##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended July 31, 2006
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from           to
 Commission file number: 333-107539
 
 HLI Operating Company, Inc.
 (Exact name of registrant as specified in its charter)
 Delaware(State or other jurisdiction of incorporation or organization)
    
    33-0167742(IRS Employer Identification No.)15300 Centennial Drive Northville, Michigan(Address of principal executive offices)
    
    48168(Zip Code)
 Registrants telephone number, including area code:
(734) 737-5000
  þ o
  o o þ
  o þ
   þ o




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##### 



HLI OPERATING COMPANY, INC.
 QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
 PagePART I. FINANCIAL INFORMATIONItem 1.
    
    Financial Statements
    
    
    3Consolidated Statements of Operations
    
    
    3Condensed Consolidated Balance Sheets
    
    
    4Consolidated Statements of Cash Flows
    
    
    5Consolidated Statements of Changes in Stockholders Equity (Deficit)
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    32Item 4.
    
    Controls and Procedures
    
    
    33PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    34Item 1A.
    
    Risk Factors
    
    
    34Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    34Item 3.
    
    Defaults upon Senior Securities
    
    
    34Item 4.
    
    Submission of
matters to a vote of Security Holders
    
    
    34Item 5.
    
    Other Information
    
    
    34Item 6.
    
    Exhibits
    
    
    34Signatures
    
    
    36Certification of Curtis J. Clawson, Chairman of the Board, President and CEOCertification of James A. Yost, Vice President, Finance, and CFOCertification of Curtis J. Clawson, Chairman of the Board, President and CEOCertification of James A. Yost, Vice President, Finance, and CFO
  Unless otherwise indicated, references to we, us, or our mean HLI Operating Company,
Inc., a Delaware corporation, and our subsidiaries. References to fiscal year means the 12-month
period commencing on February 1 of that year and ending January 31 of the following year (e.g.,
fiscal 2006 means the period beginning February 1, 2006, and ending January 31, 2007). This report
contains forward looking statements with respect to our financial condition, results of operations,
and business. All statements other than statements of historical fact made in this Quarterly Report
are forward-looking. Such forward-looking statements include, among others, those statements
including the words expect, anticipate, intend, believe, and similar language. These
forward looking statements involve certain risks and uncertainties. Our actual results may differ
significantly from those projected in the forward-looking statements. Factors that may cause actual
results to differ materially from those contemplated by such forward looking statements include,
among others: (1) competitive pressure in our industry; (2) fluctuations in the price of steel,
aluminum and other raw materials; (3) changes in general economic conditions; (4) our dependence on
the automotive industry (which has historically been cyclical) and on a small number of major
customers for the majority of our sales; (5) pricing pressure from automotive industry customers
and the potential for re-sourcing of business to lower-cost providers overseas; (6) changes in the
financial markets or our debt ratings affecting our financial structure and our cost of capital and
borrowed money; (7) the uncertainties inherent in international operations and foreign currency
fluctuations; (8) our ability to divest non-core assets and businesses; and (9) the risks described
in our most recent Annual Report on Form 10-K . You are cautioned not to place undue reliance on the
forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q .
We have no duty to update the forward looking statements in this Quarterly Report on Form 10-Q and
we do not intend to provide such updates.
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##### Table of Contents



Item 1. Financial Statements
 HLI OPERATING COMPANY, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three Months
    
    
    Three Months
    
    
    Six Months Ended
    
    
    Six Months EndedEnded July 31,
    
    
    Ended July 31,
    
    
    July 31,
    
    
    July 31,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in millions)Net sales
    
    $
    583.4
    
    
    $
    556.0
    
    
    $
    1,156.2
    
    
    $
    1,145.2Cost of goods sold
    
    
    526.4
    
    
    
    520.5
    
    
    
    1,046.8
    
    
    
    1,051.8Gross profit
    
    
    57.0
    
    
    
    35.5
    
    
    
    109.4
    
    
    
    93.4Marketing, general, and administrative
    
    
    43.6
    
    
    
    44.4
    
    
    
    83.5
    
    
    
    85.5Asset impairments and other restructuring charges
    
    
    2.9
    
    
    
    33.0
    
    
    
    6.6
    
    
    
    33.8Other (income) expense, net
    
    
    (0.3
    )
    
    
    6.7
    
    
    
    1.1
    
    
    
    9.5Earnings (loss) from operations
    
    
    10.8
    
    
    
    (48.6
    )
    
    
    18.2
    
    
    
    (35.4
    )Interest expense, net
    
    
    20.1
    
    
    
    16.1
    
    
    
    37.4
    
    
    
    31.2Other non-operating (income) expense
    
    
    (0.2
    )
    
    
    0.2
    
    
    
    
    
    
    
    0.4Loss from continuing operations before taxes
and minority interest
    
    
    (9.1
    )
    
    
    (64.9
    )
    
    
    (19.2
    )
    
    
    (67.0
    )Income tax expense
    
    
    15.3
    
    
    
    3.8
    
    
    
    20.9
    
    
    
    8.6Loss from continuing operations before minority interest
    
    
    (24.4
    )
    
    
    (68.7
    )
    
    
    (40.1
    )
    
    
    (75.6
    )Minority interest
    
    
    2.5
    
    
    
    2.5
    
    
    
    4.4
    
    
    
    5.1Loss from continuing operations
    
    
    (26.9
    )
    
    
    (71.2
    )
    
    
    (44.5
    )
    
    
    (80.7
    )Income from discontinued operations, net of tax of $0.2 and
$0.4, respectively
    
    
    
    
    
    
    1.1
    
    
    
    
    
    
    
    2.5Net loss
    
    $
    (26.9
    )
    
    $
    (70.1
    )
    
    $
    (44.5
    )
    
    $
    (78.2
    )
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HLI OPERATING COMPANY, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 July 31,
    
    
    January 31,2006
    
    
    2006(Dollars in millions)(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    66.5
    
    
    $
    42.5Receivables
    
    
    277.3
    
    
    
    255.6Other receivables
    
    
    36.3
    
    
    
    101.0Inventories
    
    
    210.9
    
    
    
    179.9Prepaid expenses and other current assets
    
    
    18.8
    
    
    
    23.5Total current assets
    
    
    609.8
    
    
    
    602.5Property, plant, and equipment, net
    
    
    744.3
    
    
    
    758.1Goodwill
    
    
    207.7
    
    
    
    197.8Intangible assets, net
    
    
    184.1
    
    
    
    187.7Other assets
    
    
    44.9
    
    
    
    53.1Total assets
    
    $
    1,790.8
    
    
    $
    1,799.2LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Bank borrowings and other notes
    
    $
    26.1
    
    
    $
    25.5Current portion of long-term debt
    
    
    21.5
    
    
    
    19.2Accounts payable and accrued liabilities
    
    
    375.7
    
    
    
    367.8Total current liabilities
    
    
    423.3
    
    
    
    412.5Long-term debt, net of current portion
    
    
    677.5
    
    
    
    684.3Deferred tax liabilities
    
    
    59.4
    
    
    
    62.7Pension and other long-term liabilities
    
    
    415.2
    
    
    
    409.2Redeemable preferred stock
    
    
    12.2
    
    
    
