##### 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 October 31, 2006
 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
    
    30-0167742(State or other jurisdiction of
    
    (IRS Employerincorporation or organization)
    
    Identification No.)
 15300 Centennial Drive
    
    48168Northville, Michigan
    
    (Zip Code)(Address of principal executive offices)
 Registrants telephone number, including area code:
(734) 737-5000
 o þ
  o o þ
 o þ
  þ o




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##### 



HLI OPERATING COMPANY, INC.
 QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
 PagePART I. FINANCIAL INFORMATIONItem 1.
    
    Financial Statements
    
    3Consolidated Statements of Operations
    
    3Condensed Consolidated Balance Sheets
    
    4Consolidated Statements of Cash Flows
    
    5Consolidated Statements of Changes in Stockholders Equity (Deficit)
    
    6Notes to Consolidated Financial Statements
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    23Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    34Item 4.
    
    Controls and Procedures
    
    35PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    36Item 1A.
    
    Risk Factors
    
    36Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    36Item 3.
    
    Defaults upon Senior Securities
    
    36Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    36Item 5.
    
    Other Information
    
    36Item 6.
    
    Exhibits
    
    37Signature
    
    38Certification of Curtis J. Clawson, Chairman of the Board, President, and CEOCertification of James A. Yost, Vice President, Finance, and CFOCertification of Curtis J. Clawson, Chairman of the Board, President, and CEOCertification of James A. Yost, Vice President, Finance, and CFO
  Unless otherwise indicated, references to we, us, or our mean HLI Operating Company,
Inc., a Delaware corporation, and our subsidiaries. References to fiscal year means the 12-month
period commencing on February 1 of that year and ending January 31 of the following year (e.g.,
fiscal 2006 means the period beginning February 1, 2006, and ending January 31, 2007). This report
contains forward looking statements with respect to our financial condition, results of operations,
and business. All statements other than statements of historical fact made in this Quarterly Report
are forward-looking. Such forward-looking statements include, among others, those statements
including the words expect, anticipate, intend, believe, and similar language. These
forward looking statements involve certain risks and uncertainties. Our actual results may differ
significantly from those projected in the forward-looking statements. Factors that may cause actual
results to differ materially from those contemplated by such forward looking statements include,
among others: (1) competitive pressure in our industry; (2) fluctuations in the price of steel,
aluminum and other raw materials; (3) changes in general economic conditions; (4) our dependence on
the automotive industry (which has historically been cyclical) and on a small number of major
customers for the majority of our sales; (5) pricing pressure from automotive industry customers
and the potential for re-sourcing of business to lower-cost providers; (6) changes in the financial
markets or our debt ratings affecting our financial structure and our cost of capital and borrowed
money; (7) the uncertainties inherent in international operations and foreign currency
fluctuations; (8) our ability to 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 .
We have no duty to update the forward looking statements in this Quarterly Report on Form 10-Q and
we do not intend to provide such updates.
 2




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##### Table of Contents



Item 1. Financial Statements
 HLI OPERATING COMPANY, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 Three Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine MonthsEnded October
    
    
    Ended October
    
    
    Ended October
    
    
    Ended October31, 2006
    
    
    31, 2005
    
    
    31, 2006
    
    
    31, 2005(Dollars in millions, except per share amounts)Net sales
    
    $
    589.5
    
    
    $
    604.0
    
    
    $
    1,745.7
    
    
    $
    1,749.2Cost of goods sold
    
    
    536.1
    
    
    
    548.7
    
    
    
    1,582.9
    
    
    
    1,600.5Gross profit
    
    
    53.4
    
    
    
    55.3
    
    
    
    162.8
    
    
    
    148.7Marketing, general, and administrative
    
    
    35.4
    
    
    
    37.5
    
    
    
    118.9
    
    
    
    123.0Asset impairments and other restructuring charges
    
    
    41.5
    
    
    
    3.8
    
    
    
    48.1
    
    
    
    37.6Other (income) expense, net
    
    
    4.1
    
    
    
    (2.8
    )
    
    
    5.2
    
    
    
    6.8Earnings (loss) from operations
    
    
    (27.6
    )
    
    
    16.8
    
    
    
    (9.4
    )
    
    
    (18.7
    )Interest expense, net
    
    
    19.4
    
    
    
    18.6
    
    
    
    56.8
    
    
    
    49.7Other non-operating expense
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    0.6Loss from continuing operations before taxes
and minority interest
    
    
    (47.0
    )
    
    
    (2.0
    )
    
    
    (66.2
    )
    
    
    (69.0
    )Income tax expense
    
    
    9.5
    
    
    
    10.2
    
    
    
    30.4
    
    
    
    18.8Loss from continuing operations before minority interest
    
    
    (56.5
    )
    
    
    (12.2
    )
    
    
    (96.6
    )
    
    
    (87.8
    )Minority interest
    
    
    3.1
    
    
    
    2.4
    
    
    
    7.5
    
    
    
    7.5Loss from continuing operations
    
    
    (59.6
    )
    
    
    (14.6
    )
    
    
    (104.1
    )
    
    
    (95.3
    )Income from discontinued operations, net of tax of $0.4 and
$0.8 for the three and nine months ending
October 31, 2005, respectively
    
    
    
    
    
    
    0.8
    
    
    
    
    
    
    
    3.5Net loss
    
    $
    (59.6
    )
    
    $
    (13.8
    )
    
    $
    (104.1
    )
    
    $
    (91.8
    )
  3




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HLI OPERATING COMPANY, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 October 31,
    
    
    January 31,2006
    
    
    2006(Dollars in millions)(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    59.7
    
    
    $
    42.5Receivables
    
    
    296.1
    
    
    
    255.6Other receivables
    
    
    40.8
    
    
    
    101.0Inventories
    
    
    199.3
    
    
    
    179.9Prepaid expenses and other current assets
    
    
    17.3
    
    
    
    23.5Total current assets
    
    
    613.2
    
    
    
    602.5Property, plant, and equipment, net
    
    
    697.4
    
    
    
    758.1Goodwill
    
    
    206.2
    
    
    
    197.8Intangible assets, net
    
    
    173.6
    
    
    
    187.7Other assets
    
    
    48.3
    
    
    
    53.1Total assets
    
    $
    1,738.7
    
    
    $
    1,799.2LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Bank borrowings and other notes
    
    $
    24.3
    
    
    $
    25.5Current portion of long-term debt
    
    
    9.2
    
    
    
    19.2Accounts payable and accrued liabilities
    
    
    402.8
    
    
    
    367.8Total current liabilities
    
    
    436.3
    
    
    
    412.5Long-term debt, net of current portion
    
    
    667.0
    
    
    
    684.3Deferred tax liabilities
    
    
    66.6
    
    
    
    62.7Pension and other long-term liabilities
    
    
    409.4
    
    
    
    409.2Minority interest
    
    
    40.9
    
    
    
    35.1Commitments and contingencies
    
    
    
    
    
    
    Stockholders equity:Preferred stock, 100,000 shares authorized; 97,034 and 98,000 issued and
outstanding at October 31, 2006 and January 31, 2006, respectively
    
    
    12.4
    
    
    
