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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
  Form 10-Q (Mark One)[X]
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended April 30, 2004Or[  ]
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934For 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
    
    30-0167742(IRS Employerincorporation or organization)
    
    Identification No.)15300 Centennial Drive
    
    48167Northville, Michigan
    
    (Zip Code)(Address of principal executive offices)
 Registrants telephone number, including area code:
(734) 737-5000 Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [   ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 126-2 of the Act). Yes
[   ] No [X] APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Act subsequent
to the distributions of securities under a plan confirmed by a court. Yes [X]
No [   ] As of June 14, 2004, the number of shares of common stock outstanding of
HLI Operating Company, Inc., was 590,000 shares.    1




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HLI OPERATING COMPANY, INC. QUARTERLY REPORT ON FORM 10-Q TABLE OF CONTENTS PagePART I. FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsConsolidated Statements of Operations
    
    
    3Consolidated Balance Sheets
    
    
    4Consolidated Statements of Cash Flows
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    31Item 4.
    
    Controls and Procedures
    
    
    32PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    33Item 2.
    
    Changes in Securities and Use of Proceeds
    
    
    33Item 3.
    
    Defaults upon Senior Securities
    
    
    33Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    33Item 5.
    
    Other Information
    
    
    33Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    34Signatures
    
    
    35Certifications302 CERTIFICATION OF CURTIS J. CLAWSON302 CERTIFICATION OF JAMES A. YOST906 CERTIFICATION OF CURTIS J. CLAWSON906 CERTIFICATION OF JAMES A. YOST
  UNLESS
OTHERWISE INDICATED, REFERENCES TO THE COMPANY MEAN HLI
OPERATING COMPANY, INC., AND ITS SUBSIDIARIES AND REFERENCE TO A FISCAL YEAR MEANS
THE COMPANYS YEAR COMMENCING ON FEBRUARY 1 OF THAT YEAR AND ENDING ON JANUARY
31 OF THE FOLLOWING YEAR (E.G., FISCAL 2004 MEANS THE PERIOD BEGINNING FEBRUARY
1, 2004, AND ENDING JANUARY 31, 2005). THIS REPORT CONTAINS FORWARD LOOKING
STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995 WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS, AND
BUSINESS OF THE COMPANY. THESE FORWARD LOOKING STATEMENTS INVOLVE CERTAIN RISKS
AND UNCERTAINTIES. NO ASSURANCE CAN BE GIVEN THAT ANY OF SUCH MATTERS WILL BE
REALIZED. FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS INCLUDE, AMONG OTHERS, THE
FOLLOWING POSSIBILITIES: (1) COMPETITIVE PRESSURE IN THE COMPANYS INDUSTRY
INCREASES SIGNIFICANTLY; (2) GENERAL ECONOMIC CONDITIONS ARE LESS FAVORABLE
THAN EXPECTED; (3) THE COMPANYS DEPENDENCE ON THE AUTOMOTIVE INDUSTRY (WHICH
HAS HISTORICALLY BEEN CYCLICAL); (4) PRICING PRESSURE FROM AUTOMOTIVE INDUSTRY
CUSTOMERS; (5) CHANGES IN THE FINANCIAL MARKETS AFFECTING THE COMPANYS
FINANCIAL STRUCTURE AND THE COMPANYS COST OF CAPITAL AND BORROWED MONEY; (6)
THE UNCERTAINTIES INHERENT IN INTERNATIONAL OPERATIONS AND FOREIGN CURRENCY
FLUCTUATIONS; AND (7) UNCERTAINTIES RELATING TO CONFLICT IN THE MIDDLE EAST.
THE COMPANY HAS NO DUTY UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995 TO UPDATE THE FORWARD LOOKING STATEMENTS IN THIS QUARTERLY REPORT ON FORM
10-Q AND THE COMPANY DOES NOT INTEND TO PROVIDE SUCH UPDATES. 2




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HLI OPERATING COMPANY, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF OPERATIONS Successor
    
    PredecessorThree MonthsEnded April 30,2004
    
    2003(Unaudited)(Millions of dollars,except share amounts)Net sales
    
    $
    594.1
    
    
    $
    515.3Cost of goods sold
    
    
    520.0
    
    
    
    463.6Gross profit
    
    
    74.1
    
    
    
    51.7Marketing, general and administration
    
    
    43.9
    
    
    
    33.7Asset impairments and other restructuring charges
    
    
    2.4
    
    
    
    4.1Other expense (income), net
    
    
    1.6
    
    
    
    (0.5
    )Reorganization items
    
    
    
    
    
    
    13.1Earnings from operations
    
    
    26.2
    
    
    
    1.3Interest expense, net
    
    
    13.1
    
    
    
    17.0Other non-operating income
    
    
    (0.1
    )
    
    
    Loss on early extinguishment of debt
    
    
    12.2
    
    
    
    Earnings (loss) before taxes on income and minority interest
    
    
    1.0
    
    
    
    (15.7
    )Income tax provision
    
    
    5.0
    
    
    
    5.9Loss before minority interest
    
    
    (4.0
    )
    
    
    (21.6
    )Minority interest
    
    
    2.6
    
    
    
    1.0Net loss
    
    $
    (6.6
    )
    
    $
    (22.6
    )
 See accompanying notes to consolidated financial statements. 3




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HLI OPERATING COMPANY, INC. AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS SuccessorApril 30,
    
    January 31,2004
    
    2004(Unaudited)(Millions of dollars,except share amounts)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    85.3
    
    
    $
    48.5Receivables
    
    
    333.8
    
    
    
    324.4Inventories
    
    
    200.3
    
    
    
    189.3Prepaid expenses and other
    
    
    27.2
    
    
    
    29.0Total current assets
    
    
    646.6
    
    
    
    591.2Property, plant and equipment, net
    
    
    964.9
    
    
    
    966.5Goodwill
    
    
    411.6
    
    
    
    416.2Intangible assets, net
    
    
    229.9
    
    
    
    237.2Other assets
    
    
    63.6
    
    
    
    85.5Total assets
    
    $
    2,316.6
    
    
    $
    2,296.6LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Bank borrowings and other notes
    
    $
    6.9
    
    
    $
    14.2Current portion of long-term debt
    
    
    10.7
    
    
    
    11.3Accounts payable and accrued liabilities
    
    
    389.1
    
    
    
    354.4Total current liabilities
    
    
    406.7
    
    
    
    379.9Long-term debt, net of current portion
    
    
    646.3
    
    
    
    752.4Pension and other long-term liabilities
    
    
    527.9
    
    
    
    526.5Redeemable preferred stock
    
    
    10.7
    
    
    
    10.5Minority interest
    
    
    28.8
    
    
    
    23.2Commitments and contingenciesStockholders equity:Common stock, par value $0.01 per share:Voting
 600,000 shares authorized; 590,000
issued and outstanding at April 30, 2004 and January 31, 2004, respectively
    
    
    
    
    
    
    Additional paid in capital
    
    
    676.4
    
    
    
    557.8Accumulated deficit
    
    
    (54.2
    )
    
    
    (47.6
    )Accumulated other comprehensive income
    
    
    74.0
    
    
    
    93.9Total stockholders equity
    
    
    696.2
    
    
    
    604.1Total liabilities and stock holders equity
    
    $
    2,316.6
    
    
    $
    2,296.6
 See accompanying notes to consolidated financial statements. 4




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HLI OPERATING COMPANY, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS Successor
    
    PredecessorThree Months EndedApril 30,2004
    
    2003(Unaudited)(Millions of dollars)Cash flows from operating activities:Net loss
    
    $
    (6.6
    )
    
    $
    (22.6
    )Adjustments to reconcile net loss to net cash provided by
(used for) operating activities:Depreciation and amortization
    
    
    42.8
    
    
    
    34.8Amortization of deferred financing fees
    
    
    1.0
    
    
    
    1.5Change in deferred income taxes
    
    
    (3.0
    )
    
    
    0.8Asset impairments and other restructuring charges
    
    
    2.4
    
    
    
    4.1Minority interest
    
    
    2.6
    
    
    
    1.0Subsidiary preferred stock dividends
    
    
    0.2
    
    
    
    Compensation expense related to restricted stock units
    
    
    1.6
    
    
    
    Loss on early extinguishment of debt
    
    
    12.2
    
    
    
    Gain on sale of assets
    
    
    (0.1
    )
    
    
    (0.4
    )Changes in operating assets and liabilities that increase
(decrease) cash flows:Receivables
    
    
    (10.1
    )
    
    
    (26.0
    )Inventories
    
    
    (11.4
    )
    
    
    2.1Prepaid expenses and other
    
    
    1.4
    
    
    
    3.9Accounts payable and accrued liabilities
    
    
    39.7
    
    
    
    0.2Chapter 11 items:Reorganization items
    
    
    
    
    
    
    13.1Interest accrued on Credit Agreement
    
    
    
    
    
    
    12.6Payments related to Chapter 11 Filings
    
    
    (0.8
    )
    
    
    (8.0
    )Cash provided by operating activities
    
    
    71.9
    
    
    
    17.1Cash flows from investing activities:Purchase of property, plant, equipment and tooling
    
    
    (29.3
    )
    
    
    (20.0
    )Proceeds from sale of assets
    
    
    0.1
    
    
    
    0.7Cash used for investing activities
    
    
    (29.2
    )
    
    
    (19.3
    )Cash flows from financing activities:Capital contribution from parent
    
    
    117.0
    
    
    
    Redemption of New Senior Notes
    
    
    (96.7
    )
    
    
    Prepayment of New Term Loan
    
    
    (16.0
    )
    
    
    Repayment of long-term debt
    
    
    (2.3
    )
    
    
    Changes in borrowings under DIP facility
    
    
    
    
    
    
    11.5Repayment of notes payable issued in connection
with purchases of businesses
    
    
    (7.1
    )
    
    
    (2.0
    )Changes in bank borrowings and revolving facility
    
    
    
    
    
    
    (5.6
    )Cash provided by (used for) financing activities
    
    
    (5.1
    )
    
    
    3.9Effect of exchange rate changes on cash and cash equivalents
    
    
    (0.8
    )
    
    
    2.0Increase in cash and cash equivalents
    
    
    36.8
    
    
    
    3.7Cash and cash equivalents at beginning of period
    
    
    48.5
    
    
    
    66.1Cash and cash equivalents at end of period
    
    $
    85.3
    
    
    $
    69.8Supplemental data:Cash paid for interest
    
    $
    9.1
    
    
    $
    3.1Cash paid for income taxes
    
    $
    3.9
    
    
    $
    0.5
 See accompanying notes to consolidated financial statements. 5




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HLI OPERATING COMPANY, INC. AND SUBSIDIARIES 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Three Months Ended April 30, 2004 and 2003
(Unaudited)
(Millions of Dollars, Unless Otherwise Stated)
 (1) Description of Business, Chapter 11 Filings and Emergence from Chapter 11 These financial statements should be read in conjunction with the
Companys Annual Report on Form 10-K for the fiscal year ended January 31, 2004
as filed with the Securities and Exchange Commission on April 14, 2004. Description of Business Unless
otherwise indicated, references to Company mean (i) prior
in the effectiveness of Old Hayes Plan of Reorganization (as
defined below) and the related restructuring, to Old Hayes and its
consolidated subsidiaries (the Predecessor), and (ii)
after the effectiveness of Old Hayes Plan of Reorganization and
the related restructuring to HLI Operating Company, Inc., and its
consolidated subsidiaries (the Successor). References to
fiscal year means the Companys year commencing on February 1 of
that year and ending on January 31 of the following year (i.e.,
fiscal 2004 refers to the period beginning February 1,
2004 and ending January 31, 2005, fiscal 2003 refers to
the period beginning February 1, 2003 and ending January 31, 2004). The Company is a leading supplier of wheels, wheel-end attachments,
aluminum structural components and automotive brake components. The Company is
the worlds largest manufacturer of automotive wheels. In addition, the Company
also designs and manufactures wheels and brake components for commercial
highway vehicles, and powertrain components and aluminum non-structural
components for the automotive, commercial highway, heating and general
equipment industries. Chapter 11 Filings On December 5, 2001, Old Hayes, 30
of its wholly-owned domestic subsidiaries and one wholly-owned Mexican
subsidiary (collectively, the Debtors) filed voluntary petitions for
reorganization relief (the Chapter 11 Filings or the Filings) under Chapter
11 of the Bankruptcy Code in the United States Bankruptcy Court for the
District of Delaware (the Bankruptcy Court). On December 16, 2002, certain of the Debtors filed a proposed joint plan
of reorganization with the Bankruptcy Court. On April 9, 2003, the Debtors
filed a modified first amended joint plan of reorganization (the Plan of
Reorganization) which received the requisite support from creditors authorized
to vote thereon. The following five Debtors were not proponents of the Plan of
Reorganization and are not subject to the terms thereof: HLI Netherlands
Holdings, Inc., CMI Quaker Alloy, Inc., Hayes Lemmerz Funding Company, LLC,
Hayes Lemmerz Funding Corporation, and Hayes Lemmerz International Import, Inc.
(collectively, the Non-reorganizing Debtors). The Plan of Reorganization provided for the cancellation of the existing
common stock of Old Hayes and the issuance of cash, new common stock in the
reorganized Company and other property to certain creditors of Old Hayes in
respect of certain classes of claims. The Plan of Reorganization was confirmed
by an order of the Bankruptcy Court on May 12, 2003, which order has become
final and non-appealable. Emergence from Chapter 11 On June 3, 2003 (the Effective Date), Old Hayes
and each of the 27 Debtors proposing the Plan of Reorganization emerged from
Chapter 11 proceedings pursuant to the Plan of Reorganization, which was
confirmed by an order of the Bankruptcy Court on May 12, 2003, which order has
become final and non-appealable. The Non-reorganizing Debtors were not
proponents of the Plan of Reorganization and are not subject to the terms
thereof. On June 3, 2003, the Bankruptcy Court entered an order dismissing the
Chapter 11 Filings of the Non-reorganizing Debtors. Pursuant to the Plan of Reorganization, Old Hayes caused the formation
of (i) a new holding company, HLI Holding Company, Inc., a Delaware corporation
(HoldCo), (ii) HLI Parent Company, Inc., a Delaware corporation and a wholly
owned subsidiary of HoldCo (ParentCo), and (iii) HLI Operating Company, Inc,
a Delaware corporation and a wholly owned subsidiary of ParentCo (HLI). On
the Effective Date, (i) HoldCo was renamed Hayes Lemmerz International, Inc.
(New Hayes), (ii) New Hayes 6




