##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




---

Form 10-Q

|                                   |  |                                                                                             
|---------------------------------- |  | --------------------------------------------------------------------------------------------
|(Mark One)                         |  |                                                                                             
|þ                                  |  | QUARTERLY REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|                                  
|                                   |  | For the quarterly period ended
    October 31, 2003                                         
|                                  
|or                                
|                                  
|o                                  |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|                                  
|                                   |  | For the transition period
    from           to                                             
|                                  
|Commission file number: 333-107539



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HLI Operating Company, Inc.

(Exact name of registrant as specified in its
charter)


|                                                                                            |  |                                  
|------------------------------------------------------------------------------------------- |  | ---------------------------------
|Delaware                                                                                    |  | 30-0167742                       
|(State or other jurisdiction of
    incorporation or organization)                          |  | (IRS Employer Identification No.)
|                                                                                           
|15300 Centennial Drive
    Northville, Michigan(Address of principal executive
    offices) |  | 48167(Zip Code)                  

Registrants telephone number, including
area code:

(734) 737-5000


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

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

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has
filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Act subsequent to the
distributions of securities under a plan confirmed by a
court.     Yes þ          No o

The number of shares of common stock outstanding
as of December 10, 2003 was 590,000 shares.

Website Access to Company Reports

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



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TABLE OF CONTENTS



|                                                                                              |  |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|CONSOLIDATED STATEMENTS OF OPERATIONS                                                        
|CONSOLIDATED BALANCE SHEETS                                                                  
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                                        
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                   
|REORGANIZED CONDENSED CONSOLIDATED BALANCE SHEET                                             
|CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS                                             
|CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS                                             
|CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS                                             
|CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS                                             
|CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS                                             
|CONDENSED CONSOLIDATING BALANCE SHEETS                                                       
|CONDENSED CONSOLIDATING BALANCE SHEETS                                                       
|CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS                                             
|CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS                                             
|CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS                                             
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|Item 3. Quantitative and Qualitative Disclosures about Market Risk                           
|Item 4. Controls and Procedures                                                              
|PART II. OTHER INFORMATION                                                                   
|Item 1. Legal Proceedings                                                                    
|Item 2. Changes in Securities and Use of Proceeds                                            
|Item 3. Defaults Upon Senior Securities                                                      
|Item 4. Submission of Matters to a Vote of Security Holders                                  
|Item 5. Other Information                                                                    
|Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                                                                   
|EXHIBIT INDEX                                                                                
|EX-12.1 Ratio of Earnings to Fixed Charges                                                   
|EX-31.1 Certification of Curtis J. Clawson, CEO                                              
|EX-31.2 Certification of James A. Yost, VP and CFO                                           
|EX-32.1 Certification of Curtis J. Clawson, CEO                                              
|EX-32.2 Certification of James A. Yost, VP and CFO                                           



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##### Table of Contents



HLI OPERATING COMPANY, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

|                              |  |                                                                                           |    |      |    | 
|----------------------------- |  | ----------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                              |  |                                                                                           |    | Page |   
|                              |  |                                                                                           |    |      |   
|PART I. FINANCIAL INFORMATION
|Item 1.                       |  | Financial Statements                                                                      |    |      | 2  | 
|                              |  | Consolidated Statements of Operations                                                     |    |      | 2  | 
|                              |  | Consolidated Balance Sheets                                                               |    |      | 3  | 
|                              |  | Consolidated Statements of Cash Flows                                                     |    |      | 4  | 
|                              |  | Notes to Consolidated Financial Statements                                                |    |      | 5  | 
|Item 2.                       |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations |    |      | 40 | 
|Item 3.                       |  | Quantitative and Qualitative Disclosures about
    Market Risk                            |    |      | 54 | 
|Item 4.                       |  | Controls and Procedures                                                                   |    |      | 54 | 
|PART II. OTHER INFORMATION   
|Item 1.                       |  | Legal Proceedings                                                                         |    |      | 56 | 
|Item 2.                       |  | Changes in Securities and Use of Proceeds                                                 |    |      | 58 | 
|Item 3.                       |  | Defaults upon Senior Securities                                                           |    |      | 58 | 
|Item 4.                       |  | Submission of Matters to a Vote of Security
    Holders                                   |    |      | 58 | 
|Item 5.                       |  | Other Information                                                                         |    |      | 58 | 
|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                          |    |      | 58 | 
|Signatures                    |  |                                                                                           | 59 |     

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

1



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND
SUBSIDIARIES






CONSOLIDATED STATEMENTS OF
OPERATIONS


|                                                                          |                                                                                                                                                                                                           |                                             |       |      |              |   |       |             |  |   |             |       |   |             |         |         |   |   |         |        |  
|------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------- | ----- | ---- | ------------ | - | ----- | ----------- |  | - | ----------- | ----- | - | ----------- | ------- | ------- | - | - | ------- | ------ | -
|                                                                          |                                                                                                                                                                                                           |                                             |       |      |              |   |       |            
|                                                                          |                                                                                                                                                                                                           | Successor                                   |       |      | Predecessor  |   |       | Successor   |  |   | Predecessor |      
|                                                                          |                                                                                                                                                                                                           |                                             |       |      |              |   |       |             |  |   |             |      
|                                                                          |                                                                                                                                                                                                           | Three Months                                |       |      | Three Months |   |       | Five Months |  |   | Four Months |       |   | Nine Months |        
|                                                                          |                                                                                                                                                                                                           | Ended                                       |       |      | Ended        |   |       | Ended       |  |   | Ended       |       |   | Ended       |        
|                                                                          |                                                                                                                                                                                                           | October 31,                                 |       |      | October 31,  |   |       | October 31, |  |   | May 31,     |       |   | October 31, |        
|                                                                          |                                                                                                                                                                                                           | 2003                                        |       |      | 2002         |   |       | 2003        |  |   | 2003        |       |   | 2002        |        
|                                                                          |                                                                                                                                                                                                           |                                             |       |      |              |   |       |             |  |   |             |       |   |             |        
|                                                                          |                                                                                                                                                                                                           |                                            
|                                                                          |                                                                                                                                                                                                           | (Unaudited)                                 |      
|                                                                          |                                                                                                                                                                                                           | (Millions of dollars, except share amounts) |      
|Net sales                                                                 |                                                                                                                                                                                                           | $                                           | 530.9 |      |              | $ | 535.4 |             |  | $ | 859.2       |       |   | $           | 689.8   |         |   | $ | 1,526.1 |       
|Cost of goods sold                                                        |                                                                                                                                                                                                           |                                             | 461.6 |      |              |   | 464.7 |             |  |   | 760.5       |       |   |             | 611.3   |         |   |   | 1,372.1 |       
|                                                                          |                                                                                                                                                                                                           |                                             |       |      |              |   |       |             |  |   |             |       |   |             |        
|                                                                          | Gross profit                                                                                                                                                                                              |                                             |       | 69.3 |              |   |       | 70.7        |  |   |             | 98.7  |   |             |         | 78.5    |   |   |         | 154.0  |  
|Marketing, general and administration                                     |                                                                                                                                                                                                           |                                             | 26.9  |      |              |   | 23.5  |             |  |   | 47.6        |       |   |             | 33.5    |         |   |   | 74.1    |       
|Engineering and product development                                       |                                                                                                                                                                                                           |                                             | 6.2   |      |              |   | 5.1   |             |  |   | 10.4        |       |   |             | 8.1     |         |   |   | 15.6    |       
|Asset impairments and other restructuring charges                         |                                                                                                                                                                                                           |                                             | 19.6  |      |              |   | 10.0  |             |  |   | 19.6        |       |   |             | 6.4     |         |   |   | 35.3    |       
|Other (income) expense, net                                               |                                                                                                                                                                                                           |                                             | 2.7   |      |              |   | (1.8  | )           |  |   | 4.8         |       |   |             | (1.9    | )       |   |   | (5.5    | )     
|Reorganization items                                                      |                                                                                                                                                                                                           |                                             |      |      |              |   | 7.0   |             |  |   |            |       |   |             | 45.0    |         |   |   | 34.9    |       
|Fresh start accounting adjustments                                        |                                                                                                                                                                                                           |                                             |      |      |              |   |      |             |  |   |            |       |   |             | (63.1   | )       |   |   |        |       
|                                                                          |                                                                                                                                                                                                           |                                             |       |      |              |   |       |             |  |   |             |       |   |             |        
|                                                                          | Earnings (loss) from operations                                                                                                                                                                           |                                             |       | 13.9 |              |   |       | 26.9        |  |   |             | 16.3  |   |             |         | 50.5    |   |   |         | (0.4   | )
|Interest expense, net                                                     |                                                                                                                                                                                                           |                                             | 14.7  |      |              |   | 19.0  |             |  |   | 27.3        |       |   |             | 22.7    |         |   |   | 53.7    |       
|                                                                          |                                                                                                                                                                                                           |                                             |       |      |              |   |       |             |  |   |             |       |   |             |        
|                                                                          | Earnings (loss) before subsidiary preferred
    stock dividends, taxes on income, minority interest, cumulative
    effect of change in accounting principle and extraordinary gain
    on debt discharge |                                             |       | (0.8 | )            |   |       | 7.9         |  |   |             | (11.0 | ) |             |         | 27.8    |   |   |         | (54.1  | )
|Preferred stock dividends                                                 |                                                                                                                                                                                                           |                                             | 0.2   |      |              |   |      |             |  |   | 0.3         |       |   |             |        |         |   |   |        |       
|                                                                          |                                                                                                                                                                                                           |                                             |       |      |              |   |       |             |  |   |             |       |   |             |        
|                                                                          | Earnings (loss) before taxes on income,
    minority interest, cumulative effect of change in accounting
    principle and extraordinary gain on debt discharge                                           |                                             |       | (1.0 | )            |   |       | 7.9         |  |   |             | (11.3 | ) |             |         | 27.8    |   |   |         | (54.1  | )
|Income tax provision                                                      |                                                                                                                                                                                                           |                                             | 6.1   |      |              |   | 3.0   |             |  |   | 8.7         |       |   |             | 60.3    |         |   |   | 0.6     |       
|                                                                          |                                                                                                                                                                                                           |                                             |       |      |              |   |       |             |  |   |             |       |   |             |        
|                                                                          | Earnings (loss) before minority interest,
    cumulative effect of change in accounting principle and
    extraordinary gain on debt discharge                                                            |                                             |       | (7.1 | )            |   |       | 4.9         |  |   |             | (20.0 | ) |             |         | (32.5   | ) |   |         | (54.7  | )
|Minority interest                                                         |                                                                                                                                                                                                           |                                             | 1.0   |      |              |   | 1.2   |             |  |   | 1.8         |       |   |             | 1.2     |         |   |   | 2.7     |       
|                                                                          |                                                                                                                                                                                                           |                                             |       |      |              |   |       |             |  |   |             |       |   |             |        
|                                                                          | Loss before cumulative effect of change in
    accounting principle and extraordinary gain on debt discharge                                                                                              |                                             |       | (8.1 | )            |   |       | 3.7         |  |   |             | (21.8 | ) |             |         | (33.7   | ) |   |         | (57.4  | )
|Cumulative effect of change in accounting
    principle, net of tax of $0 |                                                                                                                                                                                                           |                                             |      |      |              |   |      |             |  |   |            |       |   |             |        |         |   |   | (554.4  | )     
|Extraordinary gain on debt discharge, net of tax
    $0                   |                                                                                                                                                                                                           |                                             |      |      |              |   |      |             |  |   |            |       |   |             | 1,076.7 |         |   |   |        |       
|                                                                          |                                                                                                                                                                                                           |                                             |       |      |              |   |       |             |  |   |             |       |   |             |        
|                                                                          | Net income (loss)                                                                                                                                                                                         |                                             | $     | (8.1 | )            |   | $     | 3.7         |  |   | $           | (21.8 | ) |             | $       | 1,043.0 |   |   | $       | (611.8 | )
|                                                                          |                                                                                                                                                                                                           |                                             |       |      |              |   |       |             |  |   |             |       |   |             |        

See accompanying notes to consolidated financial
statements.