    12.1Minority interest
    
    
    38.5
    
    
    
    35.1Stockholders equity:Common stock, par value $0.01 per share:600,000 shares authorized; 590,000 issued and outstanding at both
July 31, 2006 and January 31, 2006
    
    
    
    
    
    
    Additional paid in capital
    
    
    686.6
    
    
    
    685.6Accumulated deficit
    
    
    (620.1
    )
    
    
    (575.6
    )Accumulated other comprehensive income
    
    
    98.2
    
    
    
    73.3Total stockholders equity
    
    
    164.7
    
    
    
    183.3Total liabilities and stockholders equity
    
    $
    1,790.8
    
    
    $
    1,799.2
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HLI OPERATING COMPANY, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Six Months
    
    
    Six MonthsEnded July 31,
    
    
    Ended July 31,2006
    
    
    2005(Dollars in millions)Cash flows from operating activities:Loss from continuing operations
    
    $
    (44.5
    )
    
    $
    (80.7
    )Adjustments to reconcile net loss from operations to
net cash provided by (used for) operating activities:Depreciation and amortization
    
    
    67.6
    
    
    
    87.8Change in deferred income taxes
    
    
    9.3
    
    
    
    (9.1
    )Asset impairments
    
    
    0.7
    
    
    
    30.8Minority interest
    
    
    4.4
    
    
    
    5.1Preferred stock dividends accrued
    
    
    
    
    
    
    0.4Equity compensation expense
    
    
    1.0
    
    
    
    2.9Loss on sale of assets and businesses
    
    
    0.4
    
    
    
    3.4Amortization of deferred financing fees
    
    
    2.9
    
    
    
    3.8Changes in operating assets and liabilities that increase (decrease) cash flows:Receivables
    
    
    (13.0
    )
    
    
    (40.3
    )Other receivables
    
    
    64.7
    
    
    
    (2.8
    )Inventories
    
    
    (26.7
    )
    
    
    (13.4
    )Prepaid expenses and other
    
    
    4.4
    
    
    
    (8.6
    )Accounts payable and accrued liabilities
    
    
    (9.4
    )
    
    
    3.0Cash provided by (used for) operating activities
    
    
    61.8
    
    
    
    (17.7
    )Cash flows from investing activities:Purchase of property, plant, equipment, and tooling
    
    
    (30.4
    )
    
    
    (67.7
    )Proceeds from sale of assets
    
    
    0.9
    
    
    
    (0.1
    )Capital contributed by minority shareholders
    
    
    0.4
    
    
    
    Cash used for investing activities
    
    
    (29.1
    )
    
    
    (67.8
    )Cash flows from financing activities:Changes in bank borrowings and credit facilities
    
    
    (0.7
    )
    
    
    (0.1
    )Redemption of Term Loan B, net of related fees
    
    
    
    
    
    
    (72.7
    )Proceeds from Term Loan C
    
    
    
    
    
    
    150.0Bank finance fees paid
    
    
    (2.9
    )
    
    
    Borrowing (repayment) of long-term debt
    
    
    (5.6
    )
    
    
    12.3Dividends paid to minority shareholders
    
    
    (1.0
    )
    
    
    Cash (used for) provided by financing activities
    
    
    (10.2
    )
    
    
    89.5Net cash used for operating activities (discontinued operations)
    
    
    
    
    
    
    (0.5
    )Net cash used for investing activities (discontinued operations)
    
    
    
    
    
    
    (0.4
    )Net cash provided by financing activities (discontinued operations)
    
    
    
    
    
    
    Effect of exchange rate changes on cash and cash equivalents
    
    
    1.5
    
    
    
    (0.4
    )Increase in cash and cash equivalents
    
    
    24.0
    
    
    
    2.7Cash and cash equivalents at beginning of period
    
    
    42.5
    
    
    
    34.9Cash and cash equivalents at end of period
    
    $
    66.5
    
    
    $
    37.6Supplemental data:Cash paid for interest
    
    $
    35.3
    
    
    $
    26.6Cash paid for income taxes
    
    $
    8.8
    
    
    $
    12.4
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HLI OPERATING COMPANY, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
 (Unaudited)
 RetainedEarnings
    
    
    Accumulated OtherPaid in
    
    
    (Accumulated
    
    
    ComprehensiveShares
    
    
    Par Value
    
    
    Capital
    
    
    Deficit)
    
    
    Income
    
    
    Total(Dollars in millions, except share amounts)Balance at January 31, 2006
    
    
    590,000
    
    
    $
    
    
    
    $
    685.6
    
    
    $
    (575.6
    )
    
    $
    73.3
    
    
    $
    183.3Comprehensive income:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (44.5
    )
    
    
    
    
    
    
    (44.5
    )Currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28.9
    
    
    
    28.9Unrealized loss on derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.0
    )
    
    
    (4.0
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19.6
    )Equity compensation expense
    
    
    
    
    
    
    
    
    
    
    1.0
    
    
    
    
    
    
    
    
    
    
    
    1.0Balance at July 31, 2006
    
    
    590,000
    
    
    $
    
    
    
    $
    686.6
    
    
    $
    (620.1
    )
    
    $
    98.2
    
    
    $
    164.7Balance at January 31, 2005
    
    
    590,000
    
    
    $
    
    
    
    $
    680.3
    
    
    $
    (117.6
    )
    
    $
    139.1
    
    
    $
    701.8Comprehensive income:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (78.2
    )
    
    
    
    
    
    
    (78.2
    )Currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (63.2
    )
    
    
    (63.2
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (141.4
    )Equity compensation expense
    
    
    
    
    
    
    
    
    
    
    2.9
    
    
    
    
    
    
    
    
    
    
    
    2.9Balance at July 31, 2005
    
    
    590,000
    
    
    $
    
    
    
    $
    683.2
    
    
    $
    (195.8
    )
    
    $
    75.9
    
    
    $
    563.3
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HLI OPERATING COMPANY, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Three and Six Months Ended July 31, 2006 and 2005
(Unaudited)
(Dollars in millions, unless otherwise stated)
 Note 1. Description of Business
  Description of Business
   Note 2. Basis of Presentation
    Note 3. Inventories
  July 31,
    
    
    January 31,2006
    
    
    2006Raw materials
    
    $
    52.3
    
    
    $
    41.5Work-in-process
    
    
    40.8
    
    
    
    38.8Finished goods
    
    
    77.6
    
    
    
    61.5Spare parts and supplies
    
    
    40.2
    
    
    
    38.1Total
    
    $
    210.9
    
    
    $
    179.9
 Note 4. Assets Held for Sale
 7




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Note 5. Discontinued Operations
    Three MonthsEnded July 31,
    
    
    Six Months Ended2005
    
    
    July 31, 2005Net sales
    
    $
    28.3
    
    
    $
    57.1Earnings before income tax expense
    
    $
    1.3
    
    
    $
    2.9Income tax expense
    
    
    0.2
    
    
    
    0.4Net income
    
    $
    1.1
    
    
    $
    2.5
 Note 6. Bank Borrowings, Other Notes, and Long-Term Debt
   July 31,
    
    
    January 31,2006
    
    
    2006Various foreign bank and government loans maturing through 2006,
weighted average interest rates of 5.7% and 5.6% at July 31, 2006
and January 31, 2006, respectively
    