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contributed to ParentCo 30,000,000 shares of its common stock, par value
$.01 per share (the New Common Stock), and 957,447 series A warrants and
957,447 series B warrants to acquire New Common Stock of New Hayes (the Series
A Warrants and Series B Warrants, respectively), (iii) ParentCo in turn
contributed such shares of New Common Stock and Series A Warrants and Series B
Warrants to HLI and (iv) pursuant to an Agreement and Plan of Merger, dated as
of June 3, 2003 (the Merger Agreement), between Old Hayes and HLI, Old Hayes was merged with and into HLI (the Merger), with HLI continuing as the
surviving corporation. Pursuant to the Plan of Reorganization and as a result of the Merger, all
of the issued and outstanding shares of common stock, par value $.01 per share,
of Old Hayes (the Old Common Stock), and any other outstanding equity
securities of Old Hayes, including all options and warrants, were cancelled.
The holders of the existing voting common stock of Old Hayes immediately
before confirmation did not receive any voting shares of the emerging entity or
any other consideration under the Plan of Reorganization as a result of their
ownership interests of the Predecessor. This represented a complete change of
control in the ownership of Old Hayes. Promptly following the Merger, HLI
distributed to certain holders of allowed claims, under the terms of the Plan
of Reorganization, an amount in cash, the New Common Stock, the Series A
Warrants, the Series B Warrants and the Preferred Stock (as defined below).
Prior to the Merger, the Old Common Stock was registered pursuant to Section
12(g) of the Securities Exchange Act of 1934, as amended (the Exchange Act).
In reliance on Rule 12g-3(a) of the Exchange Act, by virtue of the status of
New Hayes as a successor issuer to the Company, the New Common Stock is deemed
registered under Section 12(g) of the Exchange Act. The Company filed a Form 15
with the SEC to terminate the registration of the Old Common Stock under the
Exchange Act. Pursuant to the terms of the Plan of Reorganization, HLI issued 100,000
shares of Preferred Stock, par value $1.00, of HLI (the Preferred Stock) to
the holders of certain allowed claims. In accordance with the terms of the
Preferred Stock, the shares of Preferred Stock are, at the holders option,
exchangeable into a number of fully paid and nonassessable shares of New Common
Stock equal to (i) the aggregate liquidation preference of the shares of
Preferred Stock so exchanged ($100 per share plus all accrued and unpaid
dividends thereon (whether or not declared) to the exchange date) divided by
(ii) 125% of the Emergence Share Price. As determined pursuant to the terms
of the Plan of Reorganization, the Emergence Share Price is $18.50. In connection with the Debtors emergence from Chapter 11, on the
Effective Date, HLI entered into a $550.0 million senior secured credit
facility, as amended by Amendment No. 1 and Waiver to Credit Agreement, dated
October 16, 2003 and Amendment No. 2 and Waiver to the Credit Agreement, dated
February 6, 2004 (as amended, the New Credit Facility). The New Credit
Facility consists of a $450.0 million six-year amortizing term loan (the New
Term Loan) and a five-year $100.0 million revolving credit facility (the
Revolving Credit Facility). In addition, HLI issued on the Effective Date an
aggregate of $250.0 million principal amount of 10 1/2% senior notes due 2010
(the New Senior Notes). The proceeds from the initial $450.0 million of
borrowings under the New Credit Facility and the net proceeds from the New
Senior Notes were used to make payments required under the Plan of
Reorganization, including the repayment of the Companys DIP Facility and a
payment of $477.3 million to certain prepetition lenders, to pay related
transaction costs and to refinance certain debt. Reorganization items for the three months ended April 30, 2003 as reported
in the consolidated statement of operations included herein are comprised of
income, expense and loss items that were realized or incurred by the Debtors as
a direct result of the Companys decision to reorganize under Chapter 11.
During the three months ended April 30, 2003, reorganization items were as
follows (millions of dollars): 2003Critical employee retention plan provision
    
    $
    1.3Estimated accrued liability for rejected prepetition leases
and contracts
    
    
    Professional fees related to the Filing
    
    
    11.5Other
    
    
    0.3Total
    
    $
    13.1
 Cash payments with respect to such reorganization items consisted
primarily of professional fees and were approximately $8.0 million during the
first quarter of fiscal 2003. On May 30, 2002, the Bankruptcy Court entered an order approving, among
other things, the critical employee retention plan (the CERP) filed with the
Bankruptcy Court in February 2002 which was designed to compensate certain
critical employees in order to assure their retention and availability during
the Companys restructuring. The plan has two components which (i) rewarded
critical employees who remained with the Company (and certain affiliates of the
Company who are not directly involved in the restructuring) 7




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during and through the completion of the restructuring (the Retention
Bonus) and (ii) provided additional incentives to a more limited group of the
most senior critical employees if the enterprise value upon completing the
restructuring exceeded an established baseline (the Restructuring Performance
Bonus). Thirty-five percent, or approximately $3.0 million, of the Retention Bonus
was paid on October 1, 2002. The remaining portion of the Retention Bonus of
approximately $5.9 million was paid on June 13, 2003. Further, the
Restructuring Performance Bonus provided under the CERP was paid after the
consummation of the restructuring as discussed below. Based on Old Hayes compromise total enterprise value of $1,250.0
million as confirmed by the Bankruptcy Court, the aggregate amount of the
Restructuring Performance Bonus was $12.1 million. Of the aggregate $12.1
million, approximately $6.0 million was paid in cash on July 1, 2003, and
approximately $2.0 million was paid on August 29, 2003, as determined by New Hayes Board of Directors. The remaining portion of the Restructuring
Performance Bonus was paid in 215,935 shares of restricted units of New Hayes
on July 28, 2003. Pursuant to provisions contained in the CERP, the restricted
units will vest as follows, subject to the participants continued employment:  
    
    one half of the restricted units will vest on the first anniversary of the Effective Date, and;  
    
    one half of the restricted units will vest on the second anniversary of the Effective Date. The Company recognized $1.6 million of compensation expense related to
such restricted stock units during the three months ended April 30, 2004. (2) Basis of Presentation and Stock Based Compensation Basis of Presentation As discussed in Note 1, Old Hayes filed a voluntary petition for
reorganization relief under Chapter 11 of the Bankruptcy Code in December 2001
and emerged from Chapter 11 on June 3, 2003. Upon emergence from Chapter 11,
the Company implemented fresh start accounting principles pursuant to American
Institute of Certified Public Accountants (AICPA) Statement of Position 90-7,
Financial Reporting by Entities in Reorganization under the Bankruptcy Code
(SOP 90-7). SOP 90-7 requires the segregation of liabilities subject to
compromise by the Bankruptcy Court as of the bankruptcy filing date, and
identification of all transactions and events that are directly associated with
the reorganization of the Predecessor. As a result of the application of fresh
start accounting on May 31, 2003, and in accordance with SOP 90-7, the
post-emergence financial results of the Company for the period ending April 30,
2004 are presented as the Successor and the pre-emergence financial results
of the Company for the period ending April 30, 2003 are presented as the
Predecessor. Comparative financial statements do not straddle the emergence
date because in effect the Successor Company represents a new entity. Per share
and share information for the Predecessor Company for all periods presented on
the consolidated statement of operations have been omitted as such information
is deemed to be not meaningful. The Companys unaudited interim consolidated financial statements do not
include all of the disclosures required by accounting principles generally
accepted in the United States of America for annual financial statements. In
the opinion of management, all adjustments considered necessary for a fair
presentation of the interim period results have been included. Operating
results for the interim periods presented in fiscal 2004 are not necessarily
indicative of the results that may be expected for the full fiscal year ending
January 31, 2005. Certain prior period amounts have been reclassified to conform to the
current year presentation. Stock-Based Compensation New Hayes accounts for its stock-based compensation in accordance with
the provisions of Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations. As
such, compensation expense is recorded on the date of grant only if the current
market price of the underlying stock exceeds the exercise price. New Hayes
follows the provisions of Statement of Financial Accounting Standards (SFAS)
No. 123, Accounting for Stock-Based Compensation, and discloses pro forma net
income (loss) and pro forma earnings (loss) per share as if employee stock
option grants were treated as compensation expense using the fair-value-based
method defined in SFAS No. 123. 8




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In December 2002, the Financial Accounting Standards Board (FASB) issued
SFAS No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure, an amendment of FASB Statement No. 123. This Statement amends SFAS
No. 123 to provide alternative methods of transition for a voluntary change to
the fair value method of accounting for stock-based employee compensation. In
addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual and interim financial statements. If compensation expense had been determined based on the fair value at the
grant date consistent with the method prescribed in SFAS No. 123, the Companys
net loss would have been adjusted to the pro forma
amounts below: SuccessorThree MonthsEndedApril 30,2004Net loss (millions of dollars):As reported
    
    $
    (6.6
    )Pro forma
    

    
    (8.0
    )
 As of the Effective Date, all options under the Predecessor Companys
stock option plans were cancelled and those plans were terminated. Accordingly,
no pro forma net income (loss) has been
presented for any of the stock options granted under those terminated plans. (3) Inventories The major classes of inventory are as follows (millions of dollars): SuccessorApril 30,
    
    January 31,2004
    
    2004Raw materials
    
    $
    53.1
    
    
    $
    48.3Work-in-process
    
    
    41.7
    
    
    
    42.2Finished goods
    
    
    64.9
    
    
    
    61.8Spare parts and supplies
    
    
    40.6
    
    
    
    37.0Total
    
    $
    200.3
    
    
    $
    189.3
 (4) Property, Plant and Equipment The major classes of property, plant and equipment are as follows
(millions of dollars): SuccessorApril 30,
    
    January 31,2004
    
    2004Land
    
    $
    44.8
    
    
    $
    42.4Buildings
    
    
    214.0
    
    
    
    212.5Machinery and equipment
    
    
    814.9
    
    
    
    793.7Capital lease assets
    
    
    8.4
    
    
    
    8.41,082.1
    
    
    
    1,057.0Accumulated depreciation
    
    
    (117.2
    )
    
    
    (90.5
    )Property, plant and equipment, net
    
    $
    964.9
    
    
    $
    966.5
 (5) Goodwill and Other Intangible Assets Goodwill and other intangible assets consist of the following (million of
dollars): 9




---



##### Table of Contents



SuccessorApril 30, 2004
    
    January 31, 2004Gross
    
    
    
    
    
    Net
    
    Gross
    
    
    
    
    
    NetCarrying
    
    Accumulated
    
    Carrying
    
    Carrying
    
    Accumulated
    
    CarryingAmount
    
    Amortization
    
    Amount
    
    Amount
    
    Amortization
    
    AmountAmortized intangible assets:Customer base
    
    $
    166.1
    
    
    $
    (7.7
    )
    
    $
    158.4
    
    
    $
    169.3
    
    
    $
    (5.8
    )
    
    $
    163.5Unpatented technology
    
    
    36.0
    
    
    
    (5.2
    )
    
    
    30.8
    
    
    
    36.7
    
    
    
    (4.6
    )
    
    
    32.1$
    202.1
    
    
    $
    (12.9
    )
    
    $
    189.2
    
    
    $
    206.0
    
    
    $
    (10.4
    )
    
