 2005                                     |                                                  |       | 2004  |      
|                                                                                               |                                                                                      |                                          |                                                  |       |       |      
|                                                                                               |                                                                                      | (Unaudited)                              |                                                 
|                                                                                               |                                                                                      | (Dollars in millions)                    |                                                 
|Cash flows from operating activities:                                                          |                                                                                      |                                          |                                                  |       |       |       |       |      
|Net loss                                                                                       |                                                                                      | $                                        | (78.2                                            | )     |       | $     | (13.9 | )    
|Adjustments to reconcile net loss to net cash provided by (used
    for) operating activities: |                                                                                      |                                          |                                                  |       |       |       |       |      
|                                                                                               | Depreciation and amortization                                                        |                                          |                                                  | 91.0  |       |       |       | 86.0  |      
|                                                                                               | Amortization of deferred financing fees and accretion of discount                    |                                          |                                                  | 3.8   |       |       |       | 1.9   |      
|                                                                                               | Change in deferred income taxes                                                      |                                          |                                                  | (11.9 | )     |       |       | (1.9  | )    
|                                                                                               | Asset impairments                                                                    |                                          |                                                  | 30.8  |       |       |       |      |      
|                                                                                               | Minority interest                                                                    |                                          |                                                  | 5.1   |       |       |       | 3.8   |      
|                                                                                               | Preferred stock dividends accrued                                                    |                                          |                                                  | 0.4   |       |       |       | 0.4   |      
|                                                                                               | Equity compensation expense                                                          |                                          |                                                  | 2.9   |       |       |       | 3.2   |      
|                                                                                               | Loss on early extinguishment of debt                                                 |                                          |                                                  |      |       |       |       | 12.2  |      
|                                                                                               | (Gain) loss on sale of assets                                                        |                                          |                                                  | 3.4   |       |       |       | (0.3  | )    
|                                                                                               | Changes in operating assets and liabilities that increase
    (decrease) cash flows: |                                          |                                                  |       |       |       |       |       |      
|                                                                                               |                                                                                      | Receivables                              |                                                  |       | (41.4 | )     |       |       | (5.2  | )    
|                                                                                               |                                                                                      | Other receivables                        |                                                  |       | (2.8  | )     |       |       |      |      
|                                                                                               |                                                                                      | Inventories                              |                                                  |       | (15.1 | )     |       |       | (12.5 | )    
|                                                                                               |                                                                                      | Prepaid expenses and other               |                                                  |       | (8.6  | )     |       |       | (1.9  | )    
|                                                                                               |                                                                                      | Accounts payable and accrued liabilities |                                                  |       | 3.0   |       |       |       | (5.9  | )    
|                                                                                               | Payments related to Chapter 11 Filings                                               |                                          |                                                  |      |       |       |       | (1.1  | )    
|                                                                                               |                                                                                      |                                          |                                                  |       |       |      
|                                                                                               |                                                                                      |                                          | Cash provided by (used for) operating activities |       |       | (17.6 | )     |       |       | 64.8  |  
|                                                                                               |                                                                                      |                                          |                                                  |       |       |      
|Cash flows from investing activities:                                                          |                                                                                      |                                          |                                                  |       |       |       |       |      
|                                                                                               | Purchase of property, plant, equipment, and tooling                                  |                                          |                                                  | (68.1 | )     |       |       | (72.0 | )    
|                                                                                               | Proceeds from sale of assets                                                         |                                          |                                                  | (0.1  | )     |       |       | 1.9   |      
|                                                                                               |                                                                                      |                                          |                                                  |       |       |      
|                                                                                               |                                                                                      |                                          | Cash used for investing activities               |       |       | (68.2 | )     |       |       | (70.1 | )
|                                                                                               |                                                                                      |                                          |                                                  |       |       |      
|Cash flows from financing activities:                                                          |                                                                                      |                                          |                                                  |       |       |       |       |      
|                                                                                               | Changes in bank borrowings and credit facilities                                     |                                          |                                                  | (0.1  | )     |       |       | 0.6   |      
|                                                                                               | Net proceeds from issuance of common stock                                           |                                          |                                                  |      |       |       |       | 117.0 |      
|                                                                                               | Redemption of Senior Notes, net of discount and related fees                         |                                          |                                                  |      |       |       |       | (96.7 | )    
|                                                                                               | Repayment of Term Loan B, net of related fees                                        |                                          |                                                  | (72.7 | )     |       |       | (16.0 | )    
|                                                                                               | Borrowings from Term Loan C                                                          |                                          |                                                  | 150.0 |       |       |       |      |      
|                                                                                               | Borrowings (repayment) of long-term debt                                             |                                          |                                                  | 12.3  |       |       |       | (5.4  | )    
|                                                                                               | Repayment of notes payable issued in connection with purchases
    of businesses     |                                          |                                                  |      |       |       |       | (13.1 | )    
|                                                                                               |                                                                                      |                                          |                                                  |       |       |      
|                                                                                               |                                                                                      |                                          | Cash provided by (used for) financing activities |       |       | 89.5  |       |       |       | (13.6 | )
|                                                                                               |                                                                                      |                                          |                                                  |       |       |      
|Effect of exchange rate changes on cash and cash equivalents                                   |                                                                                      |                                          | (0.4                                             | )     |       |       | (0.8  | )    
|                                                                                               |                                                                                      |                                          |                                                  |       |       |      
|                                                                                               | Increase (decrease) in cash and cash equivalents                                     |                                          |                                                  | 3.3   |       |       |       | (19.7 | )    
|                                                                                               | Adjustment for the elimination of the one month lag                                  |                                          |                                                  |      |       |       |       | 1.4   |      
|Cash and cash equivalents at beginning of period                                               |                                                                                      |                                          | 35.2                                             |       |       |       | 48.5  |      
|                                                                                               |                                                                                      |                                          |                                                  |       |       |      
|Cash and cash equivalents at end of period                                                     |                                                                                      | $                                        | 38.5                                             |       |       | $     | 30.2  |      
|                                                                                               |                                                                                      |                                          |                                                  |       |       |      
|Supplemental data:                                                                             |                                                                                      |                                          |                                                  |       |       |       |       |      
|                                                                                               | Cash paid for interest                                                               |                                          | $                                                | 26.6  |       |       | $     | 24.4  |      
|                                                                                               | Cash paid for income taxes                                                           |                                          | $                                                | 12.4  |       |       | $     | 7.2   |      



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HLI OPERATING COMPANY, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(DEFICIT)


(Unaudited)


|                            |                                 |                                             |         |     |       |   |         |          |   |              |             |   |               |        |        |       |       |   |       |       |   |   |       |       |        |  
|--------------------------- | ------------------------------- | ------------------------------------------- | ------- | --- | ----- | - | ------- | -------- | - | ------------ | ----------- | - | ------------- | ------ | ------ | ----- | ----- | - | ----- | ----- | - | - | ----- | ----- | ------ | -
|                            |                                 |                                             |         |     |       |   |         | Retained |   |              | Accumulated |   |               |       
|                            |                                 |                                             |         |     |       |   |         | Earnings |   |              | Other       |   |               |       
|                            |                                 |                                             |         | Par |       |   | Paid in |          |   | (Accumulated |             |   | Comprehensive |        |        |      
|                            |                                 | Shares                                      |         |     | Value |   |         | Capital  |   |              | Deficit)    |   |               | Income |        |       | Total |  
|                            |                                 |                                             |         |     |       |   |         |          |   |              |             |   |               |        |        |       |       |  
|                            |                                 | (Dollars in millions, except share amounts) |        
|Balance at January 31, 2005 |                                 |                                             | 590,000 |     |       | $ |        |          |   | $            | 680.3       |   |               | $      | (117.6 | )     |       | $ | 139.1 |       |   | $ | 701.8 |      
|Comprehensive income:       |                                 |                                             |         |     |       |   |         |          |   |              |             |   |               |        |        |       |       |   |       |       |   |   |       |      
|                            | Net loss                        |                                             |         |    |       |   |         |         |   |              |             |  |               |        |        | (78.2 | )     |   |       |      |   |   |       | (78.2 | )     
|                            | Currency translation adjustment |                                             |         |    |       |   |         |         |   |              |             |  |               |        |        |      |       |   |       | (63.2 | ) |   |       | (63.2 | )     
|                            |                                 |                                             |         |     |       |   |         |          |   |              |             |   |               |        |        |       |       |  
|                            |                                 | Total comprehensive loss                    |         |     |      |   |         |          |  |              |             |   |              |        |        |       |      |   |       |       |  |   |       | $     | (141.4 | )
|Equity compensation expense |                                 |                                             |        |     |       |   |        |          |   |              | 2.9         |   |               |        |       |       |       |   |      |       |   |   | 2.9   |      
|                            |                                 |                                             |         |     |       |   |         |          |   |              |             |   |               |        |        |       |       |  
|Balance at July 31, 2005    |                                 |                                             | 590,000 |     |       | $ |        |          |   | $            | 683.2       |   |               | $      | (195.8 | )     |       | $ | 75.9  |       |   | $ | 563.3 |      
|                            |                                 |                                             |         |     |       |   |         |          |   |              |             |   |               |        |        |       |       |  



5



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Six Months Ended July 31, 2005 and 2004


(Unaudited)


(Dollars in millions, unless otherwise stated)




|        |                        
|------- | -----------------------
|Note 1. | Description of Business





| |                        
| | -----------------------
| | Description of Business







|        |                                                   
|------- | --------------------------------------------------
|Note 2. | Basis of Presentation and Stock Based Compensation



| |                      
| | ---------------------
| | Basis of Presentation









6



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|        |            
|------- | -----------
|Note 3. | Inventories



|                         |       |          |      |       |             |   |      |       | 
|------------------------ | ----- | -------- | ---- | ----- | ----------- | - | ---- | ----- | 
|                         |       | July 31, |      |       | January 31, |  
|                         |       | 2005     |      |       | 2005        |  
|                         |       |          |      |       |             |  
|Raw materials            |       | $        | 52.8 |       |             | $ | 55.8 |      
|Work-in-process          |       |          | 43.9 |       |             |   | 47.4 |      
|Finished goods           |       |          | 84.1 |       |             |   | 73.1 |      
|Spare parts and supplies |       |          | 40.4 |       |             |   | 36.3 |      
|                         |       |          |      |       |             |  
|                         | Total |          | $    | 221.2 |             |   | $    | 212.6 | 
|                         |       |          |      |       |             |  



|        |                                                 
|------- | ------------------------------------------------
|Note 4. | Bank Borrowings, Other Notes, and Long-Term Debt



7



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                                                                                                              |                |          |       |       |             |   |       |       | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | -------- | ----- | ----- | ----------- | - | ----- | ----- | 
|                                                                                                                                                                              |                | July 31, |       |       | January 31, |  
|                                                                                                                                                                              |                | 2005     |       |       | 2005        |  
|                                                                                                                                                                              |                |          |       |       |             |  
|Various foreign bank and government loans maturing through 2006,
    weighted average interest rates of 5.7% and 6.4% at
    July 31, 2005 and January 31, 2005, respectively |                | $        | 16.9  |       |             | $ | 18.6  |      
|Term loan B maturing 2009, weighted average interest rate
    of 6.9% and 6.2% at July 31, 2005 and January 31,
    2005, respectively                                        |                |          | 354.5 |       |             |   | 427.3 |      
|Term loan C maturing 2010, weighted average interest rate
    of 8.9% at July 31, 2005                                                                                        |                |          | 150.0 |       |             |   |      |      
|101/2% Senior
    Notes due 2010, net of discount of $0.8 million at
    July 31, 2005 and January 31, 2005                                                                   |                |          | 161.7 |       |             |   | 161.7 |      
|Mortgage note payable                                                                                                                                                         |                |          | 22.1  |       |             |   | 22.2  |      
|Capital lease obligations                                                                                                                                                     |                |          | 23.6  |       |             |   | 11.8  |      
|                                                                                                                                                                              |                |          |       |       |             |  
|                                                                                                                                                                              |                |          | 728.8 |       |             |   | 641.6 |      
|Less current portion of long-term debt                                                                                                                                        |                |          | 7.7   |       |             |   | 10.5  |      
|                                                                                                                                                                              |                |          |       |       |             |  
|                                                                                                                                                                              | Long-term debt |          | $     | 721.1 |             |   | $     | 631.1 | 
|                                                                                                                                                                              |                |          |       |       |             |  



| |                
| | ---------------
| | Credit Facility









8



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |             
| | ------------
| | Senior Notes