    $
    18.6
    
    
    $
    18.4Term Loan B maturing 2009, weighted average interest rate of 8.8%
and 7.7% at July 31, 2006 and January 31, 2006, respectively
    
    
    330.1
    
    
    
    332.4Term Loan C maturing 2010, weighted average interest rate of 11.5% and
9.9% at July 31, 2006 and January 31, 2006, respectively
    
    
    150.0
    
    
    
    150.0101/2% Senior Notes due 2010, net of discount of $0.5 million and $0.8
million at July 31, 2006 and January 31, 2006, respectively
    
    
    162.0
    
    
    
    161.7Mortgage note payable maturing June 3, 2008
    
    
    21.9
    
    
    
    22.0Capital lease obligations
    
    
    16.4
    
    
    
    19.0699.0
    
    
    
    703.5Less current portion of long-term debt
    
    
    21.5
    
    
    
    19.2Long-term debt
    
    $
    677.5
    
    
    $
    684.3
 Credit Facility
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Senior Notes
 1 2 1 2
    Early Repayment of Long-Term Debt
  9




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Other Financing
  Note 7. Pension Plans and Postretirement Benefits Other Than Pensions
   US Plans
    
    
    International PlansPension Benefits
    
    
    Other Benefits
    
    
    Pension BenefitsThree Months Ended July 31,2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Service cost
    
    $
    0.3
    
    
    $
    0.2
    
    
    $
    
    
    
    $
    0.1
    
    
    $
    0.2
    
    
    $
    0.3Interest cost
    
    
    2.8
    
    
    
    2.7
    
    
    
    2.7
    
    
    
    2.6
    
    
    
    1.5
    
    
    
    2.0Expected return on plan assets
    
    
    (2.7
    )
    
    
    (2.3
    )
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    0.1Amortization of net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    0.1Net periodic benefit cost
    
    $
    0.4
    
    
    $
    0.6
    
    
    $
    2.7
    
    
    $
    2.7
    
    
    $
    1.7
    
    
    $
    2.5
 Six Months Ended July 31,2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Service cost
    
    $
    0.5
    
    
    $
    0.5
    
    
    $
    
    
    
    $
    0.1
    
    
    $
    0.5
    
    
    $
    0.5Interest cost
    
    
    5.6
    
    
    
    5.4
    
    
    
    5.3
    
    
    
    5.3
    
    
    
    3.0
    
    
    
    4.0Expected return on plan assets
    
    
    (5.4
    )
    
    
    (4.7
    )
    
    
    
    
    
    
    
    
    
    
    (0.3
    )
    
    
    0.1Amortization of net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    0.2Net periodic benefit cost
    
    $
    0.7
    
    
    $
    1.2
    
    
    $
    5.3
    
    
    $
    5.4
    
    
    $
    3.3
    
    
    $
    4.8
   Note 8. Asset Impairments and Other Restructuring Charges
  10




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##### Table of Contents



Three Months Ended July 31, 2006AutomotiveWheels
    
    
    Components
    
    
    Other
    
    
    TotalFacility closure costs
    
    $
    1.2
    
    
    $
    
    
    
    $
    
    
    
    $
    1.2Impairment of land, building, machinery,
equipment, and tooling
    
    
    
    
    
    
    
    
    
    
    0.5
    
    
    
    0.5Severance and other restructuring costs
    
    
    0.1
    
    
    
    1.0
    
    
    
    0.1
    
    
    
    1.2Total
    
    $
    1.3
    
    
    $
    1.0
    
    
    $
    0.6
    
    
    $
    2.9
 Three Months Ended July 31, 2005AutomotiveWheels
    
    
    Components
    
    
    Other
    
    
    TotalFacility closure costs
    
    $
    0.9
    
    
    $
    
    
    
    $
    
    
    
    $
    0.9Impairment of machinery, equipment, and tooling
    
    
    0.6
    
    
    
    30.0
    
    
    
    
    
    
    
    30.6Severance and other restructuring costs
    
    
    1.5
    
    
    
    
    
    
    
    
    
    
    
    1.5Total
    
    $
    3.0
    
    
    $
    30.0
    
    
    $
    
    
    
    $
    33.0
 Six Months Ended July 31, 2006AutomotiveWheels
    
    
    Components
    
    
    Other
    
    
    TotalFacility closure costs
    
    $
    1.5
    
    
    $
    
    
    
    $
    
    
    
    $
    1.5Impairment of land, building, machinery,
equipment, and tooling
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.5
    
    
    
    0.8Severance and other restructuring costs
    
    
    1.6
    
    
    
    2.0
    
    
    
    0.7
    
    
    
    4.3Total
    
    $
    3.3
    
    
    $
    2.1
    
    
    $
    1.2
    
    
    $
    6.6
 Six Months Ended July 31, 2005AutomotiveWheels
    
    
    Components
    
    
    Other
    
    
    TotalFacility closure costs
    
    $
    1.2
    
    
    $
    
    
    
    $
    
    
    
    $
    1.2Impairment of machinery, equipment, and tooling
    
    
    0.8
    
    
    
    30.0
    
    
    
    
    
    
    
    30.8Severance and other restructuring costs
    
    
    1.8
    
    
    
    
    
    
    
    
    
    
    
    1.8Total
    
    $
    3.8
    
    
    $
    30.0
    
    
    $
    
    
    
    $
    33.8
 Asset Impairment Losses and Other Restructuring Charges for the Three Months Ended July 31, 2006
  Asset Impairment Losses and Other Restructuring Charges for the Three Months Ended July 31, 2005
  Asset Impairment Losses and Other Restructuring Charges for the Six Months Ended July 31, 2006
 11




---



##### Table of Contents



Asset Impairment Losses and Other Restructuring Charges for the Six Months Ended July 31, 2005
  Facility Exit Costs and Severance Accruals
  Accrual of
    
    
    CashSeverance and
    
    
    Payments andOther
    
    
    Effects ofJanuary 31,
    
    
    Restructuring
    
    
    Foreign
    
    
    July 31, 20062006 Accrual
    
    
    Charges
    
    
    Currency
    
    
    AccrualFacility exit costs
    
    $
    0.1
    
    
    $
    1.5
    
    
    $
    (0.4
    )
    
    $
    1.2Severance
    
    
    2.9
    
    
    
    4.3
    
    
    
    (2.4
    )
    
    
    4.8Total
    
    $
    3.0
    
    
    $
    5.8
    
    
    $
    (2.8
    )
    
    $
    6.0
 Note 9. Taxes on Income
  Three Months Ended July 31,2006
    
    2005US
    
    Foreign
    
    US
    
    ForeignPre-tax income (loss)
    
    $
    (25.3
    )
    
    $
    16.2
    
    
    $
    (76.1
    )
    
    $
    11.2Income tax expense
    
    
    0.5
    
    
    
    14.8
    
    
    
    0.2
    
    
    
    3.6
 Six Months Ended July 31,2006
    
    2005US
    
    Foreign
    
    US
    
    ForeignPre-tax income (loss)
    
    $
    (49.8
    )
    
    $
    30.6
    
    
    $
    (94.1
    )
    