    $
    195.6Non amortized intangible assets:Tradenames
    
    $
    40.7
    
    
    
    
    
    
    
    
    
    
    $
    41.6Goodwill
    
    $
    411.6
    
    
    
    
    
    
    
    
    
    
    $
    416.2
 The Company expects that ongoing amortization expense will approximate
between $13 million and $16 million in each of the next five fiscal years. The changes in the net carrying amount of goodwill by segment during the
first quarter of fiscal 2004 were as follows (millions of dollars): AutomotiveWheels
    
    Components
    
    Other
    
    TotalBalance as of January 31, 2004
    
    $
    416.2
    
    
    $
    
    
    
    $
    
    
    
    $
    416.2Effects of currency translation
    
    
    (10.3
    )
    
    
    
    
    
    
    
    
    
    
    (10.3
    )Acquisitions and purchase accounting adjustments
    
    
    5.7
    
    
    
    
    
    
    
    
    
    
    
    5.7Balance as of April 30, 2004
    
    $
    411.6
    
    
    $
    
    
    
    $
    
    
    
    $
    411.6
 (6) Bank Borrowings, Other Notes and Long-Term Debt Bank borrowings and other notes of $6.9 million as of April 30, 2004
consists primarily of the remaining note payable issued in conjunction with the
Companys acquisition of its Chihuahua, Mexico facility, and short-term credit
facilities of the Companys foreign subsidiaries. Bank borrowings and other
notes of $14.2 million at January 31, 2004 consists primarily of short-term
credit facilities of the Companys foreign subsidiaries, as well as notes
payable of $1.1 million and $10.5 million issued in conjunction with the
Companys acquisition of an additional 35% ownership interest in its Turkish
joint venture and acquisition of an aluminum wheel plant formerly operated as
part of the Companys Mexican joint venture, respectively. Long-term debt consists of the following (millions of dollars): SuccessorApril 30,
    
    January 31,2004
    
    2004Various foreign bank and government loans maturing through 2006,
weighted average interest rates of 5.8 % and 5.7% at April 30, 2004
and January 31, 2004, respectively
    
    $
    27.7
    
    
    $
    28.6New Term Loan maturing 2009, weighted average interest rate of 5.0%
at April 30, 2004 and January 31, 2004
    
    
    430.5
    
    
    
    447.8101⁄2% New Senior Notes, net of discount of $0.9 million and $1.4 million
at April 30, 2004 and January 31, 2004, respectively, due 2010
    
    
    161.6
    
    
    
    248.6Mortgage note payable
    
    
    22.4
    
    
    
    22.5Capital lease obligations
    
    
    14.8
    
    
    
    16.2657.0
    
    
    
    763.7Less current portion of long-term debt
    
    
    10.7
    
    
    
    11.3Long-term debt
    
    $
    646.3
    
    
    $
    752.4
 As discussed in Note (1), the Debtors emerged from Chapter 11 on June 3,
2003. In connection with the Debtors emergence on the Effective Date, HLI
entered into a $550.0 million senior secured credit facility, which was
subsequently amended on October 16, 2003 by Amendment No. 1 and Waiver to
Credit Agreement and on February 6, 2004 by Amendment No. 2 and Waiver to the
Credit Agreement to, among other things, reduce the interest rate on the term
loan portion of the senior secured credit facility by 100 basis points, (as
amended, the New Credit Facility). The New Credit Facility consists of a
$450.0 million six-year amortizing term loan (the New Term Loan) and a
five-year $100.0 million revolving credit facility (the Revolving Credit
Facility). In addition, HLI issued on the Effective Date an aggregate of
$250.0 million principal amount of 101⁄2% senior notes due 2010 (the New
Senior Notes). The proceeds from the initial $450.0 million of borrowings
under the New Credit Facility and the net proceeds from the New 10




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##### Table of Contents



Senior Notes were used to make payments required under the Plan of
Reorganization, including the repayment of the Companys DIP Facility and a
payment of $477.3 million to certain prepetition lenders, to pay related
transaction costs and to refinance certain debt. Early Repayment of Long-Term Debt On February 11, 2004, New Hayes closed on a primary offering of
7,720,970 shares of its common stock for net proceeds of $117.0
million. On March 12, 2004, the Company used a portion of the net proceeds to
redeem $87.5 million aggregate principal amount, plus accrued and unpaid
interest thereon, of its outstanding New Senior Notes at a redemption price of
110.5%. This redemption resulted in a loss on early extinguishment of $11.8
million during the first quarter of fiscal 2004, including $2.6 million related
to original issue discount and debt issuance costs on the redeemed portion of
the New Senior Notes. The Company also used a portion of the primary stock offering proceeds to
prepay $16.0 million, plus accrued and unpaid interest thereon, of its New Term
Loan on February 12, 2004. Upon prepayment, the Company recognized a loss on
early extinguishment of $0.4 million related to debt issuance costs on the
prepaid portion of the New Term Loan. (7) Employee Benefit Plans The 2004 and 2003 amounts shown below reflect the defined benefit pension
and other postretirement benefit expense for the three months ended April 30
for each year: North American Plans
    
    International PlansPension
    
    Other
    
    PensionBenefits
    
    Benefits
    
    Benefits2004
    
    2003
    
    2004
    
    2003
    
    2004
    
    2003Service cost
    
    $
    0.1
    
    
    $
    0.1
    
    
    $
    
    
    
    $
    
    
    
    $
    0.2
    
    
    $
    0.2Interest cost
    
    
    2.8
    
    
    
    2.9
    
    
    
    2.9
    
    
    
    3.0
    
    
    
    2.0
    
    
    
    1.7Expected return on plan assets
    
    
    (2.4
    )
    
    
    (2.3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1Amortization of net (gain)/loss
    
    
    
    
    
    
    0.7
    
    
    
    (0.2
    )
    
    
    1.4
    
    
    
    
    
    
    
    0.1Net periodic benefit cost
    
    $
    0.5
    
    
    $
    1.5
    
    
    $
    2.7
    
    
    $
    4.5
    
    
    $
    2.3
    
    
    $
    2.1
 The Company expects to contribute $5.0 million to its North American
pension plans in 2004. (8) Asset Impairments and Other Restructuring Charges The Company recorded asset impairment losses and other restructuring
charges of $2.4 million in the first quarter of fiscal 2004 and $4.1 million in
the first quarter of fiscal 2003. Asset impairments and other restructuring charges by segment are as
follows: SuccessorThree Months Ended April 30, 2004AutomotiveWheels
    
    Components
    
    Other
    
    TotalFacility closure costs
    
    $
    
    
    
    $
    (0.2
    )
    
    $
    
    
    
    $
    (0.2
    )Severance and other restructuring costs
    
    
    2.6
    
    
    
    
    
    
    
    
    
    
    
    2.6Total
    
    $
    2.6
    
    
    $
    (0.2
    )
    
    $
    
    
    
    $
    2.4
 PredecessorThree Months Ended April 30, 2003AutomotiveWheels
    
    Components
    
    Other
    
    TotalImpairment of manufacturing facilities
    
    $
    0.5
    
    
    $
    0.1
    
    
    $
    
    
    
    $
    0.6Impairment of machinery, equipment and tooling
    
    
    1.5
    
    
    
    1.7
    
    
    
    
    
    
    
    3.2Facility closure costs
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.3Total
    
    $
    2.3
    
    
    $
    1.8
    
    
    $
    
    
    
    $
    4.1
 Impairment of Manufacturing Facilities 11




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##### Table of Contents



During the first quarter of fiscal 2003, the Company recorded asset
impairment losses of $0.6 million to write down the fair value of its
Petersburg, Michigan facility and its Thailand greenfield site based on current
real estate market conditions. The Petersburg, Michigan facility was sold
during the first quarter of fiscal 2004. The Thailand greenfield site was sold
during the second quarter of fiscal 2003. Impairment of Machinery, Equipment and Tooling During the first quarter of fiscal 2003, the Company recorded asset
impairment losses of $3.2 million on certain machinery and equipment in its
Automotive Wheels and Components segments due primarily to a change in
managements plan for the future use of idled machinery and equipment. Such
investments in fixed assets were written down to fair value based on the
expected scrap value, if any, of such machinery, equipment and tooling. Facility Closures On April 1, 2004, the Company announced the closure of its Howell,
Michigan manufacturing facility. As part of managements on-going
rationalization initiatives, the decision to close the Howell facility was
based on improving capacity utilization and overall efficiency of the Company.
Production of the aluminum wheels manufactured at the facility will be
transferred to other manufacturing facilities in the United States. During the
three months ended April 30, 2004, the Company recorded severance and other
restructuring charges related to 152 hourly employees of the Howell facility of
$2.6 million which are expected to be paid during the second quarter of fiscal
2004. The Company anticipates that it will incur and recognize additional
restructuring and other closure costs of approximately $5 million to $7 million
during fiscal 2004 and 2005, primarily related to lease termination, plant
closing costs and maintenance subsequent to the shutdown date. In conjunction with the sale of its Petersburg, Michigan facility in the
first quarter of fiscal 2004, the Company reversed $0.2 million in facility
closure costs that had previously been accrued. In connection with the closure of its Bowling Green, Kentucky facility
which the Company announced during the fourth quarter of fiscal 2001, the
Company recorded a restructuring charge of $0.3 million in the first quarter of
fiscal 2003. This charge relates to additional plant closure costs subsequent
to the shutdown date and is expected to be paid during fiscal 2004. Facility Exit Cost and Severance Accruals The following table describes the activity in the balance sheet accounts
affected by severance and other facility exit costs during the three months
ended April 30, 2004 (millions of dollars): CashSeverance
    
    PaymentsJanuary 31,
    
    and Other
    
    and Effects
    
    April 30,2004
    
    Restructuring
    
    of Foreign
    
    2004Accrual
    
    Charges
    
    Currency
    
    AccrualFacility exit costs
    
    $
    1.7
    
    
    $
    (0.2
    )
    
    $
    (0.5
    )
    
    $
    1.0Severance
    
    
    1.0
    
    
    
    2.6
    
    
    
    (0.8
    )
    
    
    2.8$
    2.7
    
    
    $
    2.4
    
    
    $
    (1.3
    )
    
    $
    3.8
 (9)  Loss per Share No
loss per share is presented for the Company as none of its
outstanding common stock is publicly traded. 12




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##### Table of Contents



(10) Comprehensive Income (Loss) The components of comprehensive income (loss) for the three months ended
April 30, 2004 and 2003 are as follows: 2004
    
    2003Net loss
    
    $
    (6.6
    )
    
    $
    (22.6
    )Cumulative translation adjustments
    
    
    (19.9
    )
    
    
    12.0Total comprehensive loss
    
    $
    (26.5
    )
    
    $
    (10.6
    )
 (11) Common Stock Offering On
February 11, 2004, New Hayes closed on a primary offering of
7,720,970 shares of common stock, and a secondary offering of 2 million shares
of its common stock. The Company used the net proceeds of $117.0
million received from the primary offering to redeem $87.5 million
aggregate principal amount, plus accrued and unpaid interest thereon, of its
outstanding New Senior Notes on March 12, 2004, to prepay $16.0 million, plus
accrued and unpaid interest thereon, of its New Term Loan on February 12, 2004,
and for general corporate purposes. (See Note (6).) (12) Segment Reporting The Company is organized based primarily on markets served and products
produced. Under this organization structure, the Companys operating segments
have been aggregated into three reportable segments: Automotive Wheels,
Components, and Other. The Other category includes Commercial Highway products,
the corporate office and elimination of intercompany activities, none of which
meet the requirements of being classified as an operating segment. Earnings
(loss) from operations excluding fresh start accounting adjustments and
reorganization items is used as a non-GAAP measure of the Companys primary
profitability measure because it excludes fresh start accounting adjustments
and reorganization items which do not represent normal operating performance of
the Company as these items relate only to the Companys Chapter 11 Filings and
emergence. The following tables present revenues and other financial information by
business segment (millions of dollars): SuccessorAs of and for the Three Months Ended April 30, 2004AutomotiveWheels
    
    Components
    
    Other
    
    TotalNet sales
    
    $
    352.2
    
    
    $
    200.6
    
    
    $
    41.3
    
    
    $
    594.1Earnings  from operations
    
    
    16.5
    
    
    
    9.3
    
    
    
    0.4
    
    
    
    26.2Asset impairments and other restructuring charges
    
    
    (2.6
    )
    
    
    0.2
    
    
    
    
    
    
    
    (2.4
    )Goodwill
    
    
    411.6
    
    
    
    
    
    
    
    
    
    
    
    411.6Total assets
    
    
    1,618.1
    
    
    
    542.4
    
    
    
    156.1
    
    
    