2



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND
SUBSIDIARIES






CONSOLIDATED BALANCE SHEETS


|                                                   |                                                                                                               |                                                                                                                                        |                                                          |       |             |         |         |          |     |          |  
|-------------------------------------------------- | ------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------- | ----- | ----------- | ------- | ------- | -------- | --- | -------- | -
|                                                   |                                                                                                               | Successor                                                                                                                              |                                                          |       | Predecessor |        
|                                                   |                                                                                                               |                                                                                                                                        |                                                          |       |             |        
|                                                   |                                                                                                               | October 31,                                                                                                                            |                                                          |       | January 31, |        
|                                                   |                                                                                                               | 2003                                                                                                                                   |                                                          |       | 2003        |        
|                                                   |                                                                                                               |                                                                                                                                        |                                                          |       |             |        
|                                                   |                                                                                                               | (Unaudited)                                                                                                                            |                                                          |       |            
|                                                   |                                                                                                               |                                                                                                                                       
|                                                   |                                                                                                               | (Millions of dollars,                                                                                                                  |                                                         
|                                                   |                                                                                                               | except share amounts)                                                                                                                  |                                                         
|ASSETS                                            
|Current assets:                                    |                                                                                                               |                                                                                                                                        |                                                          |       |             |         |         |         
|                                                   | Cash and cash equivalents                                                                                     |                                                                                                                                        | $                                                        | 109.0 |             |         | $       | 66.1     |    
|                                                   | Receivables                                                                                                   |                                                                                                                                        |                                                          | 329.0 |             |         |         | 276.6    |    
|                                                   | Inventories                                                                                                   |                                                                                                                                        |                                                          | 180.5 |             |         |         | 176.6    |    
|                                                   | Prepaid expenses and other                                                                                    |                                                                                                                                        |                                                          | 16.5  |             |         |         | 32.5     |    
|                                                   |                                                                                                               |                                                                                                                                        |                                                          |       |             |        
|                                                   |                                                                                                               |                                                                                                                                        | Total current assets                                     |       |             | 635.0   |         |          |     | 551.8    |  
|Property, plant and equipment, net                 |                                                                                                               |                                                                                                                                        | 900.9                                                    |       |             |         | 951.2   |         
|Goodwill                                           |                                                                                                               |                                                                                                                                        | 388.8                                                    |       |             |         | 191.3   |         
|Intangible assets, net                             |                                                                                                               |                                                                                                                                        | 226.5                                                    |       |             |         | 102.6   |         
|Other assets                                       |                                                                                                               |                                                                                                                                        | 74.3                                                     |       |             |         | 49.7    |         
|                                                   |                                                                                                               |                                                                                                                                        |                                                          |       |             |        
|                                                   |                                                                                                               |                                                                                                                                        | Total assets                                             |       | $           | 2,225.5 |         |          | $   | 1,846.6  |  
|                                                   |                                                                                                               |                                                                                                                                        |                                                          |       |             |        
|LIABILITIES AND STOCKHOLDERS EQUITY
    (DEFICIT)
|Current liabilities:                               |                                                                                                               |                                                                                                                                        |                                                          |       |             |         |         |         
|                                                   | DIP Facility                                                                                                  |                                                                                                                                        | $                                                        |      |             |         | $       | 49.9     |    
|                                                   | Bank borrowings and other notes                                                                               |                                                                                                                                        |                                                          | 1.6   |             |         |         | 15.8     |    
|                                                   | Current portion of long-term debt                                                                             |                                                                                                                                        |                                                          | 11.6  |             |         |         | 40.1     |    
|                                                   | Accounts payable and accrued liabilities                                                                      |                                                                                                                                        |                                                          | 356.6 |             |         |         | 268.7    |    
|                                                   |                                                                                                               |                                                                                                                                        |                                                          |       |             |        
|                                                   |                                                                                                               |                                                                                                                                        | Total current liabilities                                |       |             | 369.8   |         |          |     | 374.5    |  
|Long-term debt, net of current portion             |                                                                                                               |                                                                                                                                        | 748.8                                                    |       |             |         | 61.9    |         
|Pension and other long-term liabilities            |                                                                                                               |                                                                                                                                        | 529.5                                                    |       |             |         | 334.4   |         
|Redeemable preferred stock                         |                                                                                                               |                                                                                                                                        | 10.3                                                     |       |             |         |        |         
|Minority interest                                  |                                                                                                               |                                                                                                                                        | 14.5                                                     |       |             |         | 16.4    |         
|Liabilities subject to compromise                  |                                                                                                               |                                                                                                                                        |                                                         |       |             |         | 2,133.8 |         
|Commitments and contingencies                      |                                                                                                               |                                                                                                                                        |                                                          |       |             |         |         |         
|Stockholders equity (deficit):                    |                                                                                                               |                                                                                                                                        |                                                          |       |             |         |         |         
|                                                   | Predecessor preferred stock, 25,000,000 shares
    authorized, none issued or outstanding at January 31, 2003 |                                                                                                                                        |                                                          |      |             |         |         |         |    
|                                                   | Common stock, par value $0.01 per share:                                                                      |                                                                                                                                        |                                                          |       |             |         |         |          |    
|                                                   |                                                                                                               | Successor Voting  600,000 shares
    authorized; 590,000 issued and outstanding at October 31,
    2003                               |                                                          |       |            |         |         |          |    |         
|                                                   |                                                                                                               | Predecessor Voting  99,000,000 shares
    authorized; 27,708,419 shares issued;
    25,806,969 shares outstanding at January 31, 2003 |                                                          |       |            |         |         |          | 0.3 |         
|                                                   |                                                                                                               | Predecessor Nonvoting 
    5,000,000 shares authorized; 2,649,026 shares issued
    and outstanding at January 31, 2003               |                                                          |       |            |         |         |          |    |         
|                                                   | Additional paid in capital                                                                                    |                                                                                                                                        |                                                          | 555.7 |             |         |         | 235.1    |    
|                                                   | Predecessor common stock in treasury at cost,
    1,901,450 shares at January 31, 2003                        |                                                                                                                                        |                                                          |      |             |         |         | (25.7    | )  
|                                                   | Accumulated deficit                                                                                           |                                                                                                                                        |                                                          | (21.8 | )           |         |         | (1,176.9 | )  
|                                                   | Accumulated other comprehensive income (loss)                                                                 |                                                                                                                                        |                                                          | 18.7  |             |         |         | (107.2   | )  
|                                                   |                                                                                                               |                                                                                                                                        |                                                          |       |             |        
|                                                   |                                                                                                               |                                                                                                                                        | Total stockholders equity (deficit)                     |       |             | 552.6   |         |          |     | (1,074.4 | )
|                                                   |                                                                                                               |                                                                                                                                        |                                                          |       |             |        
|                                                   |                                                                                                               |                                                                                                                                        | Total liabilities and stockholders equity
    (deficit) |       | $           | 2,225.5 |         |          | $   | 1,846.6  |  
|                                                   |                                                                                                               |                                                                                                                                        |                                                          |       |             |        

See accompanying notes to consolidated financial
statements.

3



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND
SUBSIDIARIES






CONSOLIDATED STATEMENTS OF CASH
FLOWS


|                                                                 |                                                                                                             |                                                            |                                                  |       |             |       |       |             |          |       |      |        |       |       |  
|---------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------- | ------------------------------------------------ | ----- | ----------- | ----- | ----- | ----------- | -------- | ----- | ---- | ------ | ----- | ----- | -
|                                                                 |                                                                                                             |                                                            |                                                  |      
|                                                                 |                                                                                                             | Successor                                                  |                                                  |       | Predecessor |      
|                                                                 |                                                                                                             |                                                            |                                                  |       |             |      
|                                                                 |                                                                                                             | Five Months                                                |                                                  |       | Four Months |       |       | Nine Months |         
|                                                                 |                                                                                                             | Ended                                                      |                                                  |       | Ended       |       |       | Ended       |         
|                                                                 |                                                                                                             | October 31,                                                |                                                  |       | May 31,     |       |       | October 31, |         
|                                                                 |                                                                                                             | 2003                                                       |                                                  |       | 2003        |       |       | 2002        |         
|                                                                 |                                                                                                             |                                                            |                                                  |       |             |       |       |             |         
|                                                                 |                                                                                                             |                                                           
|                                                                 |                                                                                                             | (Unaudited)                                                |                                                 
|                                                                 |                                                                                                             | (Millions of dollars)                                      |                                                 
|Cash flows from operating activities:                            |                                                                                                             |                                                            |                                                  |       |             |       |       |             |          |       |      |       
|                                                                 | Net income (loss)                                                                                           |                                                            | $                                                | (21.8 | )           |       | $     | 1,043.0     |          |       | $    | (611.8 | )    
|                                                                 | Adjustments to reconcile net income
    (loss) to net cash provided by (used for) operating
    activities: |                                                            |                                                  |       |             |       |       |             |          |       |      |        |      
|                                                                 |                                                                                                             | Depreciation and amortization                              |                                                  |       | 67.1        |       |       |             | 46.4     |       |      |        | 96.2  |      
|                                                                 |                                                                                                             | Amortization of deferred financing fees                    |                                                  |       | 1.4         |       |       |             | 1.6      |       |      |        | 3.9   |      
|                                                                 |                                                                                                             | Change in deferred income taxes                            |                                                  |       | (6.9        | )     |       |             | 52.6     |       |      |        | 0.5   |      
|                                                                 |                                                                                                             | Asset impairments and other restructuring charges          |                                                  |       | 19.6        |       |       |             | 6.4      |       |      |        | 35.3  |      
|                                                                 |                                                                                                             | Minority interest                                          |                                                  |       | 1.8         |       |       |             | 1.2      |       |      |        | 2.7   |      
|                                                                 |                                                                                                             | Preferred stock dividends accrued                          |                                                  |       | 0.3         |       |       |             |         |       |      |        |      |      
|                                                                 |                                                                                                             | Compensation expense related to restricted stock
    units |                                                  |       | 2.1         |       |       |             |         |       |      |        |      |      
|                                                                 |                                                                                                             | Cumulative effect of change in accounting
    principle    |                                                  |       |            |       |       |             |         |       |      |        | 554.4 |      
|                                                                 |                                                                                                             | Loss (gain) on sale of assets and businesses               |                                                  |       | 0.3         |       |       |             | (0.4     | )     |      |        | (0.9  | )    
|                                                                 |                                                                                                             | Changes in operating assets and liabilities:               |                                                  |       |             |       |       |             |          |       |      |        |       |      
|                                                                 |                                                                                                             |                                                            | Receivables                                      |       |             | (22.9 | )     |             |          | (13.7 | )    |        |       | (52.9 | )
|                                                                 |                                                                                                             |                                                            | Inventories                                      |       |             | 14.5  |       |             |          | (4.0  | )    |        |       | (9.9  | )
|                                                                 |                                                                                                             |                                                            | Prepaid expenses and other                       |       |             | 4.0   |       |             |          | 5.2   |      |        |       | (3.8  | )
|                                                                 |                                                                                                             |                                                            | Accounts payable and accrued liabilities         |       |             | 29.2  |       |             |          | (6.9  | )    |        |       | 15.5  |  
|                                                                 | Chapter 11 items:                                                                                           |                                                            |                                                  |       |             |       |       |             |          |       |      |        |      
|                                                                 |                                                                                                             | Reorganization items                                       |                                                  |       |            |       |       |             | 45.0     |       |      |        | 34.9  |      
|                                                                 |                                                                                                             | Fresh start accounting adjustments                         |                                                  |       |            |       |       |             | (63.1    | )     |      |        |      |      
|                                                                 |                                                                                                             | Extraordinary gain on debt discharge                       |                                                  |       |            |       |       |             | (1,076.7 | )     |      |        |      |      
|                                                                 |                                                                                                             | Accrued interest on Credit Agreement                       |                                                  |       |            |       |       |             | 16.9     |       |      |        | 36.0  |      
|                                                                 |                                                                                                             | Payments related to Chapter 11 Filings                     |                                                  |       | (34.2       | )     |       |             | (22.4    | )     |      |        | (56.2 | )    
|                                                                 |                                                                                                             |                                                            |                                                  |       |             |       |       |             |         
|                                                                 |                                                                                                             |                                                            | Cash provided by operating activities            |       |             | 54.5  |       |             |          | 31.1  |      |        |       | 43.9  |  
|                                                                 |                                                                                                             |                                                            |                                                  |       |             |       |       |             |         
|Cash flows from investing activities:                            |                                                                                                             |                                                            |                                                  |       |             |       |       |             |          |       |      |       
|                                                                 | Purchase of property, plant, equipment and tooling                                                          |                                                            |                                                  | (41.1 | )           |       |       | (26.3       | )        |       |      | (69.9  | )    
|                                                                 | Purchase of equipment previously leased                                                                     |                                                            |                                                  |      |             |       |       | (23.6       | )        |       |      |       |      
|                                                                 | Proceeds from sale of assets and businesses                                                                 |                                                            |                                                  | 0.8   |             |       |       | 0.8         |          |       |      | 9.1    |      
|                                                                 | Purchase of businesses                                                                                      |                                                            |                                                  |      |             |       |       |            |          |       |      | (7.2   | )    
|                                                                 |                                                                                                             |                                                            |                                                  |       |             |       |       |             |         
|                                                                 |                                                                                                             |                                                            | Cash used for investing activities               |       |             | (40.3 | )     |             |          | (49.1 | )    |        |       | (68.0 | )
|                                                                 |                                                                                                             |                                                            |                                                  |       |             |       |       |             |         
|Cash flows from financing activities:                            |                                                                                                             |                                                            |                                                  |       |             |       |       |             |          |       |      |       
|                                                                 | Change in borrowings under DIP Facility                                                                     |                                                            |                                                  |      |             |       |       | (49.9       | )        |       |      | 41.1   |      
|                                                                 | Repayment of note payable                                                                                   |                                                            |                                                  |      |             |       |       | (2.0        | )        |       |      |       |      
|                                                                 | Changes in bank borrowings                                                                                  |                                                            |                                                  | (11.9 | )           |       |       | (9.8        | )        |       |      | (20.1  | )    
|                                                                 | Proceeds from New Senior Notes, net of discount
    and related fees                                        |                                                            |                                                  |      |             |       |       | 242.8       |          |       |      |       |      
|                                                                 | Proceeds from New Term Loan, net of related fees                                                            |                                                            |                                                  |      |             |       |       | 436.1       |          |       |      |       |      
|                                                                 | Prepetition Lenders Payment amount                                                                         |                                                            |                                                  |      |             |       |       | (477.3      | )        |       |      |       |      
|                                                                 | Payment to holders of Old Senior Notes                                                                      |                                                            |                                                  |      |             |       |       | (13.0       | )        |       |      |       |      
|                                                                 | Repayment of long-term debt                                                                                 |                                                            |                                                  | (74.0 | )           |       |       |            |          |       |      |       |      
|                                                                 | Repayment of New Term Loan                                                                                  |                                                            |                                                  | (1.1  | )           |       |       |            |          |       |      |       |      
|                                                                 |                                                                                                             |                                                            |                                                  |       |             |       |       |             |         
|                                                                 |                                                                                                             |                                                            | Cash provided by (used for) financing activities |       |             | (87.0 | )     |             |          | 126.9 |      |        |       | 21.0  |  
|Effect of exchange rate changes on cash and cash
    equivalents |                                                                                                             |                                                            | 2.7                                              |       |             |       | 4.1   |             |          |       | 3.3  |       
|                                                                 |                                                                                                             |                                                            |                                                  |       |             |       |       |             |         
|                                                                 | Increase (decrease) in cash and cash equivalents                                                            |                                                            |                                                  | (70.1 | )           |       |       | 113.0       |          |       |      | 0.2    |      
|Cash and cash equivalents at beginning of period                 |                                                                                                             |                                                            | 179.1                                            |       |             |       | 66.1  |             |          |       | 45.2 |       
|                                                                 |                                                                                                             |                                                            |                                                  |       |             |       |       |             |         
|Cash and cash equivalents at end of period                       |                                                                                                             | $                                                          | 109.0                                            |       |             | $     | 179.1 |             |          | $     | 45.4 |       
|                                                                 |                                                                                                             |                                                            |                                                  |       |             |       |       |             |         
|Supplemental data:                                               |                                                                                                             |                                                            |                                                  |       |             |       |       |             |          |       |      |       
|                                                                 | Cash paid for interest                                                                                      |                                                            |                                                  | 10.3  |             |       |       | 5.8         |          |       | $    | 12.7   |      
|                                                                 | Cash paid for income taxes                                                                                  |                                                            |                                                  | 15.5  |             |       |       | 2.9         |          |       | $    | 6.1    |      

See accompanying notes to consolidated financial
statements.

4



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND
SUBSIDIARIES






NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


Five Months Ended October 31, 2003, Four
Months Ended May 31, 2003 and


Nine Months Ended October 31,
2002


(Unaudited)


(Millions of Dollars, Unless Otherwise
Stated)




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

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



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

Unless otherwise indicated, references to
Company mean (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
2003 refers to the period beginning February 1, 2003
and ending January 31, 2004, fiscal 2002 refers
to the period beginning February 1, 2002 and ending
January 31, 2003.)