    $
    27.1Income tax expense
    
    
    0.9
    
    
    
    20.0
    
    
    
    0.6
    
    
    
    8.0
   Note 10. Prior Period Accounting Errors
 12




---



##### Table of Contents



Note 11. Segment Reporting
    Three Months Ended July 31, 2006AutomotiveWheels
    
    Components
    
    Other
    
    TotalNet sales
    
    $
    419.4
    
    
    $
    164.0
    
    
    $
    
    
    
    $
    583.4Asset impairments and other restructuring charges
    
    
    1.3
    
    
    
    1.0
    
    
    
    0.6
    
    
    
    2.9Earnings (loss) from operations
    
    
    15.7
    
    
    
    0.1
    
    
    
    (5.0
    )
    
    
    10.8
 Three Months Ended July 31, 2005AutomotiveWheels
    
    Components
    
    Other
    
    TotalNet sales
    
    $
    394.9
    
    
    $
    161.1
    
    
    $
    
    
    
    $
    556.0Asset impairments and other restructuring charges
    
    
    3.0
    
    
    
    30.0
    
    
    
    
    
    
    
    33.0Earnings (loss) from operations
    
    
    4.2
    
    
    
    (42.4
    )
    
    
    (10.4
    )
    
    
    (48.6
    )
 Six Months Ended July 31, 2006AutomotiveWheels
    
    Components
    
    Other
    
    TotalNet sales
    
    $
    823.3
    
    
    $
    332.9
    
    
    $
    
    
    
    $
    1,156.2Asset impairments and other restructuring charges
    
    
    3.3
    
    
    
    2.1
    
    
    
    1.2
    
    
    
    6.6Earnings (loss) from operations
    
    
    29.2
    
    
    
    (1.1
    )
    
    
    (9.9
    )
    
    
    18.2
 Six Months Ended July 31, 2005AutomotiveWheels
    
    Components
    
    Other
    
    TotalNet sales
    
    $
    792.6
    
    
    $
    352.6
    
    
    $
    
    
    
    $
    1,145.2Asset impairments and other restructuring charges
    
    
    3.8
    
    
    
    30.0
    
    
    
    
    
    
    
    33.8Earnings (loss) from operations
    
    
    23.4
    
    
    
    (41.5
    )
    
    
    (17.3
    )
    
    
    (35.4
    )
 13




---



##### Table of Contents



As of July 31, 2006AutomotiveWheels
    
    Components
    
    Other
    
    TotalTotal assets
    
    $
    1,262.3
    
    
    $
    316.7
    
    
    $
    211.8
    
    
    $
    1,790.8
 As of January 31, 2006AutomotiveWheels
    
    Components
    
    Other
    
    TotalTotal assets
    
    $
    1,247.7
    
    
    $
    321.5
    
    
    $
    230.0
    
    
    $
    1,799.2
 Note 12. Condensed Consolidating Financial Statements
   Guarantor and Nonguarantor Financial Statements
  14




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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Six Months Ended July 31, 2006
 Guarantor
    
    
    NonguarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Total(Dollars in millions, Unaudited)Net sales
    
    $
    0.2
    
    
    $
    431.7
    
    
    $
    745.0
    
    
    $
    (20.7
    )
    
    $
    1,156.2Cost of goods sold
    
    
    8.2
    
    
    
    404.2
    
    
    
    655.1
    
    
    
    (20.7
    )
    
    
    1,046.8Gross profit (loss)
    
    
    (8.0
    )
    
    
    27.5
    
    
    
    89.9
    
    
    
    
    
    
    
    109.4Marketing, general, and administrative
    
    
    3.1
    
    
    
    36.2
    
    
    
    44.2
    
    
    
    
    
    
    
    83.5Equity in (earnings) losses of
subsidiaries and joint ventures
    
    
    9.2
    
    
    
    (3.6
    )
    
    
    
    
    
    
    (5.6
    )
    
    
    Asset impairments and other restructuring charges
    
    
    2.2
    
    
    
    3.1
    
    
    
    1.3
    
    
    
    
    
    
    
    6.6Other (income) expense, net
    
    
    (1.7
    )
    
    
    0.6
    
    
    
    0.7
    
    
    
    1.5
    
    
    
    1.1Earnings (loss) from operations
    
    
    (20.8
    )
    
    
    (8.8
    )
    
    
    43.7
    
    
    
    4.1
    
    
    
    18.2Interest expense, net
    
    
    23.5
    
    
    
    1.0
    
    
    
    12.9
    
    
    
    
    
    
    
    37.4Earnings (loss) from continuing operations
before taxes on income and minority interest
    
    
    (44.3
    )
    
    
    (9.8
    )
    
    
    30.8
    
    
    
    4.1
    
    
    
    (19.2
    )Income tax expense
    
    
    0.2
    
    
    
    0.7
    
    
    
    20.0
    
    
    
    
    
    
    
    20.9Earnings (loss) from continuing operations before
minority interest
    
    
    (44.5
    )
    
    
    (10.5
    )
    
    
    10.8
    
    
    
    4.1
    
    
    
    (40.1
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    4.4
    
    
    
    
    
    
    
    4.4Net income (loss)
    
    $
    (44.5
    )
    
    $
    (10.5
    )
    
    $
    6.4
    
    
    $
    4.1
    
    
    $
    (44.5
    )
 15




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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Six Months Ended July 31, 2005
 Guarantor
    
    
    NonguarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Total(Dollars in millions, Unaudited)Net sales
    
    $
    1.7
    
    
    $
    473.3
    
    
    $
    686.7
    
    
    $
    (16.5
    )
    
    $
    1,145.2Cost of goods sold
    
    
    12.4
    
    
    
    455.4
    
    
    
    600.5
    
    
    
    (16.5
    )
    
    
    1,051.8Gross profit (loss)
    
    
    (10.7
    )
    
    
    17.9
    
    
    
    86.2
    
    
    
    
    
    
    
    93.4Marketing, general, and administrative
    
    
    2.6
    
    
    
    41.3
    
    
    
    41.6
    
    
    
    
    
    
    
    85.5Equity in (earnings) losses of
subsidiaries and joint ventures
    
    
    45.8
    
    
    
    (2.1
    )
    
    
    
    
    
    
    (43.7
    )
    
    
    Asset impairments and other restructuring charges
    
    
    
    
    
    
    33.2
    
    
    
    0.6
    
    
    
    
    
    
    
    33.8Other (income) expense, net
    
    
    1.3
    
    
    
    3.0
    
    
    
    5.2
    
    
    
    
    
    
    
    9.5Earnings (loss) from operations
    
    
    (60.4
    )
    
    
    (57.5
    )
    
    
    38.8
    
    
    
    43.7
    
    
    
    (35.4
    )Interest (income) expense, net
    
    
    17.4
    
    
    
    0.2
    
    
    
    13.6
    
    
    
    
    
    
    
    31.2Other non-operating expense
    
    
    0.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.4Earnings (loss) from continuing operations
before taxes on income and minority interest
    
    
    (78.2
    )
    
    
    (57.7
    )
    
    
    25.2
    
    
    
    43.7
    
    
    
    (67.0
    )Income tax expense
    
    
    
    
    
    
    0.6
    
    
    