    2,316.6
 PredecessorThree Months Ended April 30, 2003AutomotiveWheels
    
    Components
    
    Other
    
    TotalNet sales
    
    $
    303.0
    
    
    $
    184.1
    
    
    $
    28.2
    
    
    $
    515.3Earnings (loss) from operations
    
    $
    17.3
    
    
    $
    3.4
    
    
    $
    (19.4
    )
    
    $
    1.3Reorganization items
    
    
    
    
    
    
    0.2
    
    
    
    (13.3
    )
    
    
    (13.1
    )Fresh start accounting adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Earnings (loss) from operations excluding fresh start
accounting adjustments and reorganization items
    
    $
    17.3
    
    
    $
    3.2
    
    
    $
    (6.1
    )
    
    $
    14.4Asset impairments and other restructuring charges
    
    $
    (2.3
    )
    
    $
    (1.8
    )
    
    $
    
    
    
    $
    (4.1
    )
 13




---



##### Table of Contents



SuccessorAs of January 31, 2004AutomotiveWheels
    
    Components
    
    Other
    
    TotalGoodwill
    
    $
    416.2
    
    
    $
    
    
    
    $
    
    
    
    $
    416.2Total assets
    
    $
    1,490.6
    
    
    $
    541.3
    
    
    $
    264.7
    
    
    $
    2,296.6
 (13) Condensed Consolidating Financial Statements The following condensed consolidating financial statements present the
financial information required with respect to those entities which guarantee
certain of the Companys debt. The condensed consolidating financial statements are presented on the
equity method. Under this method, the investments in subsidiaries are recorded
at cost and adjusted for the Companys share of the subsidiaries cumulative
results of operations, capital contributions, distributions and other equity
changes. The principal elimination entries eliminate investments in
subsidiaries and intercompany balances and transactions. Guarantor and Nonguarantor Financial Statements As further discussed in Notes (1) and (6), in connection with the Plan of
Reorganization, HLI issued $250.0 million aggregate principal amount of the New
Senior Notes (the Issuer ). The New Senior Notes are guaranteed by New Hayes and ParentCo
and substantially all of New Hayes domestic subsidiaries (other than HLI as the issuer of the New Senior Notes)
(collectively, the Guarantor Subsidiaries). None of New Hayes foreign
subsidiaries have guaranteed the New Senior Notes, nor have two of
New Hayes domestic subsidiaries owned by foreign subsidiaries of New Hayes (collectively,
the Nonguarantor Subsidiaries). 14




---



##### Table of Contents



CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS SUCCESSOR
For the Three Months Ended April 30, 2004
 Guarantor
    
    NonguarantorIssuer
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    Total(Millions of dollars)(Unaudited)Net sales
    
    
    
    
    
    $
    1.0
    
    
    $
    302.8
    
    
    $
    296.3
    
    
    $
    (6.0
    )
    
    $
    594.1Cost of goods sold
    
    
    
    
    
    
    10.1
    
    
    
    264.1
    
    
    
    251.8
    
    
    
    (6.0
    )
    
    
    520.0Gross profit (loss)
    
    
    
    
    
    
    (9.1
    )
    
    
    38.7
    
    
    
    44.5
    
    
    
    
    
    
    
    74.1Marketing, general and administration
    
    
    
    
    
    
    0.3
    
    
    
    22.5
    
    
    
    21.1
    
    
    
    
    
    
    
    43.9Equity in (earnings) losses of subsidiaries
and joint ventures
    
    
    
    
    
    
    (21.6
    )
    
    
    1.9
    
    
    
    
    
    
    
    19.7
    
    
    
    Asset impairments and other
restructuring charges
    
    
    
    
    
    
    (0.2
    )
    
    
    2.6
    
    
    
    
    
    
    
    
    
    
    
    2.4Other expense (income), net
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    1.4
    
    
    
    
    
    
    
    1.6Earnings (loss) from operations
    
    
    
    
    
    
    12.2
    
    
    
    11.7
    
    
    
    22.0
    
    
    
    (19.7
    )
    
    
    26.2Interest expense, net
    
    
    
    
    
    
    6.4
    
    
    
    0.1
    
    
    
    6.6
    
    
    
    
    
    
    
    13.1Other non-operating (income) expense
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    (0.3
    )
    
    
    
    
    

    
    (0.1
    )Loss on early extinguishment of debt
    
    
    
    
    
    
    12.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    

    
    12.2Earnings (loss) before taxes on income
and minority interest
    
    
    
    

    
    
    (6.6
    )
    
    
    11.6
    
    
    
    15.7
    
    
    
    (19.7
    )

    
    
    1.0Income tax provision
    
    
    
    
    
    
    
    
    
    
    0.6
    
    
    
    4.4
    
    
    
    
    
    
    
    5.0Earnings (loss) before minority interest
    
    
    
    
    
    
    (6.6
    )
    
    
    11.0
    
    
    
    11.3
    
    
    
    (19.7
    )
    
    
    (4.0
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.6
    
    
    
    
    
    
    
    2.6Net income (loss)
    
    
    
    
    
    $
    (6.6
    )
    
    $
    11.0
    
    
    $
    8.7
    
    
    $
    (19.7
    )
    
    $
    (6.6
    )
 15




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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS PREDECESSOR
For the Three Months Ended April 30, 2003
 Guarantor
    
    NonguarantorParent
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    Total(Millions of dollars)(Unaudited)Net sales
    
    $
    61.0
    
    
    $
    232.6
    
    
    $
    229.2
    
    
    $
    (7.5
    )
    
    $
    515.3Cost of goods sold
    
    
    61.3
    
    
    
    216.6
    
    
    
    193.2
    
    
    
    (7.5
    )
    
    
    463.6Gross profit (loss)
    
    
    (0.3
    )
    
    
    16.0
    
    
    
    36.0
    
    
    
    
    
    
    
    51.7Marketing, general and administration
    
    
    5.5
    
    
    
    14.1
    
    
    
    14.1
    
    
    
    
    
    
    
    33.7Equity in (earnings) losses of subsidiaries
and joint ventures
    
    
    1.1
    
    
    
    (7.9
    )
    
    
    (0.1
    )
    
    
    6.9
    
    
    
    Asset impairments and other restructuring charges
    
    
    0.2
    
    
    
    3.4
    
    
    
    0.5
    
    
    
    
    
    
    
    4.1Other expense (income), net
    
    
    (0.3
    )
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.5
    )Reorganization items
    
    
    13.3
    
    
    
    (0.2
    )
    
    
    
    
    
    
    
    
    
    
    13.1Earnings (loss) from operations
    
    
    (20.1
    )
    
    
    6.7
    
    
    
    21.6
    
    
    
    (6.9
    )
    
    
    1.3Interest expense, net
    
    
    2.8
    
    
    
    8.8
    
    
    
    5.4
    
    
    
    
    
    
    
    17.0Earnings (loss) before taxes on income and
minority interest
    
    
    (22.9
    )
    
    
    (2.1
    )
    
    
    16.2
    
    
    
    (6.9
    )
    
    
    (15.7
    )Income tax provision
    
    
    (0.3
    )
    
    
    0.7
    
    
    
    5.5
    
    
    
    
    
    
    
    5.9Earnings (loss) before minority interest
    
    
    (22.6
    )
    
    
    (2.8
    )
    
    
    10.7
    
    
    
    (6.9
    )
    
    
    (21.6
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    1.0
    
    
    
    
    
    
    
    1.0Net income (loss)
    
    $
    (22.6
    )
    
    $
    (2.8
    )
    
    $
    9.7
    
    
    $
    (6.9
    )
    
    $
    (22.6
    )
 16




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##### Table of Contents



CONDENSED CONSOLIDATING BALANCE SHEETS
SUCCESSOR
As of April 30, 2004 Guarantor
    
    NonguarantorIssuer
    

    Subsidiaries


    Subsidiaries
    
    Eliminations
    
    Total(Millions of dollars)(Unaudited)Cash and cash equivalents
    
    
    
    
    
    $
    16.3
    
    
    $
    
    
    
    $
    69.0
    
    
    $
    
    
    
    $
    85.3Receivables
    
    
    
    
    
    
    0.8
    
    
    
    125.1
    
    
    
    207.9
    
    
    
    
    
    
    
    333.8Inventories
    
    
    
    
    
    
    5.6
    
    
    
    85.4
    
    
    
    109.3
    
    
    
    
    
    
    
    200.3Prepaid expenses and other
    
    
    
    
    
    
    5.4
    
    
    
    8.5
    
    
    
    13.3
    
    
    
    
    
    
    
    27.2Total current assets
    
    
    
    
    
    
    28.1
    
    
    
    219.0
    
    
    
    399.5
    
    
    
    
    
    
    
    646.6Net property, plant and equipment
    
    
    
    
    
    
    36.7
    
    
    
    354.3
    
    
    
    573.9
    
    
    
    
    
    
    
    964.9Goodwill and other assets
    
    
    
    
    
    
    1,335.5
    
    
    
    51.1
    
    
    
    620.3
    
    
    
    (1,301.8
    )
    
    
    705.1Total assets
    
    
    
    
    
    $
    1,400.3
    
    
    $
    624.4
    
    
    $
    1,593.7
    
    
    $
    (1,301.8
    )
    
    $
    2,316.6Bank borrowings and other notes
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    6.9
    
    
    $
    
    
    
    $
    6.9Current portion of long-term debt
    
    
    
    
    
    
    4.5
    
    
    
    0.2
    
    
    
    6.0
    
    
    
    
    
    
    
    10.7Accounts payable and accrued liabilities
    
    
    
    
    
    
    70.3
    
    
    
    94.1
    
    
    
    224.7
    
    
    
    
    
    
    
    389.1Total current liabilities
    
    
    
    
    
    
    74.8
    
    
    
    94.3
    
    
    
    237.6
    
    
    
    
    
    
    
    406.7Long-term debt, net of current portion
    
    
    
    
    
    
    610.0
    
    
    
    8.2
    
    
    
    28.1
    
    
    
    
    
    
    
    646.3Pension and other long-term liabilities
    
    
    
    
    
    
    270.5
    
    
    
    0.4
    
    
    
    257.0
    
    
    
    
    
    
    
    527.9Redeemable preferred stock
    
    
    
    
    
    
    10.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10.7Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28.8
    
    
    
    
    
    
    
    28.8Parent loans
    
    
    
    
    
    
    (261.9
    )
    
    
    (53.3
    )
    
    
    314.8
    
    
    
    0.4
    
    
    
    Common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additional paid-in capital
    
    
    
    
    
    
    676.4
    
    
    
    617.4
    
    
    
    641.0
    
    
    
    (1,258.4
    )
    
    
    676.4Retained earnings (accumulated deficit)
    
    
    
    
    
    
    (54.2
    )
    
    
    (41.8
    )
    
    
    31.5
    
    
    
    10.3
    
    
    
    (54.2
    )Accumulated other comprehensive income loss)
    
    
    
    
    
    
    74.0
    
    
    
    (0.8
    )
    
    
    54.9
    
    
    
    (54.1
    )
    
    
    74.0Total stockholders equity
    
    
    
    
    
    
    696.2
    
    
    
    574.8
    
    
    
    727.4
    
    
    
    (1,302.2
    )
    
    
    696.2Total liabilities and stockholders equity
    
    
    
    
    
    $
    1,400.3
    
    
    $
    624.4
    
    
    $
    1,593.7
    
    
    $
    (1,301.8
    )
    
    $
    2,316.6
 17




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##### Table of Contents



CONDENSED CONSOLIDATING BALANCE SHEETS
SUCCESSOR
As of January 31, 2004 Guarantor
    
    NonguarantorIssuer
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    Total(Millions of dollars)Cash and cash equivalents
    
    
    
    
    
    $
    (3.2
    )
    
    $
    (0.6
    )
    
    $
    52.3
    
    
    $
    
    
    
    $
    48.5Receivables
    
    
    
    
    
    
    1.2
    
    
    
    132.0
    
    
    
    191.2
    
    
    
    
    
    
    
    324.4Inventories
    
    
    
    
    
    
    5.7
    
    
    
    86.5
    
    
    
    97.1
    
    
    
    
    
    
    
    189.3Prepaid expenses and other
    
    
    
    
    
    
    6.8
    
    
    
    8.9
    
    
    
    13.3
    
    
    
    
    
    
    
    29.0Total current assets
    
    
    
    
    
    
    10.5
    
    
    
    226.8
    
    
    
    353.9
    
    
    
    
    
    
    
    591.2Net property, plant and equipment
    
    
    
    
    
    
    36.6
    
    
    
    355.5
    
    
    
    574.4
    
    
    
    
    
    
    
    966.5Goodwill and other assets
    
    
    
    
    
    
    1,339.4
    
    
    
    83.3
    
    
    
    618.9
    
    
    
    (1,302.7
    )
    
    
    738.9Total assets
    
    
    
    
    
    $
    1,386.5
    
    
    $
    665.6
    
    
    $
    1,547.2
    
    
    $
    (1,302.7
    )
    