1 2 1 2 1 2










| |                                  
| | ---------------------------------
| | Early Repayment of Long-Term Debt







9



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                
| | ---------------
| | Other Financing





|        |                                                                  
|------- | -----------------------------------------------------------------
|Note 5. | Pension Plans and Postretirement Benefits Other Than
    Pensions





|                                   |  |                      |      |   |                     |   |      |                  |  |   |               |  |  |               |      |   |               |   |     |  |  |   |     | 
|---------------------------------- |  | -------------------- | ---- | - | ------------------- | - | ---- | ---------------- |  | - | ------------- |  |  | ------------- | ---- | - | ------------- | - | --- |  |  | - | --- | 
|                                   |  | North American Plans |      |   | International Plans |  
|                                   |  |                      |      |   |                     |  
|                                   |  | Pension Benefits     |      |   | Other Benefits      |   |      | Pension Benefits | 
|                                   |  |                      |      |   |                     |   |      |                  | 
|                                   |  | Three                |      |   | Three               |   |      | Three            |  |   | Three         |  |  | Three         |      |   | Three         |  
|                                   |  | Months               |      |   | Months              |   |      | Months           |  |   | Months        |  |  | Months        |      |   | Months        |  
|                                   |  | Ended                |      |   | Ended               |   |      | Ended            |  |   | Ended         |  |  | Ended         |      |   | Ended         |  
|                                   |  | July 31, 2005        |      |   | July 31, 2004       |   |      | July 31, 2005    |  |   | July 31, 2004 |  |  | July 31, 2005 |      |   | July 31, 2004 |  
|                                   |  |                      |      |   |                     |   |      |                  |  |   |               |  |  |               |      |   |               |  
|Service cost                       |  | $                    | 0.2  |   |                     | $ | 0.1  |                  |  | $ | 0.1           |  |  |               |     |   |               | $ | 0.3 |  |  | $ | 0.2 | 
|Interest cost                      |  |                      | 2.7  |   |                     |   | 2.8  |                  |  |   | 2.6           |  |  |               | 2.7  |   |               |   | 2.0 |  |  |   | 1.9 | 
|Expected return on plan assets     |  |                      | (2.3 | ) |                     |   | (2.4 | )                |  |   |              |  |  |               |     |   |               |   | 0.1 |  |  |   | 0.1 | 
|Amortization of prior service cost |  |                      |     |   |                     |   |     |                  |  |   |              |  |  |               |     |   |               |   |    |  |  |   | 0.1 | 
|Amortization of net (gain)/loss    |  |                      |     |   |                     |   |     |                  |  |   |              |  |  |               | (0.3 | ) |               |   | 0.1 |  |  |   |    | 
|                                   |  |                      |      |   |                     |   |      |                  |  |   |               |  |  |               |      |   |               |  
|Net periodic benefit cost          |  | $                    | 0.6  |   |                     | $ | 0.5  |                  |  | $ | 2.7           |  |  | $             | 2.4  |   |               | $ | 2.5 |  |  | $ | 2.3 | 
|                                   |  |                      |      |   |                     |   |      |                  |  |   |               |  |  |               |      |   |               |  

|                                   |  |                      |      |   |                     |   |      |                  |  |   |               |  |  |               |      |   |               |   |     |  |  |   |     | 
|---------------------------------- |  | -------------------- | ---- | - | ------------------- | - | ---- | ---------------- |  | - | ------------- |  |  | ------------- | ---- | - | ------------- | - | --- |  |  | - | --- | 
|                                   |  | North American Plans |      |   | International Plans |  
|                                   |  |                      |      |   |                     |  
|                                   |  | Pension Benefits     |      |   | Other Benefits      |   |      | Pension Benefits | 
|                                   |  |                      |      |   |                     |   |      |                  | 
|                                   |  | Six Months           |      |   | Six Months          |   |      | Six Months       |  |   | Six Months    |  |  | Six Months    |      |   | Six Months    |  
|                                   |  | Ended                |      |   | Ended               |   |      | Ended            |  |   | Ended         |  |  | Ended         |      |   | Ended         |  
|                                   |  | July 31, 2005        |      |   | July 31, 2004       |   |      | July 31, 2005    |  |   | July 31, 2004 |  |  | July 31, 2005 |      |   | July 31, 2004 |  
|                                   |  |                      |      |   |                     |   |      |                  |  |   |               |  |  |               |      |   |               |  
|Service cost                       |  | $                    | 0.5  |   |                     | $ | 0.2  |                  |  | $ | 0.1           |  |  |               | 0.1  |   |               | $ | 0.5 |  |  | $ | 0.4 | 
|Interest cost                      |  |                      | 5.4  |   |                     |   | 5.6  |                  |  |   | 5.3           |  |  |               | 5.4  |   |               |   | 4.0 |  |  |   | 3.9 | 
|Expected return on plan assets     |  |                      | (4.7 | ) |                     |   | (4.8 | )                |  |   |              |  |  |               |     |   |               |   | 0.1 |  |  |   | 0.1 | 
|Amortization of prior service cost |  |                      |     |   |                     |   |     |                  |  |   |              |  |  |               |     |   |               |   |    |  |  |   | 0.2 | 
|Amortization of net (gain)/loss    |  |                      |     |   |                     |   |     |                  |  |   |              |  |  |               | (0.6 | ) |               |   | 0.2 |  |  |   |    | 
|                                   |  |                      |      |   |                     |   |      |                  |  |   |               |  |  |               |      |   |               |  
|Net periodic benefit cost          |  | $                    | 1.2  |   |                     | $ | 1.0  |                  |  | $ | 5.4           |  |  | $             | 4.9  |   |               | $ | 4.8 |  |  | $ | 4.6 | 
|                                   |  |                      |      |   |                     |   |      |                  |  |   |               |  |  |               |      |   |               |  

10



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|        |                                                  
|------- | -------------------------------------------------
|Note 6. | Asset Impairments and Other Restructuring Charges



|                                                |       |                                  |     |     |            |   |      |       |  |       |   |   |  |   |      |      | 
|----------------------------------------------- | ----- | -------------------------------- | --- | --- | ---------- | - | ---- | ----- |  | ----- | - | - |  | - | ---- | ---- | 
|                                                |       | Three Months Ended July 31, 2005 |    
|                                                |       |                                  |    
|                                                |       | Automotive                       |     |     |           
|                                                |       | Wheels                           |     |     | Components |   |      | Other |  | Total |  
|                                                |       |                                  |     |     |            |   |      |       |  |       |  
|Facility closure costs                          |       | $                                | 0.9 |     |            | $ |     |       |  | $     |  |   |  | $ | 0.9  |     
|Impairment of machinery, equipment, and tooling |       |                                  | 0.6 |     |            |   | 30.0 |       |  |       |  |   |  |   | 30.6 |     
|Severance and other restructuring costs         |       |                                  | 1.5 |     |            |   |     |       |  |       |  |   |  |   | 1.5  |     
|                                                |       |                                  |     |     |            |   |      |       |  |       |   |  
|                                                | Total |                                  | $   | 3.0 |            |   | $    | 30.0  |  |       | $ |  |  |   | $    | 33.0 | 
|                                                |       |                                  |     |     |            |   |      |       |  |       |   |  

|                                        |       |                                  |     |     |            |   |       |   |       |   |   |   |  |   |     |     | 
|--------------------------------------- | ----- | -------------------------------- | --- | --- | ---------- | - | ----- | - | ----- | - | - | - |  | - | --- | --- | 
|                                        |       | Three Months Ended July 31, 2004 |    
|                                        |       |                                  |    
|                                        |       | Automotive                       |     |     |           
|                                        |       | Wheels                           |     |     | Components |   | Other |   | Total |  
|                                        |       |                                  |     |     |            |   |       |   |       |  
|Facility closure costs                  |       | $                                | 0.3 |     |            | $ |      |   |       | $ |  |   |  | $ | 0.3 |    
|Severance and other restructuring costs |       |                                  | 0.6 |     |            |   |      |   |       |   |  |   |  |   | 0.6 |    
|                                        |       |                                  |     |     |            |   |       |   |       |   |   |  
|                                        | Total |                                  | $   | 0.9 |            |   | $     |  |       |   | $ |  |  |   | $   | 0.9 | 
|                                        |       |                                  |     |     |            |   |       |   |       |   |   |  

|                                                |       |                                |     |     |            |   |      |       |  |       |   |   |  |   |      |      | 
|----------------------------------------------- | ----- | ------------------------------ | --- | --- | ---------- | - | ---- | ----- |  | ----- | - | - |  | - | ---- | ---- | 
|                                                |       | Six Months Ended July 31, 2005 |    
|                                                |       |                                |    
|                                                |       | Automotive                     |     |     |           
|                                                |       | Wheels                         |     |     | Components |   |      | Other |  | Total |  
|                                                |       |                                |     |     |            |   |      |       |  |       |  
|Facility closure costs                          |       | $                              | 1.2 |     |            | $ |     |       |  | $     |  |   |  | $ | 1.2  |     
|Impairment of machinery, equipment, and tooling |       |                                | 0.8 |     |            |   | 30.0 |       |  |       |  |   |  |   | 30.8 |     
|Severance and other restructuring costs         |       |                                | 1.8 |     |            |   |     |       |  |       |  |   |  |   | 1.8  |     
|                                                |       |                                |     |     |            |   |      |       |  |       |   |  
|                                                | Total |                                | $   | 3.8 |            |   | $    | 30.0  |  |       | $ |  |  |   | $    | 33.8 | 
|                                                |       |                                |     |     |            |   |      |       |  |       |   |  

|                                        |       |                                |     |     |            |   |      |       |   |       |   |   |  |   |     |     | 
|--------------------------------------- | ----- | ------------------------------ | --- | --- | ---------- | - | ---- | ----- | - | ----- | - | - |  | - | --- | --- | 
|                                        |       | Six Months Ended July 31, 2004 |    
|                                        |       |                                |    
|                                        |       | Automotive                     |     |     |           
|                                        |       | Wheels                         |     |     | Components |   |      | Other |   | Total |  
|                                        |       |                                |     |     |            |   |      |       |   |       |  
|Facility closure costs                  |       | $                              | 0.3 |     |            | $ | (0.2 | )     |   | $     |  |   |  | $ | 0.1 |    
|Severance and other restructuring costs |       |                                | 3.2 |     |            |   |     |       |   |       |  |   |  |   | 3.2 |    
|                                        |       |                                |     |     |            |   |      |       |   |       |   |  
|                                        | Total |                                | $   | 3.5 |            |   | $    | (0.2  | ) |       | $ |  |  |   | $   | 3.3 | 
|                                        |       |                                |     |     |            |   |      |       |   |       |   |  



| |                  
| | -----------------
| | Automotive Wheels



| |                  
| | -----------------
| | Facility Closures

Closure of Howell, Michigan Facility:


11



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Closure of La Mirada, California Facility:


Closure of Bowling Green, Kentucky Facility:




| |                                                
| | -----------------------------------------------
| | Impairment of Machinery, Equipment, and Tooling

Impairment of Howell, Michigan Facility:


Impairment of La Mirada, California Facility:




| |                                          
| | -----------------------------------------
| | Severance and Other Restructuring Charges

Restructuring of La Mirada, California Facility:


Restructuring of Manresa, Spain Facility:


Restructuring of North American Automotive Wheels Group
Staff:


Restructuring of Campiglione, Italy Facility:


Restructuring of Howell, Michigan Facility:




| |           
| | ----------
| | Components



| |                  
| | -----------------
| | Facility Closures

Closure of Petersburg, Michigan Facility:


12



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                                
| | -----------------------------------------------
| | Impairment of Machinery, Equipment, and Tooling