    8.0
    
    
    
    
    
    
    
    8.6Earnings (loss) from continuing operations before
minority interest
    
    
    (78.2
    )
    
    
    (58.3
    )
    
    
    17.2
    
    
    
    43.7
    
    
    
    (75.6
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    5.1
    
    
    
    
    
    
    
    5.1Income (loss) from continuing operations
    
    
    (78.2
    )
    
    
    (58.3
    )
    
    
    12.1
    
    
    
    43.7
    
    
    
    (80.7
    )Income from discontinued operations, net of tax
    
    
    
    
    
    
    2.0
    
    
    
    0.5
    
    
    
    
    
    
    
    2.5Net income (loss)
    
    $
    (78.2
    )
    
    $
    (56.3
    )
    
    $
    12.6
    
    
    $
    43.7
    
    
    $
    (78.2
    )
 16




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##### Table of Contents



CONDENSED CONSOLIDATING BALANCE SHEETS
As of July 31, 2006
 Guarantor
    
    
    NonguarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Total(Dollars in millions, Unaudited)Cash and cash equivalents
    
    $
    (4.5
    )
    
    $
    1.0
    
    
    $
    70.0
    
    
    $
    
    
    
    $
    66.5Receivables
    
    
    (89.7
    )
    
    
    99.7
    
    
    
    267.3
    
    
    
    
    
    
    
    277.3Other receivables
    
    
    36.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36.3Inventories
    
    
    0.9
    
    
    
    74.5
    
    
    
    135.5
    
    
    
    
    
    
    
    210.9Prepaid expenses and other
    
    
    3.0
    
    
    
    7.2
    
    
    
    8.6
    
    
    
    
    
    
    
    18.8Total current assets
    
    
    (54.0
    )
    
    
    182.4
    
    
    
    481.4
    
    
    
    
    
    
    
    609.8Property, plant, and equipment, net
    
    
    31.0
    
    
    
    167.4
    
    
    
    545.9
    
    
    
    
    
    
    
    744.3Goodwill and other assets
    
    
    899.1
    
    
    
    (102.4
    )
    
    
    383.8
    
    
    
    (743.8
    )
    
    
    436.7Total assets
    
    $
    876.1
    
    
    $
    247.4
    
    
    $
    1,411.1
    
    
    $
    (743.8
    )
    
    $
    1,790.8Bank borrowings and other notes
    
    $
    
    
    
    $
    0.3
    
    
    $
    25.8
    
    
    $
    
    
    
    $
    26.1Current portion of long-term debt
    
    
    4.6
    
    
    
    3.0
    
    
    
    13.9
    
    
    
    
    
    
    
    21.5Accounts payable and accrued liabilities
    
    
    58.2
    
    
    
    57.4
    
    
    
    260.1
    
    
    
    
    
    
    
    375.7Total current liabilities
    
    
    62.8
    
    
    
    60.7
    
    
    
    299.8
    
    
    
    
    
    
    
    423.3Long-term debt, net of current portion
    
    
    659.4
    
    
    
    13.2
    
    
    
    4.9
    
    
    
    
    
    
    
    677.5Pension and other long-term liabilities
    
    
    230.2
    
    
    
    0.6
    
    
    
    243.8
    
    
    
    
    
    
    
    474.6Redeemable preferred stock
    
    
    12.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12.2Minority interest
    
    
    
    
    
    
    
    
    
    
    38.5
    
    
    
    
    
    
    
    38.5Parent loans
    
    
    (253.2
    )
    
    
    (41.0
    )
    
    
    287.2
    
    
    
    7.0
    
    
    
    Common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additional paid-in capital
    
    
    686.6
    
    
    
    525.1
    
    
    
    569.1
    
    
    
    (1,094.2
    )
    
    
    686.6Retained earnings (accumulated deficit)
    
    
    (620.1
    )
    
    
    (316.0
    )
    
    
    (115.7
    )
    
    
    431.7
    
    
    
    (620.1
    )Accumulated other comprehensive
income (loss)
    
    
    98.2
    
    
    
    4.8
    
    
    
    83.5
    
    
    
    (88.3
    )
    
    
    98.2Total stockholders equity
    
    
    164.7
    
    
    
    213.9
    
    
    
    536.9
    
    
    
    (750.8
    )
    
    
    164.7Total liabilities and stockholders equity
    
    $
    876.1
    
    
    $
    247.4
    
    
    $
    1,411.1
    
    
    $
    (743.8
    )
    
    $
    1,790.8
 17




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##### Table of Contents



CONDENSED CONSOLIDATING BALANCE SHEETS
As of January 31, 2006
 Guarantor
    
    
    NonguarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Total(Dollars in millions)Cash and cash equivalents
    
    $
    (4.1
    )
    
    $
    0.6
    
    
    $
    46.0
    
    
    $
    
    
    
    $
    42.5Receivables
    
    
    (112.1
    )
    
    
    126.6
    
    
    
    241.1
    
    
    
    
    
    
    
    255.6Other receivables
    
    
    101.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101.0Inventories
    
    
    1.3
    
    
    
    66.0
    
    
    
    112.6
    
    
    
    
    
    
    
    179.9Prepaid expenses and other
    
    
    4.7
    
    
    
    9.3
    
    
    
    9.5
    
    
    
    
    
    
    
    23.5Total current assets
    
    
    (9.2
    )
    
    
    202.5
    
    
    
    409.2
    
    
    
    
    
    
    
    602.5Property, plant, and equipment, net
    
    
    34.1
    
    
    
    173.1
    
    
    
    550.9
    
    
    
    
    
    
    
    758.1Goodwill and other assets
    
    
    877.0
    
    
    
    (102.4
    )
    
    
    384.5
    
    
    
    (720.5
    )
    
    
    438.6Total assets
    
    $
    901.9
    
    
    $
    273.2
    
    
    $
    1,344.6
    
    
    $
    (720.5
    )
    
    $
    1,799.2Bank borrowings and other notes
    
    $
    
    
    
    $
    1.0
    
    
    $
    24.5
    
    
    $
    
    
    
    $
    25.5Current portion of long-term debt
    
    
    4.6
    
    
    
    3.0
    
    
    
    11.6
    
    
    
    
    
    
    
    19.2Accounts payable and accrued liabilities
    
    
    68.7
    
    
    
    70.0
    
    
    
    229.1
    
    
    
    
    
    
    
    367.8Total current liabilities
    
    
    73.3
    
    
    
    74.0
    
    
    
    265.2
    
    
    
    
    
    
    
    412.5Long-term debt, net of current portion
    
    
    661.7
    
    
    
    15.5
    
    
    
    7.1
    
    
    
    
    
    
    
    684.3Pension and other long-term liabilities
    
    
    236.6
    
    
    
    0.6
    
    
    
    234.7
    
    
    
    
    
    
    
    471.9Redeemable preferred stock
    
    
    12.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12.1Minority interest
    
    
    
    
    
    
    
    
    
    
    35.1
    
    
    
    
    
    
    
    35.1Parent loans
    
    
    (265.1
    )
    
    
    (30.4
    )
    
    
    292.3
    
    
    
    3.2
    
    
    
    Common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additional paid-in capital
    
    
    685.6
    
    
    