    $
    2,296.6Bank borrowings and other notes
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    14.2
    
    
    $
    
    
    
    $
    14.2Current portion of long-term debt
    
    
    
    
    
    
    4.5
    
    
    
    
    
    
    
    6.8
    
    
    
    
    
    
    
    11.3Accounts payable and accrued liabilities
    
    
    
    
    
    
    83.3
    
    
    
    82.7
    
    
    
    188.4
    
    
    
    
    
    
    
    354.4Total current liabilities
    
    
    
    
    
    
    87.8
    
    
    
    82.7
    
    
    
    209.4
    
    
    
    
    
    
    
    379.9Long-term debt, net of current portion
    
    
    
    
    
    
    714.3
    
    
    
    8.4
    
    
    
    29.7
    
    
    
    
    
    
    
    752.4Pension and other long-term liabilities
    
    
    
    
    
    
    263.1
    
    
    
    0.4
    
    
    
    263.0
    
    
    
    
    
    
    
    526.5Redeemable preferred Stock of Subsidiary
    
    
    
    
    
    
    10.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10.5Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23.2
    
    
    
    
    
    
    
    23.2Parent loans
    
    
    
    
    
    
    (293.3
    )
    
    
    (24.5
    )
    
    
    315.4
    
    
    
    2.4
    
    
    
    Liabilities subject to compromise
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additional paid-in capital
    
    
    
    
    
    
    557.8
    
    
    
    652.3
    
    
    
    626.6
    
    
    
    (1,278.9
    )
    
    
    557.8Retained earnings (accumulated deficit)
    
    
    
    
    
    
    (47.6
    )
    
    
    (53.5
    )
    
    
    21.6
    
    
    
    31.9
    
    
    
    (47.6
    )Accumulated other comprehensive income loss)
    
    
    
    
    
    
    93.9
    
    
    
    (0.2
    )
    
    
    58.3
    
    
    
    (58.1
    )
    
    
    93.9Total stockholders equity
    
    
    
    
    
    
    604.1
    
    
    
    598.6
    
    
    
    706.5
    
    
    
    (1,305.1
    )
    
    
    604.1Total liabilities and stockholders equity
    
    
    
    
    
    $
    1,386.5
    
    
    $
    665.6
    
    
    $
    1,547.2
    
    
    $
    (1,302.7
    )
    
    $
    2,296.6
 18




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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
SUCCESSOR
For the Three Months Ended April 30, 2004 Guarantor
    
    NonguarantorIssuer
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    Total(Millions of dollars)(Unaudited)Cash flows provided by (used for) operating activities
    
    
    
    
    
    $
    (16.2
    )
    
    $
    47.9
    
    
    $
    40.2
    
    
    $
    
    
    
    $
    71.9Cash flows from investing activities:Acquisition of property, plant, equipment, and tooling
    
    
        
    
    
    
    (1.0
    )
    
    
    (14.7
    )
    
    
    (13.6
    )
    
    
    
    
    
    
    (29.3
    )Proceeds from sale of assets
    
    
        
    
    
    
    
    
    
    
    (0.1
    )
    
    
    0.2
    
    
    
    
    
    
    
    0.1Cash used for investing activities
    
    
        
    
    
    
    (1.0
    )
    
    
    (14.8
    )
    
    
    (13.4
    )
    
    
    
    
    
    
    (29.2
    )Cash flows from financing activities:Capital contribution
    
    
    
    
    
    
    117.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    117.0Repayment of notes payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7.1
    )
    
    
    
    
    
    
    (7.1
    )Prepayment of New Term Loan
    
    
    
    
    
    
    (16.0
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16.0
    )Redemption of New Senior Notes
    
    
    
    
    
    
    (96.7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (96.7
    )Repayment of long-term debt
    
    
    
    
    
    
    (1.1
    )
    
    
    
    
    
    
    (1.2
    )
    
    
    
    
    
    
    (2.3
    )Cash provided by (used for) financing activities
    
    
    
    
    
    
    3.2
    
    
    
    
    
    
    
    (8.3
    )
    
    
    
    
    
    
    (5.1
    )Increase (decrease) in parent loans and advances
    
    
    
    
    
    
    33.5
    
    
    
    (32.5
    )
    
    
    (1.0
    )
    
    
    
    
    
    
    Effect of exchange rates of cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.8
    )
    
    
    
    
    
    
    (0.8
    )Net increase in cash and cash equivalents
    
    
    
    
    
    
    19.5
    
    
    
    0.6
    
    
    
    16.7
    
    
    
    
    
    
    
    36.8Cash and cash equivalents at beginning of period
    
    
        
    
    
    
    (3.2
    )
    
    
    (0.6
    )
    
    
    52.3
    
    
    
    
    
    
    
    48.5Cash and cash equivalents at end of period
    
        
    
    
    
    $
    16.3
    
    
    $
    
    
    
    $
    69.0
    
    
    $
    
    
    
    $
    85.3
 19




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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
PREDECESSOR
For the Three Months Ended April 30, 2003 Guarantor
    
    NonguarantorParent
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    Total(Millions of dollars)(Unaudited)Cash flows provided by (used for) operating activities
    
    $
    (8.7
    )
    
    $
    7.3
    
    
    $
    18.5
    
    
    $
    
    
    
    $
    17.1Cash flows from investing activities:Acquisition of property, plant, equipment, and tooling
    
    
    (1.8
    )
    
    
    (9.0
    )
    
    
    (9.2
    )
    
    
    
    
    
    
    (20.0
    )Proceeds from sale of assets and non-core businesses
    
    
    
    
    
    
    0.5
    
    
    
    0.2
    
    
    
    
    
    
    
    0.7Cash provided by (used for) investing activities
    
    
    (1.8
    )
    
    
    (8.5
    )
    
    
    (9.0
    )
    
    
    
    
    
    
    (19.3
    )Cash flows from financing activities:Increase in bank borrowings, revolving facility,
DIP facility and other notes
    
    
    11.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11.5Repayment of bank borrowings, revolving facility,
and long term debt from financing
    
    
    
    
    
    
    (0.8
    )
    
    
    (6.8
    )
    
    
    
    
    
    
    (7.6
    )Cash provided by (used for) financing activities
    
    
    11.5
    
    
    
    (0.8
    )
    
    
    (6.8
    )
    
    
    
    
    
    
    3.9Increase (decrease) in parent loans and advances
    
    
    (1.9
    )
    
    
    2.2
    
    
    
    (0.3
    )
    
    
    
    
    
    
    Effect of exchange rates of cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    2.0
    
    
    
    
    
    
    
    2.0Net increase (decrease) in cash and cash equivalents
    
    
    (0.9
    )
    
    
    0.2
    
    
    
    4.4
    
    
    
    
    
    
    
    3.7Cash and cash equivalents at beginning of period
    
    
    13.3
    
    
    
    
    
    
    
    52.8
    
    
    
    
    
    
    
    66.1Cash and cash equivalents at end of period
    
    $
    12.4
    
    
    $
    0.2
    
    
    $
    57.2
    
    
    $
    
    
    
    $
    69.8
 20




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##### Table of Contents



Item 2.Managements Discussion and Analysis of Financial Condition and
Results of Operations Executive Summary This discussion should be read in conjunction with the Companys Annual
Report on Form 10-K for the fiscal year ended January 31, 2004 as filed with
the Securities and Exchange Commission on April 12, 2004, and the other
information included herein. Company Overview Unless
otherwise indicated, references to Company mean (i) prior
to the effectiveness of Old Hayes Plan of Reorganization (as defined
below) and the related restructuring, to Old Hayes and its
consolidated subsidiaries (the Predecessor), and (ii)
after the effectiveness of Old Hayes Plan of Reorganization and the
related restructuring, to HLI Operating Company, Inc. and its
consolidated subsidiaries (the Successor). References to
fiscal year means the Companys year commencing on February 1 of that
year and ending on January 31 of the following year (i.e.,
fiscal 2004 refers to the period beginning February 1,
2004 and ending January 31, 2005, fiscal 2003 refers to
the period beginning February 1, 2003 and ending January 31, 2004.) Originally founded in 1908, the Company is a leading worldwide producer of
aluminum and steel wheels for the light vehicle market. The Company is a
leading provider of steel wheels for the commercial highway market and is also
a leading supplier in the high growth market for lightweight aluminum products,
including suspension, brake and powertrain components. The Company is a leading
supplier of the automotive wheels used by OEMs in North America and Europe.
The Company has a global footprint with 44 facilities located in 14 countries
around the world. The Company sells products to every major North American,
Japanese and European manufacturer of passenger cars and light trucks as well
as more than 300 commercial highway vehicle customers throughout the world. The
Companys products are presently on 16 of the top 20 selling platforms for
passenger cars in the United States. The Company has a sales and marketing organization of dedicated customer
teams located in all major vehicle producing regions. The Companys ability to
support its customers globally is further enhanced by the Companys broad
global presence in terms of sales offices, manufacturing facilities and
engineering/technical centers. On
December 5, 2001, Old Hayes, 30 of its wholly owned domestic subsidiaries and
one wholly owned Mexican subsidiary filed voluntary petitions under Chapter 11
of the U.S. Bankruptcy Code. Old Hayes emerged from bankruptcy on June 3,
2003. In connection with the emergence from Chapter 11, the Company entered
into a $550.0 million senior secured credit facility, as amended. The New
Credit Facility consists of a $450.0 million six-year amortizing term loan (the
New Term Loan) and a five-year $100.0 million revolving credit facility. In
addition, HLI issued an aggregate of $250.0 million principal amount of 10 1/2%
senior notes due 2010 (the New Senior Notes). On February 11, 2004,
Hayes Lemmerz International, Inc. closed on a primary offering of 7.7 million shares of common stock, and
a secondary offering of 2.0 million shares of its common stock. The Company
used the net proceeds received from the primary offering to redeem
$87.5 million aggregate principal amount, plus accrued and unpaid interest
thereon, of its outstanding New Senior Notes on March 12, 2004, to prepay $16.0
million, plus accrued and unpaid interest thereon, of its New Term Loan on
February 12, 2004, and for general corporate purposes. In fiscal 2003, the Company had net sales of $2.1 billion, with
approximately 48% of the Companys net sales for that period derived from
international markets, and the Company had earnings from operations in fiscal
2003 of $62.0 million (which includes the impact of certain gains and expenses
related to its emergence from Chapter 11 proceedings). Chapter 11 Filings On December 5, 2001, Hayes Lemmerz International, Inc. (Old Hayes), 30
of its wholly-owned domestic subsidiaries and one wholly-owned Mexican
subsidiary (collectively, the Debtors) filed voluntary petitions for
reorganization relief (the Chapter 11 Filings or the Filings) under Chapter
11 of the Bankruptcy Code in the United States Bankruptcy Court for the
District of Delaware (the Bankruptcy Court). On December 16, 2002, certain of the Debtors filed a proposed joint plan
of reorganization with the Bankruptcy Court. On April 9, 2003, the Debtors
filed a modified first amended joint plan of reorganization (the Plan of
Reorganization) which received the requisite support from creditors authorized
to vote thereon. The following five Debtors were not proponents of the Plan of
Reorganization and are not subject to the terms thereof: HLI Netherlands
Holdings, Inc., CMI Quaker Alloy, Inc., Hayes Lemmerz Funding Company, LLC,
Hayes Lemmerz Funding Corporation, and Hayes Lemmerz International Import, Inc.
(collectively, the Non-reorganizing Debtors). 21