    12.1Common stock, par value $0.01 per share:600,000 shares authorized; 590,000 issued and outstanding at both
October 31, 2006 and January 31, 2006
    
    
    
    
    
    
    Additional paid in capital
    
    
    687.6
    
    
    
    685.6Accumulated deficit
    
    
    (680.0
    )
    
    
    (575.6
    )Accumulated other comprehensive income
    
    
    98.4
    
    
    
    73.3Total stockholders equity
    
    
    118.4
    
    
    
    195.4Total liabilities and stockholders equity
    
    $
    1,738.6
    
    
    $
    1,799.2
  4




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HLI OPERATING COMPANY, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Nine Months
    
    
    Nine MonthsEnded October
    
    
    Ended October31, 2006
    
    
    31, 2005(Dollars in millions)Cash flows from operating activities:Loss from continuing operations
    
    $
    (104.1
    )
    
    $
    (95.3
    )Adjustments to reconcile net loss from operations to
net cash provided by (used for) operating activities:Depreciation and amortization
    
    
    99.3
    
    
    
    126.2Change in deferred income taxes
    
    
    11.4
    
    
    
    (7.3
    )Asset impairments
    
    
    39.7
    
    
    
    32.6Minority interest
    
    
    7.7
    
    
    
    8.1Equity compensation expense
    
    
    2.0
    
    
    
    4.9Loss (gain) on sale of assets and businesses
    
    
    3.4
    
    
    
    (1.3
    )Amortization of deferred financing fees
    
    
    4.3
    
    
    
    4.8Changes in operating assets and liabilities that increase (decrease) cash flows:Receivables
    
    
    (45.3
    )
    
    
    (63.1
    )Other receivables
    
    
    60.1
    
    
    
    (41.7
    )Inventories
    
    
    (20.3
    )
    
    
    16.0Prepaid expenses and other
    
    
    5.0
    
    
    
    (3.3
    )Accounts payable and accrued liabilities
    
    
    20.7
    
    
    
    12.7Payments related to Chapter 11 Filings
    
    
    
    
    
    
    (0.1
    )Cash provided by (used for) operating activities
    
    
    83.9
    
    
    
    (6.8
    )Cash flows from investing activities:Purchase of property, plant, equipment, and tooling
    
    
    (50.6
    )
    
    
    (95.6
    )Proceeds from sale of assets
    
    
    17.6
    
    
    
    18.5Capital contributed by minority shareholders
    
    
    0.4
    
    
    
    Cash used for investing activities
    
    
    (32.6
    )
    
    
    (77.1
    )Cash flows from financing activities:Changes in bank borrowings and credit facilities
    
    
    (2.5
    )
    
    
    23.9Redemption of Term Loan B, net of related fees
    
    
    
    
    
    
    (73.8
    )Proceeds from Term Loan C
    
    
    
    
    
    
    150.0Bank finance fees paid
    
    
    (2.9
    )
    
    
    Borrowing (repayment) of long-term debt
    
    
    (28.3
    )
    
    
    33.7Dividends paid to minority shareholders
    
    
    (1.8
    )
    
    
    Cash (used for) provided by financing activities
    
    
    (35.5
    )
    
    
    133.8Cash flows of discontinued operations (revised, see Note 11):Net cash used for operating activities
    
    
    
    
    
    
    3.2Net cash used for investing activities
    
    
    
    
    
    
    (0.7
    )Net cash provided by financing activities
    
    
    
    
    
    
    Effect of exchange rate changes on cash and cash equivalents
    
    
    1.4
    
    
    
    (0.7
    )Increase in cash and cash equivalents
    
    
    17.2
    
    
    
    51.7Cash and cash equivalents at beginning of period
    
    
    42.5
    
    
    
    34.9Cash and cash equivalents at end of period
    
    $
    59.7
    
    
    $
    86.6Supplemental data:Cash paid for interest
    
    $
    49.4
    
    
    $
    37.5Cash paid for income taxes
    
    $
    14.9
    
    
    $
    18.3
  5




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HLI OPERATING COMPANY, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
(Unaudited)
 RetainedEarnings
    
    
    Accumulated OtherPreferred
    
    
    Paid in
    
    
    (Accumulated
    
    
    ComprehensiveShares
    
    
    Par Value
    
    
    Stock
    
    
    Capital
    
    
    Deficit)
    
    
    Income
    
    
    Total(Dollars in millions, except share amounts)Balance at January 31, 2006
    
    
    590,000
    
    
    $
    
    
    
    $
    12.1
    
    
    $
    685.6
    
    
    $
    (575.6
    )
    
    $
    73.3
    
    
    $
    195.4Preferred stock dividends declared
    
    
    
    
    
    
    
    
    
    
    0.3
    
    
    
    
    
    
    
    (0.3
    )
    
    
    
    
    
    
    Comprehensive income:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (104.1
    )
    
    
    
    
    
    
    (104.1
    )Currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28.8
    
    
    
    28.8Unrealized loss on derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3.7
    )
    
    
    (3.7
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (79.0
    )Equity compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.0
    
    
    
    
    
    
    
    
    
    
    
    2.0Balance at October 31, 2006
    
    
    590,000
    
    
    $
    
    
    
    $
    12.4
    
    
    $
    687.6
    
    
    $
    (680.0
    )
    
    $
    98.4
    
    
    $
    118.4Balance at January 31, 2005
    
    
    590,000
    
    
    $
    
    
    
    $
    11.3
    
    
    $
    680.3
    
    
    $
    (117.6
    )
    
    $
    139.1
    
    
    $
    713.1Preferred stock dividends declared
    
    
    
    
    
    
    
    
    
    
    0.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.8Comprehensive income:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (91.8
    )
    
    
    
    
    
    
    (91.8
    )Currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (65.3
    )
    
    
    (65.3
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (157.1
    )Equity compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.9
    
    
    
    
    
    
    
    
    
    
    
    4.9Balance at October 31, 2005
    
    
    590,000
    
    
    $
    
    
    
    $
    12.1
    
    
    $
    685.2
    
    
    $
    (209.4
    )
    
    $
    73.8
    
    
    $
    561.7
  6




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HLI OPERATING COMPANY, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended October 31, 2006 and 2005
(Unaudited)
(Dollars in millions, unless otherwise stated)
 Note 1. Description of Business
  Description of Business
   Note 2. Basis of Presentation
    Note 3. Stock-Based Compensation
   7




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##### Table of Contents



WeightedNumber of
    
    
    AverageShares
    
    
    Exercise PriceOutstanding at January 31, 2006
    
    
    1,749,765
    
    
    $
    13.54Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Canceled
    
    
    (311,925
    )
    
    
    13.74Outstanding and exercisable at October 31, 2006
    
    
    1,437,840
    
    
    $
    13.50
  WeightedAverage GrantNumber of
    
    
    Date FairShares
    
    
    ValueNonvested at January 31, 2006
    
    
    1,348,010
    
    
    $
    12.23Granted
    
    
    611,000
    
    
    
    2.66Exercised
    
    
    (359,159
    )
    
    
    12.26Forfeited
    
    
    (217,973
    )
    