Impairment of Cadillac, Michigan Facility:




| |                                           
| | ------------------------------------------
| | Facility Exit Costs and Severance Accruals



|                    |  |             |     |           |               |      |              |            |  |   |          |   |  |   |     | 
|------------------- |  | ----------- | --- | --------- | ------------- | ---- | ------------ | ---------- |  | - | -------- | - |  | - | --- | 
|                    |  |             |     |           |               | Cash |              |            | 
|                    |  |             |     | Severance |               |      | Payments and |            |  |  
|                    |  | January 31, |     |           | and Other     |      |              | Effects of |  |   | July 31, |  
|                    |  | 2005        |     |           | Restructuring |      |              | Foreign    |  |   | 2005     |  
|                    |  | Accrual     |     |           | Charges       |      |              | Currency   |  |   | Accrual  |  
|                    |  |             |     |           |               |      |              |            |  |   |          |  
|Facility exit costs |  | $           | 0.2 |           |               | $    | 1.2          |            |  | $ | (1.0     | ) |  | $ | 0.4 | 
|Severance           |  |             | 0.7 |           |               |      | 1.8          |            |  |   | (1.3     | ) |  |   | 1.2 | 
|                    |  |             |     |           |               |      |              |            |  |   |          |  
|                    |  | $           | 0.9 |           |               | $    | 3.0          |            |  | $ | (2.3     | ) |  | $ | 1.6 | 
|                    |  |             |     |           |               |      |              |            |  |   |          |  



13



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|        |                
|------- | ---------------
|Note 7. | Taxes on Income



|                   |  |                             |       |   |         |   |      |    |  |   |         |   |  |   |      | 
|------------------ |  | --------------------------- | ----- | - | ------- | - | ---- | -- |  | - | ------- | - |  | - | ---- | 
|                   |  | Three Months Ended July 31, |      
|                   |  |                             |      
|                   |  | 2005                        |       |   | 2004    |  
|                   |  |                             |       |   |         |  
|                   |  | US                          |       |   | Foreign |   |      | US |  |   | Foreign |  
|                   |  |                             |       |   |         |   |      |    |  |   |         |  
|Pre-tax income     |  | $                           | (75.1 | ) |         | $ | 11.3 |    |  | $ | (19.6   | ) |  | $ | 16.3 | 
|Income tax expense |  |                             | 0.3   |   |         |   | 3.7  |    |  |   | 0.7     |   |  |   | 4.2  | 

|                   |  |                           |       |   |         |   |      |    |  |   |         |   |  |   |      | 
|------------------ |  | ------------------------- | ----- | - | ------- | - | ---- | -- |  | - | ------- | - |  | - | ---- | 
|                   |  | Six Months Ended July 31, |      
|                   |  |                           |      
|                   |  | 2005                      |       |   | 2004    |  
|                   |  |                           |       |   |         |  
|                   |  | US                        |       |   | Foreign |   |      | US |  |   | Foreign |  
|                   |  |                           |       |   |         |   |      |    |  |   |         |  
|Pre-tax income     |  | $                         | (91.7 | ) |         | $ | 27.8 |    |  | $ | (30.4   | ) |  | $ | 33.6 | 
|Income tax expense |  |                           | 0.8   |   |         |   | 8.2  |    |  |   | 1.3     |   |  |   | 9.4  | 









|        |                      
|------- | ---------------------
|Note 8. | Common Stock Offering





|        |                               
|------- | ------------------------------
|Note 9. | Prior Period Accounting Errors



14



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                    |  |           |      |   |                            |   |       |  
|----------------------------------- |  | --------- | ---- | - | -------------------------- | - | ----- | -
|                                    |  | Impact on |      |   | Impact on Basic and        |  
|Interim Period                      |  | Net Loss  |      |   | Diluted Net Loss per Share |  
|                                    |  |           |      |   |                            |  
|Predecessor                         |  |           |      |   |                            |   |       |  
|Three Months Ended April 30, 2003   |  | $         | (0.3 | ) |                            |   |       |  
|One Month Ended May 31, 2003        |  |           |     |   |                            |   |       |  
|                                    |  |           |      |   |                            |  
|Four Months Ended May 31, 2003      |  | $         | (0.3 | ) |                            |   |       |  
|                                    |  |           |      |   |                            |  
|                                   
|Successor                           |  |           |      |   |                            |   |       |  
|Two Months Ended July 31, 2003      |  | $         | (0.2 | ) |                            | $ | (0.01 | )
|Three Months Ended October 31, 2003 |  |           | (0.3 | ) |                            |   | (0.01 | )
|Three Months Ended January 31, 2004 |  |           | (0.3 | ) |                            |   | (0.01 | )
|                                    |  |           |      |   |                            |  
|Eight Months Ended January 31, 2004 |  | $         | (0.8 | ) |                            | $ | (0.03 | )
|                                    |  |           |      |   |                            |  
|                                   
|Three Months Ended April 30, 2004   |  | $         | (0.3 | ) |                            | $ | (0.01 | )
|Three Months Ended July 31, 2004    |  |           | (0.3 | ) |                            |   | (0.01 | )
|Three Months Ended October 31, 2004 |  |           | (0.3 | ) |                            |   | (0.01 | )
|Three Months Ended January 31, 2005 |  |           | (0.4 | ) |                            |   | (0.01 | )
|                                    |  |           |      |   |                            |  
|Year Ended January 31, 2005         |  | $         | (1.3 | ) |                            | $ | (0.04 | )
|                                    |  |           |      |   |                            |  
|                                   
|Three Months Ended April 30, 2005   |  | $         | (0.7 | ) |                            | $ | (0.02 | )
|Three Months Ended July 31, 2005    |  |           | 3.1  |   |                            |   | 0.08  |  
|                                    |  |           |      |   |                            |  
|Six Months Ended July 31, 2005      |  | $         | 2.4  |   |                            | $ | 0.06  |  
|                                    |  |           |      |   |                            |  



|         |                  
|-------- | -----------------
|Note 10. | Segment Reporting





15



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                  |  |                                  |       |  |            |   |       |       |  |   |       |   |  |   |       |  
|------------------------------------------------- |  | -------------------------------- | ----- |  | ---------- | - | ----- | ----- |  | - | ----- | - |  | - | ----- | -
|                                                  |  | Three Months Ended July 31, 2005 |      
|                                                  |  |                                  |      
|                                                  |  | Automotive                       |       |  |           
|                                                  |  | Wheels                           |       |  | Components |   |       | Other |  |   | Total |  
|                                                  |  |                                  |       |  |            |   |       |       |  |   |       |  
|Net sales                                         |  | $                                | 404.4 |  |            | $ | 161.2 |       |  | $ | 18.7  |   |  | $ | 584.3 |  
|Asset impairments and other restructuring charges |  |                                  | 3.0   |  |            |   | 30.0  |       |  |   |      |   |  |   | 33.0  |  
|Earnings (loss) from operations                   |  |                                  | 4.1   |  |            |   | (42.4 | )     |  |   | (8.8  | ) |  |   | (47.1 | )

|                                                  |  |                                  |       |  |            |   |       |       |  |   |       |  |  |   |       | 
|------------------------------------------------- |  | -------------------------------- | ----- |  | ---------- | - | ----- | ----- |  | - | ----- |  |  | - | ----- | 
|                                                  |  | Three Months Ended July 31, 2004 |      
|                                                  |  |                                  |      
|                                                  |  | Automotive                       |       |  |           
|                                                  |  | Wheels                           |       |  | Components |   |       | Other |  |   | Total | 
|                                                  |  |                                  |       |  |            |   |       |       |  |   |       | 
|Net sales                                         |  | $                                | 349.2 |  |            | $ | 157.6 |       |  | $ | 25.3  |  |  | $ | 532.1 | 
|Asset impairments and other restructuring charges |  |                                  | 0.9   |  |            |   |      |       |  |   |      |  |  |   | 0.9   | 
|Earnings (loss) from operations                   |  |                                  | 17.1  |  |            |   | (8.5  | )     |  |   | 1.0   |  |  |   | 9.6   | 

|                                                  |  |                                |       |  |            |   |       |       |  |   |       |   |  |   |         |  
|------------------------------------------------- |  | ------------------------------ | ----- |  | ---------- | - | ----- | ----- |  | - | ----- | - |  | - | ------- | -
|                                                  |  | Six Months Ended July 31, 2005 |      
|                                                  |  |                                |      
|                                                  |  | Automotive                     |       |  |           
|                                                  |  | Wheels                         |       |  | Components |   |       | Other |  |   | Total |  
|                                                  |  |                                |       |  |            |   |       |       |  |   |       |  
|Net sales                                         |  | $                              | 811.1 |  |            | $ | 352.6 |       |  | $ | 38.6  |   |  | $ | 1,202.3 |  
|Asset impairments and other restructuring charges |  |                                | 3.8   |  |            |   | 30.0  |       |  |   |      |   |  |   | 33.8    |  
|Earnings (loss) from operations                   |  |                                | 23.4  |  |            |   | (41.5 | )     |  |   | (14.2 | ) |  |   | (32.3   | )

|                                                  |  |                                |       |  |            |   |       |       |  |   |       |   |  |   |         | 
|------------------------------------------------- |  | ------------------------------ | ----- |  | ---------- | - | ----- | ----- |  | - | ----- | - |  | - | ------- | 
|                                                  |  | Six Months Ended July 31, 2004 |      
|                                                  |  |                                |      
|                                                  |  | Automotive                     |       |  |           
|                                                  |  | Wheels                         |       |  | Components |   |       | Other |  |   | Total |  
|                                                  |  |                                |       |  |            |   |       |       |  |   |       |  
|Net sales                                         |  | $                              | 719.5 |  |            | $ | 359.0 |       |  | $ | 47.6  |   |  | $ | 1,126.1 | 
|Asset impairments and other restructuring charges |  |                                | 3.5   |  |            |   | (0.2  | )     |  |   |      |   |  |   | 3.3     | 
|Earnings (loss) from operations                   |  |                                | 37.5  |  |            |   | 1.0   |       |  |   | (0.7  | ) |  |   | 37.8    | 

|             |  |                     |         |  |            |   |       |       |  |   |       |  |  |   |         | 
|------------ |  | ------------------- | ------- |  | ---------- | - | ----- | ----- |  | - | ----- |  |  | - | ------- | 
|             |  | As of July 31, 2005 |        
|             |  |                     |        
|             |  | Automotive          |         |  |           
|             |  | Wheels              |         |  | Components |   |       | Other |  |   | Total | 
|             |  |                     |         |  |            |   |       |       |  |   |       | 
|Total assets |  | $                   | 1,392.9 |  |            | $ | 475.4 |       |  | $ | 359.2 |  |  | $ | 2,227.5 | 

|             |  |                        |         |  |            |   |       |       |  |   |       |  |  |   |         | 
|------------ |  | ---------------------- | ------- |  | ---------- | - | ----- | ----- |  | - | ----- |  |  | - | ------- | 
|             |  | As of January 31, 2005 |        
|             |  |                        |        
|             |  | Automotive             |         |  |           
|             |  | Wheels                 |         |  | Components |   |       | Other |  |   | Total | 
|             |  |                        |         |  |            |   |       |       |  |   |       | 
|Total assets |  | $                      | 1,399.6 |  |            | $ | 541.4 |       |  | $ | 361.0 |  |  | $ | 2,302.0 | 



|         |                                             
|-------- | --------------------------------------------
|Note 11. | Condensed Consolidating Financial Statements







| |                                                
| | -----------------------------------------------
| | Guarantor and Nonguarantor Financial Statements