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##### Table of Contents



The Plan of Reorganization provided for the cancellation of the existing
common stock of Old Hayes and the issuance of cash, new common stock in the
reorganized Company and other property to certain creditors of the Company in
respect of certain classes of claims. The Plan of Reorganization was confirmed
by an order of the Bankruptcy Court on May 12, 2003, which order has become
final and non-appealable. Emergence from Chapter 11 On June 3, 2003 (the Effective Date), Old Hayes
and each of the 27 Debtors proposing the Plan of Reorganization emerged from
Chapter 11 proceedings pursuant to the Plan of Reorganization, which was
confirmed by an order of the Bankruptcy Court on May 12, 2003, which order has
become final and non-appealable. The Non-reorganizing Debtors were not
proponents of the Plan of Reorganization and are not subject to the terms
thereof. On June 3, 2003, the Bankruptcy Court entered an order dismissing the
Chapter 11 Filings of the Non-reorganizing Debtors. Pursuant to the Plan of Reorganization, Old Hayes caused the formation
of (i) a new holding company, HLI Holding Company, Inc., a Delaware corporation
(HoldCo), (ii) HLI Parent Company, Inc., a Delaware corporation and a wholly
owned subsidiary of HoldCo (ParentCo), and (iii) HLI Operating Company, Inc,
a Delaware corporation and a wholly owned subsidiary of ParentCo (HLI). On
the Effective Date, (i) HoldCo was renamed Hayes Lemmerz International, Inc.
(New Hayes), (ii) New Hayes contributed to ParentCo 30,000,000 shares of its
common stock, par value $.01 per share (the New Common Stock), and 957,447
series A warrants and 957,447 series B warrants to acquire New Common Stock of
New Hayes (the Series A Warrants and Series B Warrants, respectively),
(iii) ParentCo in turn contributed such shares of New Common Stock and Series A
Warrants and Series B Warrants to HLI and (iv) pursuant to an Agreement and
Plan of Merger, dated as of June 3, 2003 (the Merger Agreement), between Old Hayes and HLI, Old Hayes was merged with and into HLI (the Merger), with
HLI continuing as the surviving corporation. Pursuant to the Plan of Reorganization and as a result of the Merger, all
of the issued and outstanding shares of common stock, par value $.01 per share,
of Old Hayes (the Old Common Stock), and any other outstanding equity
securities of Old Hayes, including all options and warrants, were cancelled.
The holders of the existing voting common stock of Old Hayes immediately
before confirmation did not receive any voting shares of the emerging entity or
any other consideration under the Plan of Reorganization as a result of their
ownership interests of the Predecessor. This represented a complete change of
control in the ownership of the Company. Promptly following the Merger, HLI
distributed to certain holders of allowed claims, under the terms of the Plan
of Reorganization, an amount in cash, the New Common Stock, the Series A
Warrants, the Series B Warrants and the Preferred Stock (as defined below).
Prior to the Merger, the Old Common Stock was registered pursuant to Section
12(g) of the Securities Exchange Act of 1934, as amended (the Exchange Act).
In reliance on Rule 12g-3(a) of the Exchange Act, by virtue of the status of
New Hayes as a successor issuer to the Company, the New Common Stock is deemed
registered under Section 12(g) of the Exchange Act. The Company filed a Form 15
with the SEC to terminate the registration of the Old Common Stock under the
Exchange Act. Pursuant to the terms of the Plan of Reorganization, HLI issued 100,000
shares of Preferred Stock, par value $1.00, of HLI (the Preferred Stock) to
the holders of certain allowed claims. In accordance with the terms of the
Preferred Stock, the shares of Preferred Stock are, at the holders option,
exchangeable into a number of fully paid and nonassessable shares of New Common
Stock equal to (i) the aggregate liquidation preference of the shares of
Preferred Stock so exchanged ($100 per share plus all accrued and unpaid
dividends thereon (whether or not declared) to the exchange date) divided by
(ii) 125% of the Emergence Share Price. As determined pursuant to the terms
of the Plan of Reorganization, the Emergence Share Price is $18.50. In connection with the Debtors emergence from Chapter 11, on the
Effective Date, HLI entered into a $550.0 million senior secured credit
facility, as amended by Amendment No. 1 and Waiver to Credit Agreement, dated
October 16, 2003 (as amended, the New Credit Facility). The New Credit
Facility consists of a $450.0 million six-year amortizing term loan (the New
Term Loan) and a five-year $100.0 million revolving credit facility (the
Revolving Credit Facility). In addition, HLI issued on the Effective Date an
aggregate of $250.0 million principal amount of 10 1/2% senior notes due 2010
(the New Senior Notes). The proceeds from the initial $450.0 million of
borrowings under the New Credit Facility and the net proceeds from the New
Senior Notes were used to make payments required under the Plan of
Reorganization, including the repayment of the Companys DIP Facility and a
payment of $477.3 million to certain prepetition lenders, to pay related
transaction costs and to refinance certain debt. Reorganization items for the three months ended April 30, 2003 as reported
in the consolidated statements of operations included herein are comprised of
income, expense and loss items that were realized or incurred by the Debtors as
a direct result of the Companys decision to reorganize under Chapter 11.
During the three months ended April 30, 2003, reorganization items were as
follows (millions of dollars): 2003Critical employee retention plan provision
    
    $
    1.3Estimated accrued liability for rejected prepetition leases
and contracts
    
    
    Professional fees related to the Filing
    
    
    11.5Other
    
    
    0.3Total
    
    $
    13.1
 Cash payments with respect to such reorganization items consisted
primarily of professional fees and were approximately $8.0 million during the
first quarter of fiscal 2003. 22




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On May 30, 2002, the Bankruptcy Court entered an order approving, among
other things, the critical employee retention plan (the CERP) filed with the
Bankruptcy Court in February 2002 which was designed to compensate certain
critical employees in order to assure their retention and availability during
the Companys restructuring. The plan has two components which (i) rewarded
critical employees who remained with the Company (and certain affiliates of the
Company who are not directly involved in the restructuring) during and through
the completion of the restructuring (the Retention Bonus) and (ii) provided
additional incentives to a more limited group of the most senior critical
employees if the enterprise value upon completing the restructuring exceeded an
established baseline (the Restructuring Performance Bonus). Thirty-five percent, or approximately $3.0 million, of the Retention Bonus
was paid on October 1, 2002. The remaining portion of the Retention Bonus of
approximately $5.9 million was paid on June 13, 2003. Further, the
Restructuring Performance Bonus provided under the CERP was paid after the
consummation of the restructuring as discussed below. Based on Old Hayes compromise total enterprise value of $1,250.0
million as confirmed by the Bankruptcy Court, the aggregate amount of the
Restructuring Performance Bonus is $12.1 million. Of the aggregate $12.1
million, approximately $6.0 million was paid in cash on July 1, 2003, and
approximately $2.0 million was paid on August 29, 2003 as determined by New Hayes Board of Directors. The remaining portion of the Restructuring
Performance Bonus was paid in 215,935 shares of restricted units of New Hayes
on July 28, 2003. Pursuant to provisions contained in the CERP, the restricted
units will vest as follows, subject to the participants continued employment:  
    
    one half of the restricted units will vest on the first anniversary of the Effective Date, and;  
    
    one half of the restricted units will vest on the second anniversary of the Effective Date. Results of Operations Sales of the Companys wheels, wheel-end attachments, aluminum structural
components and brake components produced in North America are directly affected
by the overall level of passenger car, light truck and commercial highway
vehicle production of North American OEMs, while sales of its wheels and
automotive castings in Europe are directly affected by the overall vehicle
production in Europe. The North American and European automotive industries are
sensitive to the overall strength of their respective economies. The Company is organized based primarily on markets served and products
produced. Under this organization structure, the Companys operating segments
have been aggregated into three reportable segments: Automotive Wheels,
Components and Other. The Automotive Wheels segment includes results from the
Companys operations that primarily design and manufacture fabricated steel and
cast aluminum wheels for original equipment manufacturers in the global
passenger car and light vehicle markets. The Components segment includes
results from the Companys operations that primarily design and manufacture
suspension, brake and powertrain components for original equipment
manufacturers in the global passenger car and light vehicle markets. The Other
segment includes results from the Companys operations that primarily design
and manufacture wheel and brake products for commercial highway and aftermarket
customers in North America. The Other segment also includes financial results
related to the Companys corporate office and elimination of certain
intercompany activities. Three Months Ended April 30, 2004 Compared to Three Months Ended April 30, 2003 Net Sales Three Months Ended April 30,2004
    
    2003
    
    $ Change(Millions of dollars)Automotive Wheels
    
    $
    352.2
    
    
    $
    303.0
    
    
    $
    49.2Components
    
    
    200.6
    
    
    
    184.1
    
    
    
    16.5Other
    
    
    41.3
    
    
    
    28.2
    
    
    
    13.1Total
    
    $
    594.1
    
    
    $
    515.3
    
    
    $
    78.8
 The Companys net sales for the first quarter of 2004 increased $78.8
million to $594.1 million from $515.3 million in the first quarter of 2003.
After adjusting for the net impact of favorable exchange rate fluctuations
relative to the U.S. dollar, net sales for the first quarter of 2004 increased
8.5% or approximately $43.8 million as compared to the same period in 2003. 23




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##### Table of Contents



Net sales from the Companys Automotive Wheels segment increased $49.2
million to $352.2 million in the first quarter of fiscal 2004 from $303.0
million in the first quarter of 2003. Automotive Wheels net sales were
favorably impacted by foreign exchange rate fluctuations relative to the U.S.
dollar, which increased sales by approximately $31 million. The remaining
increase in sales is primarily due to increased volumes abroad and the impact
of consolidating sales from the Companys facility in Turkey, after having
acquired a controlling interest in the facility during the fourth quarter of
fiscal 2003. These increases were partially offset by decreased unit pricing
globally and lower customer production requirements in North America. Net sales from Components increased $16.5 million to $200.6 million in
first quarter 2004 from $184.1 million in first quarter 2003. The increase in
Components net sales was primarily due to increased customer production
requirements and a favorable product mix which increased sales by approximately
$16 million. The impact of favorable foreign exchange rate fluctuations
increased net sales by approximately $4 million, but was partially offset by
decreased unit pricing. Other net sales increased $13.1 million to $41.3 million during first
quarter 2004 from $28.2 million during first quarter 2003. This increase was
primarily due to higher volumes in the Companys commercial highway and
aftermarket operations. Earnings (loss) from operations excluding fresh start accounting adjustments
and reorganization items Earnings (loss) from operations excluding fresh start accounting
adjustments and reorganization items is used as a non-GAAP measure of the
Companys primary profitability measure because it excludes fresh start
accounting adjustments and reorganization items which do not represent normal
operating performance of the Company as these items relate only to the
Companys Chapter 11 Filings and emergence. Earnings from operations excluding
fresh start accounting adjustments and reorganization items is calculated as
follows (millions of dollars): Three Months
Ended April 30,2004
    
    2003Earnings from operations
    
    $
    26.2
    
    
    $
    1.3Excluding:Reorganization items
    
    
    
    
    
    
    13.1Earnings from operations excluding fresh start
accounting adjustments and reorganization items
    
    $
    26.2
    
    
    $
    14.4
 The following tables present earnings (loss) from operations excluding
fresh start accounting adjustments and reorganization items, as well as other
information by segment (millions of dollars): Three MonthsEnded
April 30,2004AutomotiveWheels
    
    Components
    
    Other
    
    TotalEarnings from operations
    
    $
    16.5
    
    
    $
    9.3
    
    
    $
    0.4
    
    
    $
    26.2Asset impairments and
other restructuring charges:Facility closure costs
    
    $
    
    
    
    $
    0.2
    
    
    $
    
    
    
    $
    0.2Severance and other restructuring costs
    
    
    (2.6
    )
    
    
    
    
    
    
    
    
    
    
    (2.6
    )Total asset impairments and other
restructuring charges:
    
    $
    (2.6
    )
    
    $
    0.2
    
    
    $
    
    
    
    $
    (2.4
    )
 Three MonthsEnded
April 30,2003AutomotiveWheels
    
    Components
    
    Other
    
    TotalEarnings (loss) from operations excluding
fresh start accounting adjustment
and reorganization items
    
    $
    17.3
    
    
    $
    3.2
    
    
    $
    (6.1
    )
    
    $
    14.4Reorganization items
    
    
    
    
    
    
    0.2
    
    
    
    (13.3
    )
    
    
    (13.1
    )Asset impairments and other restructuring
charges:Impairment of manufacturing facilities
    
    $
    (0.5
    )
    
    $
    (0.1
    )
    
    $
    
    
    
    $
    (0.6
    )Impairment of machinery, equipment and
tooling
    
    
    (1.5
    )
    
    
    (1.7
    )
    
    
    
    
    
    
    (3.2
    )Facility closure costs
    
    
    (0.3
    )
    
    
    
    
    
    
    
    
    
    
    (0.3
    )Total asset impairments and other
restructuring charges:
    
    $
    (2.3
    )
    
    $
    (1.8
    )
    
    $
    
    
    