    
    12.31Outstanding at October 31, 2006
    
    
    1,381,878
    
    
    $
    7.97
  8




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##### Table of Contents



Note 4. Inventories
  October 31,
    
    
    January 31,2006
    
    
    2006Raw materials
    
    $
    44.4
    
    
    $
    41.5Work-in-process
    
    
    44.7
    
    
    
    38.8Finished goods
    
    
    71.5
    
    
    
    61.5Spare parts and supplies
    
    
    38.7
    
    
    
    38.1Total
    
    $
    199.3
    
    
    $
    179.9
 Note 5. Assets Held for Sale
  Note 6. Discontinued Operations
     9




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##### Table of Contents



Three Months
    
    
    Nine MonthsEnded October
    
    
    Ended October31, 2005
    
    

31, 2005Net sales
    
    $
    28.2
    
    
    $
    85.3Earnings before income tax expense
    
    $
    1.2
    
    
    $
    4.3Income tax expense
    
    
    0.4
    
    
    
    0.8Net income
    
    $
    0.8
    
    
    $
    3.5
 Note 7. Bank Borrowings, Other Notes, and Long-Term Debt
   October 31,
    
    
    January 31,2006
    
    
    2006Various foreign bank and government loans,
weighted averate interest rates of 5.8% and 5.6% at
October 31, 2006 and January 31, 2006,
respectively
    
    $
    7.8
    
    
    $
    18.4Term Loan B maturing 2009, weighted average interest
rate of 9.0% and 7.7% at October 31, 2006 and January
31, 2006, respectively
    
    
    328.9
    
    
    
    332.4Term Loan C maturing 2010, weighted average interest
rate of 11.5% and 9.9% at October 31, 2006 and
January 31, 2006,
respectively
    
    
    150.0
    
    
    
    150.0101/2% Senior Notes due 2010, net of discount of $0.4
million and $0.8 million at October 31, 2006 and
January 31, 2006, respectively
    
    
    162.1
    
    
    
    161.7Mortgage note payable maturing June 3,
2008
    
    
    21.9
    
    
    
    22.0Capital lease obligations
    
    
    5.5
    
    
    
    19.0676.2
    
    
    
    703.5Less current portion of long-term debt
    
    
    9.2
    
    
    
    19.2Long-term debt
    
    $
    667.0
    
    
    $
    684.3
 Credit Facility
    10




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##### Table of Contents



Senior Notes
 1 2 1 2
    Early Repayment of Long-Term Debt
  Other Financing
  Note 8. Pension Plans and Postretirement Benefits Other Than Pensions
   11




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##### Table of Contents



US Plans
    
    
    International PlansPension Benefits
    
    
    Other Benefits
    
    
    Pension BenefitsThree Months Ended October 31,2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Service cost
    
    $
    0.2
    
    
    $
    0.3
    
    
    $
    
    
    
    $
    
    
    
    $
    0.3
    
    
    $
    0.3Interest cost
    
    
    2.7
    
    
    
    2.6
    
    
    
    2.7
    
    
    
    2.7
    
    
    
    1.4
    
    
    
    1.9Expected return on plan assets
    
    
    (2.6
    )
    
    
    (2.4
    )
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    Amortization of net loss
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    0.1Special termination benefit recognized
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net periodic benefit cost
    
    $
    0.4
    
    
    $
    0.5
    
    
    $
    2.6
    
    
    $
    2.7
    
    
    $
    1.6
    
    
    $
    2.3
 Nine Months Ended October 31,2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Service cost
    
    $
    0.7
    
    
    $
    0.8
    
    
    $
    
    
    
    $
    0.1
    
    
    $
    0.8
    
    
    $
    0.8Interest cost
    
    
    8.3
    
    
    
    8.0
    
    
    
    8.0
    
    
    
    8.0
    
    
    
    4.4
    
    
    
    5.9Expected return on plan assets
    
    
    (8.0
    )
    
    
    (7.1
    )
    
    
    
    
    
    
    
    
    
    
    (0.4
    )
    
    
    0.1Amortization of net loss
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    0.1
    
    
    
    0.3Special termination benefit recognized
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net periodic benefit cost
    
    $
    1.1
    
    
    $
    1.7
    
    
    $
    7.9
    
    
    $
    8.1
    
    
    $
    4.9
    
    
    $
    7.1
   Note 9. Asset Impairments and Other Restructuring Charges
  Three Months Ended October 31, 2006AutomotiveWheels
    
    
    Components
    
    
    Other
    
    
    TotalFacility closure costs
    
    $
    0.4
    
    
    $
    
    
    
    $
    
    
    
    $
    0.4Impairment of facility, machinery, equipment, and
intangibles
    
    
    
    
    
    
    39.0
    
    
    
    
    
    
    
    39.0Severance and other restructuring costs
    
    
    1.5
    
    
    
    0.5
    
    
    
    0.1
    
    
    
    2.1Total
    
    $
    1.9
    
    
    $
    39.5
    
    
    $
    0.1
    
    
    $
    41.5
 Three Months Ended October 31, 2005AutomotiveWheels
    
    
    Components
    
    
    Other
    
    
    TotalFacility closure costs
    
    $
    1.5
    
    
    $
    
    
    
    $
    
    
    
    $
    1.5Impairment of facility, machinery, equipment, and
intangibles
    
    
    1.1
    
    
    
    0.7
    
    
    
    
    
    
    
    1.8Severance and other restructuring costs
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    0.5Total
    
    $
    3.1
    
    
    $
    0.7
    
    
    $
    
    
    
    $
    3.8
 12




---



##### Table of Contents



Nine Months Ended October 31, 2006AutomotiveWheels
    
    
    Components
    
    
    Other
    
    
    TotalFacility closure costs
    
    $
    1.9
    
    
    $
    
    
    
    $
    
    
    
    $
    1.9Impairment of facility, machinery, equipment, and
intangibles
    
    
    0.1
    
    
    
    39.1
    
    
    
    0.5
    
    
    
    39.7Severance and other restructuring costs
    
    
    3.1
    
    
    
    2.6
    
    
    
    0.8
    
    
    
    6.5Total
    
    $
    5.1
    
    
    $
    41.7
    
    
    $
    1.3
    
    
    $
    48.1
 Nine Months Ended October 31, 2005AutomotiveWheels
    
    
    Components
    
    
    Other
    
    
    TotalFacility closure costs
    
    $
    2.7
    
    
    $
    
    
    
    $
    
    
    
    $
    2.7Impairment of facility, machinery, equipment, and
intangibles
    
    
    1.8
    
    
    
    30.7
    
    
    
    
    
    
    
    32.5Severance and other restructuring costs
    
    
    2.4
    
    
    
    
    
    
    
    
    
    
    
    2.4Total
    
    $
    6.9
    
    
    $
    30.7
    
    
    $
    
    
    
    $
    37.6
 Asset Impairment Losses and Other Restructuring Charges for the Three Months Ended October 31,
2006
  Asset Impairment Losses and Other Restructuring Charges for the Three Months Ended October 31,
2005
  Asset Impairment Losses and Other Restructuring Charges for the Nine Months Ended October 31, 2006
  Asset Impairment Losses and Other Restructuring Charges for the Nine Months Ended October 31, 2005
  13