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



| |                   
| | ------------------
| | Chapter 11 Filings

On December 5, 2001, 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

5



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 30,0000,000 shares of its common stock, par value
$.01 per share (the New Common Stock), and 957,447
series A warrants and 957,447 series B warrants to
acquire New Common Stock of New Hayes (the Series A
Warrants and Series B Warrants,
respectively), (iii) ParentCo in turn contributed such
shares of New Common Stock and Series A Warrants and
Series B Warrants to HLI and (iv) pursuant to an
Agreement and Plan of Merger, dated as of June 3, 2003 (the
Merger Agreement), between 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 (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

6



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

to certain prepetition lenders, to pay related
transaction costs and to refinance certain debt. See
Notes (11) and (12).



| |                     
| | --------------------
| | Reorganization Items

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

|                                                                              |       |             |      |      |              |   |      |             |  |   |      |      | 
|----------------------------------------------------------------------------- | ----- | ----------- | ---- | ---- | ------------ | - | ---- | ----------- |  | - | ---- | ---- | 
|                                                                              |       |            
|                                                                              |       | Predecessor |     
|                                                                              |       |             |     
|                                                                              |       | Four Months |      |      | Three Months |   |      | Nine Months | 
|                                                                              |       | Ended       |      |      | Ended        |   |      | Ended       | 
|                                                                              |       | May 31,     |      |      | October 31,  |   |      | October 31, | 
|                                                                              |       | 2003        |      |      | 2002         |   |      | 2002        | 
|                                                                              |       |             |      |      |              |   |      |             | 
|Critical employee retention plan provision                                    |       | $           | 11.7 |      |              | $ | 0.8  |             |  | $ | 6.0  |     
|Estimated accrued liability for rejected
    prepetition leases and contracts |       |             |     |      |              |   |     |             |  |   | 9.5  |     
|Professional fees directly related to the Filings                             |       |             | 30.8 |      |              |   | 6.3  |             |  |   | 20.9 |     
|Creditors Trust obligation                                                   |       |             | 2.0  |      |              |   |     |             |  |   |     |     
|Settlement of prepetition liabilities                                         |       |             |     |      |              |   |     |             |  |   | (1.2 | )   
|Other                                                                         |       |             | 0.5  |      |              |   | (0.1 | )           |  |   | (0.3 | )   
|                                                                              |       |             |      |      |              |   |      |             | 
|                                                                              | Total |             | $    | 45.0 |              |   | $    | 7.0         |  |   | $    | 34.9 | 
|                                                                              |       |             |      |      |              |   |      |             | 

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

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

Based on 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.    

7



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Cash payments with respect to other
reorganization items consisted primarily of professional fees
and cure payments and were approximately $20.3 million and
$21.2 million during the five months ended October 31,
2003 and the four months ended May 31, 2003, respectively.
Cash payments with respect to reorganization items were
approximately $53.2 million during the nine months ended
October 31, 2002, and consisted primarily of professional
fee payments, critical vendor payments, the Retention Bonus and
a portion of accrued interest and fees under the Companys
prepetition credit agreements.



|    |                                                       
|--- | ------------------------------------------------------
|(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. Upon
emergence from Chapter 11, New Hayes and 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.
See Note (3), Fresh Start Accounting.

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

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

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.

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

8



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements.

On July 28, 2003, New Hayes granted
1,887,162 stock options and 1,258,107 restricted units to
certain employees and officers (excluding those restricted
shares granted under the CERP), and 65,455 options and 43,637
restricted units to non-employee members of New Hayes
Board of Directors under the Long-Term Incentive Plan (see Note
(8)). The weighted average exercise price of the stock options
was $13.93 per share, which was equal to the fair value on the
date of grant. 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:

|          |             |              |   |       |             |  |   |       |  
|--------- | ----------- | ------------ | - | ----- | ----------- |  | - | ----- | -
|          |             | Three Months |   |       | Five Months | 
|          |             | Ended        |   |       | Ended       | 
|          |             | October 31,  |   |       | October 31, | 
|          |             | 2003         |   |       | 2003        | 
|          |             |              |   |       |             | 
|Net loss: |             |              |   |       |             |  |   |      
|          | As reported |              | $ | (8.1  | )           |  | $ | (21.8 | )
|          | Pro forma   |              |   | (10.1 | )           |  |   | (23.8 | )

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)     Fresh Start
Accounting

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

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

The Companys compromise total enterprise
value at the Effective Date was $1,250.0 million, with
a total value for common equity of $553.7 million,
excluding the estimated fair value of the Preferred Stock and
the Series A Warrants and Series B Warrants issued on
the Effective Date. The Preferred Stock is classified as a
liability in the consolidated balance sheet and referred to as
redeemable preferred stock of subsidiary. Under fresh start
accounting, the compromise total enterprise value has been
allocated to the Companys assets based on their respective
fair values in conformity with the purchase method of accounting
for business combinations in accordance with SFAS No. 141,
Business Combinations; any portion not attributed to
specific tangible or identified intangible assets has been
recorded as an indefinite-lived intangible asset referred to as
reorganization value in excess of amounts allocable to
identifiable assets and reported as goodwill. The
valuations required to determine the fair value of certain of
the Companys assets

9



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

as presented below represent the results of the
valuation procedures performed by the Companys valuation
specialist at May 31, 2003.



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

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

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

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

10



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






REORGANIZED CONDENSED CONSOLIDATED BALANCE
SHEET


May 31, 2003


|                                                   |                                          |                                                          |         |          |               |   |          |              |         |   |             |        |           |         |        |        |        |   |       |       |         | 
|-------------------------------------------------- | ---------------------------------------- | -------------------------------------------------------- | ------- | -------- | ------------- | - | -------- | ------------ | ------- | - | ----------- | ------ | --------- | ------- | ------ | ------ | ------ | - | ----- | ----- | ------- | 
|                                                   |                                          | Predecessor                                              |         |          | Discharge of  |   |          | Cancellation |         |   |             |        | Successor |        
|                                                   |                                          | May 31,                                                  |         |          | Debt and Exit |   |          | of           |         |   | Fresh Start |        |           | May 31, |       
|                                                   |                                          | 2003                                                     |         |          | Financing     |   |          | Old Equity   |         |   | Adjustments |        |           | 2003    |       
|                                                   |                                          |                                                          |         |          |               |   |          |              |         |   |             |        |           |         |       
|                                                   |                                          |                                                         
|                                                   |                                          | (Millions of dollars)                                    |        
|                                                   |                                          |                                                         
|                                                   |                                          | (Unaudited)                                              |        
|ASSETS                                            
|Current assets:                                    |                                          |                                                          |         |          |               |   |          |              |         |   |             |        |           |         |        |        |        |   |       |      
|                                                   | Cash and cash equivalents                |                                                          | $       | 89.3     |               |   | $        | 89.8         | (a)     |   | $           |       |           |         | $      |       |        |   | $     | 179.1 |        
|                                                   | Receivables                              |                                                          |         | 299.9    |               |   |          |             |         |   |             |       |           |         |        |       |        |   |       | 299.9 |        
|                                                   | Inventories                              |                                                          |         | 186.0    |               |   |          |             |         |   |             |       |           |         |        | 5.2    | (j)    |   |       | 191.2 |        
|                                                   | Prepaid expenses and other               |                                                          |         | 27.0     |               |   |          | 1.3          | (b)     |   |             |       |           |         |        | (7.8   | )(k)   |   |       | 20.5  |        
|                                                   |                                          |                                                          |         |          |               |   |          |              |         |   |             |        |           |         |       
|                                                   |                                          | Total current assets                                     |         |          | 602.2         |   |          |              | 91.1    |   |             |        |          |         |        |        | (2.6   | ) |       |       | 690.7   | 
|Property, plant and equipment, net                 |                                          |                                                          | 959.7   |          |               |   | 54.0     | (c)          |         |   |            |        |           |         | (95.3  | )(l)   |        |   | 918.4 |      
|Old goodwill                                       |                                          |                                                          | 198.3   |          |               |   |         |              |         |   |            |        |           |         | (198.3 | )(m)   |        |   |      |      
|New goodwill                                       |                                          |                                                          |        |          |               |   |         |              |         |   |            |        |           |         | 390.9  | (n)    |        |   | 390.9 |      
|Intangible assets                                  |                                          |                                                          | 103.8   |          |               |   |         |              |         |   |            |        |           |         | 121.9  | (o)    |        |   | 225.7 |      
|Other assets                                       |                                          |                                                          | 60.9    |          |               |   | 19.9     | (d)          |         |   |            |        |           |         | 0.4    | (k)(l) |        |   | 81.2  |      
|                                                   |                                          |                                                          |         |          |               |   |          |              |         |   |             |        |           |         |       
|                                                   |                                          | Total assets                                             |         | $        | 1,924.9       |   |          | $            | 165.0   |   |             | $      |          |         |        | $      | 217.0  |   |       | $     | 2,306.9 | 
|                                                   |                                          |                                                          |         |          |               |   |          |              |         |   |             |        |           |         |       
|LIABILITIES AND STOCKHOLDERS EQUITY
    (DEFICIT)
|Current liabilities:                               |                                          |                                                          |         |          |               |   |          |              |         |   |             |        |           |         |        |        |        |   |       |      
|                                                   | DIP facility                             |                                                          | $       | 59.7     |               |   | $        | (59.7        | )(e)    |   | $           |       |           |         |        |       |        |   | $     |      |        
|                                                   | Bank borrowings and other notes          |                                                          |         | 13.0     |               |   |          |             |         |   |             |       |           |         |        |       |        |   |       | 13.0  |        
|                                                   | Current portion of long-term debt        |                                                          |         | 39.6     |               |   |          | 4.5          | (f)     |   |             |       |           |         |        |       |        |   |       | 44.1  |        
|                                                   | Accounts payable and accrued Liabilities |                                                          |         | 303.8    |               |   |          | 33.6         | (g)     |   |             |       |           |         |        | 9.1    | (k)(p) |   |       | 346.5 |        
|                                                   |                                          |                                                          |         |          |               |   |          |              |         |   |             |        |           |         |       
|                                                   |                                          | Total current liabilities                                |         |          | 416.1         |   |          |              | (21.6   | ) |             |        |          |         |        |        | 9.1    |   |       |       | 403.6   | 
|Long-term debt, net of current portion             |                                          |                                                          | 62.0    |          |               |   | 31.0     | (f)          |         |   |            |        |           |         |       |        |        |   | 93.0  |      
|New Term Loan                                      |                                          |                                                          |        |          |               |   | 445.5    | (f)          |         |   |            |        |           |         |       |        |        |   | 445.5 |      
|New Senior Notes, net of discount                  |                                          |                                                          |        |          |               |   | 248.5    | (f)          |         |   |            |        |           |         |       |        |        |   | 248.5 |      
|Pension and other long-term liabilities            |                                          |                                                          | 343.5   |          |               |   | 0.5      | (g)          |         |   |            |        |           |         | 195.5  | (k)(p) |        |   | 539.5 |      
|Redeemable preferred stock                         |                                          |                                                          |        |          |               |   | 10.0     | (f)          |         |   |            |        |           |         |       |        |        |   | 10.0  |      
|Minority interest                                  |                                          |                                                          | 17.8    |          |               |   |         |              |         |   |            |        |           |         | (4.7   | )(q)   |        |   | 13.1  |      
|Liabilities subject to compromise                  |                                          |                                                          | 2,153.4 |          |               |   | (2,153.4 | )(h)         |         |   |            |        |           |         |       |        |        |   |      |      
|Commitments and contingencies                      |                                          |                                                          |         |          |               |   |          |              |         |   |             |        |           |         |        |        |        |   |       |      
|Stockholders equity (deficit):                    |                                          |                                                          |         |          |               |   |          |              |         |   |             |        |           |         |        |        |        |   |       |      
|                                                   | New Common Stock                         |                                                          |         |         |               |   |          |             | (f)     |   |             |       |           |         |        |       |        |   |       |      |        
|                                                   | New additional paid-in capital           |                                                          |         |         |               |   |          | 553.7        | (f)     |   |             |       |           |         |        |       |        |   |       | 553.7 |        
|                                                   | Old Common Stock                         |                                                          |         | 0.3      |               |   |          |             |         |   |             | (0.3   | )(i)      |         |        |       |        |   |       |      |        
|                                                   | Old additional paid in capital           |                                                          |         | 235.1    |               |   |          |             |         |   |             | (235.1 | )(i)      |         |        |       |        |   |       |      |        
|                                                   | Old common stock in treasury at cost     |                                                          |         | (25.7    | )             |   |          |             |         |   |             | 25.7   | (i)       |         |        |       |        |   |       |      |        
|                                                   | Accumulated deficit                      |                                                          |         | (1,201.8 | )             |   |          | 1,050.8      | (h)     |   |             | 209.7  | (i)       |         |        | (58.7  | )(m)   |   |       |      |        
|                                                   | Accumulated other comprehensive loss     |                                                          |         | (75.8    | )             |   |          |             |         |   |             |       |           |         |        | 75.8   | (m)    |   |       |      |        
|                                                   |                                          |                                                          |         |          |               |   |          |              |         |   |             |        |           |         |       
|                                                   |                                          | Total stockholders equity (deficit)                     |         |          | (1,067.9      | ) |          |              | 1,604.5 |   |             |        |          |         |        |        | 17.1   |   |       |       | 553.7   | 
|                                                   |                                          |                                                          |         |          |               |   |          |              |         |   |             |        |           |         |       
|                                                   |                                          | Total liabilities and stockholders equity
    (deficit) |         | $        | 1,924.9       |   |          | $            | 165.0   |   |             | $      |          |         |        | $      | 217.0  |   |       | $     | 2,306.9 | 
|                                                   |                                          |                                                          |         |          |               |   |          |              |         |   |             |        |           |         |       

11



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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



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

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

12



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

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



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

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



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

13



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                                                               
| | ------------------------------------------------------------------------------
| | The allocation of compromise enterprise value and
    goodwill was as follows:

|                     |                                               |                                   |   |         |         | 
|-------------------- | --------------------------------------------- | --------------------------------- | - | ------- | ------- | 
|Assets:              |                                               |                                   |   |        
|                     | Current assets                                |                                   | $ | 690.7   |        
|                     | Property, plant and equipment                 |                                   |   | 918.4   |        
|                     | Goodwill                                      |                                   |   | 390.9   |        
|                     | Intangible assets                             |                                   |   | 225.7   |        
|                     | Other assets                                  |                                   |   | 81.2    |        
|Liabilities:         |                                               |                                   |   |        
|                     | Current liabilities                           |                                   |   | 403.6   |        
|                     | Other long-term liabilities                   |                                   |   | 1,339.6 |        
|                     | New Preferred Stock                           |                                   |   | 10.0    |        
|                     |                                               |                                   |  
|                     |                                               | New common equity                 |   |         | 553.7   | 
|Assumed obligations: |                                               |                                   |   |        
|                     | New Term Loan, including current portion      |                                   |   | 450.0   |        
|                     | New Senior Notes, net of discount             |                                   |   | 248.5   |        
|                     | Redeemable preferred stock of subsidiary      |                                   |   | 10.0    |        
|                     | Other assumed obligations, net of excess cash |                                   |   | (12.2   | )      
|                     |                                               |                                   |  
|                     |                                               | Total compromise enterprise value |   | $       | 1,250.0 | 
|                     |                                               |                                   |  