    $
    (4.1
    )
 24




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The Companys earnings from operations excluding fresh start accounting
adjustments and reorganization items increased by $11.8 million in the first
quarter of fiscal 2004 to $26.2 million, from earnings of $14.4 million in the
first quarter of fiscal 2003. Adjusted for the net impact of foreign exchange
rate fluctuations relative to the U.S. dollar, the Companys earnings from
operations excluding fresh start accounting adjustments and reorganization
items increased by approximately $9.1 million from fiscal 2003. Improved
operating performance, increased OEM production requirements, and a favorable
product mix improved earnings from operations. These increases were partially
offset by decreased unit pricing, and higher depreciation and amortization
expense due primarily to the adoption of fresh start accounting upon the
Companys emergence from Chapter 11. Earnings from operations excluding fresh start accounting adjustments and
reorganization items at the Companys Automotive Wheels operations decreased by
$0.8 million in the first quarter of fiscal 2004 compared to the same period in
2003. Increased volumes abroad, favorable product mix, and the impact of consolidating
earnings from the Company's Manisa, Turkey facility acquired during the fourth quarter
of fiscal 2003, increased earnings by approximately $12 million. Favorable fluctuations
in foreign exchange rates relative to the U.S. dollar improved earnings from
operations by approximately $2 million. This was partially offset by lower
OEM production requirements in North America, lower unit pricing globally and various customer
satisfaction issues, which decreased earnings from operations by approximately $11 million. Higher depreciation
and amortization expense, primarily related to the Companys adoption of fresh start accounting upon
emergence from Chapter 11, decreased earnings by approximately $4 million.
During the first quarter of fiscal 2004, the Companys Automotive Wheels
segment recorded facility closure costs of $2.6 million associated with the
Companys Howell, Michigan facility. In the first quarter of fiscal 2003 the
Company recorded asset impairment losses of $1.5 million at various facilities
due to a change in managements plan for the future use of idled machinery and
equipment. During the first quarter of fiscal 2003, Automotive Wheels recorded
facility closure costs of $0.3 million related to the Companys Bowling Green
Kentucky facility and asset impairment losses of $0.5 million to write down the
fair value of its Thailand greenfield site based on the current real estate
market conditions. Components earnings from operations excluding fresh start accounting
adjustments and reorganization items increased by $6.1 million in the first
quarter of fiscal 2004 compared to the same period in fiscal 2003. Improved
operating performance and higher volumes increased earnings by approximately $6
million. An improved product mix was offset by decreased unit pricing. An
increase in corporate costs allocated to the Components segment decreased
earnings approximately $2 million during the first quarter of fiscal 2004.
During the first quarter of fiscal 2003, Components recorded asset impairment
losses of approximately $1.7 million at various facilities due to a change in
managements plan for the future use of idled machinery and equipment. Earnings from operations excluding fresh start accounting adjustments and
reorganization items in the Companys Other segment increased by $6.5 million
in the first quarter of fiscal 2004. Improved operating performance, increased volumes and a
favorable product mix in the Companys commercial highway and aftermarket
operations, increased earnings approximately $6 million. During the first
quarter of fiscal 2004 the Companys North American pension and retiree medical
costs declined approximately $2 million relative to the same period in fiscal
2003, due to the fair value adjustment for those liabilities that occurred
during the implementation of fresh start accounting. Subsequent to the
Companys emergence from Chapter 11, it continued to incur post-emergence
bankruptcy-related professional fees which decreased earnings from operations
by approximately $2 million during the first quarter of fiscal 2004. 25




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Interest Expense, net Interest expense was $13.1 million for the first quarter of fiscal year
2004 compared to $17.0 million for the first quarter of fiscal 2003. Interest
expense, net, between the two periods is not comparable because of the
Companys new capital structure established upon emergence from Chapter 11. Income Taxes Income tax expense was $5.0 million for the first quarter of fiscal 2004
compared to $5.9 million for the first quarter of fiscal 2003. The income tax
provision for the quarter is primarily the result of tax expense in foreign
jurisdictions and various states. The Company has determined that a valuation
allowance is required against all net deferred tax assets in the United States
and certain deferred tax assets in foreign jurisdictions. As such, there is no
federal income tax benefit recorded against current losses incurred
in the United States. Liquidity and Capital Resources Cash Flows Operating Activities:The Companys operations provided $71.9 million in
cash in the first quarter of fiscal 2004 compared to $17.1 million in the first
quarter of fiscal 2003. This increase resulted primarily from an early domestic
customer payment received at the end of the first quarter of fiscal 2004, lower
payments related to the Companys Chapter 11 filings and
higher operating profits, offset
partially by payments made under the Companys short term incentive program. Investing Activities:Cash used for investing activities increased by
$9.9 million during the first quarter of fiscal 2004 compared with the first
quarter of fiscal 2003. This increase is due primarily to higher capital
expenditures. Capital expenditures for the first quarter of fiscal 2004 were $29.3
million. These expenditures were primarily for additional machinery and
equipment to improve productivity and reduce costs, to meet demand for new
vehicle platforms and to meet expected requirements for the Companys products.
The Company anticipates capital expenditures for fiscal 2004 will be
approximately $150 million relating primarily to meeting demand for new vehicle
platforms and supporting maintenance and cost reduction programs, including
approximately $12 million for renovation and expansion of its aluminum wheel
plant located in Chihuahua, Mexico. Financing
Activities:Cash used for financing activities was $5.1 million
for the first quarter of fiscal 2004 compared to cash provided by financing
activities of $3.9 million in the first quarter of fiscal 2003. On February 11, 2004, New Hayes closed on a primary offering of
7,720,970 shares of its common stock for net proceeds of $117.0
million. On March 12, 2004, the Company used a portion of the net proceeds to
redeem $87.5 million aggregate principal amount, plus accrued and unpaid
interest thereon, of its outstanding New Senior Notes at a redemption price of
110.5%. This redemption resulted in a loss on early extinguishment of $11.8
million during the first quarter of fiscal 2004, including $2.6 million related
to original issue discount and debt issuance costs on the redeemed portion of
the New Senior Notes. The Company also used a portion of the primary stock offering proceeds to
prepay $16.0 million, plus accrued and unpaid interest thereon, of its New Term
Loan on February 12, 2004. Upon prepayment, the Company recognized a loss on
early extinguishment of $0.4 million related to debt issuance costs on the
prepaid portion of the New Term Loan. Sources of Liquidity The principal sources of liquidity for the Companys future operating,
capital expenditure, facility closure, restructuring and reorganization
requirements are expected to be (i) cash flows from operations, (ii) proceeds
from the sale of non-core assets and businesses, (iii) cash on hand, and (iv)
borrowings under the $100 million revolving credit facility under the New
Credit Facility. While the Company expects that such sources will meet these
requirements, there can be no assurances that such sources will prove to be
sufficient, in part, due to inherent uncertainties about applicable future
capital market conditions. 26




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The Company is currently in the process of implementing operational
improvements, which consist of a number of cost-cutting and profit-enhancing
initiatives. If the implementation of the operational improvements is not
successful, the Company may be unable to offer products at
competitive prices
to generate sufficient operating funds to pay the interest on the New Senior
Notes and make payments due under its New Credit Facility. In such event, there
can be no assurance that alternative sources of financing would be available to
the Company or, if available, that such financing would be on commercially
reasonable terms. Other Liquidity Matters On November 13, 2003, the Company acquired an additional 35% ownership
interest in its Turkish joint venture for $13.9 million in cash and paid $1.1
million in the first quarter of fiscal 2004. As a result of this acquisition,
the Company owns 60% of the subsidiary, Hayes Lemmerz Jantas Jant Sanayi ve
Ticaret A.S., which is now a consolidated subsidiary of the Company beginning
in the fourth quarter of fiscal 2003. As part of this transaction, the Company
sold an approximate 7.8% interest in another Turkish subsidiary, Hayes Lemmerz
 Inci Jant Sanayi A.S., for $2.4 million. This sale reduced the Companys
holdings in Hayes Lemmerz  Inci Jant Sanayi A.S. to 60%. On January 15, 2004, the Company acquired a cast aluminum wheel plant
located in Chihuahua, Mexico for $15.7 million, of which $5.2 million was paid
at closing, $5.2 million was paid during the first quarter of fiscal 2004 and
the remainder will be paid in the first half of fiscal 2004.
The Chihuahua plant was formerly operated as part of a joint venture in which
the Company owned a minority interest. Following planned refurbishment and
expansion of the plant, it will serve the North American wheel market utilizing
low pressure casting technology. As more fully discussed above, on June 3, 2003, in connection with the
Companys emergence from Chapter 11, HLI entered into the $550.0 million New
Credit Facility, consisting of the $450.0 million New Term Loan and the $100.0
million Revolving Credit Facility. HLI also issued an aggregate of $250.0
million New Senior Notes. The Company and substantially all of its material
direct and indirect domestic subsidiaries have guaranteed HLIs obligations
under the New Credit Facility, and the Company and substantially all of its
domestic subsidiaries have guaranteed HLIs obligations under the New Senior
Notes. The proceeds from the initial $450.0 million of borrowings under the New
Credit Facility and the net proceeds from the New Senior Notes were used to
make payments required under the Plan of Reorganization. As of June 7, 2004,
there were no outstanding borrowings and $21.0 million in letters of credit
issued under the Revolving Credit Facility. The amount available to borrow
under the revolving credit facility at June 7, 2004 was approximately $79.0
million. In addition, upon the Companys emergence from bankruptcy, all of
Old Hayes existing securities, including the Old Common Stock, Old Senior Notes
and Old Subordinated Notes, were cancelled. All amounts outstanding under the
Prepetition Credit Agreement were satisfied in exchange for: (i) a cash payment
of $477.3 million; (ii) 15,930,000 shares of New Common Stock; and (iii) 53,100
shares of Preferred Stock. All amounts outstanding under the Old Senior Notes
were satisfied in exchange for: (i) a cash payment of approximately $13.0
million; (ii) 13,470,000 shares of New Common Stock; (iii) 44,900 shares of
Preferred Stock; and (iv) a portion of the distributions from the trust
established under the Plan of Reorganization for the benefit of the prepetition
creditors (the Creditors Trust). All amounts outstanding under the Old
Subordinated Notes were satisfied in exchange for a distribution of Series A
Warrants and a portion of the distributions under the Creditors Trust. In
addition, holders of unsecured claims will receive an aggregate amount of
600,000 shares of New Common Stock, 2,000 shares of Preferred Stock, the Series
B Warrants and a portion of the distributions under the Creditors Trust. Upon emergence from Chapter 11, the Company: (i) repaid the DIP Facility
in full; (ii) settled certain of the operating leases discussed below; and
(iii) paid certain other costs and expenses pursuant to the Plan of
Reorganization. Certain of the Companys operating leases covering leased assets with an
original cost of approximately $68.0 million contained provisions which, if
certain events occur or conditions were met, including termination of the
lease, could have required the Company to purchase or re-sell the leased assets
within a specified period of time, generally one year, based on amounts
specified in the lease agreements. In connection with the Companys emergence
from Chapter 11, the Company purchased these assets for $23.6 million. Credit Ratings S&P
    
    MoodysCorporate and Bank Debt rating
    
    BB 
    
    
    Ba3Senior Note rating
    
    B +
    
    
    B1
 27




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In the event of a down grading, the Company believes it would continue to have
access to sufficient liquidity, however, the cost of borrowing would increase
and the Companys ability to access certain financial markets could be limited. Outlook Customers The Company derived approximately half of its fiscal 2003 net sales on a
worldwide basis from Ford, DaimlerChrysler and General Motors and their
subsidiaries. The Companys sales levels and margins could be adversely
affected as a result of pricing pressures caused by new competitors in low-cost
foreign markets, such as China. These factors led to selective resourcing of
future business to competitors in the second quarter of fiscal 2003.
Additionally, these customers have been experiencing decreasing market share in
North America which could result in lower sales volumes for the Company. The Companys net sales are continually affected by pressure from its
major customers to reduce prices. The Companys emphasis on reduction of
production costs, increased productivity and improvement of production
facilities has enabled the Company to respond to this pressure. Steel Supply Global spot market steel prices have significantly increased during 2003
and into early 2004. Factors leading to the higher prices include the
increasing demand for steel in China, industry consolidation and rising raw
material costs. In response to the increasing cost of raw materials, a number
of steel suppliers have implemented surcharges on existing fixed price
contracts. Without the surcharge some suppliers claim they will be unable to
provide adequate supplies of steel. In addition, some of the Companys
suppliers have sought, and others may seek in the future, bankruptcy relief
which could affect the availability or price of steel. These factors could
negatively impact the Companys results of operations as it may be unable to
compel suppliers to comply with existing contracts or to source adequate
supplies of steel. The Company believes it can partially offset the impact of
cost increases through higher scrap sales recoveries and or by passing some of
these costs through to certain of its customers. The full impact of steel
prices is uncertain given the volatility in the spot steel market.
However, the Company anticipates the net impact to approximate
$10 million to $15 million in fiscal 2004. Interest Rate and Foreign Exchange Rate Fluctuations A portion of the Companys debt, including its borrowings under the New
Credit Facility, bears interest at variable rates. Any increase in the interest
rates on the Companys debt will reduce funds available to it for its
operations and future business opportunities and will exacerbate the
consequences of its leveraged capital structure. Due to the increase in the Companys operations outside the United States,
the Company has experienced increased foreign currency exchange gains and
losses in the ordinary course of business. As a result, fluctuations in the
exchange rate between the U.S. dollar, the euro and the currencies of other
countries in which the Company conducts its business may have a material impact
on its financial condition as cash flows generated in other currencies will be
used, in part, to service its dollar-denominated debt. This could result in an
increase in the Companys overall leverage and could result in less cash flow
available for debt repayment should the dollar appreciate significantly versus
other currencies in which significant cash flows are generated. In addition, fluctuations in foreign currency exchange rates may affect
the value of the Companys foreign assets as reported in U.S. dollars, which in
turn may adversely affect reported earnings and, accordingly, the comparability
of period-to-period results of operations. Changes in currency exchange rates
may affect the relative prices at which the Company and foreign competitors
sell products in the same market. In addition, changes in the value of the
relevant currencies may affect the cost of certain items required in its
operations. There can be no assurance that fluctuations in interest rates or
exchange rates will not have a material adverse effect on the Companys
financial condition or results of operations, or cause significant fluctuations
in quarterly and annual results of operations. Postretirement Benefits On December 8, 2003, President George W. Bush signed the Medicare
Prescription Drug, Improvement and Modernization Act (the Act) into law. This
law introduces a prescription drug benefit under Medicare as well as a federal
subsidy to sponsors of retiree health care benefit plans that provide a benefit
that is at least actuarially equivalent to the benefit established by the law. 28