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##### Table of Contents



Facility Exit Costs and Severance Accruals
  CashAccrual of
    
    
    PaymentsSeverance
    
    
    andand Other
    
    
    Effects ofJanuary 31,
    
    
    Restructuring
    
    
    Foreign
    
    
    October 31,2006 Accrual
    
    
    Charges
    
    
    Currency
    
    

2006
AccrualFacility exit costs
    
    $
    0.1
    
    
    $
    1.9
    
    
    $
    (0.6
    )
    
    $
    1.4Severance
    
    
    2.9
    
    
    
    6.5
    
    
    
    (5.0
    )
    
    
    4.4Total
    
    $
    3.0
    
    
    $
    8.4
    
    
    $
    (5.6
    )
    
    $
    5.8
 Note 10. Taxes on Income
  Three Months Ended October 31,2006
    
    2005US
    
    Foreign
    
    US
    
    ForeignPre-tax income (loss)
    
    $
    (71.9
    )
    
    $
    24.9
    
    
    $
    (16.8
    )
    
    $
    14.8Income tax expense
    
    
    0.4
    
    
    
    9.1
    
    
    
    0.1
    
    
    
    10.1
 Nine Months Ended October 31,2006
    
    2005US
    
    Foreign
    
    US
    
    ForeignPre-tax income (loss)
    
    $
    (121.7
    )
    
    $
    55.5
    
    
    $
    (110.9
    )
    
    $
    41.9Income tax expense
    
    
    1.3
    
    
    
    29.1
    
    
    
    0.7
    
    
    
    18.1
    Note 11. Prior Period Accounting Errors
  14




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##### Table of Contents



Note 12. Segment Reporting
    Three Months Ended October 31, 2006Automotive 
Wheels
    
    Components
    
    Other
    
    TotalNet sales
    
    $
    432.6
    
    
    $
    156.9
    
    
    $
    
    
    
    $
    589.5Asset impairments and other restructuring charges
    
    
    1.9
    
    
    
    39.5
    
    
    
    0.1
    
    
    
    41.5Earnings (loss) from operations
    
    
    23.4
    
    
    
    (45.7
    )
    
    
    (5.3
    )
    
    
    (27.6
    )
 Three Months Ended October 31, 2005Automotive 
Wheels
    
    Components
    
    Other
    
    TotalNet sales
    
    $
    423.3
    
    
    $
    180.7
    
    
    $
    
    
    
    $
    604.0Asset impairments and other restructuring charges
    
    
    3.1
    
    
    
    0.7
    
    
    
    
    
    
    
    3.8Earnings (loss) from operations
    
    
    22.2
    
    
    
    (1.7
    )
    
    
    (3.7
    )
    
    
    16.8
 Nine Months Ended October 31, 2006AutomotiveWheels
    
    Components
    
    Other
    
    TotalNet sales
    
    $
    1,255.9
    
    
    $
    489.8
    
    
    $
    
    
    
    $
    1,745.7Asset impairments and other restructuring charges
    
    
    5.1
    
    
    
    41.7
    
    
    
    1.3
    
    
    
    48.1Earnings (loss) from operations
    
    
    52.6
    
    
    
    (46.9
    )
    
    
    (15.1
    )
    
    
    (9.4
    )
 Nine Months Ended October 31, 2005AutomotiveWheels
    
    Components
    
    Other
    
    TotalNet sales
    
    $
    1,215.9
    
    
    $
    533.3
    
    
    $
    
    
    
    $
    1,749.2Asset impairments and other restructuring charges
    
    
    6.9
    
    
    
    30.7
    
    
    
    
    
    
    
    37.6Earnings (loss) from operations
    
    
    45.6
    
    
    
    (43.3
    )
    
    
    (21.0
    )
    
    
    (18.7
    )
 15




---



##### Table of Contents



As of October 31, 2006AutomotiveWheels
    
    Components
    
    Other
    
    TotalTotal
assets
    
    $
    1,339.3
    
    
    $
    215.8
    
    
    $
    183.6
    
    
    $
    1,738.7
 As of January 31, 2006AutomotiveWheels
    
    Components
    
    Other
    
    TotalTotal
assets
    
    $
    1,247.7
    
    
    $
    321.5
    
    
    $
    230.0
    
    
    $
    1,799.2
 Note 13. Condensed Consolidating Financial Statements
   Guarantor and Nonguarantor Financial Statements
  16




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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Nine Months Ended October 31, 2006
(Unaudited)
 Guarantor
    
    
    NonguarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    0.3
    
    
    $
    630.8
    
    
    $
    1,146.8
    
    
    $
    (32.2
    )
    
    $
    1,745.7Cost of goods sold
    
    
    13.7
    
    
    
    596.7
    
    
    
    1,004.7
    
    
    
    (32.2
    )
    
    
    1,582.9Gross profit (loss)
    
    
    (13.4
    )
    
    
    34.1
    
    
    
    142.1
    
    
    
    
    
    
    
    162.8Marketing, general, and administrative
    
    
    2.4
    
    
    
    52.5
    
    
    
    64.0
                    
    
    
    118.9Equity in (earnings) losses of
subsidiaries and joint
ventures
    
    
    50.0
    
    
    
    (4.2
    )
    
    
    
    
    
    
    (45.8
    )
    
    
    Asset impairments and other restructuring charges
    
    
    3.0
    
    
    
    43.0
    
    
    
    2.1
    
    
    
    
    
    
    
    48.1Other (income) expense, net
    
    
    (1.9
    )
    
    
    4.5
    
    
    
    1.1
    
    
    
    1.5
    
    
    
    5.2Earnings (loss) from
operations
    
    
    (66.9
    )
    
    
    (61.7
    )
    
    
    74.9
    
    
    
    44.3
    
    
    
    (9.4
    )Interest expense, net
    
    
    36.9
    
    
    
    1.1
    
    
    
    18.8
    
    
    
    
    
    
    
    56.8Earnings (loss) from continuing operations
before taxes on income and minority
interest
    
    
    (103.8
    )
    
    
    (62.8
    )
    
    
    56.1
    
    
    
    44.3
    
    
    
    (66.2
    )Income tax expense
    
    
    0.3
    
    
    
    1.0
    
    
    
    29.1
    
    
    
    
    
    
    
    30.4Earnings (loss) from continuing operations before
minority
interest
    
    
    (104.1
    )
    
    
    (63.8
    )
    
    
    27.0
    
    
    
    44.3
    
    
    
    (96.6
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    7.5
    
    
    
    
    
    
    
    7.5Net income (loss)
    
    $
    (104.1
    )
    
    $
    (63.8
    )
    
    $
    19.5
    
    
    $
    44.3
    
    
    $
    (104.1
    )
 17




---



##### Table of Contents



CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Nine Months Ended October 31, 2005
(Unaudited)
 Guarantor
    
    
    NonguarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalNet sales
    
    $
    2.5
    
    
    $
    726.7
    
    
    $
    1,047.9
    
    
    $
    (27.9
    )
    
    $
    1,749.2Cost of goods sold
    
    
    15.8
    
    
    
    694.7
    
    
    
    917.9
    
    
    
    (27.9
    )
    