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | o) Represents adjustment of
    $121.9 million to reflect the fair value of identified
    intangible assets based on results of valuation procedures
    performed by the Companys valuation specialist. See
    Note (6) for additional disclosure regarding the category
    of intangibles and a description of the valuation methodology.                                                                                                       
|
| | p) Primarily reflects the additional
    liability of $155.2 million under fresh-start accounting
    for any pension and retiree medical plan costs as determined by
    the Companys actuaries. This net additional liability had
    been deferred pre-emergence in accordance with Statement of
    Financial Accounting Standards (SFAS) Nos. 87
    and 106. The actuarial assumptions used in computing the
    liabilities were as follows:

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



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

14



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |            
|--- | -----------
|(4) | Inventories

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

|                         |       |             |      |       |             |   |      |       | 
|------------------------ | ----- | ----------- | ---- | ----- | ----------- | - | ---- | ----- | 
|                         |       | Successor   |      |       | Predecessor |  
|                         |       |             |      |       |             |  
|                         |       | October 31, |      |       | January 31, |  
|                         |       | 2003        |      |       | 2003        |  
|                         |       |             |      |       |             |  
|Raw materials            |       | $           | 43.0 |       |             | $ | 48.3 |      
|Work-in-process          |       |             | 43.0 |       |             |   | 36.5 |      
|Finished goods           |       |             | 56.4 |       |             |   | 56.2 |      
|Spare parts and supplies |       |             | 38.1 |       |             |   | 35.6 |      
|                         |       |             |      |       |             |  
|                         | Total |             | $    | 180.5 |             |   | $    | 176.6 | 
|                         |       |             |      |       |             |  



|    |                              
|--- | -----------------------------
|(5) | Property, Plant and Equipment

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

|                         |                                    |             |       |       |             |   |         |       | 
|------------------------ | ---------------------------------- | ----------- | ----- | ----- | ----------- | - | ------- | ----- | 
|                         |                                    | Successor   |       |       | Predecessor |  
|                         |                                    |             |       |       |             |  
|                         |                                    | October 31, |       |       | January 31, |  
|                         |                                    | 2003        |       |       | 2003        |  
|                         |                                    |             |       |       |             |  
|Land                     |                                    | $           | 40.0  |       |             | $ | 30.4    |      
|Buildings                |                                    |             | 204.0 |       |             |   | 256.0   |      
|Machinery and equipment  |                                    |             | 682.5 |       |             |   | 1,134.5 |      
|Capital lease assets     |                                    |             | 31.5  |       |             |   |        |      
|                         |                                    |             |       |       |             |  
|                         |                                    |             | 958.0 |       |             |   | 1,420.9 |      
|Accumulated depreciation |                                    |             | (57.1 | )     |             |   | (469.7  | )    
|                         |                                    |             |       |       |             |  
|                         | Property, plant and equipment, net |             | $     | 900.9 |             |   | $       | 951.2 | 
|                         |                                    |             |       |       |             |  



|    |                                     
|--- | ------------------------------------
|(6) | Goodwill and Other Intangible Assets

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

|                                 |                                      |                  |       |       |                  |   |      |          |   |       |          |       |  |              |      |       |          |   |       |      |   |   |      |      | 
|-------------------------------- | ------------------------------------ | ---------------- | ----- | ----- | ---------------- | - | ---- | -------- | - | ----- | -------- | ----- |  | ------------ | ---- | ----- | -------- | - | ----- | ---- | - | - | ---- | ---- | 
|                                 |                                      |                  |       |      
|                                 |                                      | Successor        |       |       | Predecessor      |  
|                                 |                                      |                  |       |       |                  |  
|                                 |                                      |                  |       |      
|                                 |                                      | October 31, 2003 |       |       | January 31, 2003 |  
|                                 |                                      |                  |       |       |                  |  
|                                 |                                      | Gross            |       |       |                  |   | Net  |          |   | Gross |          |       |  |              | Net  |      
|                                 |                                      | Carrying         |       |       | Accumulated      |   |      | Carrying |   |       | Carrying |       |  | Accumulated  |      |       | Carrying |  
|                                 |                                      | Amount           |       |       | Amortization     |   |      | Amount   |   |       | Amount   |       |  | Amortization |      |       | Amount   |  
|                                 |                                      |                  |       |       |                  |   |      |          |   |       |          |       |  |              |      |       |          |  
|Amortized intangible assets:     |                                      |                  |       |       |                  |   |      |          |   |       |          |       |  |              |      |       |          |   |       |      |   |   |      |     
|                                 | Customer relationships and contracts |                  | $     | 160.5 |                  |   | $    | (3.6     | ) |       | $        | 156.9 |  |              | $    | 26.5  |          |   | $     | (4.0 | ) |   | $    | 22.5 | 
|                                 | Licenses                             |                  |       |      |                  |   |      |         |   |       |          |      |  |              |      | 13.4  |          |   |       | (2.4 | ) |   |      | 11.0 | 
|                                 | Unpatented technology                |                  |       | 32.9  |                  |   |      | (1.9     | ) |       |          | 31.0  |  |              |      | 33.5  |          |   |       | (8.8 | ) |   |      | 24.7 | 
|                                 | Other                                |                  |       |      |                  |   |      |         |   |       |          |      |  |              |      | 1.9   |          |   |       | (1.0 | ) |   |      | 0.9  | 
|                                 |                                      |                  |       |       |                  |   |      |          |   |       |          |       |  |              |      |       |          |  
|                                 |                                      | $                | 193.4 |       |                  | $ | (5.5 | )        |   | $     | 187.9    |       |  | $            | 75.3 |       |          | $ | (16.2 | )    |   | $ | 59.1 |     
|                                 |                                      |                  |       |       |                  |   |      |          |   |       |          |       |  |              |      |       |          |  
|Non amortized intangible assets: |                                      |                  |       |       |                  |   |      |          |   |       |          |       |  |              |      |       |          |   |       |      |   |   |      |     
|                                 | Tradenames                           |                  | $     | 38.6  |                  |   |      |          |   |       |          |       |  |              | $    | 43.5  |          |   |       |      |   |   |      |      | 
|                                 | Goodwill                             |                  | $     | 388.8 |                  |   |      |          |   |       |          |       |  |              | $    | 191.3 |          |   |       |      |   |   |      |      | 

15



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

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

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

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

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

The Company will test goodwill for impairment
January 31 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.



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

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



| |                   
| | ------------------
| | Customer Contracts

Value was based on a review of contracts, award
letters and purchase orders in existence for the Companys
Domestic Wheels, Domestic Components, and International Wheels
reporting units. At the Companys International Components
and Commercial Highway reporting units, sales are not generated
or

16



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

attributed to contracts but rather to customer
relationships and therefore contracts were not valued. Value was
determined on economic profits which exceeded a fair return on
assets employed. The amortization period is based on the
remaining contract terms.



| |                       
| | ----------------------
| | Customer Relationships

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



| |            
| | -----------
| | Trade Names

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



| |           
| | ----------
| | Technology

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



|    |                                                      
|--- | -----------------------------------------------------
|(7) | Asset Impairments and Other Restructuring
    Charges

In the third quarter of fiscal 2003, the
Company updated its sales projections to reflect the termination
and balancing out of certain programs. Based on those updated
sales projections, and on the impact of improved operating
efficiencies resulting from ongoing rationalization of
production capacity, the Company determined that its current
estimate of future undiscounted cash flows from its Gainesville,
Georgia, La Mirada, California and Wabash, Indiana
facilities will not be sufficient to recover the respective
carrying values of those facilities property, plant and
equipment. Accordingly, the Company recorded asset impairment
losses of $19.6 million in the Successor three months ended
October 31, 2003.

The Company also recorded asset impairment losses
and other restructuring charges of $6.4 million in the
Predecessor four months ended May 31, 2003 and
$10.0 million and $35.3 million in the Predecessor

17



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

three months and nine months ended
October 31, 2002, respectively. Asset impairments and other
restructuring charges by segment are as follows:

|                                               |       |                                              |      |      |            |   |     |       |  |       |   |   |  |   |      |      | 
|---------------------------------------------- | ----- | -------------------------------------------- | ---- | ---- | ---------- | - | --- | ----- |  | ----- | - | - |  | - | ---- | ---- | 
|                                               |       |                                             
|                                               |       | Successor                                    |     
|                                               |       |                                              |     
|                                               |       |                                             
|                                               |       | Three and Five Months Ended October 31, 2003 |     
|                                               |       |                                              |     
|                                               |       | Automotive                                   |      |      |           
|                                               |       | Wheels                                       |      |      | Components |   |     | Other |  | Total |  
|                                               |       |                                              |      |      |            |   |     |       |  |       |  
|Impairment of manufacturing facilities         |       | $                                            |     |      |            | $ | 0.8 |       |  | $     |  |   |  | $ | 0.8  |     
|Impairment of machinery, equipment and tooling |       |                                              | 12.1 |      |            |   | 6.7 |       |  |       |  |   |  |   | 18.8 |     
|                                               |       |                                              |      |      |            |   |     |       |  |       |   |  
|                                               | Total |                                              | $    | 12.1 |            |   | $   | 7.5   |  |       | $ |  |  |   | $    | 19.6 | 
|                                               |       |                                              |      |      |            |   |     |       |  |       |   |  

|                                               |       |                                |     |     |            |   |     |       |  |       |   |   |  |   |     |     | 
|---------------------------------------------- | ----- | ------------------------------ | --- | --- | ---------- | - | --- | ----- |  | ----- | - | - |  | - | --- | --- | 
|                                               |       |                               
|                                               |       | Predecessor                    |    
|                                               |       |                                |    
|                                               |       |                               
|                                               |       | Four Months Ended May 31, 2003 |    
|                                               |       |                                |    
|                                               |       | Automotive                     |     |     |           
|                                               |       | Wheels                         |     |     | Components |   |     | Other |  | Total |  
|                                               |       |                                |     |     |            |   |     |       |  |       |  
|Impairment of manufacturing facilities         |       | $                              | 0.5 |     |            | $ | 0.1 |       |  | $     |  |   |  | $ | 0.6 |    
|Impairment of machinery, equipment and tooling |       |                                | 1.5 |     |            |   | 3.3 |       |  |       |  |   |  |   | 4.8 |    
|Facility closure costs                         |       |                                | 0.9 |     |            |   |    |       |  |       |  |   |  |   | 0.9 |    
|Severance and other restructuring costs        |       |                                | 0.1 |     |            |   |    |       |  |       |  |   |  |   | 0.1 |    
|                                               |       |                                |     |     |            |   |     |       |  |       |   |  
|                                               | Total |                                | $   | 3.0 |            |   | $   | 3.4   |  |       | $ |  |  |   | $   | 6.4 | 
|                                               |       |                                |     |     |            |   |     |       |  |       |   |  

|                                               |       |                                              |     |     |            |   |       |   |  |       |     |     |  |   |     |      | 
|---------------------------------------------- | ----- | -------------------------------------------- | --- | --- | ---------- | - | ----- | - |  | ----- | --- | --- |  | - | --- | ---- | 
|                                               |       |                                             
|                                               |       | Predecessor                                  |    
|                                               |       |                                              |    
|                                               |       |                                             
|                                               |       | Three and Five Months Ended October 31, 2002 |    
|                                               |       |                                              |    
|                                               |       | Automotive                                   |     |     |           
|                                               |       | Wheels                                       |     |     | Components |   | Other |   |  | Total |    
|                                               |       |                                              |     |     |            |   |       |   |  |       |    
|Impairment of manufacturing facilities         |       | $                                            | 0.3 |     |            | $ |      |   |  | $     |    |     |  | $ | 0.3 |     
|Impairment of machinery, equipment and tooling |       |                                              | 5.3 |     |            |   |      |   |  |       |    |     |  |   | 5.3 |     
|Severance and other restructuring costs        |       |                                              | 0.9 |     |            |   |      |   |  |       | 3.5 |     |  |   | 4.4 |     
|                                               |       |                                              |     |     |            |   |       |   |  |       |     |    
|                                               | Total |                                              | $   | 6.5 |            |   | $     |  |  |       | $   | 3.5 |  |   | $   | 10.0 | 
|                                               |       |                                              |     |     |            |   |       |   |  |       |     |    

|                                               |       |                                    |      |      |            |   |     |       |  |   |       |     |  |   |      |      | 
|---------------------------------------------- | ----- | ---------------------------------- | ---- | ---- | ---------- | - | --- | ----- |  | - | ----- | --- |  | - | ---- | ---- | 
|                                               |       |                                   
|                                               |       | Predecessor                        |     
|                                               |       |                                    |     
|                                               |       |                                   
|                                               |       | Nine Months Ended October 31, 2002 |     
|                                               |       |                                    |     
|                                               |       | Automotive                         |      |      |           
|                                               |       | Wheels                             |      |      | Components |   |     | Other |  |   | Total |    
|                                               |       |                                    |      |      |            |   |     |       |  |   |       |    
|Impairment of manufacturing facilities         |       | $                                  | 0.3  |      |            | $ | 0.3 |       |  | $ |      |     |  | $ | 0.6  |     
|Impairment of machinery, equipment and tooling |       |                                    | 21.8 |      |            |   | 0.8 |       |  |   |      |     |  |   | 22.6 |     
|Facility closure costs                         |       |                                    | 6.7  |      |            |   |    |       |  |   |      |     |  |   | 6.7  |     
|Severance and other restructuring costs        |       |                                    | 1.4  |      |            |   |    |       |  |   | 4.0   |     |  |   | 5.4  |     
|                                               |       |                                    |      |      |            |   |     |       |  |   |       |    
|                                               | Total |                                    | $    | 30.2 |            |   | $   | 1.1   |  |   | $     | 4.0 |  |   | $    | 35.3 | 
|                                               |       |                                    |      |      |            |   |     |       |  |   |       |    



| |                         
| | ------------------------
| | Impairment of Facilities

In the third quarter of fiscal 2003, the
Company recorded an estimated asset impairment loss of
$0.8 million on the Wabash, Indiana building, which was
written down to fair value based on expected proceeds from the
sale of such building.

18



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

Based on current real estate market conditions,
the Company recorded an asset impairment charge of
$0.3 million in the third quarter of fiscal 2002 to
write down its Somerset, Kentucky facility to fair value. During
the second quarter of fiscal 2002, an impairment charge of
$0.3 million was recorded to write down the Petersburg
facility to fair value based on real estate market conditions at
that time.



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

In the third quarter of fiscal 2003, the
Company recorded estimated impairment losses of
$18.8 million on machinery, equipment and production
tooling at its Gainesville, Georgia, La Mirada, California
and Wabash, Indiana manufacturing facilities. Such investments
in fixed assets were written down to fair value.

In May 2003, the Predecessor Company recorded
asset impairment losses of $1.6 million on certain
machinery and equipment in its Components segment due primarily
to a change in managements plan for the future use of
idled machinery and equipment. Such investments in fixed assets
were written down to fair value.