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In January 2004, the Financial Accounting Standards Board (FASB) issued
FASB Staff Position No. FAS 106-1, Accounting and Disclosure Requirements
Related to the Medicare Prescription Drug, Improvement and Modernization Act of
2003 (FSP 106-1). FSP 106-1 permits companies that are a sponsor of a
postretirement heath care plan that provides a prescription drug benefit to
either include the effects of the Act in its financial statements or defer
accounting for the Act until the FASB issues guidance on how to account for the
federal subsidy. Such guidance was released by the FASB in May 2004
in Staff Position No. FAS 106-2 (FSP 106-2). As such, the accumulated postretirement benefit obligation (APBO) and the
net periodic postretirement benefit cost do not reflect the effects of the Act.
The Company is unable to estimate the impact the Act will have on
its financial statements or the amount of cash it may be entitled to receive
from any federal subsidy, but believes that its plan is at least actuarially
equivalent. As such, the Act is expected to favorably impact the Company by
reducing the postretirement benefit obligation and expense in future periods
when compared to fiscal 2003. In accordance with the provisions of
FSP 106-2, the Company will apply the accounting guidance of the
pronouncement in the fiscal quarter ended July 31, 2004. Contractual Obligations The following table identifies the Companys significant contractual
obligations (millions of dollars): Payment due by PeriodLess than
    
    
    
    
    
    
    
    
    
    After1 year
    
    1-3 years
    
    4-5 years
    
    5 years
    
    TotalLong-term debt
    
    $
    6.6
    
    
    $
    25.3
    
    
    $
    26.2
    
    
    $
    584.1
    
    
    $
    642.2Redeemable preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10.7
    
    
    
    10.7Short-term borrowings
    
    
    6.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.9Capital lease obligations
    
    
    4.1
    
    
    
    6.2
    
    
    
    4.5
    
    
    
    
    
    
    
    14.8Operating leases
    
    
    8.9
    
    
    
    13.0
    
    
    
    2.1
    
    
    
    0.1
    
    
    
    24.1Capital expenditures
    
    
    16.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16.4Total obligations
    
    $
    42.9
    
    
    $
    44.5
    
    
    $
    32.8
    
    
    $
    594.9
    
    
    $
    715.1
 Other Cash Requirements The Company anticipates the following approximate significant cash
requirements to be paid during the remainder of fiscal 2004 (millions of dollars): Interest
    
    $
    36.0Taxes
    
    
    22.0Pension and other post-retirement benefits funding
    
    
    20.0Restructuring costs(1)
    
    
    5.0  7.0
 (1) See Note (8) to the consolidated financial statements included herein
for a discussion of restructuring and other closure costs. 29




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Critical Accounting Policies The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period.
Considerable judgment is often involved in making these determinations; the use
of different assumptions could result in significantly different results.
Management believes its assumptions and estimates are reasonable and
appropriate; however, actual results could differ from those estimates. Asset impairment losses and other restructuring charges The Companys consolidated statements of operations included herein
reflect an element of operating expenses described as asset impairments and
other restructuring charges. The Company periodically evaluates whether events
and circumstances have occurred that indicate that the remaining useful life of
any of its long lived assets may warrant revision or that the remaining balance
might not be recoverable. When factors indicate that the long lived assets
should be evaluated for possible impairment, the Company uses an estimate of
the future undiscounted cash flows generated by the underlying assets to
determine if a write-down is required. If a write-down is required, the Company
adjusts the book value of the impaired long-lived assets to their estimated
fair values. Fair value is determined through third party appraisals or
discounted cash flow calculations. The related charges are recorded as an asset
impairment or, in the case of certain exit costs in connection with a plant
closure or restructuring, a restructuring or other charge in the consolidated
statements of operations. As discussed above and in the notes to the Companys consolidated
financial statements included herein, a number of decisions have occurred or
other factors have indicated that these types of charges are required to be
currently recognized. There can be no assurance that there will not be
additional charges based on future events and that the additional charges would
not have a materially adverse impact on the Companys financial position and
results of operations. Pension and Postretirement Benefits Other than Pensions Annual net periodic expense and benefit liabilities under the Companys
defined benefit plans are determined on an actuarial basis. Assumptions used in
the actuarial calculations have a significant impact on plan obligations and
expense. Each October, the Company reviews the actual experience compared to
the more significant assumptions used and makes adjustments to the assumptions,
if warranted. The healthcare trend rates are reviewed with the actuaries based
upon the results of their review of claims experience. Discount rates are based
upon an expected benefit payments duration analysis and the equivalent average
yield rate for high-quality fixed-income investments. Pension benefits are funded through deposits with trustees and the
expected long-term rate of return on fund assets is based upon actual
historical returns modified for known changes in the market and any expected
change in investment policy. Postretirement benefits are not funded and Company
policy is to pay these benefits as they become due. Certain accounting guidance, including the guidance applicable to
pensions, does not require immediate recognition of the effects of a deviation
between actual and assumed experience or the revision of an estimate. This
approach allows the favorable and unfavorable effects that fall within an
acceptable range to be netted. Although this netting occurs outside the basic
financial statements, the net amount is disclosed as an unrecognized gain or
loss in the footnotes to the Companys financial statements. In accordance
with the fresh start accounting provisions of SOP 90-7, all previously
unrecognized gains or losses were immediately recognized at the emergence date. The Company expects to incur approximately $9.0 million of pension expense
and $10.9 million of retiree benefit expense in fiscal 2004. 30




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Goodwill Impairment Testing On February 1, 2002, the Company adopted Financial Accounting Standards
Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets. Under SFAS No. 142, goodwill and other
indefinite-lived intangible assets are no longer amortized; rather those assets
must be tested for impairment annually. Other definite-lived intangible assets
continue to be amortized over their estimated lives. (See Note (5) to the
consolidated financial statements included herein.) The Company will test goodwill for impairment as of November 1st of each
fiscal year, or more frequently should circumstances change or events occur
that would more likely than not reduce the fair value of a reporting unit below
its carrying amount, as provided for in SFAS No. 142. Allowance for uncollectible accounts The allowance for uncollectible accounts provides for losses believed to
be inherent within the Companys Receivables, (primarily trade receivables).
Management evaluates both the creditworthiness of specific customers and the
overall probability of losses based upon an analysis of the overall aging of
receivables, past collection trends and general economic conditions. Management
believes, based on its review, that the allowance for uncollectibles is
adequate to cover potential losses. Actual results may vary as a result of
unforeseen economic events and the impact those events could have on the
Companys customers. Valuation allowances on deferred income tax assets In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment. The Company determined that it
could not conclude that it was more likely than not that the benefits of
certain deferred income tax assets would be realized. As a result of
managements assessment, a valuation allowance was recognized. The valuation
allowance recorded by the Company reduces to zero the net carrying value of all
United States and certain foreign net deferred tax assets. The Company expects
the deferred tax assets, net of the valuation allowance, to be realized as a
result of the reversal of existing taxable temporary differences in the United
States and as a result of projected future taxable income and the reversal of
existing taxable temporary differences in certain foreign locations. 
 Item 3.Quantitative and Qualitative Disclosures about Market Risk 31




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For the period ended April 30, 2004, the Company did not experience any
material change in market risk exposures affecting the quantitative and
qualitative disclosures as presented in the Companys Annual Report on Form
10-K for the year ended January 31, 2004. 
 Item 4.Controls and Procedures Definition of Controls Management of the Company, including the Companys Chief Executive Officer
and Chief Financial Officer, has designed, or caused to be designed, and
maintained disclosure controls and procedures, as defined in Exchange Act Rules
13a-15 and 15d-15 (the Disclosure Controls and Procedures), to reasonably
assure that material information is recorded, processed, summarized and
reported within the time periods specified by the SECs rules and forms and to
reasonably assure that such information is accumulated and communicated to
management, including the Companys Chief Executive Officer and Chief Financial
Officer, in a timely manner to allow for appropriate decisions regarding
required disclosures. Management has also designed internal controls, including
internal controls over financial reporting (the Internal Controls), to
provide reasonable assurance regarding the reliability of the Companys
financial reporting and the preparation of the Companys financial statements
in accordance with accounting principles generally accepted in the United
States (GAAP). Limitations on the Effectiveness of Controls As more fully discussed in the American Institute of Certified Public
Accountants (AICPA) auditing standards pronouncement Consideration Of
Internal Control in a Financial Statement Audit, AU Section 319, paragraphs
        .21 to .24, an internal control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance that the control
objectives will be met. Limitations inherent in any system of internal controls
might include, among other things, (i) faulty human judgment and simple errors
or mistakes, (ii) collusion of two or more people or inappropriate management
override of procedures, (iii) imprecision in estimating and judging
cost-benefit relationships in designing controls and (iv) reductions in the
effectiveness of one deterring component (such as a strong cultural and
governance environment) by a conflicting component (such as may be found in
certain management incentive plans). Because of such inherent limitations in
any system of internal controls, no evaluation of controls can provide absolute
assurance that all weaknesses or instances of fraud, if any, have been
detected. The Company, including its Chief Executive Officer and Chief Financial
Officer, believes that the aforementioned limitations apply to any applicable
system of internal controls, including the Disclosure Controls and Procedures
and Internal Controls. The Company will continue the process of identifying and
implementing corrective actions where required to improve the effectiveness of
its Disclosure Controls and Procedures and Internal Controls. Significant
supplemental resources may continue to be required to prepare the required
financial and other information during this ongoing process. Evaluation of Disclosure Controls and Procedures The Company maintains a disclosure committee reporting to the Chief
Executive Officer of the Company to assist the Chief Executive Officer and
Chief Financial Officer in fulfilling their responsibility in designing,
establishing, maintaining and reviewing the Companys Disclosure Controls and
Procedures (the Disclosure Committee). The Disclosure Committee is currently
chaired by the Companys Chief Financial Officer and includes the Companys
General Counsel, Vice President of Human Resources and Administration,
Corporate Controller, Treasurer, Director of Corporate Accounting, and Director
of Internal Audit as its other members. As of the end of the period covered by
this report, the Companys Chief Executive Officer and Chief Financial Officer,
along with the Disclosure Committee, evaluated the Companys Disclosure
Controls and Procedures. The Companys Chief Executive Officer and Chief
Financial Officer have concluded, subject to the limitations noted above, that
the Disclosure Controls and Procedures are effective based on such evaluation. Changes in Internal Controls There were no significant changes in the Companys Internal Controls or in
other factors that have materially affected, or are reasonably likely to
affect, Internal Controls over financial reporting during the most recent
fiscal quarter. 32




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PART II. OTHER INFORMATION 
 Item 1.Legal Proceedings There
have been no material developments in legal proceedings involving the
Company since those reported in the Companys Annual Report on
Form 10-K for the year ended January 31, 2004. 
 Item 2.Changes in Securities and Use of Proceeds None. 
 Item 3.Defaults upon Senior Securities None. 
 Item 4.Submission of Matters to a Vote of Security Holders None. 
 Item 5.Other Information None 33




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Item 6.Exhibits and Reports on Form 8-K (a) 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. (b) Reports on Form 8-K During
the fiscal quarter ended April 30, 2004, Hayes Lemmerz International, Inc. filed or
furnished Current
Reports on Form 8-K with the SEC as follows: February 6, 2004
    
    Items 5 and 7,
    
    Other Events and Regulation FD Disclosure, and Financial Statements and ExhibitsFebruary 12, 2004
    
    Items 5 and 7,
    
    Other Events and Regulation FD Disclosure, and Financial Statements and ExhibitsApril 1, 2004
    
    Items 5 and 7,
    
    Other Events and Regulation FD Disclosure, and Financial Statements and ExhibitsApril 6, 2004
    
    Items 12, 7 and 9
    
    Results of Operations and Financial Condition, Regulation FD Disclosure, and
Financial Statements and ExhibitsApril 23, 2004
    
    Items 5 and 7
    
    Other Events and Regulation FD Disclosure, and Financial Statements and Exhibits
 34




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. HLI Operating Company, Inc./s/ James A. YostJames A. YostVice President, Finance, and Chief Financial Officer June 15, 2004 35




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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.