    
    1,600.5Gross profit (loss)
    
    
    (13.3
    )
    
    
    32.0
    
    
    
    130.0
    
    
    
    
    
    
    
    148.7Marketing, general, and administrative
    
    
    3.0
    
    
    
    61.9
    
    
    
    58.1
    
    
    
    
    
    
    
    123.0Equity in (earnings) losses of
subsidiaries and joint ventures
    
    
    44.9
    
    
    
    (2.6
    )
    
    
    
    
    
    
    (42.3
    )
    
    
    Asset impairments and other restructuring charges
    
    
    1.2
    
    
    
    35.2
    
    
    
    1.2
    
    
    
    
    
    
    
    37.6Other (income) expense, net
    
    
    1.2
    
    
    
    (1.3
    )
    
    
    6.9
    
    
    
    
    
    
    
    6.8Earnings (loss) from operations
    
    
    (63.6
    )
    
    
    (61.2
    )
    
    
    63.8
    
    
    
    42.3
    
    
    
    (18.7
    )Interest (income) expense, net
    
    
    27.1
    
    
    
    0.7
    
    
    
    21.9
    
    
    
    
    
    
    
    49.7Other non-operating expense
    
    
    0.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.6Earnings (loss) from continuing operations
before taxes on income and minority
interest
    
    
    (91.3
    )
    
    
    (61.9
    )
    
    
    41.9
    
    
    
    42.3
    
    
    
    (69.0
    )Income tax expense
    
    
    0.5
    
    
    
    0.2
    
    
    
    18.1
    
    
    
    
    
    
    
    18.8Earnings (loss) from continuing operations before
minority interest
    
    
    (91.8
    )
    
    
    (62.1
    )
    
    
    23.8
    
    
    
    42.3
    
    
    
    (87.8
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    7.5
    
    
    
    
    
    
    
    7.5Income (loss) from continuing operations
    
    
    (91.8
    )
    
    
    (62.1
    )
    
    
    16.3
    
    
    
    42.3
    
    
    
    (95.3
    )Income from discontinued operations, net of tax
    
    
    
    
    
    
    2.4
    
    
    
    1.1
    
    
    
    
    
    
    
    3.5Net income (loss)
    
    $
    (91.8
    )
    
    $
    (59.7
    )
    
    $
    17.4
    
    
    $
    42.3
    
    
    $
    (91.8
    )
 18




---



##### Table of Contents



CONDENSED CONSOLIDATING BALANCE SHEETS
As of October 31, 2006
(Unaudited)
 Guarantor
    
    
    NonguarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalCash and cash equivalents
    
    $
    (3.3
    )
    
    $
    0.6
    
    
    $
    62.4
    
    
    $
    
    
    
    $
    59.7Receivables
    
    
    (85.3
    )
    
    
    96.6
    
    
    
    284.8
    
    
    
    
    
    
    
    296.1Other receivables
    
    
    40.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40.8Inventories
    
    
    (0.4
    )
    
    
    72.0
    
    
    
    127.7
    
    
    
    
    
    
    
    199.3Prepaid expenses and other
    
    
    2.1
    
    
    
    7.7
    
    
    
    7.5
    
    
    
    
    
    
    
    17.3Total current assets
    
    
    (46.1
    )
    
    
    176.9
    
    
    
    482.4
    
    
    
    
    
    
    
    613.2Property, plant, and equipment, net
    
    
    30.1
    
    
    
    125.0
    
    
    
    542.3
    
    
    
    
    
    
    
    697.4Goodwill and other assets
    
    
    853.7
    
    
    
    (144.8
    )
    
    
    384.9
    
    
    
    (665.7
    )
    
    
    428.1Total assets
    
    $
    837.7
    
    
    $
    157.1
    
    
    $
    1,409.6
    
    
    $
    (665.7
    )
    
    $
    1,738.7Bank borrowings and other notes
    
    $
    
    
    
    $
    
    
    
    $
    24.3
    
    
    $
    
    
    
    $
    24.3Current portion of long-term debt
    
    
    4.6
    
    
    
    1.0
    
    
    
    3.6
    
    
    
    
    
    
    
    9.2Accounts payable and accrued liabilities
    
    
    63.2
    
    
    
    61.0
    
    
    
    278.6
    
    
    
    
    
    
    
    402.8Total current liabilities
    
    
    67.8
    
    
    
    62.0
    
    
    
    306.5
    
    
    
    
    
    
    
    436.3Long-term debt, net of current portion
    
    
    658.2
    
    
    
    4.5
    
    
    
    4.3
    
    
    
    
    
    
    
    667.0Pension and other long-term liabilities
    
    
    224.3
    
    
    
    0.8
    
    
    
    250.9
    
    
    
    
    
    
    
    476.0Minority interest
    
    
    
    
    
    
    
    
    
    
    40.9
    
    
    
    
    
    
    
    40.9Parent loans
    
    
    (231.1
    )
    
    
    (30.9
    )
    
    
    256.9
    
    
    
    5.1
    
    
    
    Common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Preferred stock
    
    
    12.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12.4Additional paid-in capital
    
    
    687.6
    
    
    
    482.8
    
    
    
    569.1
    
    
    
    (1,051.9
    )
    
    
    687.6Retained earnings (accumulated deficit)
    
    
    (679.9
    )
    
    
    (369.3
    )
    
    
    (102.6
    )
    
    
    471.9
    
    
    
    (679.9
    )Accumulated other comprehensive
income (loss)
    
    
    98.4
    
    
    
    7.2
    
    
    
    83.6
    
    
    
    (90.8
    )
    
    
    98.4Total stockholders equity
    
    
    118.5
    
    
    
    120.7
    
    
    
    550.1
    
    
    
    (670.8
    )
    
    
    118.5Total liabilities and stockholders equity
    
    $
    837.7
    
    
    $
    157.1
    
    
    $
    1,409.6
    
    
    $
    (665.7
    )
    
    $
    1,738.7
 19




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##### Table of Contents



CONDENSED CONSOLIDATING BALANCE SHEETS
As of January 31, 2006
 Guarantor
    
    
    NonguarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalCash and cash equivalents
    
    $
    (4.1
    )
    
    $
    0.6
    
    
    $
    46.0
    
    
    $
    
    
    
    $
    42.5Receivables
    
    
    (112.1
    )
    
    
    126.6
    
    
    
    241.1
    
    
    
    
    
    
    
    255.6Other receivables
    
    
    101.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101.0Inventories
    
    
    1.3
    
    
    
    66.0
    
    
    
    112.6
    
    
    
    
    
    
    
    179.9Prepaid expenses and other
    
    
    4.7
    
    
    
    9.3
    
    
    
    9.5
    
    
    
    
    
    
    
    23.5Total current assets
    
    
    (9.2
    )
    
    
    202.5
    
    
    
    409.2
    
    
    
    
    
    
    
    602.5Property, plant, and equipment, net
    
    
    34.1
    
    
    
    173.1
    
    
    
    550.9
    
    
    
    
    
    
    
    758.1Goodwill and other assets
    
    
    877.0
    
    
    
    (102.4
    )
    
    
    384.5
    
    
    
    (720.5
    )
    