16



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS


For the Six Months Ended July 31, 2005


|                                                                   |                                                              |                       |      |           |              |   |              |              |   |   |              |      |  |       |       |      |  |   |         |       |  
|------------------------------------------------------------------ | ------------------------------------------------------------ | --------------------- | ---- | --------- | ------------ | - | ------------ | ------------ | - | - | ------------ | ---- |  | ----- | ----- | ---- |  | - | ------- | ----- | -
|                                                                   |                                                              |                       |      | Guarantor |              |   | Nonguarantor |              |   |   |              |     
|                                                                   |                                                              | Issuer                |      |           | Subsidiaries |   |              | Subsidiaries |   |   | Eliminations |      |  | Total |      
|                                                                   |                                                              |                       |      |           |              |   |              |              |   |   |              |      |  |       |      
|                                                                   |                                                              | (Dollars in millions) |     
|                                                                   |                                                              | (Unaudited)           |     
|Net sales                                                          |                                                              | $                     | 1.7  |           |              | $ | 517.7        |              |   | $ | 699.4        |      |  | $     | (16.5 | )    |  | $ | 1,202.3 |      
|Cost of goods sold                                                 |                                                              |                       | 12.4 |           |              |   | 493.6        |              |   |   | 611.1        |      |  |       | (16.5 | )    |  |   | 1,100.6 |      
|                                                                   |                                                              |                       |      |           |              |   |              |              |   |   |              |      |  |       |      
|                                                                   | Gross profit (loss)                                          |                       |      | (10.7     | )            |   |              | 24.1         |   |   |              | 88.3 |  |       |       |     |  |   |         | 101.7 |  
|Marketing, general, and administrative                             |                                                              |                       | 2.6  |           |              |   | 45.4         |              |   |   | 42.7         |      |  |       |      |      |  |   | 90.7    |      
|Equity in (earnings) losses of subsidiaries and joint
    ventures |                                                              |                       | 45.8 |           |              |   | (2.1         | )            |   |   |             |      |  |       | (43.7 | )    |  |   |        |      
|Asset impairments and other restructuring charges                  |                                                              |                       |     |           |              |   | 33.2         |              |   |   | 0.6          |      |  |       |      |      |  |   | 33.8    |      
|Other expense, net                                                 |                                                              |                       | 1.3  |           |              |   | 3.0          |              |   |   | 5.2          |      |  |       |      |      |  |   | 9.5     |      
|                                                                   |                                                              |                       |      |           |              |   |              |              |   |   |              |      |  |       |      
|                                                                   | Earnings (loss) from operations                              |                       |      | (60.4     | )            |   |              | (55.4        | ) |   |              | 39.8 |  |       |       | 43.7 |  |   |         | (32.3 | )
|Interest (income) expense, net                                     |                                                              |                       | 17.4 |           |              |   | 0.1          |              |   |   | 13.9         |      |  |       |      |      |  |   | 31.4    |      
|Other non-operating expense                                        |                                                              |                       | 0.4  |           |              |   |             |              |   |   |             |      |  |       |      |      |  |   | 0.4     |      
|                                                                   |                                                              |                       |      |           |              |   |              |              |   |   |              |      |  |       |      
|                                                                   | Earnings (loss) before taxes on income and minority interest |                       |      | (78.2     | )            |   |              | (55.5        | ) |   |              | 25.9 |  |       |       | 43.7 |  |   |         | (64.1 | )
|Income tax expense                                                 |                                                              |                       |     |           |              |   | 0.8          |              |   |   | 8.2          |      |  |       |      |      |  |   | 9.0     |      
|                                                                   |                                                              |                       |      |           |              |   |              |              |   |   |              |      |  |       |      
|                                                                   | Earnings (loss) before minority interest                     |                       |      | (78.2     | )            |   |              | (56.3        | ) |   |              | 17.7 |  |       |       | 43.7 |  |   |         | (73.1 | )
|Minority interest                                                  |                                                              |                       |     |           |              |   |             |              |   |   | 5.1          |      |  |       |      |      |  |   | 5.1     |      
|                                                                   |                                                              |                       |      |           |              |   |              |              |   |   |              |      |  |       |      
|                                                                   | Net income (loss)                                            |                       | $    | (78.2     | )            |   | $            | (56.3        | ) |   | $            | 12.6 |  |       | $     | 43.7 |  |   | $       | (78.2 | )
|                                                                   |                                                              |                       |      |           |              |   |              |              |   |   |              |      |  |       |      

17



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS


For the Six Months Ended July 31, 2004


|                                                                   |                                                              |                       |       |           |              |   |              |              |   |   |              |      |  |       |       |       |   |   |         |       |  
|------------------------------------------------------------------ | ------------------------------------------------------------ | --------------------- | ----- | --------- | ------------ | - | ------------ | ------------ | - | - | ------------ | ---- |  | ----- | ----- | ----- | - | - | ------- | ----- | -
|                                                                   |                                                              |                       |       | Guarantor |              |   | Nonguarantor |              |   |   |              |     
|                                                                   |                                                              | Issuer                |       |           | Subsidiaries |   |              | Subsidiaries |   |   | Eliminations |      |  | Total |      
|                                                                   |                                                              |                       |       |           |              |   |              |              |   |   |              |      |  |       |      
|                                                                   |                                                              | (Dollars in millions) |      
|                                                                   |                                                              | (Unaudited)           |      
|Net sales                                                          |                                                              | $                     | 1.8   |           |              | $ | 535.5        |              |   | $ | 601.6        |      |  | $     | (12.8 | )     |   | $ | 1,126.1 |      
|Cost of goods sold                                                 |                                                              |                       | 13.2  |           |              |   | 487.5        |              |   |   | 514.3        |      |  |       | (12.8 | )     |   |   | 1,002.2 |      
|                                                                   |                                                              |                       |       |           |              |   |              |              |   |   |              |      |  |       |      
|                                                                   | Gross profit (loss)                                          |                       |       | (11.4     | )            |   |              | 48.0         |   |   |              | 87.3 |  |       |       |      |   |   |         | 123.9 |  
|Marketing, general, and administrative                             |                                                              |                       | (1.6  | )         |              |   | 46.0         |              |   |   | 38.8         |      |  |       |      |       |   |   | 83.2    |      
|Equity in (earnings) losses of subsidiaries and joint
    ventures |                                                              |                       | (18.7 | )         |              |   | 2.7          |              |   |   |             |      |  |       | 16.0  |       |   |   |        |      
|Asset impairments and other restructuring charges                  |                                                              |                       | (0.2  | )         |              |   | 3.5          |              |   |   |             |      |  |       |      |       |   |   | 3.3     |      
|Other (income) expense, net                                        |                                                              |                       | (1.6  | )         |              |   |             |              |   |   | (0.3         | )    |  |       | 1.5   |       |   |   | (0.4    | )    
|                                                                   |                                                              |                       |       |           |              |   |              |              |   |   |              |      |  |       |      
|                                                                   | Earnings (loss) from operations                              |                       |       | 10.7      |              |   |              | (4.2         | ) |   |              | 48.8 |  |       |       | (17.5 | ) |   |         | 37.8  |  
|Interest (income) expense, net                                     |                                                              |                       | 12.1  |           |              |   |             |              |   |   | 15.3         |      |  |       |      |       |   |   | 27.4    |      
|Other non-operating (income) expense                               |                                                              |                       | 0.3   |           |              |   |             |              |   |   | (0.1         | )    |  |       |      |       |   |   | 0.2     |      
|Loss on early extinguishment of debt                               |                                                              |                       | 12.2  |           |              |   |             |              |   |   |             |      |  |       |      |       |   |   | 12.2    |      
|                                                                   |                                                              |                       |       |           |              |   |              |              |   |   |              |      |  |       |      
|                                                                   | Earnings (loss) before taxes on income and minority interest |                       |       | (13.9     | )            |   |              | (4.2         | ) |   |              | 33.6 |  |       |       | (17.5 | ) |   |         | (2.0  | )
|Income tax expense                                                 |                                                              |                       |      |           |              |   | 1.3          |              |   |   | 9.4          |      |  |       |      |       |   |   | 10.7    |      
|                                                                   |                                                              |                       |       |           |              |   |              |              |   |   |              |      |  |       |      
|                                                                   | Earnings (loss) before minority interest                     |                       |       | (13.9     | )            |   |              | (5.5         | ) |   |              | 24.2 |  |       |       | (17.5 | ) |   |         | (12.7 | )
|Minority interest                                                  |                                                              |                       |      |           |              |   |             |              |   |   | 3.8          |      |  |       |      |       |   |   | 3.8     |      
|Cumulative effect of change in accounting principle                |                                                              |                       |      |           |              |   |             |              |   |   | (2.6         | )    |  |       |      |       |   |   | (2.6    | )    
|                                                                   |                                                              |                       |       |           |              |   |              |              |   |   |              |      |  |       |      
|                                                                   | Net income (loss)                                            |                       | $     | (13.9     | )            |   | $            | (5.5         | ) |   | $            | 23.0 |  |       | $     | (17.5 | ) |   | $       | (13.9 | )
|                                                                   |                                                              |                       |       |           |              |   |              |              |   |   |              |      |  |       |      

18



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


CONDENSED CONSOLIDATING BALANCE SHEETS


As of July 31, 2005


|                                              |                                            |                       |         |           |              |   |              |              |  |   |              |         |  |       |          |          |   |   |        |         | 
|--------------------------------------------- | ------------------------------------------ | --------------------- | ------- | --------- | ------------ | - | ------------ | ------------ |  | - | ------------ | ------- |  | ----- | -------- | -------- | - | - | ------ | ------- | 
|                                              |                                            |                       |         | Guarantor |              |   | Nonguarantor |              |  |   |              |        
|                                              |                                            | Issuer                |         |           | Subsidiaries |   |              | Subsidiaries |  |   | Eliminations |         |  | Total |         
|                                              |                                            |                       |         |           |              |   |              |              |  |   |              |         |  |       |         
|                                              |                                            | (Dollars in millions) |        
|                                              |                                            | (Unaudited)           |        
|Cash and cash equivalents                     |                                            | $                     | (9.4    | )         |              | $ |             |              |  | $ | 47.9         |         |  | $     |         |          |   | $ | 38.5   |        
|Receivables                                   |                                            |                       | (123.7  | )         |              |   | 143.0        |              |  |   | 252.0        |         |  |       |         |          |   |   | 271.3  |        
|Other receivables                             |                                            |                       | 79.8    |           |              |   |             |              |  |   |             |         |  |       |         |          |   |   | 79.8   |        
|Inventories                                   |                                            |                       | 1.4     |           |              |   | 82.5         |              |  |   | 137.3        |         |  |       |         |          |   |   | 221.2  |        
|Prepaid expenses and other                    |                                            |                       | 12.2    |           |              |   | 10.8         |              |  |   | 6.2          |         |  |       |         |          |   |   | 29.2   |        
|                                              |                                            |                       |         |           |              |   |              |              |  |   |              |         |  |       |         
|                                              | Total current assets                       |                       |         | (39.7     | )            |   |              | 236.3        |  |   |              | 443.4   |  |       |          |         |   |   |        | 640.0   | 
|Property, plant, and equipment, net           |                                            |                       | 36.7    |           |              |   | 310.6        |              |  |   | 579.6        |         |  |       |         |          |   |   | 926.9  |        
|Goodwill and other assets                     |                                            |                       | 1,200.7 |           |              |   | 46.6         |              |  |   | 597.8        |         |  |       | (1,184.5 | )        |   |   | 660.6  |        
|                                              |                                            |                       |         |           |              |   |              |              |  |   |              |         |  |       |         
|                                              | Total assets                               |                       | $       | 1,197.7   |              |   | $            | 593.5        |  |   | $            | 1,620.8 |  |       | $        | (1,184.5 | ) |   | $      | 2,227.5 | 
|                                              |                                            |                       |         |           |              |   |              |              |  |   |              |         |  |       |         
|Bank borrowings and other notes               |                                            | $                     |        |           |              | $ |             |              |  | $ | 0.5          |         |  | $     |         |          |   | $ | 0.5    |        
|Current portion of long-term debt             |                                            |                       | 4.6     |           |              |   | 1.2          |              |  |   | 1.9          |         |  |       |         |          |   |   | 7.7    |        
|Accounts payable and accrued liabilities      |                                            |                       | 68.2    |           |              |   | 82.9         |              |  |   | 254.3        |         |  |       |         |          |   |   | 405.4  |        
|                                              |                                            |                       |         |           |              |   |              |              |  |   |              |         |  |       |         
|                                              | Total current liabilities                  |                       |         | 72.8      |              |   |              | 84.1         |  |   |              | 256.7   |  |       |          |         |   |   |        | 413.6   | 
|Long-term debt, net of current portion        |                                            |                       | 683.9   |           |              |   | 21.6         |              |  |   | 15.6         |         |  |       |         |          |   |   | 721.1  |        
|Pension and other long-term liabilities       |                                            |                       | 244.2   |           |              |   | 0.4          |              |  |   | 239.7        |         |  |       |         |          |   |   | 484.3  |        
|Redeemable preferred stock                    |                                            |                       | 11.7    |           |              |   |             |              |  |   |             |         |  |       |         |          |   |   | 11.7   |        
|Minority interest                             |                                            |                       |        |           |              |   |             |              |  |   | 33.5         |         |  |       |         |          |   |   | 33.5   |        
|Parent loans                                  |                                            |                       | (378.2  | )         |              |   | 24.3         |              |  |   | 352.4        |         |  |       | 1.5      |          |   |   |       |        
|Common stock                                  |                                            |                       |        |           |              |   |             |              |  |   |             |         |  |       |         |          |   |   |       |        
|Additional paid-in capital                    |                                            |                       | 683.2   |           |              |   | 614.6        |              |  |   | 588.1        |         |  |       | (1,202.7 | )        |   |   | 683.2  |        
|Retained earnings (accumulated deficit)       |                                            |                       | (195.8  | )         |              |   | (151.5       | )            |  |   | 74.8         |         |  |       | 76.7     |          |   |   | (195.8 | )      
|Accumulated other comprehensive income (loss) |                                            |                       | 75.9    |           |              |   |             |              |  |   | 60.0         |         |  |       | (60.0    | )        |   |   | 75.9   |        
|                                              |                                            |                       |         |           |              |   |              |              |  |   |              |         |  |       |         
|                                              | Total stockholders equity                 |                       |         | 563.3     |              |   |              | 463.1        |  |   |              | 722.9   |  |       |          | (1,186.0 | ) |   |        | 563.3   | 
|                                              |                                            |                       |         |           |              |   |              |              |  |   |              |         |  |       |         
|                                              | Total liabilities and stockholders equity |                       | $       | 1,197.7   |              |   | $            | 593.5        |  |   | $            | 1,620.8 |  |       | $        | (1,184.5 | ) |   | $      | 2,227.5 | 
|                                              |                                            |                       |         |           |              |   |              |              |  |   |              |         |  |       |         