    519.0
    
    
    
    570.6
    
    
    
    (1,089.6
    )
    
    
    685.6Retained earnings (accumulated deficit)
    
    
    (575.6
    )
    
    
    (305.5
    )
    
    
    (122.1
    )
    
    
    427.6
    
    
    
    (575.6
    )Accumulated other comprehensive
income (loss)
    
    
    73.3
    
    
    
    
    
    
    
    61.7
    
    
    
    (61.7
    )
    
    
    73.3Total stockholders equity
    
    
    183.3
    
    
    
    213.5
    
    
    
    510.2
    
    
    
    (723.7
    )
    
    
    183.3Total liabilities and stockholders equity
    
    $
    901.9
    
    
    $
    273.2
    
    
    $
    1,344.6
    
    
    $
    (720.5
    )
    
    $
    1,799.2
 18




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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Six Months Ended July 31, 2006
 Guarantor
    
    
    NonguarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Total(Dollars in millions, Unaudited)Cash flows provided by (used for)
operating activities
    
    $
    (4.7
    )
    
    $
    11.1
    
    
    $
    55.4
    
    
    $
    
    
    
    $
    61.8Cash flows from investing activities:Purchase of property, plant,
equipment and tooling
    
    
    (0.1
    )
    
    
    (11.4
    )
    
    
    (18.9
    )
    
    
    
    
    
    
    (30.4
    )Proceeds from disposal of assets
and businesses
    
    
    0.2
    
    
    
    (0.1
    )
    
    
    0.8
    
    
    
    
    
    
    
    0.9Capital contributed by minority
shareholders
    
    
    
    
    
    
    
    
    
    
    0.4
    
    
    
    
    
    
    
    0.4Cash provided by (used for)
investing activities
    
    
    0.1
    
    
    
    (11.5
    )
    
    
    (17.7
    )
    
    
    
    
    
    
    (29.1
    )Cash flows from financing activities:Changes in bank borrowings and
credit facility
    
    
    
    
    
    
    (0.7
    )
    
    
    
    
    
    
    
    
    
    
    (0.7
    )Repayment of long term debt
    
    
    (2.3
    )
    
    
    (2.3
    )
    
    
    (1.0
    )
    
    
    
    
    
    
    (5.6
    )Bank finance fees paid
    
    
    (2.9
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.9
    )Dividends paid to minority shareholders
    
    
    
    
    
    
    
    
    
    
    (1.0
    )
    
    
    
    
    
    
    (1.0
    )Cash used for financing activities
    
    
    (5.2
    )
    
    
    (3.0
    )
    
    
    (2.0
    )
    
    
    
    
    
    
    (10.2
    )Increase (decrease) in parent loans
and advances
    
    
    9.4
    
    
    
    3.8
    
    
    
    (13.2
    )
    
    
    
    
    
    
    Effect of exchange rates on cash and cash
equivalents
    
    
    
    
    
    
    
    
    
    
    1.5
    
    
    
    
    
    
    
    1.5Increase (decrease) in cash and cash
equivalents
    
    
    (0.4
    )
    
    
    0.4
    
    
    
    24.0
    
    
    
    
    
    
    
    24.0Cash and cash equivalents at beginning
of period
    
    
    (4.1
    )
    
    
    0.6
    
    
    
    46.0
    
    
    
    
    
    
    
    42.5Cash and cash equivalents at end of period
    
    $
    (4.5
    )
    
    $
    1.0
    
    
    $
    70.0
    
    
    $
    
    
    
    $
    66.5
 19




---



##### Table of Contents



CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Six Months Ended July 31, 2005
 Guarantor
    
    
    NonguarantorIssuer
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Total(Dollars in millions, Unaudited)Cash flows provided by (used for)
operating activities
    
    $
    (54.0
    )
    
    $
    14.3
    
    
    $
    22.0
    
    
    $
    
    
    
    $
    (17.7
    )Cash flows from investing activities:Purchase of property, plant,
equipment and tooling
    
    
    (0.6
    )
    
    
    (32.4
    )
    
    
    (34.7
    )
    
    
    
    
    
    
    (67.7
    )Proceeds from disposal of assets
and businesses
    
    
    
    
    
    
    0.2
    
    
    
    (0.3
    )
    
    
    
    
    
    
    (0.1
    )Cash used for investing activities
    
    
    (0.6
    )
    
    
    (32.2
    )
    
    
    (35.0
    )
    
    
    
    
    
    
    (67.8
    )Cash flows from financing activities:Changes in bank borrowings and
credit facility
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.1
    )Repayment of Term Loan B, net of
related fees
    
    
    (72.7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (72.7
    )Borrowings from Term Loan C
    
    
    150.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150.0Borrowings (repayment) of long term debt
    
    
    
    
    
    
    14.5
    
    
    
    (2.2
    )
    
    
    
    
    
    
    12.3Cash provided by (used for)
financing activities
    
    
    77.3
    
    
    
    14.5
    
    
    
    (2.3
    )
    
    
    
    
    
    
    89.5Increase (decrease) in parent loans
and advances
    
    
    (22.8
    )
    
    
    1.9
    
    
    
    20.9
    
    
    
    
    
    
    
    Net cash used for operating activities
from discontinued operations
    
    
    
    
    
    
    1.9
    
    
    
    (2.4
    )
    
    
    
    
    
    
    (0.5
    )Net cash used for investing activities
from discontinued operations
    
    
    
    
    
    
    (0.2
    )
    
    
    (0.2
    )
    
    
    
    
    
    
    (0.4
    )Net cash provided by financing activities
from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Effect of exchange rates on cash and cash
equivalents
    
    
    
    
    
    
    
    
    
    
    (0.4
    )
    
    
    
    
    
    
    (0.4
    )Increase (decrease) in cash and cash
equivalents
    
    
    (0.1
    )
    
    
    0.2
    
    
    
    2.6
    
    
    
    
    
    
    
    2.7Cash and cash equivalents at beginning
of period
    
    
    (9.3
    )
    
    
    (0.2
    )
    
    
    44.4
    
    
    
    
    
    
    
    34.9Cash and cash equivalents at end of period
    
    $
    (9.4
    )
    
    $
    
    
    
    $
    47.0
    
    
    $
    
    
    
    $
    37.6
 20




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Executive Summary
  Company Overview
       Results of Operations
 Consolidated Results  Comparison of the Three Months Ended July 31, 2006 to the Three Months Ended
July 31, 2005
  21




---



##### Table of Contents



Three Months
    
    
    Three MonthsEnded July 31,
    
    
    Ended July 31,2006
    
    
    2005
    
    
    $ Change
    
    
    % ChangeNet sales:Automotive Wheels
    
    $
    419.4
    
    
    $
    394.9
    
    
    $
    24.5
    
    
    
    6.2
    %Components
    
    
    164.0
    
    
    
    161.1
    
    
    
    2.9
    
    
    
    1.8
    %Total
    
    $
    583.4
    
    
    $
    556.0
    
    
    $
    27.4
    
    
    
    4.9
    %Gross profit
    
    $
    57.0
    
    
    $
    35.5
    
    
    $
    21.5
    
    
    
    60.6
    %Marketing, general, and administrative
    
    
    43.6
    
    
    