    
    438.6Total assets
    
    $
    901.9
    
    
    $
    273.2
    
    
    $
    1,344.6
    
    
    $
    (720.5
    )
    
    $
    1,799.2Bank borrowings and other notes
    
    $
    
    
    
    $
    1.0
    
    
    $
    24.5
    
    
    $
    
    
    
    $
    25.5Current portion of long-term debt
    
    
    4.6
    
    
    
    3.0
    
    
    
    11.6
    
    
    
    
    
    
    
    19.2Accounts payable and accrued liabilities
    
    
    68.7
    
    
    
    70.0
    
    
    
    229.1
    
    
    
    
    
    
    
    367.8Total current liabilities
    
    
    73.3
    
    
    
    74.0
    
    
    
    265.2
    
    
    
    
    
    
    
    412.5Long-term debt, net of current portion
    
    
    661.7
    
    
    
    15.5
    
    
    
    7.1
    
    
    
    
    
    
    
    684.3Pension and other long-term liabilities
    
    
    236.6
    
    
    
    0.6
    
    
    
    234.7
    
    
    
    
    
    
    
    471.9Minority interest
    
    
    
    
    
    
    
    
    
    
    35.1
    
    
    
    
    
    
    
    35.1Parent loans
    
    
    (265.1
    )
    
    
    (30.4
    )
    
    
    292.3
    
    
    
    3.2
    
    
    
    Common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Preferred stock
    
    
    12.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12.1Additional paid-in capital
    
    
    685.6
    
    
    
    519.0
    
    
    
    570.6
    
    
    
    (1,089.6
    )
    
    
    685.6Retained earnings (accumulated deficit)
    
    
    (575.6
    )
    
    
    (305.5
    )
    
    
    (122.1
    )
    
    
    427.6
    
    
    
    (575.6
    )Accumulated other comprehensive
income (loss)
    
    
    73.3
    
    
    
    
    
    
    
    61.7
    
    
    
    (61.7
    )
    
    
    73.3Total stockholders equity
    
    
    195.4
    
    
    
    213.5
    
    
    
    510.2
    
    
    
    (723.7
    )
    
    
    195.4Total liabilities and stockholders equity
    
    $
    901.9
    
    
    $
    273.2
    
    
    $
    1,344.6
    
    
    $
    (720.5
    )
    
    $
    1,799.2
 20




---



##### Table of Contents



CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Nine Months Ended October 31, 2006
(Unaudited)
 Guarantor
    
    
    NonguarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalCash flows provided by (used for)
operating activities
    
    $
    (24.3
    )
    
    $
    0.6
    
    
    $
    107.6
    
    
    $
    
    
    
    $
    83.9Cash flows from investing activities:Purchase of property, plant,
equipment and tooling
    
    
    
    
    
    
    (17.0
    )
    
    
    (33.6
    )
    
    
    
    
    
    
    (50.6
    )Proceeds from disposal of assets
and businesses
    
    
    
    
    
    
    16.6
    
    
    
    1.0
    
    
    
    
    
    
    
    17.6Capital contributed by minority
shareholders
    
    
    
    
    
    
    
    
    
    
    0.4
    
    
    
    
    
    
    
    0.4Cash used for investing
activities
    
    
    
    
    
    
    (0.4
    )
    
    
    (32.2
    )
    
    
    
    
    
    
    (32.6
    )Cash flows from financing activities:Changes in bank borrowings and
credit facility
    
    
    
    
    
    
    (1.0
    )
    
    
    (1.5
    )
    
    
    
    
    
    
    (2.5
    )Repayment of long term debt
    
    
    (3.4
    )
    
    
    (13.1
    )
    
    
    (11.8
    )
    
    
    
    
    
    
    (28.3
    )Bank finance fees paid
    
    
    (2.9
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.9
    )Dividends paid to minority shareholders
    
    
    
    
    
    
    
    
    
    
    (1.8
    )
    
    
    
    
    
    
    (1.8
    )Cash used for financing
activities
    
    
    (6.3
    )
    
    
    (14.1
    )
    
    
    (15.1
    )
    
    
    
    
    
    
    (35.5
    )Increase (decrease) in parent loans
and advances
    
    
    31.4
    
    
    
    13.9
    
    
    
    (45.3
    )
    
    
    
    
    
    
    Effect of exchange rates on cash and cash
equivalents
    
    
    
    
    
    
    
    
    
    
    1.4
    
    
    
    
    
    
    
    1.4Increase in cash and cash equivalents
    
    
    0.8
    
    
    
    
    
    
    
    16.4
    
    
    
    
    
    
    
    17.2Cash and cash equivalents at beginning
of period
    
    
    (4.1
    )
    
    
    0.6
    
    
    
    46.0
    
    
    
    
    
    
    
    42.5Cash and cash equivalents at end of period
    
    $
    (3.3
    )
    
    $
    0.6
    
    
    $
    62.4
    
    
    $
    
    
    
    $
    59.7
 21




---



##### Table of Contents



CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Nine Months Ended October 31, 2005
(Unaudited)


Guarantor
    
    
    NonguarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    TotalCash flows provided by (used for)
operating activities
    
    $
    (83.8
    )
    
    $
    15.2
    
    
    $
    61.8
    
    
    $
    
    
    
    $
    (6.8
    )Cash flows from investing activities:Purchase of property, plant,
equipment and tooling
    
    
    (0.9
    )
    
    
    (46.9
    )
    
    
    (47.8
    )
    
    
    
    
    
    
    (95.6
    )Proceeds from disposal of assets
and businesses
    
    
    0.5
    
    
    
    13.7
    
    
    
    4.3
    
    
    
    
    
    
    
    18.5Cash used for investing activities
    
    
    (0.4
    )
    
    
    (33.2
    )
    
    
    (43.5
    )
    
    
    
    
    
    
    (77.1
    )Cash flows from financing activities:Changes in bank borrowings and
credit facility
    
    
    
    
    
    
    
    
    
    
    23.9
    
    
    
    
    
    
    
    23.9Repayment of Term Loan B, net of
related fees
    
    
    (73.8
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (73.8
    )Borrowings from Term Loan C
    
    
    150.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150.0Borrowings (repayment) of long term debt
    
    
    29.9
    
    
    
    6.3
    
    
    
    (2.5
    )
    
    
    
    
    
    
    33.7Cash provided by financing
activities
    
    
    106.1
    
    
    
    6.3
    
    
    
    21.4
    
    
    
    
    
    
    
    133.8Increase (decrease) in parent loans
and advances
    
    
    (13.9
    )
    
    
    6.0
    
    
    
    7.9
    
    
    
    
    
    
    
    Net cash used for operating activities
from discontinued operations
    
    
    
    
    
    
    6.3
    
    
    
    (3.1
    )
    
    
    
    
    
    
    3.2Net cash used for investing activities
from discontinued operations
    
    
    
    
    
    
    (0.3
    )
    
    
    (0.4
    )
    
    
    
    
    
    
    (0.7
    )Net cash provided by financing activities
from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Effect of exchange rates on cash and cash
equivalents
    
    
    
    
    
    
    
    
    
    
    (0.7
    )
    
    
    