19



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


CONDENSED CONSOLIDATING BALANCE SHEETS


As of January 31, 2005


|                                              |                                            |                       |         |           |              |   |              |              |  |   |              |         |  |       |          |          |   |   |         |         | 
|--------------------------------------------- | ------------------------------------------ | --------------------- | ------- | --------- | ------------ | - | ------------ | ------------ |  | - | ------------ | ------- |  | ----- | -------- | -------- | - | - | ------- | ------- | 
|                                              |                                            |                       |         | Guarantor |              |   | Nonguarantor |              |  |   |              |        
|                                              |                                            | Issuer                |         |           | Subsidiaries |   |              | Subsidiaries |  |   | Eliminations |         |  | Total |         
|                                              |                                            |                       |         |           |              |   |              |              |  |   |              |         |  |       |         
|                                              |                                            | (Dollars in millions) |        
|                                              |                                            | (Unaudited)           |        
|Cash and cash equivalents                     |                                            | $                     | (9.3    | )         |              | $ | (0.2         | )            |  | $ | 44.7         |         |  | $     |         |          |   | $ | 35.2    |        
|Receivables                                   |                                            |                       | (135.0  | )         |              |   | 151.2        |              |  |   | 225.2        |         |  |       |         |          |   |   | 241.4   |        
|Other receivables                             |                                            |                       | 77.0    |           |              |   |             |              |  |   |             |         |  |       |         |          |   |   | 77.0    |        
|Inventories                                   |                                            |                       | 4.6     |           |              |   | 89.0         |              |  |   | 119.0        |         |  |       |         |          |   |   | 212.6   |        
|Prepaid expenses and other                    |                                            |                       | 11.4    |           |              |   | 12.2         |              |  |   | 5.7          |         |  |       |         |          |   |   | 29.3    |        
|                                              |                                            |                       |         |           |              |   |              |              |  |   |              |         |  |       |         
|                                              | Total current assets                       |                       |         | (51.3     | )            |   |              | 252.2        |  |   |              | 394.6   |  |       |          |         |   |   |         | 595.5   | 
|Property, plant, and equipment, net           |                                            |                       | 38.9    |           |              |   | 342.1        |              |  |   | 619.3        |         |  |       |         |          |   |   | 1,000.3 |        
|Goodwill and other assets                     |                                            |                       | 1,291.7 |           |              |   | 52.5         |              |  |   | 640.2        |         |  |       | (1,278.2 | )        |   |   | 706.2   |        
|                                              |                                            |                       |         |           |              |   |              |              |  |   |              |         |  |       |         
|                                              | Total assets                               |                       | $       | 1,279.3   |              |   | $            | 646.8        |  |   | $            | 1,654.1 |  |       | $        | (1,278.2 | ) |   | $       | 2,302.0 | 
|                                              |                                            |                       |         |           |              |   |              |              |  |   |              |         |  |       |         
|Bank borrowings and other notes               |                                            | $                     |        |           |              | $ |             |              |  | $ | 0.6          |         |  | $     |         |          |   | $ | 0.6     |        
|Current portion of long-term debt             |                                            |                       | 4.6     |           |              |   | 1.3          |              |  |   | 4.6          |         |  |       |         |          |   |   | 10.5    |        
|Accounts payable and accrued liabilities      |                                            |                       | 76.1    |           |              |   | 88.6         |              |  |   | 240.6        |         |  |       |         |          |   |   | 405.3   |        
|                                              |                                            |                       |         |           |              |   |              |              |  |   |              |         |  |       |         
|                                              | Total current liabilities                  |                       |         | 80.7      |              |   |              | 89.9         |  |   |              | 245.8   |  |       |          |         |   |   |         | 416.4   | 
|Long-term debt, net of current portion        |                                            |                       | 606.6   |           |              |   | 7.1          |              |  |   | 17.4         |         |  |       |         |          |   |   | 631.1   |        
|Pension and other long-term liabilities       |                                            |                       | 251.9   |           |              |   | 0.4          |              |  |   | 255.4        |         |  |       |         |          |   |   | 507.7   |        
|Redeemable preferred stock                    |                                            |                       | 11.3    |           |              |   |             |              |  |   |             |         |  |       |         |          |   |   | 11.3    |        
|Minority interest                             |                                            |                       |        |           |              |   |             |              |  |   | 33.7         |         |  |       |         |          |   |   | 33.7    |        
|Parent loans                                  |                                            |                       | (373.0  | )         |              |   | 27.0         |              |  |   | 345.5        |         |  |       | 0.5      |          |   |   |        |        
|Common stock                                  |                                            |                       |        |           |              |   |             |              |  |   |             |         |  |       |         |          |   |   |        |        
|Additional paid-in capital                    |                                            |                       | 680.3   |           |              |   | 617.4        |              |  |   | 588.0        |         |  |       | (1,205.4 | )        |   |   | 680.3   |        
|Retained earnings (accumulated deficit)       |                                            |                       | (117.6  | )         |              |   | (95.2        | )            |  |   | 62.2         |         |  |       | 33.0     |          |   |   | (117.6  | )      
|Accumulated other comprehensive income (loss) |                                            |                       | 139.1   |           |              |   | 0.2          |              |  |   | 106.1        |         |  |       | (106.3   | )        |   |   | 139.1   |        
|                                              |                                            |                       |         |           |              |   |              |              |  |   |              |         |  |       |         
|                                              | Total stockholders equity                 |                       |         | 701.8     |              |   |              | 522.4        |  |   |              | 756.3   |  |       |          | (1,278.7 | ) |   |         | 701.8   | 
|                                              |                                            |                       |         |           |              |   |              |              |  |   |              |         |  |       |         
|                                              | Total liabilities and stockholders equity |                       | $       | 1,279.3   |              |   | $            | 646.8        |  |   | $            | 1,654.1 |  |       | $        | (1,278.2 | ) |   | $       | 2,302.0 | 
|                                              |                                            |                       |         |           |              |   |              |              |  |   |              |         |  |       |         

20



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HLI OPERATING COMPANY, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS


For the Six Months Ended July 31, 2005


|                                                       |                                                    |                                                  |       |           |              |   |              |              |       |   |              |       |       |   |   |   |   |   |       |       |       |  
|------------------------------------------------------ | -------------------------------------------------- | ------------------------------------------------ | ----- | --------- | ------------ | - | ------------ | ------------ | ----- | - | ------------ | ----- | ----- | - | - | - | - | - | ----- | ----- | ----- | -
|                                                       |                                                    |                                                  |       | Guarantor |              |   | Nonguarantor |              |       |   |              |      
|                                                       |                                                    | Issuer                                           |       |           | Subsidiaries |   |              | Subsidiaries |       |   | Eliminations |       | Total |  
|                                                       |                                                    |                                                  |       |           |              |   |              |              |       |   |              |       |       |  
|                                                       |                                                    | (Dollars in millions)                            |      
|                                                       |                                                    | (Unaudited)                                      |      
|Cash flows provided by (used for) operating activities |                                                    | $                                                | (54.0 | )         |              | $ | 16.2         |              |       | $ | 20.2         |       |       | $ |  |   |   | $ | (17.6 | )    
|                                                       |                                                    |                                                  |       |           |              |   |              |              |       |   |              |       |       |   |  
|Cash flows from investing activities:                  |                                                    |                                                  |       |           |              |   |              |              |       |   |              |       |       |   |   |   |   |   |       |      
|                                                       | Purchase of property, plant, equipment and tooling |                                                  |       | (0.6      | )            |   |              | (32.6        | )     |   |              | (34.9 | )     |   |   |  |   |   |       | (68.1 | )    
|                                                       | Proceeds from disposal of assets and businesses    |                                                  |       |          |              |   |              | 0.2          |       |   |              | (0.3  | )     |   |   |  |   |   |       | (0.1  | )    
|                                                       |                                                    |                                                  |       |           |              |   |              |              |       |   |              |       |       |   |  
|                                                       |                                                    | Cash used for investing activities               |       |           | (0.6         | ) |              |              | (32.4 | ) |              |       | (35.2 | ) |   |   |  |   |       |       | (68.2 | )
|                                                       |                                                    |                                                  |       |           |              |   |              |              |       |   |              |       |       |   |  
|Cash flows from financing activities:                  |                                                    |                                                  |       |           |              |   |              |              |       |   |              |       |       |   |   |   |   |   |      |      
|                                                       | Changes in bank borrowings and credit facility     |                                                  |       |          |              |   |              |             |       |   |              | (0.1  | )     |   |   |  |   |   |       | (0.1  | )    
|                                                       | Repayment of Term Loan B, net of related fees      |                                                  |       | (72.7     | )            |   |              |             |       |   |              |      |       |   |   |  |   |   |       | (72.7 | )    
|                                                       | Borrowings from Term Loan C                        |                                                  |       | 150.0     |              |   |              |             |       |   |              |      |       |   |   |  |   |   |       | 150.0 |      
|                                                       | Borrowings (repayment) of long term debt           |                                                  |       |          |              |   |              | 14.5         |       |   |              | (2.2  | )     |   |   |  |   |   |       | 12.3  |      
|                                                       |                                                    |                                                  |       |           |              |   |              |              |       |   |              |       |       |   |  
|                                                       |                                                    | Cash provided by (used for) financing activities |       |           | 77.3         |   |              |              | 14.5  |   |              |       | (2.3  | ) |   |   |  |   |       |       | 89.5  |  
|                                                       |                                                    |                                                  |       |           |              |   |              |              |       |   |              |       |       |   |  
|Increase (decrease) in parent loans and advances       |                                                    |                                                  | (22.8 | )         |              |   | 1.9          |              |       |   | 20.9         |       |       |   |  |   |   |   |      |      
|Effect of exchange rates on cash and cash equivalents  |                                                    |                                                  |      |           |              |   |             |              |       |   | (0.4         | )     |       |   |  |   |   |   | (0.4  | )    
|                                                       |                                                    |                                                  |       |           |              |   |              |              |       |   |              |       |       |   |  
|                                                       | Increase (decrease) in cash and cash equivalents   |                                                  |       | (0.1      | )            |   |              | 0.2          |       |   |              | 3.2   |       |   |   |  |   |   |       | 3.3   |      
|Cash and cash equivalents at beginning of period       |                                                    |                                                  | (9.3  | )         |              |   | (0.2         | )            |       |   | 44.7         |       |       |   |  |   |   |   | 35.2  |      
|                                                       |                                                    |                                                  |       |           |              |   |              |              |       |   |              |       |       |   |  
|Cash and cash equivalents at end of period             |                                                    | $                                                | (9.4  | )         |              | $ |             |              |       | $ | 47.9         |       |       | $ |  |   |   | $ | 38.5  |      
|                                                       |                                                    |                                                  |       |           |              |   |              |              |       |   |              |       |       |   |  