During the first quarter of fiscal 2003, the
Company recorded asset impairment losses of $1.5 million on
certain machinery and equipment in its Automotive Wheels segment
and $1.7 million in its Components segment 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.

During the third quarter of fiscal 2002, the
Company recognized asset impairment losses of $5.3 million
on certain machinery and equipment in the Automotive Wheel
segment due to a change in managements plan for the future
use of idled machinery and equipment and the discontinuance of
certain machinery and equipment due to changes in product mix.
Such investments in fixed assets were written down to fair value.

In the second quarter of fiscal 2002, the
Company determined, based on its most recent sales projections
for the facility, that its current estimate of the future
undiscounted cash flows from its manufacturing facility in La
Mirada, California will not be sufficient to recover the
carrying value of the facilitys fixed assets and
production tooling. Accordingly, the Company recorded an
estimated impairment loss of $15.5 million in the second
quarter of fiscal 2002 on those assets. During the second
quarter of fiscal 2002, the Company also recognized asset
impairment losses of $1.8 million on certain machinery and
equipment due primarily to a change in managements plan
for the future use of idled machinery and equipment.



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

During the first four months of
fiscal 2003, the Predecessor Company recognized additional
restructuring charges of $0.9 million related to the
closure of its Bowling Green, Kentucky facility. These charges
relate to additional plant closure costs and terminated employee
health care benefits. Of these and other closure costs
previously recognized, approximately $1.3 million remain
unpaid as of October 31, 2003 and are expected to be paid
during fiscal 2004.

In February 2002, the Company committed to a plan
to close its manufacturing facility in Somerset, Kentucky. In
connection with the closure of the Somerset facility (which
commenced during February

19



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

2002), the Company recorded an estimated
restructuring charge of $6.7 million in the first quarter
of fiscal 2002. This charge included amounts related to
lease termination costs and other closure costs including
security and maintenance costs subsequent to the shut down date.
The amount of the charge related to leases was $3.5 million
and was classified as a liability subject to compromise until
May 31, 2003. The lease termination costs were ultimately
discharged under the Plan of Reorganization upon emergence from
Chapter 11. Of the other closure costs, approximately
$0.9 million remained unpaid as of October 31, 2003
and are expected to be paid during fiscal 2004.

In fiscal 2002, the Company offered an early
retirement option to approximately 30 employees, of whom 24
accepted by the respective acceptance date. In connection with
this early retirement offer, the Company recorded a charge of
$3.4 million primarily related to supplemental retirement
benefits and continued medical benefits. The retirement benefit
portion of the charge is recorded as a component of the
Companys accrued benefit cost of the applicable defined
benefit plans, and will be funded as part of the requirements of
those entire plans.

As part of ongoing restructuring and
rationalization of its operations, the Company recorded
severance costs of $1.0 million in the third quarter of
fiscal 2002, all of which had been paid by October 31, 2002.



| |                                              
| | ---------------------------------------------
| | Facility Exit Cost and Severance
    Accruals

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

|                    |  |             |      |           |               |   |     |                  |  |      |          |             |      |         |      |   |  |   |     | 
|------------------- |  | ----------- | ---- | --------- | ------------- | - | --- | ---------------- |  | ---- | -------- | ----------- | ---- | ------- | ---- | - |  | - | --- | 
|                    |  |             |      | Severance |               |   |     |                  |  |      |         
|                    |  | January 31, |      |           | and Other     |   |     |                  |  |      |          | October 31, |     
|                    |  | 2003        |      |           | Restructuring |   |     |                  |  | Cash |          |             | 2003 |        
|                    |  | Accrual     |      |           | Charges       |   |     | Reclassification |  |      | Payments |             |      | Accrual |     
|                    |  |             |      |           |               |   |     |                  |  |      |          |             |      |         |     
|Facility exit costs |  | $           | 12.6 |           |               | $ | 0.9 |                  |  | $    | (7.5     | )           |      | $       | (3.4 | ) |  | $ | 2.6 | 
|Severance           |  |             | 4.0  |           |               |   |    |                  |  |      |         |             |      |         | (2.9 | ) |  |   | 1.1 | 
|                    |  |             |      |           |               |   |     |                  |  |      |          |             |      |         |     
|                    |  | $           | 16.6 |           |               | $ | 0.9 |                  |  | $    | (7.5     | )           |      | $       | (6.3 | ) |  | $ | 3.7 | 
|                    |  |             |      |           |               |   |     |                  |  |      |          |             |      |         |     

Of the remaining $3.7 million of facility
exit costs and severance accrued as of October 31, 2003,
$2.2 million relates to the companys Bowling Green
and Somerset facilities discussed above, and the remainder
relates to the Companys Petersburg, Michigan facility and
various European facilities, which are expected to be paid
during fiscal 2004. Of the facility exit costs accrued as of
January 31, 2003, $7.5 million relates to lease
termination costs which were reclassified to liabilities subject
to compromise and ultimately discharged under the Plan of
Reorganization upon emergence from Chapter 11.

(8)     Long-Term
Incentive Plan

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

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

20



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

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

As a result of issuing the restricted stock units
discussed above and the restricted stock units issued under the
CERP (see Note (1)), the Company will recognize
compensation expense of $21.1 million in results of
operations over the respective vesting periods. During the three
months ended October 31, 2003, the Company recognized
$2.1 million of compensation expense related to such
restricted stock units.

(9)     Earnings Per
Share

No earnings (loss) per share is presented for the
Company as none of its outstanding common stock is publicly
traded.

(10)     Comprehensive
Income (Loss)

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

|                                                                              |                                   |             |       |      |             |   |         |             |  |   |        |        |  
|----------------------------------------------------------------------------- | --------------------------------- | ----------- | ----- | ---- | ----------- | - | ------- | ----------- |  | - | ------ | ------ | -
|                                                                              |                                   |             |       |     
|                                                                              |                                   | Successor   |       |      | Predecessor |  
|                                                                              |                                   |             |       |      |             |  
|                                                                              |                                   | Five Months |       |      | Four Months |   |         | Nine Months | 
|                                                                              |                                   | Ended       |       |      | Ended       |   |         | Ended       | 
|                                                                              |                                   | October 31, |       |      | May 31,     |   |         | October 31, | 
|                                                                              |                                   | 2003        |       |      | 2003        |   |         | 2002        | 
|                                                                              |                                   |             |       |      |             |   |         |             | 
|Net income (loss)                                                             |                                   | $           | (21.8 | )    |             | $ | 1,043.0 |             |  | $ | (611.8 | )     
|Currency translation adjustments                                              |                                   |             | 18.7  |      |             |   | 31.4    |             |  |   | 13.6   |       
|Elimination of Predecessor equity accounts under
    fresh start accounting   |                                   |             |      |      |             |   | 75.8    |             |  |   |       |       
|Reclassification adjustment for amount included
    in fresh start adjustment |                                   |             |      |      |             |   | (75.8   | )           |  |   |       |       
|                                                                              |                                   |             |       |      |             |   |         |             | 
|                                                                              | Total comprehensive income (loss) |             | $     | (3.1 | )           |   | $       | 1,074.4     |  |   | $      | (598.2 | )
|                                                                              |                                   |             |       |      |             |   |         |             | 

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##### Table of Contents



HLI OPERATING COMPANY, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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



| |                                    
| | -----------------------------------
| | Bank Borrowings and Other
    Notes

Bank borrowings and other notes of the Successor
of $1.6 million at October 31, 2003 consists primarily
of short-term credit facilities of the Companys foreign
subsidiaries which bear interest at rates ranging from 1.75% to
27.0%. Bank borrowings and other notes of the Predecessor of
$15.8 million at January 31, 2003 consisted of
short-term credit facilities of the Companys foreign
subsidiaries which bore interest at rates ranging from 2.25% to
10.75%, and a note issued in conjunction with the purchase of
the Companys Wheland foundry which was repaid on
March 7, 2003.

22



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HLI OPERATING COMPANY, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |               
| | --------------
| | Long-Term Debt

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

|                                                                                                                                                                   |                |             |       |       |             |   |         |      | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------- | ----------- | ----- | ----- | ----------- | - | ------- | ---- | 
|                                                                                                                                                                   |                | Successor   |       |       | Predecessor |  
|                                                                                                                                                                   |                |             |       |       |             |  
|                                                                                                                                                                   |                | October 31, |       |       | January 31, |  
|                                                                                                                                                                   |                | 2003        |       |       | 2003        |  
|                                                                                                                                                                   |                |             |       |       |             |  
|DIP Facility                                                                                                                                                       |                | $           |      |       |             | $ | 49.9    |     
|Bank term loan facility maturing February 3,
    2005, weighted average interest rate of 8.4% at January 31,
    2003                                              |                |             |      |       |             |   | 176.8   |     
|Bank revolving credit facility maturing through
    2005, weighted average interest rate of 6.9% at January 31,
    2003                                           |                |             |      |       |             |   | 573.8   |     
|Various foreign bank and government loans
    maturing through 2006, weighted average interest rates of 5.8%
    and 6.1% at October 31, 2003 and January 31, 2003 |                |             | 24.1  |       |             |   | 91.3    |     
|8 1/4% Senior Subordinated Notes due 2008                                                                                                                          |                |             |      |       |             |   | 224.3   |     
|9 1/8% Senior Subordinated Notes due 2007                                                                                                                          |                |             |      |       |             |   | 389.1   |     
|11% Senior Subordinated Notes due 2006                                                                                                                             |                |             |      |       |             |   | 239.4   |     
|11 7/8% Senior Notes due 2006                                                                                                                                      |                |             |      |       |             |   | 300.0   |     
|New Term Loan maturing 2009, weighted average
    interest rate of 5.7% at October 31, 2003                                                                        |                |             | 448.9 |       |             |   |        |     
|10 1/2% New Senior Notes, net of discount,
    due 2010                                                                                                            |                |             | 248.5 |       |             |   |        |     
|Mortgage note payable                                                                                                                                              |                |             | 22.5  |       |             |   |        |     
|Capital lease obligations                                                                                                                                          |                |             | 16.4  |       |             |   | 10.7    |     
|                                                                                                                                                                   |                |             |       |       |             |  
|                                                                                                                                                                   |                |             | 760.4 |       |             |   | 2,055.3 |     
|Less current portion of DIP Facility                                                                                                                               |                |             |      |       |             |   | 49.9    |     
|Less current portion of long-term debt                                                                                                                             |                |             | 11.6  |       |             |   |        |     
|Less current portion not subject to compromise                                                                                                                     |                |             |      |       |             |   | 40.1    |     
|Less liabilities subject to compromise                                                                                                                             |                |             |      |       |             |   | 1,903.4 |     
|                                                                                                                                                                   |                |             |       |       |             |  
|                                                                                                                                                                   | Long-term debt |             | $     | 748.8 |             |   | $       | 61.9 | 
|                                                                                                                                                                   |                |             |       |       |             |  

As discussed in Note (1), the Debtors emerged
from Chapter 11 on June 3, 2003. In connection with
the Debtors emergence on the Effective Date, HLI entered
into a $550.0 million senior secured credit facility, which
was subsequently amended on October 16, 2003 by amendment
No. 1 and Waiver to 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 10 1/2% senior notes due 2010 (the
New Senior Notes). The proceeds from the initial
$450.0 million of borrowings under the New Credit Facility
and the net proceeds from the New Senior Notes were used to make
payments required under the Plan of Reorganization, including
the repayment of the Companys DIP Facility and a payment
of $477.3 million to certain prepetition lenders, to pay
related transaction costs and to refinance certain debt.



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

The Term Loan Facility was made available to HLI
in a single drawing on the Effective Date, payable in quarterly
installments equal to 0.25% of the principal amount outstanding
immediately following

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##### Table of Contents



HLI OPERATING COMPANY, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

effectiveness of the Plan of Reorganization with
the remaining balance payable on the sixth anniversary of the
Effective Date. The first quarterly installment of
$1.1 million was paid on October 31, 2003. The
Revolving Credit Facility will be available until the fifth
anniversary of the Effective Date, on which date all loans
outstanding under the Revolving Credit Facility will become due
and payable.

The interest rates per annum under the New Credit
Facility will, at HLIs option, be: (A) for the Term
Loan, either the LIBOR rate plus 3.75% or the alternate base
rate plus 2.75%; and (B) for the Revolving Credit Facility:
(i) for the first two fiscal quarters after the closing
date of the New Credit Facility, either the LIBOR rate plus
3.50% or the alternate base rate plus 2.50%, and
(ii) thereafter, such higher or lower rates determined by
reference to New Hayes leverage ratio.

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

As of October 31, 2003, there were no
outstanding borrowings and approximately $22.5 million in
letters of credit issued under the Revolving Credit Facility.
The amount available to borrow under the Revolving Credit
Facility at October 31, 2003 was approximately
$77.5 million.



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

HLI issued $250.0 million aggregate
principal amount of New Senior Notes on June 3, 2003. The
New Senior Notes will mature on June 15, 2010. Interest on
the New Senior Notes will accrue at a rate of 10 1/2% per
annum and will be payable semi-annually in arrears on
June 15 and December 15. On October 30, 2003, HLI
commenced its offer to exchange up to $250,000,000 aggregate
principal amount of outstanding 10 1/2% Senior Notes due
2010 of HLI for a like principal amount of 10 1/2% Senior
Notes due 2010 of HLI. The exchange offer was registered under
the Securities Act of 1933, as amended, to satisfy HLIs
obligations under the registration rights agreement entered into
by HLI and the initial purchasers of the New Senior Notes. (See
Note (15)).

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

Except as set forth below, the New Senior Notes
will not be redeemable at the option of HLI prior to
June 15, 2007. Starting on that date, HLI may redeem all or
any portion of the New Senior Notes, at once or over time, upon
the terms and conditions set forth in the senior note indenture
agreement (the Indenture). At any time prior to
June 15, 2007, HLI may redeem all or any portion of the New
Senior Notes, at once or over time, at a redemption price equal
to 100% of the principal amount of the New Senior Notes to be
redeemed, plus a specified make-whole premium. In
addition, at any time and from time to time prior to
June 15, 2006, HLI may redeem up to a maximum of 35% of the
aggregate principal amount of the New Senior Notes with the
proceeds of one or more public equity offerings at a redemption
price equal to 110.50% of the principal amount thereof, plus
accrued and unpaid interest.

The Indenture provides for certain restrictions
regarding additional debt, dividends and other distributions,
additional stock of subsidiaries, certain investments, liens,
transactions with affiliates, mergers, consolidations, and the
transfer and sales of assets. The Indenture also provides that a
holder of the New Senior Notes may, under certain circumstances,
have the right to require that the Company repurchase

24



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

such holders New Senior Notes upon a change
of control of New Hayes, ParentCo or HLI. The New Senior Notes
are unconditionally guaranteed as to the payment of principal,
premium, if any, and interest, jointly and severally on a
senior, unsecured basis by New Hayes and substantially all of
its domestic subsidiaries (see Note (16)).