    
    
    
    (0.7
    )Increase in cash and cash equivalents
    
    
    8.0
    
    
    
    0.3
    
    
    
    43.4
    
    
    
    
    
    
    
    51.7Cash and cash equivalents at beginning
of period
    
    
    (9.3
    )
    
    
    (0.2
    )
    
    
    44.4
    
    
    
    
    
    
    
    34.9Cash and cash equivalents at end of period
    
    $
    (1.3
    )
    
    $
    0.1
    
    
    $
    87.8
    
    
    $
    
    
    
    $
    86.6


22



---



##### Table of Contents



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 October 31, 2006 to the Three Months
Ended October 31, 2005
  23




---



##### Table of Contents



Three Months
    
    
    Three MonthsEnded October 31,
    
    
    Ended October 31,2006
    
    
    2005
    
    
    $ Change
    
    
    % ChangeNet sales:Automotive Wheels
    
    $
    432.6
    
    
    $
    423.3
    
    
    $
    9.3
    
    
    
    2.2
    %Components
    
    
    156.9
    
    
    
    180.7
    
    
    
    (23.8
    )
    
    
    -13.2
    %Total
    
    $
    589.5
    
    
    $
    604.0
    
    
    $
    (14.5
    )
    
    
    -2.4
    %Gross profit
    
    $
    53.4
    
    
    $
    55.3
    
    
    $
    (1.9
    )
    
    
    -3.4
    %Marketing, general, and administrative
    
    
    35.4
    
    
    
    37.5
    
    
    
    (2.1
    )
    
    
    -5.6
    %Asset impairments and other restructuring charges
    
    
    41.5
    
    
    
    3.8
    
    
    
    37.7
    
    
    
    992.1
    %Other expense, net
    
    
    4.1
    
    
    
    (2.8
    )
    
    
    6.9
    
    
    
    246.4
    %Earnings from operations
    
    
    (27.6
    )
    
    
    16.8
    
    
    
    (44.4
    )
    
    
    -264.3
    %Interest expense, net
    
    
    19.4
    
    
    
    18.6
    
    
    
    0.8
    
    
    
    4.3
    %Other non-operating expense
    
    
    
    
    
    
    0.2
    
    
    
    (0.2
    )
    
    
    -100.0
    %Income tax expense
    
    
    9.5
    
    
    
    10.2
    
    
    
    (0.7
    )
    
    
    -6.9
    %Minority interest
    
    
    3.1
    
    
    
    2.4
    
    
    
    0.7
    
    
    
    29.2
    %Loss from continuing operations
    
    
    (59.6
    )
    
    
    (14.6
    )
    
    
    (45.2
    )
    
    
    -309.6
    %Income from discontinued operations, net of tax of $0.4
    
    
    
    
    
    
    0.8
    
    
    
    (0.8
    )
    
    
    -100.0
    %Net loss
    
    $
    (59.6
    )
    
    $
    (13.8
    )
    
    $
    (45.8
    )
    
    
    -331.9
    %
 Sales
  Gross profit
  Marketing, general, and administrative
  Asset impairments and other restructuring charges
  24




---



##### Table of Contents



Interest expense, net
  Income taxes
  Discontinued operations
  Net loss
  Segment Results  Comparison of the Three Months Ended October 31, 2006 to the Three Months Ended
October 31, 2005
 Automotive Wheels
  Three Months
    
    
    Three MonthsEnded October 31,
    
    
    Ended October 31,2006
    
    
    2005
    
    
    $ ChangeNet sales
    
    $
    432.6
    
    
    $
    423.3
    
    
    $
    9.3Asset impairments and other restructuring charges:Facility closure costs
    
    $
    0.4
    
    
    $
    1.5
    
    
    $
    (1.1
    )Impairment of facility, machinery, and equipment
    
    
    
    
    
    
    1.1
    
    
    
    (1.1
    )Severance and other restructuring costs
    
    
    1.5
    
    
    
    0.5
    
    
    
    1.0Total asset impairments and other restructuring charges
    
    $
    1.9
    
    
    $
    3.1
    
    
    $
    (1.2
    )Earnings from operations
    
    $
    23.4
    
    
    $
    22.2
    
    
    $
    1.2
 25




---



##### Table of Contents



Net sales
  Asset impairments and other restructuring charges
  Earnings from operations
  Components
  Three Months
    
    
    Three MonthsEnded October 31,
    
    
    Ended October 31,2006
    
    
    2005
    
    
    $ ChangeNet sales
    
    $
    156.9
    
    
    $
    180.7
    
    
    $
    (23.8
    )Asset impairments and other restructuring charges:Impairment of facility, machinery, equipment, and intangibles
    
    $
    39.0
    
    
    $
    0.7
    
    
    $
    38.3Severance and other restructuring costs
    
    
    0.5
    
    
    
    
    
    
    
    0.5Total asset impairments and other restructuring charges
    
    $
    39.5
    
    
    $
    0.7
    
    
    $
    38.8Loss from operations
    
    $
    (45.7
    )
    
    $
    (1.7
    )
    
    $
    (44.0
    )
 Net sales
  Asset impairments and other restructuring charges
  26




---



##### Table of Contents



Loss from operations
  Other
  Three Months
    
    
    Three MonthsEnded October 31,
    
    
    Ended October 31,2006
    
    
    2005
    
    
    $ ChangeLoss from
operations
    
    $
    (5.3
    )
    
    $
    (3.7
    )
    
    $
    (1.6
    )
 Loss from operations
  Results of Operations
 Consolidated Results  Comparison of the Nine Months Ended October 31, 2006 to the Nine Months
Ended October 31, 2005
  Nine Months
    
    
    Nine MonthsEnded October 31,
    
    
    Ended October 31,2006
    
    
    2005
    
    
    $ Change
    
    
    % ChangeNet sales:Automotive Wheels
    
    $
    1,255.9
    
    
    $
    1,215.9
    
    
    $
    40.0
    
    
    
    3.3
    %Components
    
    
    489.8
    
    
    
    533.3
    
    
    
    (43.5
    )
    
    
    -8.2
    %Total
    
    $
    1,745.7
    
    
    $
    1,749.2
    
    
    $
    (3.5
    )
    
    
    -0.2
    %Gross profit
    
    $
    162.8
    
    
    $
    148.7
    
    
    $
    14.1
    
    
    
    9.5
    %Marketing, general, and administrative
    
    
    118.9
    
    
    
    123.0
    
    
    
    (4.1
    )
    
    
    -3.3
    %Asset impairments and other restructuring
charges
    
    
    48.1
    
    
    
    37.6
    
    
    
    10.5
    
    
    
    27.9
    %Other expense, net
    
    
    5.2
    
    
    
    6.8
    
    
    
    (1.6
    )
    
    
    -23.5
    %Earnings (loss) from operations
    
    
    (9.4
    )
    
    
    (18.7
    )
    
    
    9.3
    
    
    
    49.7
    %Interest expense, net
    
    
    56.8
    
    
    
    49.7
    
    
    
    7.1
    
    
    
    14.3
    %Other non-operating expense
    
    
    
    
    
    
    0.6
    
    
    
    (0.6
    )
    