    44.4
    
    
    
    (0.8
    )
    
    
    -1.8
    %Asset impairments and other restructuring charges
    
    
    2.9
    
    
    
    33.0
    
    
    
    (30.1
    )
    
    
    -91.2
    %Other expense, net
    
    
    (0.3
    )
    
    
    6.7
    
    
    
    (7.0
    )
    
    
    -104.5
    %Earnings (loss) from operations
    
    
    10.8
    
    
    
    (48.6
    )
    
    
    59.4
    
    
    
    122.2
    %Interest expense, net
    
    
    20.1
    
    
    
    16.1
    
    
    
    4.0
    
    
    
    24.8
    %Other non-operating expense
    
    
    (0.2
    )
    
    
    0.2
    
    
    
    (0.4
    )
    
    
    -200.0
    %Income tax expense
    
    
    15.3
    
    
    
    3.8
    
    
    
    11.5
    
    
    
    302.6
    %Minority interest
    
    
    2.5
    
    
    
    2.5
    
    
    
    
    
    
    
    0.0
    %Loss from continuing operations
    
    
    (26.9
    )
    
    
    (71.2
    )
    
    
    44.3
    
    
    
    62.2
    %Income from discontinued operations, net of tax of $0.2
    
    
    
    
    
    
    1.1
    
    
    
    (1.1
    )
    
    
    -100.0
    %Net loss
    
    $
    (26.9
    )
    
    $
    (70.1
    )
    
    $
    43.2
    
    
    
    61.6
    %
 Sales
  Gross profit
  Marketing, general, and administrative
  Asset impairments and other restructuring Charges
  22




---



##### Table of Contents



Interest expense, net
  Income taxes
  Discontinued operations
  Net loss
  Segment Results  Comparison of the Three Months Ended July 31, 2006 to the Three Months Ended
July 31, 2005
 Automotive Wheels
  Three Months
    
    
    Three MonthsEnded July 31,
    
    
    Ended July 31,2006
    
    
    2005
    
    
    $ ChangeNet sales
    
    $
    419.4
    
    
    $
    394.9
    
    
    $
    24.5Asset impairments and other restructuring charges:Facility closure costs
    
    $
    1.2
    
    
    $
    0.9
    
    
    $
    0.3Impairment of machinery, equipment, and tooling
    
    
    
    
    
    
    0.6
    
    
    
    (0.6
    )Severance and other restructuring costs
    
    
    0.1
    
    
    
    1.5
    
    
    
    (1.4
    )Total asset impairments and other restructuring charges
    
    $
    1.3
    
    
    $
    3.0
    
    
    $
    (1.7
    )Earnings from operations
    
    $
    15.7
    
    
    $
    4.2
    
    
    $
    11.5
 Net sales
 23




---



##### Table of Contents



Asset impairments and other restructuring charges
  Earnings from operations
  Components
  Three Months
    
    
    Three MonthsEnded July 31,
    
    
    Ended July 31,2006
    
    
    2005
    
    
    $ ChangeNet sales
    
    $
    164.0
    
    
    $
    161.1
    
    
    $
    2.9Asset impairments and other restructuring charges:Impairment of land, building, machinery, equipment,
and tooling
    
    $
    
    
    
    $
    30.0
    
    
    $
    (30.0
    )Severance and other restructuring costs
    
    
    1.0
    
    
    
    
    
    
    
    1.0Total asset impairments and other restructuring charges
    
    $
    1.0
    
    
    $
    30.0
    
    
    $
    (29.0
    )Earnings (loss) from operations
    
    $
    0.1
    
    
    $
    (42.4
    )
    
    $
    42.5
 Net sales
  Asset impairments and other restructuring charges
  24




---



##### Table of Contents



Earnings from operations
  Other
  Three Months
    
    
    Three MonthsEnded July 31,
    
    
    Ended July 31,2006
    
    
    2005
    
    
    $ ChangeLoss from operations
    
    $
    (5.0
    )
    
    $
    (10.4
    )
    
    $
    5.4
 Loss from operations
  Results of Operations
 Consolidated Results  Comparison of the Six Months Ended July 31, 2006 to the Six Months Ended
July 31, 2005
  Six Months Ended
    
    
    Six Months EndedJuly 31, 2006
    
    
    July 31, 2005
    
    
    $ Change
    
    
    % ChangeNet sales:Automotive Wheels
    
    $
    823.3
    
    
    $
    792.6
    
    
    $
    30.7
    
    
    
    3.9
    %Components
    
    
    332.9
    
    
    
    352.6
    
    
    
    (19.7
    )
    
    
    -5.6
    %Total
    
    $
    1,156.2
    
    
    $
    1,145.2
    
    
    $
    11.0
    
    
    
    1.0
    %Gross profit
    
    $
    109.4
    
    
    $
    93.4
    
    
    $
    16.0
    
    
    
    17.1
    %Marketing, general, and administrative
    
    
    83.5
    
    
    
    85.5
    
    
    
    (2.0
    )
    
    
    -2.3
    %Asset impairments and other restructuring charges
    
    
    6.6
    
    
    
    33.8
    
    
    
    (27.2
    )
    
    
    -80.5
    %Other expense, net
    
    
    1.1
    
    
    
    9.5
    
    
    
    (8.4
    )
    
    
    -88.4
    %Earnings (loss) from operations
    
    
    18.2
    
    
    
    (35.4
    )
    
    
    53.6
    
    
    
    151.4
    %Interest expense, net
    
    
    37.4
    
    
    
    31.2
    
    
    
    6.2
    
    
    
    19.9
    %Other non-operating expense
    
    
    
    
    
    
    0.4
    
    
    
    (0.4
    )
    
    
    -100.0
    %Income tax expense
    
    
    20.9
    
    
    
    8.6
    
    
    
    12.3
    
    
    
    143.0
    %Minority interest
    
    
    4.4
    
    
    
    5.1
    
    
    
    (0.7
    )
    
    
    -13.7
    %Loss from continuing operations
    
    
    (44.5
    )
    
    
    (80.7
    )
    
    
    36.2
    
    
    
    44.9
    %Income from discontinued operations, net of tax of $0.4
    
    
    
    
    
    
    2.5
    
    
    
    (2.5
    )
    
    
    -100.0
    %Net loss
    
    $
    (44.5
    )
    
    $
    (78.2
    )
    
    $
    33.7
    
    
    
    43.1
    %
 Sales
  25




---



##### Table of Contents



Gross profit
  Marketing, general, and administrative
  Asset impairments and other restructuring charges
   Interest expense, net
  Income taxes
  Discontinued operations
  26




---



##### Table of Contents



Net loss
  Segment Results  Comparison of the Six Months Ended July 31, 2006 to the Six Months Ended July
31, 2005
 Automotive Wheels
  Six Months Ended
    
    
    Six Months EndedJuly 31, 2006
    
    
    July 31, 2005
    
    
    $ ChangeNet sales
    
    $
    823.3
    
    
    $
    792.6
    
    
    $
    30.7Asset impairments and other restructuring charges:Facility closure costs
    
    $
    1.5
    
    
    $
    1.2
    
    
    $
    0.3Impairment of machinery, equipment, and tooling
    
    
    0.2
    
    
    