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

In addition to the New Credit Facility and New
Senior Notes as described above, the Company had other debt
financing of $63.0 million as of October 31, 2003.
These included borrowings under various foreign debt facilities
in an aggregate amount of $24.1 million, capital lease
obligations of $16.4 million and a mortgage note payable of
$22.5 million.

(12)     Liabilities
Subject to Compromise

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



| |                     
| | --------------------
| | Recorded Liabilities

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

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

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

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

The Company did not continue to record interest
expense accruing postpetition with respect to the Old Senior
Notes and the Companys 11% Senior Subordinated Notes due
2006, 9 1/8% Senior

25



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

Contingent Liabilities

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

(13)     Segment
Reporting

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

|                                                  |  |                                                       |         |   |            |   |       |       |  |   |       |   |  |   |         |  
|------------------------------------------------- |  | ----------------------------------------------------- | ------- | - | ---------- | - | ----- | ----- |  | - | ----- | - |  | - | ------- | -
|                                                  |  |                                                      
|                                                  |  | Successor                                             |        
|                                                  |  |                                                       |        
|                                                  |  |                                                      
|                                                  |  | As of and for the Three Months Ended October 31, 2003 |        
|                                                  |  |                                                       |        
|                                                  |  | Automotive                                            |         |   |           
|                                                  |  | Wheels                                                |         |   | Components |   |       | Other |  |   | Total |  
|                                                  |  |                                                       |         |   |            |   |       |       |  |   |       |  
|Net sales                                         |  | $                                                     | 310.1   |   |            | $ | 188.8 |       |  | $ | 32.0  |   |  | $ | 530.9   |  
|Earnings (loss) from operations                   |  |                                                       | 10.6    |   |            |   | 4.8   |       |  |   | (1.5  | ) |  |   | 13.9    |  
|Asset impairments and other restructuring charges |  |                                                       | (12.1   | ) |            |   | (7.5  | )     |  |   |      |   |  |   | (19.6   | )
|Goodwill                                          |  |                                                       | 300.1   |   |            |   | 88.7  |       |  |   |      |   |  |   | 388.8   |  
|Total assets                                      |  |                                                       | 1,424.1 |   |            |   | 619.6 |       |  |   | 181.8 |   |  |   | 2,225.5 |  

|                                                                                                          |  |                                     |       |   |            |   |       |       |  |   |       |   |  |   |       |  
|--------------------------------------------------------------------------------------------------------- |  | ----------------------------------- | ----- | - | ---------- | - | ----- | ----- |  | - | ----- | - |  | - | ----- | -
|                                                                                                          |  |                                    
|                                                                                                          |  | Predecessor                         |      
|                                                                                                          |  |                                     |      
|                                                                                                          |  |                                    
|                                                                                                          |  | Three Months Ended October 31, 2002 |      
|                                                                                                          |  |                                     |      
|                                                                                                          |  | Automotive                          |       |   |           
|                                                                                                          |  | Wheels                              |       |   | Components |   |       | Other |  |   | Total |  
|                                                                                                          |  |                                     |       |   |            |   |       |       |  |   |       |  
|Net sales                                                                                                 |  | $                                   | 307.8 |   |            | $ | 203.7 |       |  | $ | 23.9  |   |  | $ | 535.4 |  
|Earnings (loss) from operations                                                                           |  |                                     | 21.4  |   |            |   | 17.4  |       |  |   | (11.9 | ) |  |   | 26.9  |  
|Reorganization items                                                                                      |  |                                     | (0.1  | ) |            |   |      |       |  |   | (6.9  | ) |  |   | (7.0  | )
|Fresh start accounting adjustments                                                                        |  |                                     |      |   |            |   |      |       |  |   |      |   |  |   |      |  
|                                                                                                          |  |                                     |       |   |            |   |       |       |  |   |       |  
|Earnings (loss) from operations excluding fresh
    start accounting adjustments and reorganization items |  | $                                   | 21.5  |   |            | $ | 17.4  |       |  | $ | (5.0  | ) |  | $ | 33.9  |  
|                                                                                                          |  |                                     |       |   |            |   |       |       |  |   |       |  
|Asset impairments and other restructuring charges                                                         |  | $                                   | (6.5  | ) |            | $ |      |       |  | $ | (3.5  | ) |  | $ | (10.0 | )

26



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                  |  |                                    |       |   |            |   |       |       |  |   |       |   |  |   |       |  
|------------------------------------------------- |  | ---------------------------------- | ----- | - | ---------- | - | ----- | ----- |  | - | ----- | - |  | - | ----- | -
|                                                  |  |                                   
|                                                  |  | Successor                          |      
|                                                  |  |                                    |      
|                                                  |  |                                   
|                                                  |  | Five Months Ended October 31, 2003 |      
|                                                  |  |                                    |      
|                                                  |  | Automotive                         |       |   |           
|                                                  |  | Wheels                             |       |   | Components |   |       | Other |  |   | Total |  
|                                                  |  |                                    |       |   |            |   |       |       |  |   |       |  
|Net sales                                         |  | $                                  | 509.4 |   |            | $ | 299.4 |       |  | $ | 50.4  |   |  | $ | 859.2 |  
|Earnings (loss) from operations                   |  |                                    | 19.1  |   |            |   | 3.4   |       |  |   | (6.2  | ) |  |   | 16.3  |  
|Asset impairments and other restructuring charges |  |                                    | (12.1 | ) |            |   | (7.5  | )     |  |   |      |   |  |   | (19.6 | )

|                                                                                                          |  |                                |       |   |            |   |       |       |  |   |       |   |  |   |         |  
|--------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ----- | - | ---------- | - | ----- | ----- |  | - | ----- | - |  | - | ------- | -
|                                                                                                          |  |                               
|                                                                                                          |  | Predecessor                    |      
|                                                                                                          |  |                                |      
|                                                                                                          |  |                               
|                                                                                                          |  | Four Months Ended May 31, 2003 |      
|                                                                                                          |  |                                |      
|                                                                                                          |  | Automotive                     |       |   |           
|                                                                                                          |  | Wheels                         |       |   | Components |   |       | Other |  |   | Total |  
|                                                                                                          |  |                                |       |   |            |   |       |       |  |   |       |  
|Net sales                                                                                                 |  | $                              | 403.5 |   |            | $ | 248.1 |       |  | $ | 38.2  |   |  | $ | 689.8   |  
|Earnings (loss) from operations                                                                           |  |                                | 85.4  |   |            |   | 37.2  |       |  |   | (72.1 | ) |  |   | 50.5    |  
|Reorganization items                                                                                      |  |                                | (0.1  | ) |            |   | 0.2   |       |  |   | (45.1 | ) |  |   | (45.0   | )
|Fresh start accounting adjustments                                                                        |  |                                | 57.9  |   |            |   | 27.7  |       |  |   | (22.5 | ) |  |   | 63.1    |  
|                                                                                                          |  |                                |       |   |            |   |       |       |  |   |       |  
|Earnings (loss) from operations excluding
    fresh start accounting adjustments and reorganization items |  | $                              | 27.6  |   |            | $ | 9.3   |       |  | $ | (4.5  | ) |  | $ | 32.4    |  
|                                                                                                          |  |                                |       |   |            |   |       |       |  |   |       |  
|Asset impairments and other restructuring charges                                                         |  | $                              | (3.0  | ) |            | $ | (3.4  | )     |  | $ |      |   |  | $ | (6.4    | )
|Extraordinary gain on debt discharge                                                                      |  |                                | 81.1  |   |            |   | 58.3  |       |  |   | 937.3 |   |  |   | 1,076.7 |  

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

|                                                                                                          |  |                                    |        |   |            |   |        |       |  |   |       |   |  |   |         |  
|--------------------------------------------------------------------------------------------------------- |  | ---------------------------------- | ------ | - | ---------- | - | ------ | ----- |  | - | ----- | - |  | - | ------- | -
|                                                                                                          |  |                                   
|                                                                                                          |  | Predecessor                        |       
|                                                                                                          |  |                                    |       
|                                                                                                          |  |                                   
|                                                                                                          |  | Nine Months Ended October 31, 2002 |       
|                                                                                                          |  |                                    |       
|                                                                                                          |  | Automotive                         |        |   |           
|                                                                                                          |  | Wheels                             |        |   | Components |   |        | Other |  |   | Total |  
|                                                                                                          |  |                                    |        |   |            |   |        |       |  |   |       |  
|Net sales                                                                                                 |  | $                                  | 883.7  |   |            | $ | 568.6  |       |  | $ | 73.8  |   |  | $ | 1,526.1 |  
|Earnings (loss) from operations                                                                           |  |                                    | 16.8   |   |            |   | 22.6   |       |  |   | (39.8 | ) |  |   | (0.4    | )
|Reorganization items                                                                                      |  |                                    | (9.3   | ) |            |   | 0.9    |       |  |   | (26.5 | ) |  |   | (34.9   | )
|                                                                                                          |  |                                    |        |   |            |   |        |       |  |   |       |  
|Earnings (loss) from operations excluding
    fresh start accounting adjustments and reorganization items |  | $                                  | 26.1   |   |            | $ | 21.7   |       |  | $ | (13.3 | ) |  | $ | 34.5    |  
|                                                                                                          |  |                                    |        |   |            |   |        |       |  |   |       |  
|Asset impairments and other restructuring charges                                                         |  | $                                  | (30.2  | ) |            | $ | (1.1   | )     |  | $ | (4.0  | ) |  | $ | (35.3   | )
|Cumulative effect of change in accounting
    principle                                                   |  |                                    | (127.1 | ) |            |   | (342.8 | )     |  |   | (84.5 | ) |  |   | (554.4  | )

(14)     Taxes on
Income

Income tax expense was $8.7 million for the
Successor five months ended October 31, 2003. This expense
is the result of tax related to operations in foreign
jurisdictions as well as various states.

27



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

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

(15)     Subsequent
Events



| |                                                              
| | -------------------------------------------------------------
| | Primary and Secondary Public Offering of New
    Common Stock

On November 14, 2003, New Hayes filed a
registration statement on Form S-3 with the SEC covering a
primary offering of approximately 5.4 million shares of New
Common Stock to be sold by New Hayes (plus 1,620,000 shares
subject to an over-allotment option) and approximately
5.4 million secondary shares of New Common Stock to be sold
by AP Wheels, LLC (AP Wheels), an affiliate of
Apollo Management V, L.P.

New Hayes and the Company intend to use the net
proceeds received from the shares sold in the offering to repay
a portion of the Companys outstanding debt and for general
corporate purposes. New Hayes and the Company will not receive
any of the net proceeds from the sale of shares by AP Wheels.



| |            
| | -----------
| | Acquisition

In November 2003, the Company acquired an
additional 35% ownership interest in its Turkish joint venture
for $13.9 million in cash and will pay an additional
$1.1 million in the first quarter of fiscal 2004. As a
result of this acquisition, the Company owns 60% of Hayes
Lemmerz Jantas Jant Sanayi ve Ticaret A.S., which will be 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%.



| |               
| | --------------
| | Exchange Offer

On November 28, 2003, HLI completed its
offer to exchange up to $250,000,000 aggregate principal amount
of outstanding 10 1/2% Senior Notes due 2010 of HLI for a
like principal amount of 10 1/2% Senior Notes due 2010 of
HLI. The exchange offer was registered under the Securities Act
of 1933, as amended, to satisfy HLIs obligations under the
registration rights agreement entered into by HLI and the
initial purchasers of the New Senior Notes. All of the
$250,000,000 aggregate principal amount of the outstanding New
Senior Notes were tendered and accepted for exchange.



| |               
| | --------------
| | NASDAQ Listing

On December 2, 2003, New Hayes New
Common Stock began trading on the NASDAQ National Market under
the symbol HAYZ.

(16)     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

28



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

subsidiaries cumulative results of
operations, capital contributions, distributions and other
equity changes. The principal elimination entries eliminate
investments in subsidiaries and intercompany balances and
transactions.



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

As further discussed in Notes (1) and (11),
in connection with the Plan of Reorganization, HLI issued
$250.0 million aggregate principal amount of the New Senior
Notes (the Issuer). The New Senior Notes are
guaranteed by New Hayes and substantially all of New Hayes
domestic subsidiaries (other than HLI as the issuer of the New
Senior Notes) (collectively, the Guarantor
Subsidiaries). None of New Hayes foreign
subsidiaries have guaranteed the New Senior Notes, nor have two
of New Hayes domestic subsidiaries owned by foreign
subsidiaries of New Hayes (collectively, the Nonguarantor
Subsidiaries).