    
    -100.0
    %Income tax expense
    
    
    30.4
    
    
    
    18.8
    
    
    
    11.6
    
    
    
    61.7
    %Minority interest
    
    
    7.5
    
    
    
    7.5
    
    
    
    
    
    
    
    0.0
    %Loss from continuing operations
    
    
    (104.1
    )
    
    
    (95.3
    )
    
    
    (8.8
    )
    
    
    -9.2
    %Income from discontinued operations, net of tax of $0.8
    
    
    
    
    
    
    3.5
    
    
    
    (3.5
    )
    
    
    -100.0
    %Net loss
    
    $
    (104.1
    )
    
    $
    (91.8
    )
    
    $
    (12.3
    )
    
    
    -13.4
    %
 Sales
  27




---



##### Table of Contents



Gross profit
  Marketing, general, and administrative
  Asset impairments and other restructuring charges
   Interest expense, net
  Income taxes
  Discontinued operations
  28




---



##### Table of Contents



Net loss
  Segment Results  Comparison of the Nine Months Ended October 31, 2006 to the Nine Months Ended
October 31, 2005
 Automotive Wheels
  Nine Months
    
    
    Nine MonthsEnded October
    
    
    Ended October 31,31, 2006
    
    
    2005
    
    
    $ ChangeNet sales
    
    $
    1,255.9
    
    
    $
    1,215.9
    
    
    $
    40.0Asset impairments and other restructuring charges:Facility closure costs
    
    $
    1.9
    
    
    $
    2.7
    
    
    $
    (0.8
    )Impairment of facility, machinery, and equipment
    
    
    0.1
    
    
    
    1.8
    
    
    
    (1.7
    )Severance and other restructuring costs
    
    
    3.1
    
    
    
    2.4
    
    
    
    0.7Total asset impairments and other restructuring charges
    
    $
    5.1
    
    
    $
    6.9
    
    
    $
    (1.8
    )Earnings from operations
    
    $
    52.6
    
    
    $
    45.6
    
    
    $
    7.0
 Net sales
  Asset impairments and other restructuring charges
  Earnings from operations
  Components
  29




---



##### Table of Contents



Nine Months
    
    
    Nine MonthsEnded
    
    
    EndedOctober 31,
    
    
    October 31,2006
    
    
    2005
    
    
    $ ChangeNet sales
    
    $
    489.8
    
    
    $
    533.3
    
    
    $
    (43.5
    )Asset impairments and other restructuring charges:Facility closure costs
    
    $
    
    
    
    $
    
    
    
    $
    Impairment of facility, machinery, equipment, and intangibles
    
    
    39.1
    
    
    
    30.7
    
    
    
    8.4Severance and other restructuring costs
    
    
    2.6
    
    
    
    
    
    
    
    2.6Total asset impairments and other restructuring charges
    
    $
    41.7
    
    
    $
    30.7
    
    
    $
    11.0Loss from operations
    
    $
    (46.9
    )
    
    $
    (43.3
    )
    
    $
    (3.6
    )
 Net sales
  Asset impairments and other restructuring charges
  Loss from operations
  Other
  Nine Months
    
    
    Nine MonthsEnded October 31,
    
    
    Ended October 31,2006
    
    
    2005
    
    
    $ ChangeLoss from
operations
    
    $
    (15.1
    )
    
    $
    (21.0
    )
    
    $
    5.9
 Loss from operations
  30




---



##### Table of Contents



Liquidity and Capital Resources
 Cash Flows
 Operating Activities:
 Investing Activities:
 Financing Activities:
 Sources of Liquidity
  Other Liquidity Matters
     31




---



##### Table of Contents



Credit Ratings
  S&P
    
    MoodysCorporate and Bank Debt rating
    
    
    B-
    
    
    
    B3Senior Note rating
    
    CCC
    
    Caa2
 Off Balance Sheet Arrangements
      Contractual Obligations
  32




---



##### Table of Contents



Payment Due by PeriodLess than 1Year
    
    1-3 Years
    
    4-5 Years
    
    After 5 Years
    
    TotalShort-term borrowings
    
    $
    24.3
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    24.3Long-term debt
    
    
    8.0
    
    
    
    327.7
    
    
    
    313.1
    
    
    
    
    
    
    
    648.8Mortgage note payable
    
    
    0.2
    
    
    
    21.7
    
    
    
    
    
    
    
    
    
    
    
    21.9Capital lease obligations
    
    
    1.0
    
    
    
    2.1
    
    
    
    2.4
    
    
    
    
    
    
    
    5.5Operating leases
    
    
    7.7
    
    
    
    8.1
    
    
    
    1.0
    
    
    
    0.3
    
    
    
    17.1Capital expenditures
    
    
    28.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28.3United States pension contributions
    
    
    19.8
    
    
    
    14.1
    
    
    
    6.7
    
    
    
    1.3
    
    
    
    41.9Total obligations
    
    $
    89.3
    
    
    $
    373.7
    
    
    $
    323.2
    
    
    $
    1.6
    
    
    $
    787.8
 Other Cash Requirements
  Interest
    
    $
    24.1Taxes
    
    
    4.8United States pension
    
    
    3.0Restructuring costs
    
    
    5.2
 New Accounting Pronouncements
     33




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Foreign Exchange
   Interest Rates
  Commodities
  34




---



##### Table of Contents



Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
 Internal Control  Integrated Framework.
  
    
    increase the rigor of reviewer and spreadsheet controls over accounting for income taxes
    
    ensure the tax department has an appropriate level of resources and tax accounting training
    
    automate a significant portion of the international tax provision computation
    35




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 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
  
 Item 5. Other Information
      36




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##### Table of Contents



PayableTotal
    
    
    
    
    
    July 2006,Award
    
    Percentage of
    
    Deferred to
    
    Payable
    
    PayableName
    
    Payable
    
    Base Salary
    
    2007
    
    July 2007
    
    July 2008Curtis J. Clawson
    
    $
    1,800,000
    
    
    
    225
    %
    
    $
    600,000
    
    
    $
    600,000
    
    
    $
    600,000James A. Yost
    
    $
    810,000
    
    
    
    180
    %
    
    $
    270,000
    
    
    $
    270,000
    
    
    $
    270,000Fred Bentley
    
    $
    684,000
    
    
    
    180
    %
    
    $
    228,000
    
    
    $
    228,000
    
    
    $
    228,000Daniel M. Sandberg
    
    $
    350,000
    
    
    
    100
    %
    
    $
    116,667
    
    
    $
    116,666
    
    
    $
    116,666
  
 Item 6. Exhibits
 31.1
    
    Certification of Curtis J. Clawson, Chairman of the Board, President,
and Chief Executive Officer, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.*31.2
    
    Certification 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. 37




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##### Table of Contents



SIGNATURES
  HLI OPERATING COMPANY, INC./s/ James A. Yost

James A. YostVice President, Finance, and Chief Financial Officer
  38




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##### Table of Contents



HLI OPERATING COMPANY, INC.
 10-Q EXHIBIT INDEX
 31.1
    
    Certification of Curtis J. Clawson, Chairman of the Board, President,
and Chief Executive Officer, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.*31.2
    
    Certification 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. 39