21



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HLI OPERATING COMPANY, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS


For the Six Months Ended July 31, 2004


|                                                                                 |                                                    |                                                  |       |           |              |   |              |              |       |   |              |       |       |   |   |   |   |   |       |       |       |  
|-------------------------------------------------------------------------------- | -------------------------------------------------- | ------------------------------------------------ | ----- | --------- | ------------ | - | ------------ | ------------ | ----- | - | ------------ | ----- | ----- | - | - | - | - | - | ----- | ----- | ----- | -
|                                                                                 |                                                    |                                                  |       | Guarantor |              |   | Nonguarantor |              |       |   |              |      
|                                                                                 |                                                    | Issuer                                           |       |           | Subsidiaries |   |              | Subsidiaries |       |   | Eliminations |       | Total |  
|                                                                                 |                                                    |                                                  |       |           |              |   |              |              |       |   |              |       |       |  
|                                                                                 |                                                    | (Dollars in millions)                            |      
|                                                                                 |                                                    | (Unaudited)                                      |      
|Cash flows provided by (used for) operating activities                           |                                                    | $                                                | (29.1 | )         |              | $ | 39.6         |              |       | $ | 54.3         |       |       | $ |  |   |   | $ | 64.8  |      
|                                                                                 |                                                    |                                                  |       |           |              |   |              |              |       |   |              |       |       |   |  
|Cash flows from investing activities:                                            |                                                    |                                                  |       |           |              |   |              |              |       |   |              |       |       |   |   |   |   |   |       |      
|                                                                                 | Purchase of property, plant, equipment and tooling |                                                  |       | (3.3      | )            |   |              | (29.2        | )     |   |              | (39.5 | )     |   |   |  |   |   |       | (72.0 | )    
|                                                                                 | Proceeds from sale of assets                       |                                                  |       | 1.6       |              |   |              | 0.1          |       |   |              | 0.2   |       |   |   |  |   |   |       | 1.9   |      
|                                                                                 |                                                    |                                                  |       |           |              |   |              |              |       |   |              |       |       |   |  
|                                                                                 |                                                    | Cash used for investing activities               |       |           | (1.7         | ) |              |              | (29.1 | ) |              |       | (39.3 | ) |   |   |  |   |       |       | (70.1 | )
|                                                                                 |                                                    |                                                  |       |           |              |   |              |              |       |   |              |       |       |   |  
|Cash flows from financing activities:                                            |                                                    |                                                  |       |           |              |   |              |              |       |   |              |       |       |   |   |   |   |   |       |      
|Changes in bank borrowings and credit facility                                   |                                                    |                                                  |      |           |              |   |             |              |       |   | 0.6          |       |       |   |  |   |   |   | 0.6   |      
|Net proceeds from issuance of common stock                                       |                                                    |                                                  |      |           |              |   |             |              |       |   |             |       |       |   |  |   |   |   | 117.0 |      
|Capital contribution                                                             |                                                    |                                                  | 117.0 |           |              |   |             |              |       |   |             |       |       |   |  |   |   |   |      |      
|Proceeds from (redemption of) Senior Notes, net of discount and
    related fees |                                                    |                                                  | (96.7 | )         |              |   |             |              |       |   |             |       |       |   |  |   |   |   | (96.7 | )    
|Proceeds from (redemption of) Term Loan, net of related fees                     |                                                    |                                                  | (16.0 | )         |              |   |             |              |       |   |             |       |       |   |  |   |   |   | (16.0 | )    
|Repayment of long-term debt                                                      |                                                    |                                                  | (1.9  | )         |              |   |             |              |       |   | (3.5         | )     |       |   |  |   |   |   | (5.4  | )    
|Repayment of notes payable issued in connection with purchases
    of businesses |                                                    |                                                  |      |           |              |   |             |              |       |   | (13.1        | )     |       |   |  |   |   |   | (13.1 | )    
|                                                                                 |                                                    |                                                  |       |           |              |   |              |              |       |   |              |       |       |   |  
|                                                                                 |                                                    | Cash provided by (used for) financing activities |       |           | 2.4          |   |              |              |      |   |              |       | (16.0 | ) |   |   |  |   |       |       | (13.6 | )
|                                                                                 |                                                    |                                                  |       |           |              |   |              |              |       |   |              |       |       |   |  
|Increase (decrease) in parent loans and advances                                 |                                                    |                                                  | 17.2  |           |              |   | (9.9         | )            |       |   | (7.3         | )     |       |   |  |   |   |   |      |      
|Effect of exchange rates on cash and cash equivalents                            |                                                    |                                                  |      |           |              |   |             |              |       |   | (0.8         | )     |       |   |  |   |   |   | (0.8  | )    
|                                                                                 |                                                    |                                                  |       |           |              |   |              |              |       |   |              |       |       |   |  
|                                                                                 |                                                    | Increase (decrease) in cash and cash equivalents |       |           | (11.2        | ) |              |              | 0.6   |   |              |       | (9.1  | ) |   |   |  |   |       |       | (19.7 | )
|Adjustment for the elimination of the one month lag                              |                                                    |                                                  |      |           |              |   |             |              |       |   | 1.4          |       |       |   |  |   |   |   | 1.4   |      
|Cash and cash equivalents at beginning of period                                 |                                                    |                                                  | (3.2  | )         |              |   | (0.6         | )            |       |   | 52.3         |       |       |   |  |   |   |   | 48.5  |      
|                                                                                 |                                                    |                                                  |       |           |              |   |              |              |       |   |              |       |       |   |  
|Cash and cash equivalents at end of period                                       |                                                    | $                                                | (14.4 | )         |              | $ |             |              |       | $ | 44.6         |       |       | $ |  |   |   | $ | 30.2  |      
|                                                                                 |                                                    |                                                  |       |           |              |   |              |              |       |   |              |       |       |   |  

22



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

Executive Summary






| |                 
| | ----------------
| | Company Overview







Results of Operations








| |                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------
| | Consolidated Results  Comparison of the Three
    Months Ended July 31, 2005 to the Three Months Ended
    July 31, 2004



23



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|                                                  |                                 |                             |      |       |       |   |      |          |       |   |          |       |      |  |       |       |     |  
|------------------------------------------------- | ------------------------------- | --------------------------- | ---- | ----- | ----- | - | ---- | -------- | ----- | - | -------- | ----- | ---- |  | ----- | ----- | --- | -
|                                                  |                                 | Three Months Ended July 31, |     
|                                                  |                                 |                             |     
|                                                  |                                 | 2005                        |      |       | 2004  |   |      | $ Change |       |   | % Change |      
|                                                  |                                 |                             |      |       |       |   |      |          |       |   |          |      
|Net sales:                                        |                                 |                             |      |       |       |   |      |          |       |   |          |       |      |  |       |      
|                                                  | Automotive Wheels               |                             | $    | 404.4 |       |   | $    | 349.2    |       |   | $        | 55.2  |      |  |       | 15.8  | %  
|                                                  | Components                      |                             |      | 161.2 |       |   |      | 157.6    |       |   |          | 3.6   |      |  |       | 2.3   | %  
|                                                  | Other                           |                             |      | 18.7  |       |   |      | 25.3     |       |   |          | (6.6  | )    |  |       | (26.1 | )% 
|                                                  |                                 |                             |      |       |       |   |      |          |       |   |          |      
|                                                  |                                 | Total                       |      | $     | 584.3 |   |      | $        | 532.1 |   |          | $     | 52.2 |  |       |       | 9.8 | %
|                                                  |                                 |                             |      |       |       |   |      |          |       |   |          |      
|Gross profit                                      |                                 | $                           | 39.5 |       |       | $ | 49.6 |          |       | $ | (10.1    | )     |      |  | (20.4 | )%   
|Marketing, general, and administrative            |                                 |                             | 46.9 |       |       |   | 40.1 |          |       |   | 6.8      |       |      |  | 17.0  | %    
|Asset impairments and other restructuring charges |                                 |                             | 33.0 |       |       |   | 0.9  |          |       |   | 32.1     |       |      |  |       |      
|Other (income) expense, net                       |                                 |                             | 6.7  |       |       |   | (1.0 | )        |       |   | 7.7      |       |      |  |       |      
|                                                  |                                 |                             |      |       |       |   |      |          |       |   |          |      
|                                                  | Earnings (loss) from operations |                             |      | (47.1 | )     |   |      | 9.6      |       |   |          | (56.7 | )    |  |       |       |    
|Interest expense, net                             |                                 |                             | 16.3 |       |       |   | 14.0 |          |       |   | 2.3      |       |      |  | 16.4  | %    
|Other non-operating expense                       |                                 |                             | 0.2  |       |       |   | 0.2  |          |       |   |         |       |      |  |       |      
|Income tax expense                                |                                 |                             | 4.0  |       |       |   | 4.9  |          |       |   | (0.9     | )     |      |  | (18.4 | )%   
|Minority interest                                 |                                 |                             | 2.5  |       |       |   | 1.6  |          |       |   | 0.9      |       |      |  | 56.3  | %    
|                                                  |                                 |                             |      |       |       |   |      |          |       |   |          |      
|                                                  | Net loss                        |                             | $    | (70.1 | )     |   | $    | (11.1    | )     |   | $        | (59.0 | )    |  |       |       |    
|                                                  |                                 |                             |      |       |       |   |      |          |       |   |          |      



| |      
| | -----
| | Sales





| |             
| | ------------
| | Gross profit



24



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##### Table of Contents





| |                                       
| | --------------------------------------
| | Marketing, general, and administrative





| |                                                  
| | -------------------------------------------------
| | Asset Impairments and Other Restructuring Charges





| |                      
| | ---------------------
| | Interest expense, net





| |             
| | ------------
| | Income taxes





| |         
| | --------
| | Net loss





| |                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------
| | Segment Results  Comparison of the Three Months
    Ended July 31, 2005 to the Three Months Ended July 31,
    2004



25



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##### Table of Contents









| |                  
| | -----------------
| | Automotive Wheels



|                                                   |                                                 |                                                         |       |     |      |   |       |          |     |   |       |     |     | 
|-------------------------------------------------- | ----------------------------------------------- | ------------------------------------------------------- | ----- | --- | ---- | - | ----- | -------- | --- | - | ----- | --- | --- | 
|                                                   |                                                 | Three Months Ended July 31,                             |      
|                                                   |                                                 |                                                         |      
|                                                   |                                                 | 2005                                                    |       |     | 2004 |   |       | $ Change |    
|                                                   |                                                 |                                                         |       |     |      |   |       |          |    
|Net sales                                          |                                                 | $                                                       | 404.4 |     |      | $ | 349.2 |          |     | $ | 55.2  |    
|Asset impairments and other restructuring charges: |                                                 |                                                         |       |     |      |   |       |          |     |   |       |    
|                                                   | Facility closure costs                          |                                                         | $     | 0.9 |      |   | $     | 0.3      |     |   | $     | 0.6 |    
|                                                   | Impairment of machinery, equipment, and tooling |                                                         |       | 0.6 |      |   |       |         |     |   |       | 0.6 |    
|                                                   | Severance and other restructuring costs         |                                                         |       | 1.5 |      |   |       | 0.6      |     |   |       | 0.9 |    
|                                                   |                                                 |                                                         |       |     |      |   |       |          |    
|                                                   |                                                 | Total asset impairments and other restructuring charges |       | $   | 3.0  |   |       | $        | 0.9 |   |       | $   | 2.1 | 
|                                                   |                                                 |                                                         |       |     |      |   |       |          |    
|Earnings from operations                           |                                                 | $                                                       | 4.1   |     |      | $ | 17.1  |          |     | $ | (13.0 | )  



| |          
| | ---------
| | Net sales





| |                                                  
| | -------------------------------------------------
| | Asset impairments and other restructuring charges





| |                         
| | ------------------------
| | Earnings from operations