    0.8
    
    
    
    (0.6
    )Severance and other restructuring costs
    
    
    1.6
    
    
    
    1.8
    
    
    
    (0.2
    )Total asset impairments and other restructuring charges
    
    $
    3.3
    
    
    $
    3.8
    
    
    $
    (0.5
    )Earnings from operations
    
    $
    29.2
    
    
    $
    23.4
    
    
    $
    5.8
 Net sales
  Asset impairments and other restructuring charges
  Earnings from operations
  Components
  27




---



##### Table of Contents



Six Months Ended
    
    
    Six Months EndedJuly 31, 2006
    
    
    July 31, 2005
    
    
    $ ChangeNet sales
    
    $
    332.9
    
    
    $
    352.6
    
    
    $
    (19.7
    )Asset impairments and other restructuring charges:Facility closure costs
    
    $
    
    
    
    $
    
    
    
    $
    Impairment of land, building, machinery, equipment,
and tooling
    
    
    0.1
    
    
    
    30.0
    
    
    
    (29.9
    )Severance and other restructuring costs
    
    
    2.0
    
    
    
    
    
    
    
    2.0Total asset impairments and other restructuring charges
    
    $
    2.1
    
    
    $
    30.0
    
    
    $
    (27.9
    )Loss from operations
    
    $
    (1.1
    )
    
    $
    (41.5
    )
    
    $
    40.4
 Net sales
  Asset impairments and other restructuring charges
  Earnings from operations
  Other
  Six Months Ended
    
    
    Six Months EndedJuly 31, 2006
    
    
    July 31,2005
    
    
    $ ChangeLoss from operations
    
    $
    (9.9
    )
    
    $
    (17.3
    )
    
    $
    7.4
 Loss from operations
  Liquidity and Capital Resources
 Cash Flows
 28




---



##### Table of Contents



Operating Activities:
 Investing Activities:
 Financing Activities:
 Sources of Liquidity
  Other Liquidity Matters
     Credit Ratings
  S&P
    
    
    MoodysCorporate and Bank Debt rating
    
    
    B-
    
    
    
    B3Senior Note rating
    
    CCC
    
    Caa3
 Off Balance Sheet Arrangements
 29




---



##### Table of Contents



Contractual Obligations
  Payment Due by PeriodLess than 1Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    After 5 Years
    
    
    TotalShort-term borrowings
    
    $
    26.1
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    26.1Long-term debt
    
    
    18.3
    
    
    
    329.0
    
    
    
    313.4
    
    
    
    
    
    
    
    660.7Mortgage note payable
    
    
    0.1
    
    
    
    21.8
    
    
    
    
    
    
    
    
    
    
    
    21.9Capital lease obligations
    
    
    3.1
    
    
    
    6.2
    
    
    
    7.1
    
    
    
    
    
    
    
    16.4Operating leases
    
    
    7.5
    
    
    
    8.6
    
    
    
    1.6
    
    
    
    0.3
    
    
    
    18.0Redeemable preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12.2
    
    
    
    12.2Capital expenditures
    
    
    33.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33.6United States pension contributions
    
    
    15.1
    
    
    
    19.6
    
    
    
    9.8
    
    
    
    3.8
    
    
    
    48.3Total obligations
    
    $
    103.8
    
    
    $
    385.2
    
    
    $
    331.9
    
    
    $
    16.3
    
    
    $
    837.2
 Other Cash Requirements
  Interest
    
    $
    37.8Taxes
    
    
    10.8United States pension
    
    
    9.3Restructuring costs
    
    
    7.5
 Critical Accounting Policies
  30




---



##### Table of Contents



Asset impairment losses and other restructuring charges
   Pension and postretirement benefits other than pensions
    Goodwill impairment testing
  Allowance for uncollectible accounts
  Income Taxes
  31




---



##### Table of Contents



New Accounting Pronouncements
   
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Foreign Exchange
   32




---



##### Table of Contents



Interest Rates
  Commodities
  
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
 Internal Control  Integrated Framework.
  33




---



##### Table of Contents




    
    increase the rigor of reviewer and spreadsheet controls over accounting for income taxes
    
    ensure the tax department has an appropriate level of resources and tax accounting training
    
    automate a significant portion of the international tax provision computation
    
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Changes in Securities and Use of Proceeds
  
 Item 3. Defaults upon Senior Securities
  
 Item 4. Submission of matters to a vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
 10.22
    
    Receivables Financing Agreement, dated as of May 30, 2006, among
Hayes Funding II, Inc., the financial institutions from time to time
party thereto (Lenders), Citicorp USA, Inc. as the program agent for
the Lenders and HLI Operating Company, Inc., as servicer
(incorporated by reference to Exhibit 10.1 to our Current Report on
Form 8-K filed on June 5, 2006).10.23
    
    Originator Purchase Agreement, dated as of May 30, 2006, among Hayes
Funding I, LLC, a Delaware limited liability company and the
wholly-owned subsidiaries of the Company named therein as
Originators (incorporated by reference to Exhibit 10.2 to our
Current Report on Form 8-K filed on June 5, 2006).
 34




---



##### Table of Contents



10.24
    
    Secondary Purchase Agreement, dated as of May 30, 2006, between
Hayes Funding I, LLC, a Delaware limited liability company and Hayes
Funding II, Inc., a Delaware corporation (incorporated by reference
to Exhibit 10.3 to our Current Report on Form 8-K filed on June 5,
2006).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. 35




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##### Table of Contents



SIGNATURES
  HLI OPERATING COMPANY, INC./s/  James A. YostJames A. YostVice President, Finance, and Chief Financial Officer  36




---



##### Table of Contents



HLI OPERATING COMPANY, INC.
 
 10-Q EXHIBIT INDEX
 10.22
    
    Receivables Financing Agreement, dated as of May 30, 2006, among
Hayes Funding II, Inc., the financial institutions from time to time
party thereto (Lenders), Citicorp USA, Inc. as the program agent for
the Lenders and HLI Operating Company, Inc., as servicer
(incorporated by reference to Exhibit 10.1 to our Current Report on
Form 8-K filed on June 5, 2006).10.23
    
    Originator Purchase Agreement, dated as of May 30, 2006, among Hayes
Funding I, LLC, a Delaware limited liability company and the
wholly-owned subsidiaries of the Company named therein as
Originators (incorporated by reference to Exhibit 10.2 to our
Current Report on Form 8-K filed on June 5, 2006).10.24
    
    Secondary Purchase Agreement, dated as of May 30, 2006, between
Hayes Funding I, LLC, a Delaware limited liability company and Hayes
Funding II, Inc., a Delaware corporation (incorporated by reference
to Exhibit 10.3 to our Current Report on Form 8-K filed on June 5,
2006).31.1
    
    Certification of Curtis J. Clawson, Chairman of the Board,
President, and Chief Executive Officer, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.*31.2
    
    Certification of James A. Yost, Vice President, Finance, and Chief
Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.*32.1
    
    Certification of Curtis J. Clawson, Chairman of the Board,
President, and Chief Executive Officer, Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.*32.2
    
    Certification of James A. Yost, Vice President, Finance, and Chief
Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
 
 *
    
    Filed electronically herewith. 37