29



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HLI OPERATING COMPANY, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






CONDENSED CONSOLIDATING STATEMENTS OF
OPERATIONS


Successor Company


For the Three Months Ended October 31,
2003


|                                                                   |                                                                                                        |                       |      |           |              |   |              |              |   |   |              |      |  |       |       |     |  |   |       |      |  
|------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------ | --------------------- | ---- | --------- | ------------ | - | ------------ | ------------ | - | - | ------------ | ---- |  | ----- | ----- | --- |  | - | ----- | ---- | -
|                                                                   |                                                                                                        |                       |      | Guarantor |              |   | Nonguarantor |              |   |   |              |     
|                                                                   |                                                                                                        | Issuer                |      |           | Subsidiaries |   |              | Subsidiaries |   |   | Eliminations |      |  | Total |      
|                                                                   |                                                                                                        |                       |      |           |              |   |              |              |   |   |              |      |  |       |      
|                                                                   |                                                                                                        |                      
|                                                                   |                                                                                                        | (Millions of dollars) |     
|                                                                   |                                                                                                        |                      
|                                                                   |                                                                                                        | (Unaudited)           |     
|Net sales                                                          |                                                                                                        | $                     | 1.1  |           |              | $ | 303.5        |              |   | $ | 238.9        |      |  | $     | (12.6 | )   |  | $ | 530.9 |     
|Cost of goods sold                                                 |                                                                                                        |                       | 4.5  |           |              |   | 268.6        |              |   |   | 201.1        |      |  |       | (12.6 | )   |  |   | 461.6 |     
|                                                                   |                                                                                                        |                       |      |           |              |   |              |              |   |   |              |      |  |       |      
|                                                                   | Gross profit (loss)                                                                                    |                       |      | (3.4      | )            |   |              | 34.9         |   |   |              | 37.8 |  |       |       |    |  |   |       | 69.3 |  
|Marketing, general and administration                              |                                                                                                        |                       | (0.4 | )         |              |   | 15.8         |              |   |   | 11.5         |      |  |       |      |     |  |   | 26.9  |     
|Engineering and product development                                |                                                                                                        |                       | 2.6  |           |              |   | 2.0          |              |   |   | 1.6          |      |  |       |      |     |  |   | 6.2   |     
|Equity in (earnings) losses of subsidiaries
    and joint ventures |                                                                                                        |                       | 7.4  |           |              |   | 0.7          |              |   |   |             |      |  |       | (8.1  | )   |  |   |      |     
|Asset impairments and other restructuring charges                  |                                                                                                        |                       |     |           |              |   | 19.6         |              |   |   |             |      |  |       |      |     |  |   | 19.6  |     
|Other expense (income), net                                        |                                                                                                        |                       | 0.1  |           |              |   | 0.4          |              |   |   | 2.2          |      |  |       |      |     |  |   | 2.7   |     
|                                                                   |                                                                                                        |                       |      |           |              |   |              |              |   |   |              |      |  |       |      
|                                                                   | Earnings (loss) from operations                                                                        |                       |      | (13.1     | )            |   |              | (3.6         | ) |   |              | 22.5 |  |       |       | 8.1 |  |   |       | 13.9 |  
|Interest (income) expense, net                                     |                                                                                                        |                       | (5.2 | )         |              |   | 14.7         |              |   |   | 5.2          |      |  |       |      |     |  |   | 14.7  |     
|                                                                   |                                                                                                        |                       |      |           |              |   |              |              |   |   |              |      |  |       |      
|                                                                   | Earnings (loss) before subsidiary preferred
    stock dividends, taxes on income and minority interest |                       |      | (7.9      | )            |   |              | (18.3        | ) |   |              | 17.3 |  |       |       | 8.1 |  |   |       | (0.8 | )
|Preferred stock dividends                                          |                                                                                                        |                       | 0.2  |           |              |   |             |              |   |   |             |      |  |       |      |     |  |   | 0.2   |     
|                                                                   |                                                                                                        |                       |      |           |              |   |              |              |   |   |              |      |  |       |      
|                                                                   | Earnings (loss) before taxes on income and
    minority interest                                       |                       |      | (8.1      | )            |   |              | (18.3        | ) |   |              | 17.3 |  |       |       | 8.1 |  |   |       | (1.0 | )
|Income tax provision                                               |                                                                                                        |                       |     |           |              |   | 0.6          |              |   |   | 5.5          |      |  |       |      |     |  |   | 6.1   |     
|                                                                   |                                                                                                        |                       |      |           |              |   |              |              |   |   |              |      |  |       |      
|                                                                   | Earnings (loss) before minority interest                                                               |                       |      | (8.1      | )            |   |              | (18.9        | ) |   |              | 11.8 |  |       |       | 8.1 |  |   |       | (7.1 | )
|                                                                   |                                                                                                        |                       |      |           |              |   |              |              |   |   |              |      |  |       |      
|Minority interest                                                  |                                                                                                        |                       |     |           |              |   |             |              |   |   | 1.0          |      |  |       |      |     |  |   | 1.0   |     
|                                                                   |                                                                                                        |                       |      |           |              |   |              |              |   |   |              |      |  |       |      
|                                                                   | Net income (loss)                                                                                      |                       |      | (8.1      | )            |   | $            | (18.9        | ) |   | $            | 10.8 |  |       | $     | 8.1 |  |   | $     | (8.1 | )
|                                                                   |                                                                                                        |                       |      |           |              |   |              |              |   |   |              |      |  |       |      

30



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HLI OPERATING COMPANY, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






CONDENSED CONSOLIDATING STATEMENTS OF
OPERATIONS


Predecessor Company


For the Three Months Ended October 31,
2002


|                                                                   |                                                                  |                       |       |           |              |   |              |              |  |   |              |              |  |       |      |       |   |   |       |      | 
|------------------------------------------------------------------ | ---------------------------------------------------------------- | --------------------- | ----- | --------- | ------------ | - | ------------ | ------------ |  | - | ------------ | ------------ |  | ----- | ---- | ----- | - | - | ----- | ---- | 
|                                                                   |                                                                  |                       |       | Guarantor |              |   | Nonguarantor |              |  |   |              | Consolidated | 
|                                                                   |                                                                  | Parent                |       |           | Subsidiaries |   |              | Subsidiaries |  |   | Eliminations |              |  | Total |     
|                                                                   |                                                                  |                       |       |           |              |   |              |              |  |   |              |              |  |       |     
|                                                                   |                                                                  |                      
|                                                                   |                                                                  | (Millions of dollars) |      
|                                                                   |                                                                  |                      
|                                                                   |                                                                  | (Unaudited)           |      
|Net sales                                                          |                                                                  | $                     | 63.0  |           |              | $ | 266.7        |              |  | $ | 214.4        |              |  | $     | (8.7 | )     |   | $ | 535.4 |     
|Cost of goods sold                                                 |                                                                  |                       | 58.6  |           |              |   | 236.6        |              |  |   | 178.2        |              |  |       | (8.7 | )     |   |   | 464.7 |     
|                                                                   |                                                                  |                       |       |           |              |   |              |              |  |   |              |              |  |       |     
|                                                                   | Gross profit (loss)                                              |                       |       | 4.4       |              |   |              | 30.1         |  |   |              | 36.2         |  |       |      |      |   |   |       | 70.7 | 
|Marketing, general and administration                              |                                                                  |                       | 3.2   |           |              |   | 10.0         |              |  |   | 10.3         |              |  |       |     |       |   |   | 23.5  |     
|Engineering and product development                                |                                                                  |                       | 1.3   |           |              |   | 2.3          |              |  |   | 1.5          |              |  |       |     |       |   |   | 5.1   |     
|Equity in (earnings) losses of subsidiaries
    and joint ventures |                                                                  |                       | (16.8 | )         |              |   |             |              |  |   |             |              |  |       | 16.8 |       |   |   |      |     
|Asset impairments and other restructuring charges                  |                                                                  |                       | 4.7   |           |              |   | 4.1          |              |  |   | 1.2          |              |  |       |     |       |   |   | 10.0  |     
|Other expense (income), net                                        |                                                                  |                       | (0.5  | )         |              |   | (1.4         | )            |  |   | 0.1          |              |  |       |     |       |   |   | (1.8  | )   
|Reorganization items                                               |                                                                  |                       | 6.9   |           |              |   | 0.3          |              |  |   | (0.2         | )            |  |       |     |       |   |   | 7.0   |     
|                                                                   |                                                                  |                       |       |           |              |   |              |              |  |   |              |              |  |       |     
|                                                                   | Earnings (loss) from operations                                  |                       |       | 5.6       |              |   |              | 14.8         |  |   |              | 23.3         |  |       |      | (16.8 | ) |   |       | 26.9 | 
|Interest expense, net                                              |                                                                  |                       | 3.0   |           |              |   | 10.2         |              |  |   | 5.8          |              |  |       |     |       |   |   | 19.0  |     
|                                                                   |                                                                  |                       |       |           |              |   |              |              |  |   |              |              |  |       |     
|                                                                   | Earnings (loss) before taxes on income and
    minority interest |                       |       | 2.6       |              |   |              | 4.6          |  |   |              | 17.5         |  |       |      | (16.8 | ) |   |       | 7.9  | 
|Income tax provision                                               |                                                                  |                       | (1.1  | )         |              |   | 0.5          |              |  |   | 3.6          |              |  |       |     |       |   |   | 3.0   |     
|                                                                   |                                                                  |                       |       |           |              |   |              |              |  |   |              |              |  |       |     
|                                                                   | Earnings (loss) before minority interest                         |                       |       | 3.7       |              |   |              | 4.1          |  |   |              | 13.9         |  |       |      | (16.8 | ) |   |       | 4.9  | 
|Minority interest                                                  |                                                                  |                       |      |           |              |   |             |              |  |   | 1.2          |              |  |       |     |       |   |   | 1.2   |     
|                                                                   |                                                                  |                       |       |           |              |   |              |              |  |   |              |              |  |       |     
|                                                                   | Net income (loss)                                                |                       | $     | 3.7       |              |   | $            | 4.1          |  |   | $            | 12.7         |  |       | $    | (16.8 | ) |   | $     | 3.7  | 
|                                                                   |                                                                  |                       |       |           |              |   |              |              |  |   |              |              |  |       |     

31



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






CONDENSED CONSOLIDATING STATEMENTS OF
OPERATIONS


Successor Company


For the Five Months Ended October 31,
2003


|                                                                   |                                                                                                        |                       |      |           |              |   |              |              |   |   |              |      |  |       |       |      |  |   |       |       |  
|------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------ | --------------------- | ---- | --------- | ------------ | - | ------------ | ------------ | - | - | ------------ | ---- |  | ----- | ----- | ---- |  | - | ----- | ----- | -
|                                                                   |                                                                                                        |                       |      | Guarantor |              |   | Nonguarantor |              |   |   |              |     
|                                                                   |                                                                                                        | Issuer                |      |           | Subsidiaries |   |              | Subsidiaries |   |   | Eliminations |      |  | Total |      
|                                                                   |                                                                                                        |                       |      |           |              |   |              |              |   |   |              |      |  |       |      
|                                                                   |                                                                                                        |                      
|                                                                   |                                                                                                        | (Millions of dollars) |     
|                                                                   |                                                                                                        |                      
|                                                                   |                                                                                                        | (Unaudited)           |     
|Net sales                                                          |                                                                                                        | $                     | 1.9  |           |              | $ | 463.0        |              |   | $ | 412.7        |      |  | $     | (18.4 | )    |  | $ | 859.2 |      
|Cost of goods sold                                                 |                                                                                                        |                       | 8.4  |           |              |   | 419.0        |              |   |   | 351.5        |      |  |       | (18.4 | )    |  |   | 760.5 |      
|                                                                   |                                                                                                        |                       |      |           |              |   |              |              |   |   |              |      |  |       |      
|                                                                   | Gross profit (loss)                                                                                    |                       |      | (6.5      | )            |   |              | 44.0         |   |   |              | 61.2 |  |       |       |     |  |   |       | 98.7  |  
|Marketing, general and administration                              |                                                                                                        |                       | 2.1  |           |              |   | 24.9         |              |   |   | 20.6         |      |  |       |      |      |  |   | 47.6  |      
|Engineering and product development                                |                                                                                                        |                       | 4.1  |           |              |   | 3.3          |              |   |   | 3.0          |      |  |       |      |      |  |   | 10.4  |      
|Equity in (earnings) losses of subsidiaries
    and joint ventures |                                                                                                        |                       | 16.1 |           |              |   | 1.0          |              |   |   |             |      |  |       | (17.1 | )    |  |   |      |      
|Asset impairments and other restructuring charges                  |                                                                                                        |                       |     |           |              |   | 19.6         |              |   |   |             |      |  |       |      |      |  |   | 19.6  |      
|Other expense (income), net                                        |                                                                                                        |                       | 0.3  |           |              |   | (0.4         | )            |   |   | 4.9          |      |  |       |      |      |  |   | 4.8   |      
|                                                                   |                                                                                                        |                       |      |           |              |   |              |              |   |   |              |      |  |       |      
|                                                                   | Earnings (loss) from operations                                                                        |                       |      | (29.1     | )            |   |              | (4.4         | ) |   |              | 32.7 |  |       |       | 17.1 |  |   |       | 16.3  |  
|Interest (income) expense, net                                     |                                                                                                        |                       | (7.6 | )         |              |   | 23.2         |              |   |   | 11.7         |      |  |       |      |      |  |   | 27.3  |      
|                                                                   |                                                                                                        |                       |      |           |              |   |              |              |   |   |              |      |  |       |      
|                                                                   | Earnings (loss) before subsidiary preferred
    stock dividends, taxes on income and minority interest |                       |      | (21.5     | )            |   |              | (27.6        | ) |   |              | 21.0 |  |       |       | 17.1 |  |   |       | (11.0 | )
|Preferred stock dividends                                          |                                                                                                        |                       | 0.3  |           |              |   |             |              |   |   |             |      |  |       |      |      |  |   | 0.3   |      
|                                                                   |                                                                                                        |                       |      |           |              |   |              |              |   |   |              |      |  |       |      
|                                                                   | Earnings (loss) before taxes on income and
    minority interest                                       |                       |      | (21.8     | )            |   |              | (27.6        | ) |   |              | 21.0 |  |       |       | 17.1 |  |   |       | (11.3 | )
|Income tax provision                                               |                                                                                                        |                       |     |           |              |   | 1.1          |              |   |   | 7.6          |      |  |       |      |      |  |   | 8.7   |      
|                                                                   |                                                                                                        |                       |      |           |              |   |              |              |   |   |              |      |  |       |      
|                                                                   | Earnings (loss) before minority interest                                                               |                       |      | (21.8     | )            |   |              | (28.7        | ) |   |              | 13.4 |  |       |       | 17.1 |  |   |       | (20.0 | )
|                                                                   |                                                                                                        |                       |      |           |              |   |              |              |   |   |              |      |  |       |      
|Minority interest                                                  |                                                                                                        |                       |     |           |              |   |             |              |   |   | 1.8          |      |  |       |      |      |  |   | 1.8   |      
|                                                                   |                                                                                                        |                       |      |           |              |   |              |              |   |   |              |      |  |       |      
|                                                                   | Net income (loss)                                                                                      |                       | $    | (21.8     | )            |   | $            | (28.7        | ) |   | $            | 11.6 |  |       | $     | 17.1 |  |   | $     | (21.8 | )
|                                                                   |                                                                                                        |                       |      |           |              |   |              |              |   |   |              |      |  |       |      