26



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##### Table of Contents





| |           
| | ----------
| | Components



|                                                   |                                                 |                                                         |       |      |      |   |       |          |   |   |       |      |      | 
|-------------------------------------------------- | ----------------------------------------------- | ------------------------------------------------------- | ----- | ---- | ---- | - | ----- | -------- | - | - | ----- | ---- | ---- | 
|                                                   |                                                 | Three Months Ended July 31,                             |      
|                                                   |                                                 |                                                         |      
|                                                   |                                                 | 2005                                                    |       |      | 2004 |   |       | $ Change |  
|                                                   |                                                 |                                                         |       |      |      |   |       |          |  
|Net sales                                          |                                                 | $                                                       | 161.2 |      |      | $ | 157.6 |          |   | $ | 3.6   |     
|Asset impairments and other restructuring charges: |                                                 |                                                         |       |      |      |   |       |          |   |   |       |     
|                                                   | Facility closure costs                          |                                                         | $     |     |      |   | $     |         |   |   | $     |     |     
|                                                   | Impairment of machinery, equipment, and tooling |                                                         |       | 30.0 |      |   |       |         |   |   |       | 30.0 |     
|                                                   | Severance and other restructuring costs         |                                                         |       |     |      |   |       |         |   |   |       |     |     
|                                                   |                                                 |                                                         |       |      |      |   |       |          |  
|                                                   |                                                 | Total asset impairments and other restructuring charges |       | $    | 30.0 |   |       | $        |  |   |       | $    | 30.0 | 
|                                                   |                                                 |                                                         |       |      |      |   |       |          |  
|Loss from operations                               |                                                 | $                                                       | (42.4 | )    |      | $ | (8.5  | )        |   | $ | (33.9 | )   



| |          
| | ---------
| | Net sales





| |                                                  
| | -------------------------------------------------
| | Asset impairments and other restructuring charges





| |                         
| | ------------------------
| | Earnings from operations





| |      
| | -----
| | Other



|                                |  |                             |      |   |      |   |      |          |  |   |      |  
|------------------------------- |  | --------------------------- | ---- | - | ---- | - | ---- | -------- |  | - | ---- | -
|                                |  | Three Months Ended July 31, |     
|                                |  |                             |     
|                                |  | 2005                        |      |   | 2004 |   |      | $ Change | 
|                                |  |                             |      |   |      |   |      |          | 
|Net sales                       |  | $                           | 18.7 |   |      | $ | 25.3 |          |  | $ | (6.6 | )
|Earnings (loss) from operations |  | $                           | (8.8 | ) |      | $ | 1.0  |          |  |   | (9.8 | )



| |          
| | ---------
| | Net sales



27



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##### Table of Contents





| |                                
| | -------------------------------
| | Earnings (loss) from operations





| |                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------
| | Consolidated Results  Comparison of the Six
    Months Ended July 31, 2005 to the Six Months Ended
    July 31, 2004



|                                                                                                                  |                                 |                           |       |       |         |   |       |          |         |   |          |       |      |  |        |        |     |  
|----------------------------------------------------------------------------------------------------------------- | ------------------------------- | ------------------------- | ----- | ----- | ------- | - | ----- | -------- | ------- | - | -------- | ----- | ---- |  | ------ | ------ | --- | -
|                                                                                                                  |                                 | Six Months Ended July 31, |      
|                                                                                                                  |                                 |                           |      
|                                                                                                                  |                                 | 2005                      |       |       | 2004    |   |       | $ Change |         |   | % Change |      
|                                                                                                                  |                                 |                           |       |       |         |   |       |          |         |   |          |      
|Net sales:                                                                                                        |                                 |                           |       |       |         |   |       |          |         |   |          |       |      |  |        |       
|                                                                                                                  | Automotive Wheels               |                           | $     | 811.1 |         |   | $     | 719.5    |         |   | $        | 91.6  |      |  |        | 12.7   | %  
|                                                                                                                  | Components                      |                           |       | 352.6 |         |   |       | 359.0    |         |   |          | (6.4  | )    |  |        | (1.8   | )% 
|                                                                                                                  | Other                           |                           |       | 38.6  |         |   |       | 47.6     |         |   |          | (9.0  | )    |  |        | (18.9  | )% 
|                                                                                                                  |                                 |                           |       |       |         |   |       |          |         |   |          |      
|                                                                                                                  |                                 | Total                     |       | $     | 1,202.3 |   |       | $        | 1,126.1 |   |          | $     | 76.2 |  |        |        | 6.8 | %
|                                                                                                                  |                                 |                           |       |       |         |   |       |          |         |   |          |      
|Gross profit                                                                                                      |                                 | $                         | 101.7 |       |         | $ | 123.9 |          |         | $ | (22.2    | )     |      |  | (17.9  | )%    
|Marketing, general, and administrative                                                                            |                                 |                           | 90.7  |       |         |   | 83.2  |          |         |   | 7.5      |       |      |  | 9.0    | %     
|Asset impairments and other restructuring charges                                                                 |                                 |                           | 33.8  |       |         |   | 3.3   |          |         |   | 30.5     |       |      |  |        |       
|Other expense, net                                                                                                |                                 |                           | 9.5   |       |         |   | (0.4  | )        |         |   | 9.9      |       |      |  |        |       
|                                                                                                                  |                                 |                           |       |       |         |   |       |          |         |   |          |      
|                                                                                                                  | Earnings (loss) from operations |                           |       | (32.3 | )       |   |       | 37.8     |         |   |          | (70.1 | )    |  |        | (185.4 | )% 
|Interest expense, net                                                                                             |                                 |                           | 31.2  |       |         |   | 22.2  |          |         |   | 9.0      |       |      |  | 40.5   | %     
|Other non-operating expense                                                                                       |                                 |                           | 0.4   |       |         |   | 0.2   |          |         |   | 0.2      |       |      |  | 100.0  | %     
|Loss on early extinguishment of debt                                                                              |                                 |                           |      |       |         |   | 12.2  |          |         |   | (12.2    | )     |      |  | (100.0 | )%    
|Income tax expense                                                                                                |                                 |                           | 9.0   |       |         |   | 10.7  |          |         |   | (1.7     | )     |      |  | (15.9  | )%    
|Minority interest                                                                                                 |                                 |                           | 5.1   |       |         |   | 3.8   |          |         |   | 1.3      |       |      |  | 34.2   | %     
|Cumulative effect of change in accounting principle, net of tax
    of $0 and $0.8 in 2005 and 2004, respectively |                                 |                           |      |       |         |   | (2.6  | )        |         |   | 2.6      |       |      |  | (100.0 | )%    
|                                                                                                                  |                                 |                           |       |       |         |   |       |          |         |   |          |      
|                                                                                                                  | Net loss                        |                           | $     | (78.0 | )       |   | $     | (8.7     | )       |   | $        | (69.3 | )    |  |        |        |    
|                                                                                                                  |                                 |                           |       |       |         |   |       |          |         |   |          |      



| |      
| | -----
| | Sales





| |             
| | ------------
| | Gross profit



28



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##### Table of Contents







| |                                       
| | --------------------------------------
| | Marketing, general, and administrative





| |                                                  
| | -------------------------------------------------
| | Asset Impairments and Other Restructuring Charges





| |                      
| | ---------------------
| | Interest expense, net







| |             
| | ------------
| | Income taxes





| |         
| | --------
| | Net loss



29



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##### Table of Contents





| |                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------
| | Segment Results  Comparison of the Six Months
    Ended July 31, 2005 to the Six Months Ended July 31,
    2004



| |                  
| | -----------------
| | Automotive Wheels



|                                                   |                                                 |                                                         |       |     |      |   |       |          |     |   |       |      |     | 
|-------------------------------------------------- | ----------------------------------------------- | ------------------------------------------------------- | ----- | --- | ---- | - | ----- | -------- | --- | - | ----- | ---- | --- | 
|                                                   |                                                 | Six Months Ended July 31,                               |      
|                                                   |                                                 |                                                         |      
|                                                   |                                                 | 2005                                                    |       |     | 2004 |   |       | $ Change |    
|                                                   |                                                 |                                                         |       |     |      |   |       |          |    
|Net sales                                          |                                                 | $                                                       | 811.1 |     |      | $ | 719.5 |          |     | $ | 91.6  |     
|Asset impairments and other restructuring charges: |                                                 |                                                         |       |     |      |   |       |          |     |   |       |     
|                                                   | Facility closure costs                          |                                                         | $     | 1.2 |      |   | $     | 0.3      |     |   | $     | 0.9  |    
|                                                   | Impairment of machinery, equipment, and tooling |                                                         |       | 0.8 |      |   |       |         |     |   |       | 0.8  |    
|                                                   | Severance and other restructuring costs         |                                                         |       | 1.8 |      |   |       | 3.2      |     |   |       | (1.4 | )  
|                                                   |                                                 |                                                         |       |     |      |   |       |          |    
|                                                   |                                                 | Total asset impairments and other restructuring charges |       | $   | 3.8  |   |       | $        | 3.5 |   |       | $    | 0.3 | 
|                                                   |                                                 |                                                         |       |     |      |   |       |          |    
|Earnings from operations                           |                                                 | $                                                       | 23.4  |     |      | $ | 37.5  |          |     | $ | (14.1 | )   



| |          
| | ---------
| | Net sales





| |                                                  
| | -------------------------------------------------
| | Asset impairments and other restructuring charges





| |                         
| | ------------------------
| | Earnings from operations



30



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##### Table of Contents





| |           
| | ----------
| | Components



|                                                   |                                                 |                                                         |       |      |      |   |       |          |      |   |       |      |      | 
|-------------------------------------------------- | ----------------------------------------------- | ------------------------------------------------------- | ----- | ---- | ---- | - | ----- | -------- | ---- | - | ----- | ---- | ---- | 
|                                                   |                                                 | Six Months Ended July 31,                               |      
|                                                   |                                                 |                                                         |      
|                                                   |                                                 | 2005                                                    |       |      | 2004 |   |       | $ Change |     
|                                                   |                                                 |                                                         |       |      |      |   |       |          |     
|Net sales                                          |                                                 | $                                                       | 352.6 |      |      | $ | 359.0 |          |      | $ | (6.4  | )   
|Asset impairments and other restructuring charges: |                                                 |                                                         |       |      |      |   |       |          |      |   |       |     
|                                                   | Facility closure costs                          |                                                         | $     |     |      |   | $     | (0.2     | )    |   | $     | 0.2  |     
|                                                   | Impairment of machinery, equipment, and tooling |                                                         |       | 30.0 |      |   |       |         |      |   |       | 30.0 |     
|                                                   | Severance and other restructuring costs         |                                                         |       |     |      |   |       |         |      |   |       |     |     
|                                                   |                                                 |                                                         |       |      |      |   |       |          |     
|                                                   |                                                 | Total asset impairments and other restructuring charges |       | $    | 30.0 |   |       | $        | (0.2 | ) |       | $    | 30.2 | 
|                                                   |                                                 |                                                         |       |      |      |   |       |          |     
|Earnings from operations                           |                                                 | $                                                       | (41.5 | )    |      | $ | 1.0   |          |      | $ | (42.5 | )   



| |          
| | ---------
| | Net sales





| |                                                  
| | -------------------------------------------------
| | Asset impairments and other restructuring charges





| |                         
| | ------------------------
| | Earnings from operations





| |      
| | -----
| | Other



|                     |  |                           |       |   |      |   |      |          |  |   |       |  
|-------------------- |  | ------------------------- | ----- | - | ---- | - | ---- | -------- |  | - | ----- | -
|                     |  | Six Months Ended July 31, |      
|                     |  |                           |      
|                     |  | 2005                      |       |   | 2004 |   |      | $ Change | 
|                     |  |                           |       |   |      |   |      |          | 
|Net sales            |  | $                         | 38.6  |   |      | $ | 47.6 |          |  | $ | (9.0  | )
|Loss from operations |  |                           | (14.2 | ) |      |   | (0.7 | )        |  |   | (13.5 | )



| |          
| | ---------
| | Net sales



31



---



##### Table of Contents





| |                     
| | --------------------
| | Loss from operations





| |                                
| | -------------------------------
| | Liquidity and Capital Resources



| |           
| | ----------
| | Cash Flows

Operating Activities:


Investing Activities:


Financing Activities:






| |                     
| | --------------------
| | Sources of Liquidity





32



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| |                        
| | -----------------------
| | Other Liquidity Matters









| |               
| | --------------
| | Credit Ratings



|                               |  |     |      |  |         |  |    | 
|------------------------------ |  | --- | ---- |  | ------- |  | -- | 
|                               |  | S&P |      |  | Moodys | 
|                               |  |     |      |  |         | 
|Corporate and Bank Debt rating |  |     | BB - |  |         |  | B1 | 
|Senior Note rating             |  |     | B    |  |         |  | B3 | 





| |                                
| | -------------------------------
| | Significant Financial Covenants





| |   |                                                                                              
| | - | ---------------------------------------------------------------------------------------------
| |  | declare dividends or redeem or repurchase capital stock                                      
|
| |  | prepay, redeem or purchase debt, including the Senior Notes                                  
|
| |  | incur liens and engage in sale-leaseback transactions                                        
|
| |  | make loans and investments                                                                   
|
| |  | incur additional debt, including borrowings under the
    Companys revolving credit facility
|
| |  | amend or otherwise alter certain debt documents                                              
|
| |  | make capital expenditures                                                                    
|
| |  | engage in mergers, acquisitions and asset sales                                              
|
| |  | enter into transactions with affiliates                                                      
|
| |  | alter the business the Company conduct                                                       



33



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##### Table of Contents









| |   |                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | requiring a substantial portion of the Companys cash flow
    from operations to be dedicated to debt service and therefore
    not available to the Company for operations, capital
    expenditures, and future business opportunities
|
| |  | increasing the Companys vulnerability to a downturn in
    general economic conditions or in its business                                                                                                                               
|
| |  | limiting the Companys ability to adjust to changing market
    conditions, placing the Company at a competitive disadvantage
    compared to its competitors that have relatively less debt                                             
|
| |  | limiting the Companys ability to obtain additional
    financing or access its revolving credit facility in the future
    for capital expenditures, working capital or general corporate
    purposes.                                 



| |                               
| | ------------------------------
| | Off Balance Sheet Arrangements







34



---



##### Table of Contents





| |                        
| | -----------------------
| | Contractual Obligations



|                           |                   |                       |      |      |       |   |      |       |  |   |         |       |  |       |      |      |  |   |       |       | 
|-------------------------- | ----------------- | --------------------- | ---- | ---- | ----- | - | ---- | ----- |  | - | ------- | ----- |  | ----- | ---- | ---- |  | - | ----- | ----- | 
|                           |                   | Payment Due by Period |     
|                           |                   |                       |     
|                           |                   | Less than             |      |      | 1-3   |   |      | 4-5   |  |   | After 5 |       |  |      
|                           |                   | 1 Year                |      |      | Years |   |      | Years |  |   | Years   |       |  | Total |     
|                           |                   |                       |      |      |       |   |      |       |  |   |         |       |  |       |     
|Short-term borrowings      |                   | $                     | 0.5  |      |       | $ |     |       |  | $ |        |       |  | $     |     |      |  | $ | 0.5   |      
|Long-term debt             |                   |                       | 5.8  |      |       |   | 45.0 |       |  |   | 631.6   |       |  |       | 0.7  |      |  |   | 683.1 |      
|Mortgage note payable      |                   |                       | 0.2  |      |       |   | 0.4  |       |  |   | 21.5    |       |  |       |     |      |  |   | 22.1  |      
|Capital lease obligations  |                   |                       | 1.7  |      |       |   | 10.2 |       |  |   | 11.7    |       |  |       |     |      |  |   | 23.6  |      
|Operating leases           |                   |                       | 18.8 |      |       |   | 21.0 |       |  |   | 3.9     |       |  |       | 0.9  |      |  |   | 44.6  |      
|Redeemable preferred stock |                   |                       |     |      |       |   |     |       |  |   |        |       |  |       | 11.7 |      |  |   | 11.7  |      
|Capital expenditures       |                   |                       | 39.3 |      |       |   |     |       |  |   |        |       |  |       |     |      |  |   | 39.3  |      
|                           |                   |                       |      |      |       |   |      |       |  |   |         |       |  |       |     
|                           | Total obligations |                       | $    | 66.3 |       |   | $    | 76.6  |  |   | $       | 668.7 |  |       | $    | 13.3 |  |   | $     | 824.9 | 
|                           |                   |                       |      |      |       |   |      |       |  |   |         |       |  |       |     



| |                        
| | -----------------------
| | Other Cash Requirements



|                                                   |  |   |      | 
|-------------------------------------------------- |  | - | ---- | 
|Interest                                           |  | $ | 30.9 | 
|Taxes                                              |  |   | 19.2 | 
|Pension and other post-retirement benefits funding |  |   | 18.9 | 
|Restructuring costs                                |  |   | 5.8  | 
|Various customer satisfaction issues               |  |   | 4.6  | 



| |             
| | ------------
| | Market Risks





| |                 
| | ----------------
| | Foreign Exchange





35



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##### Table of Contents







| |               
| | --------------
| | Interest Rates





| |            
| | -----------
| | Commodities





| |        
| | -------
| | Outlook

Customers and Pricing








| |             
| | ------------
| | Steel Supply



36



---



##### Table of Contents







| |                             
| | ----------------------------
| | Critical Accounting Policies





| |                                                        
| | -------------------------------------------------------
| | Asset impairment losses and other restructuring charges







| |                                                        
| | -------------------------------------------------------
| | Pension and postretirement benefits other than pensions







37



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##### Table of Contents







| |                            
| | ---------------------------
| | Goodwill impairment testing





| |                                     
| | ------------------------------------
| | Allowance for uncollectible accounts





| |             
| | ------------
| | Income Taxes







38



---



##### Table of Contents





| |                              
| | -----------------------------
| | New Accounting Pronouncements













39



---



##### Table of Contents










|        |                                                               
|------- | --------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures About Market
    Risk








|        |                        
|------- | -----------------------
|Item 4. | Controls and Procedures

Evaluation of Disclosure Controls and Procedures






Changes in Internal Control over Financial Reporting


Internal Control 
Integrated Framework.






| |   |                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | hired a Director of Tax in April 2005                                                                                                                                                                                                               
|
| |  | hired a Manager of International Tax in June of 2005                                                                                                                                                                                                
|
| |  | increased formality and rigor of controls and procedures over
    accounting for income taxes                                                                                                                                                       
|
| |  | developed a plan and began to implement additional actions to
    fully remediate the material weakness, including increasing the
    use of third party tax service providers for the more complex
    areas of the Companys income tax accounting

40



---



##### Table of Contents












PART II. OTHER INFORMATION







|        |                  
|------- | -----------------
|Item 1. | Legal Proceedings














|        |                                          
|------- | -----------------------------------------
|Item 2. | Changes in Securities and Use of Proceeds








|        |                                
|------- | -------------------------------
|Item 3. | Defaults upon Senior Securities








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



41



---



##### Table of Contents








|        |                  
|------- | -----------------
|Item 5. | Other Information








|        |         
|------- | --------
|Item 6. | Exhibits

| |    |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | -- | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10 | .14 |  | First Amendment dated as of February 7, 2005 amending
    Receivables Financing Agreement, dated as of December 9,
    2004 among HL Funding II, Inc., CAFCO, LLC, Citibank, N.A.,
    Citicorp North America, Inc., the other investors, banks and
    investor agents from time to time party thereto, and HLI
    Operating Company, Inc. (Incorporated by reference to Exhibit
10.21 to the Quarterly Report on Form 10-Q of Hayes Lemmerz
International, Inc. for the three and six months ended July 31, 2005
filed September 9, 2005).                                                                                                                                                                                                                                                                                                                                                                 
|
| | 10 | .15 |  | Second Amendment dated as of May 27, 2005 amending each of
    (i) Receivables Financing Agreement, dated as of
    December 9, 2004 (as amended February 2, 2005) among
    HL Funding II, Inc., CAFCO, LLC, Citibank, N.A., Citicorp
    North America, Inc., the other investors, banks and investor
    agents from time to time party thereto, and HLI Operating
    Company, Inc.; (ii) Originator Purchase Agreement, dated as
    of December 9, 2004 among HL Funding I, LLC, and the
    wholly-owned subsidiaries of the Company named therein as
    Originators; and (iii) Secondary Purchase Agreement, dated
    as of December 9, 2004 between HL Funding I, LLC, and
    HL Funding II, Inc. (Incorporated by reference to Exhibit
10.21 to the Quarterly Report on Form 10-Q of Hayes Lemmerz
International, Inc. for the three and six months ended July 31, 2005
filed September 9, 2005).
|
| | 31 | .1  |  | Certification of Curtis J. Clawson, Chairman of the Board,
    President, and Chief Executive Officer, pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | 31 | .2  |  | Certification of James A. Yost, Vice President, Finance, and
    Chief Financial Officer, pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | 32 | .1  |  | Certification of Curtis J. Clawson, Chairman of the Board,
    President, and Chief Executive Officer, Pursuant to
    18 U.S.C. Section 1350, as Adopted Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | 32 | .2  |  | Certification of 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.

42



---



##### Table of Contents






SIGNATURES






| |                                                     
| | ----------------------------------------------------
| | HLI Operating Company, Inc.                         
|
| | /s/ James A. Yost                                   
| |                                                     
| | James A. Yost                                       
| | Vice President, Finance, and Chief Financial Officer



43



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##### Table of Contents



HLI OPERATING COMPANY, INC.


10-Q EXHIBIT INDEX


| |    |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | -- | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10 | .14 |  | First Amendment dated as of February 7, 2005 amending
    Receivables Financing Agreement, dated as of December 9,
    2004 among HL Funding II, Inc., CAFCO, LLC, Citibank, N.A.,
    Citicorp North America, Inc., the other investors, banks and
    investor agents from time to time party thereto, and HLI
    Operating Company, Inc. (Incorporated by reference to Exhibit
10.21 to the Quarterly Report on Form 10-Q of Hayes Lemmerz
International, Inc. for the three and six months ended July 31, 2005
filed September 9, 2005).                                                                                                                                                                                                                                                                                                                                                                 
|
| | 10 | .15 |  | Second Amendment dated as of May 27, 2005 amending each of
    (i) Receivables Financing Agreement, dated as of
    December 9, 2004 (as amended February 2, 2005) among
    HL Funding II, Inc., CAFCO, LLC, Citibank, N.A., Citicorp
    North America, Inc., the other investors, banks and investor
    agents from time to time party thereto, and HLI Operating
    Company, Inc.; (ii) Originator Purchase Agreement, dated as
    of December 9, 2004 among HL Funding I, LLC, and the
    wholly-owned subsidiaries of the Company named therein as
    Originators; and (iii) Secondary Purchase Agreement, dated
    as of December 9, 2004 between HL Funding I, LLC, and
    HL Funding II, Inc. (Incorporated by reference to Exhibit
10.21 to the Quarterly Report on Form 10-Q of Hayes Lemmerz
International, Inc. for the three and six months ended July 31, 2005
filed September 9, 2005).
|
| | 31 | .1  |  | Certification of Curtis J. Clawson, Chairman of the Board,
    President, and Chief Executive Officer, pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | 31 | .2  |  | Certification of James A. Yost, Vice President, Finance, and
    Chief Financial Officer, pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | 32 | .1  |  | Certification of Curtis J. Clawson, Chairman of the Board,
    President, and Chief Executive Officer, Pursuant to
    18 U.S.C. Section 1350, as Adopted Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | 32 | .2  |  | Certification of 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.