32



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






CONDENSED CONSOLIDATING STATEMENTS OF
OPERATIONS


Predecessor Company


For the Four Months Ended May 31,
2003


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

33



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






CONDENSED CONSOLIDATING STATEMENTS OF
OPERATIONS


Predecessor Company


For the Nine Months Ended October 31,
2002


|                                                                   |                                                                                                                           |                       |       |           |              |   |              |              |   |   |              |              |   |       |        |       |  |   |         |        |  
|------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------- | --------------------- | ----- | --------- | ------------ | - | ------------ | ------------ | - | - | ------------ | ------------ | - | ----- | ------ | ----- |  | - | ------- | ------ | -
|                                                                   |                                                                                                                           |                       |       | Guarantor |              |   | Nonguarantor |              |   |   |              | Consolidated |  
|                                                                   |                                                                                                                           | Parent                |       |           | Subsidiaries |   |              | Subsidiaries |   |   | Eliminations |              |   | Total |       
|                                                                   |                                                                                                                           |                       |       |           |              |   |              |              |   |   |              |              |   |       |       
|                                                                   |                                                                                                                           |                      
|                                                                   |                                                                                                                           | (Millions of dollars) |      
|                                                                   |                                                                                                                           |                      
|                                                                   |                                                                                                                           | (Unaudited)           |      
|Net sales                                                          |                                                                                                                           | $                     | 180.6 |           |              | $ | 761.7        |              |   | $ | 606.9        |              |   | $     | (23.1  | )     |  | $ | 1,526.1 |       
|Cost of goods sold                                                 |                                                                                                                           |                       | 180.6 |           |              |   | 701.8        |              |   |   | 513.2        |              |   |       | (23.5  | )     |  |   | 1,372.1 |       
|                                                                   |                                                                                                                           |                       |       |           |              |   |              |              |   |   |              |              |   |       |       
|                                                                   | Gross profit (loss)                                                                                                       |                       |       |          |              |   |              | 59.9         |   |   |              | 93.7         |   |       |        | 0.4   |  |   |         | 154.0  |  
|Marketing, general and administration                              |                                                                                                                           |                       | 11.3  |           |              |   | 32.9         |              |   |   | 29.9         |              |   |       |       |       |  |   | 74.1    |       
|Engineering and product development                                |                                                                                                                           |                       | 3.5   |           |              |   | 7.6          |              |   |   | 4.5          |              |   |       |       |       |  |   | 15.6    |       
|Equity in (earnings) losses of subsidiaries
    and joint ventures |                                                                                                                           |                       | 546.2 |           |              |   | (7.8         | )            |   |   | (0.7         | )            |   |       | (537.7 | )     |  |   |        |       
|Asset impairments and other restructuring charges                  |                                                                                                                           |                       | 5.7   |           |              |   | 27.4         |              |   |   | 2.2          |              |   |       |       |       |  |   | 35.3    |       
|Other expense (income), net                                        |                                                                                                                           |                       | 3.8   |           |              |   | (4.7         | )            |   |   | (4.6         | )            |   |       |       |       |  |   | (5.5    | )     
|Reorganization items                                               |                                                                                                                           |                       | 26.6  |           |              |   | 8.3          |              |   |   |             |              |   |       |       |       |  |   | 34.9    |       
|                                                                   |                                                                                                                           |                       |       |           |              |   |              |              |   |   |              |              |   |       |       
|                                                                   | Earnings (loss) from operations                                                                                           |                       |       | (597.1    | )            |   |              | (3.8         | ) |   |              | 62.4         |   |       |        | 538.1 |  |   |         | (0.4   | )
|Interest expense, net                                              |                                                                                                                           |                       | 5.8   |           |              |   | 31.5         |              |   |   | 16.4         |              |   |       |       |       |  |   | 53.7    |       
|                                                                   |                                                                                                                           |                       |       |           |              |   |              |              |   |   |              |              |   |       |       
|                                                                   | Earnings (loss) before taxes on income,
    minority interest and cumulative effect of change in accounting
    principle |                       |       | (602.9    | )            |   |              | (35.3        | ) |   |              | 46.0         |   |       |        | 538.1 |  |   |         | (54.1  | )
|Income tax provision                                               |                                                                                                                           |                       | (13.8 | )         |              |   | 1.4          |              |   |   | 13.0         |              |   |       |       |       |  |   | 0.6     |       
|                                                                   |                                                                                                                           |                       |       |           |              |   |              |              |   |   |              |              |   |       |       
|                                                                   | Earnings (loss) before minority interest and
    cumulative effect of change in accounting principle                      |                       |       | (589.1    | )            |   |              | (36.7        | ) |   |              | 33.0         |   |       |        | 538.1 |  |   |         | (54.7  | )
|Minority interest                                                  |                                                                                                                           |                       |      |           |              |   |             |              |   |   | 2.7          |              |   |       |       |       |  |   | 2.7     |       
|                                                                   |                                                                                                                           |                       |       |           |              |   |              |              |   |   |              |              |   |       |       
|                                                                   | Earnings (loss) before cumulative effect of
    change in accounting principle                                            |                       |       | (589.1    | )            |   |              | (36.7        | ) |   |              | 30.3         |   |       |        | 538.1 |  |   |         | (57.4  | )
|Cumulative effect of change in accounting
    principle            |                                                                                                                           |                       | (22.7 | )         |              |   | (498.5       | )            |   |   | (33.2        | )            |   |       |       |       |  |   | (554.4  | )     
|                                                                   |                                                                                                                           |                       |       |           |              |   |              |              |   |   |              |              |   |       |       
|                                                                   | Net income (loss)                                                                                                         |                       | $     | (611.8    | )            |   | $            | (535.2       | ) |   | $            | (2.9         | ) |       | $      | 538.1 |  |   | $       | (611.8 | )
|                                                                   |                                                                                                                           |                       |       |           |              |   |              |              |   |   |              |              |   |       |       

34



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






CONDENSED CONSOLIDATING BALANCE
SHEETS


Successor Company


As of October 31, 2003


|                                         |                                            |                       |         |           |              |   |              |              |  |   |              |         |  |       |          |          |   |   |       |         | 
|---------------------------------------- | ------------------------------------------ | --------------------- | ------- | --------- | ------------ | - | ------------ | ------------ |  | - | ------------ | ------- |  | ----- | -------- | -------- | - | - | ----- | ------- | 
|                                         |                                            |                       |         | Guarantor |              |   | Nonguarantor |              |  |   |              |        
|                                         |                                            | Issuer                |         |           | Subsidiaries |   |              | Subsidiaries |  |   | Eliminations |         |  | Total |         
|                                         |                                            |                       |         |           |              |   |              |              |  |   |              |         |  |       |         
|                                         |                                            |                      
|                                         |                                            | (Millions of dollars) |        
|                                         |                                            | (Unaudited)           |        
|Cash and cash equivalents                |                                            | $                     | 18.3    |           |              | $ |             |              |  | $ | 90.7         |         |  | $     |         |          |   | $ | 109.0 |        
|Receivables                              |                                            |                       | 3.5     |           |              |   | 141.7        |              |  |   | 183.8        |         |  |       |         |          |   |   | 329.0 |        
|Inventories                              |                                            |                       | 5.7     |           |              |   | 86.8         |              |  |   | 91.1         |         |  |       | (3.1     | )        |   |   | 180.5 |        
|Prepaid expenses and other               |                                            |                       | 39.0    |           |              |   | 12.3         |              |  |   | 7.2          |         |  |       | (42.0    | )        |   |   | 16.5  |        
|                                         |                                            |                       |         |           |              |   |              |              |  |   |              |         |  |       |         
|                                         | Total current assets                       |                       |         | 66.5      |              |   |              | 240.8        |  |   |              | 372.8   |  |       |          | (45.1    | ) |   |       | 635.0   | 
|Net property, plant and equipment        |                                            |                       | 31.7    |           |              |   | 358.2        |              |  |   | 511.0        |         |  |       |         |          |   |   | 900.9 |        
|Goodwill and other assets                |                                            |                       | 1,558.9 |           |              |   | 172.1        |              |  |   | 313.9        |         |  |       | (1,355.3 | )        |   |   | 689.6 |        
|                                         |                                            |                       |         |           |              |   |              |              |  |   |              |         |  |       |         
|                                         | Total assets                               |                       | $       | 1,657.1   |              |   | $            | 771.1        |  |   | $            | 1,197.7 |  |       | $        | (1,400.4 | ) |   | $     | 2,225.5 | 
|                                         |                                            |                       |         |           |              |   |              |              |  |   |              |         |  |       |         
|Bank borrowings and other notes          |                                            | $                     |        |           |              | $ |             |              |  | $ | 1.6          |         |  | $     |         |          |   | $ | 1.6   |        
|Current portion of long-term debt        |                                            |                       | 4.5     |           |              |   |             |              |  |   | 7.1          |         |  |       |         |          |   |   | 11.6  |        
|Accounts payable and accrued liabilities |                                            |                       | 91.0    |           |              |   | 100.1        |              |  |   | 207.0        |         |  |       | (41.5    | )        |   |   | 356.6 |        
|                                         |                                            |                       |         |           |              |   |              |              |  |   |              |         |  |       |         
|                                         | Total current liabilities                  |                       |         | 95.5      |              |   |              | 100.1        |  |   |              | 215.7   |  |       |          | (41.5    | ) |   |       | 369.8   | 
|Long-term debt, net of current portion   |                                            |                       | 715.4   |           |              |   | 8.4          |              |  |   | 25.0         |         |  |       |         |          |   |   | 748.8 |        
|Pension and other long-term liabilities  |                                            |                       | 272.2   |           |              |   | 1.1          |              |  |   | 256.2        |         |  |       |         |          |   |   | 529.5 |        
|Redeemable preferred stock               |                                            |                       | 10.3    |           |              |   |             |              |  |   |             |         |  |       |         |          |   |   | 10.3  |        
|Minority interest                        |                                            |                       |        |           |              |   |             |              |  |   | 14.5         |         |  |       |         |          |   |   | 14.5  |        
|Parent loans                             |                                            |                       | 11.1    |           |              |   | (1.0         | )            |  |   | 276.0        |         |  |       | (286.1   | )        |   |   |      |        
|Common stock                             |                                            |                       |        |           |              |   |             |              |  |   |             |         |  |       |         |          |   |   |      |        
|Additional paid-in capital               |                                            |                       | 555.7   |           |              |   | 691.5        |              |  |   | 392.5        |         |  |       | (1,084.0 | )        |   |   | 555.7 |        
|Retained earnings (accumulated deficit)  |                                            |                       | (21.8   | )         |              |   | (28.7        | )            |  |   | 11.6         |         |  |       | 17.1     |          |   |   | (21.8 | )      
|Accumulated other comprehensive loss     |                                            |                       | 18.7    |           |              |   | (0.3         | )            |  |   | 6.2          |         |  |       | (5.9     | )        |   |   | 18.7  |        
|                                         |                                            |                       |         |           |              |   |              |              |  |   |              |         |  |       |         
|                                         | Total stockholders equity                 |                       |         | 552.6     |              |   |              | 662.5        |  |   |              | 410.3   |  |       |          | (1,072.8 | ) |   |       | 552.6   | 
|                                         |                                            |                       |         |           |              |   |              |              |  |   |              |         |  |       |         
|                                         | Total liabilities and stockholders equity |                       | $       | 1,657.1   |              |   | $            | 771.1        |  |   | $            | 1,197.7 |  |       | $        | (1,400.4 | ) |   | $     | 2,225.5 | 
|                                         |                                            |                       |         |           |              |   |              |              |  |   |              |         |  |       |         

35



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






CONDENSED CONSOLIDATING BALANCE
SHEETS


Predecessor Company


As of January 31, 2003


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

36



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






CONDENSED CONSOLIDATING STATEMENTS OF CASH
FLOWS


Successor Company


For the Five Months Ended October 31,
2003


|                                                           |                                                                                           |                                                          |                                            |           |              |      |              |              |       |   |              |       |       |      |   |   |   |   |       |       |       |       | 
|---------------------------------------------------------- | ----------------------------------------------------------------------------------------- | -------------------------------------------------------- | ------------------------------------------ | --------- | ------------ | ---- | ------------ | ------------ | ----- | - | ------------ | ----- | ----- | ---- | - | - | - | - | ----- | ----- | ----- | ----- | 
|                                                           |                                                                                           |                                                          |                                            | Guarantor |              |      | Nonguarantor |              |       |   |              |      
|                                                           |                                                                                           | Issuer                                                   |                                            |           | Subsidiaries |      |              | Subsidiaries |       |   | Eliminations |       | Total |     
|                                                           |                                                                                           |                                                          |                                            |           |              |      |              |              |       |   |              |       |       |     
|                                                           |                                                                                           |                                                         
|                                                           |                                                                                           | (Millions of dollars)                                    |                                           
|                                                           |                                                                                           |                                                         
|                                                           |                                                                                           | (Unaudited)                                              |                                           
|Cash flows provided by (used for) operating
    activities |                                                                                           | $                                                        | (9.4                                       | )         |              | $    | 26.1         |              |       | $ | 37.8         |       |       | $    |  |   |   | $ | 54.5  |      
|Cash flows from investing activities:                      |                                                                                           |                                                          |                                            |           |              |      |              |              |       |   |              |       |       |      |   |   |   |   |       |      
|                                                           | Acquisition of property, plant, equipment, and
    tooling                                |                                                          |                                            | (1.9      | )            |      |              | (22.5        | )     |   |              | (16.7 | )     |      |   |  |   |   |       | (41.1 | )    
|                                                           | Proceeds from sale of assets and businesses                                               |                                                          |                                            | 0.2       |              |      |              | 0.1          |       |   |              | 0.5   |       |      |   |  |   |   |       | 0.8   |      
|                                                           |                                                                                           |                                                          |                                            |           |              |      |              |              |       |   |              |       |       |      |  
|                                                           |                                                                                           | Cash used for investing activities                       |                                            |           | (1.7         | )    |              |              | (22.4 | ) |              |       | (16.2 | )    |   |   |  |   |       |       | (40.3 | )    
|                                                           |                                                                                           |                                                          |                                            |           |              |      |              |              |       |   |              |       |       |      |  
|Cash flows from financing activities:                      |                                                                                           |                                                          |                                            |           |              |      |              |              |       |   |              |       |       |      |   |   |   |   |       |      
|                                                           | Increase in bank borrowings, revolving facility
    and DIP facility                      |                                                          |                                            |          |              |      |              |             |       |   |              | (11.9 | )     |      |   |  |   |   |       | (11.9 | )    
|                                                           | Repayment of Term Debt                                                                    |                                                          |                                            |          |              |      |              |             |       |   |              | (1.1  | )     |      |   |  |   |   |       | (1.1  | )    
|                                                           | Repayment of bank borrowings, revolving facility,
    and long term debt from refinancing |                                                          |                                            |          |              |      |              |             |       |   |              | (74.0 | )     |      |   |  |   |   |       | (74.0 | )    
|                                                           |                                                                                           |                                                          |                                            |           |              |      |              |              |       |   |              |       |       |      |  
|                                                           |                                                                                           | Cash used for financing activities                       |                                            |           |             |      |              |              |      |   |              |       | (87.0 | )    |   |   |  |   |       |       | (87.0 | )    
|Increase (decrease) in parent loans and
    advances       |                                                                                           |                                                          | (78.6                                      | )         |              |      | (3.4         | )            |       |   | 82.0         |       |       |      |  |   |   |   |      |      
|Effect of exchange rates of cash and cash
    equivalents  |                                                                                           |                                                          |                                           |           |              |      |             |              |       |   | 2.7          |       |       |      |  |   |   |   | 2.7   |      
|                                                           |                                                                                           |                                                          |                                            |           |              |      |              |              |       |   |              |       |       |      |  
|                                                           |                                                                                           | Net increase (decrease) in cash and cash
    equivalents |                                            |           | (89.7        | )    |              |              | 0.3   |   |              |       | 19.3  |      |   |   |  |   |       |       | (70.1 | )    
|Cash and cash equivalents at beginning of period           |                                                                                           |                                                          | 108.0                                      |           |              |      | (0.3         | )            |       |   | 71.4         |       |       |      |  |   |   |   | 179.1 |      
|                                                           |                                                                                           |                                                          |                                            |           |              |      |              |              |       |   |              |       |       |      |  
|                                                           |                                                                                           |                                                          | Cash and cash equivalents at end of period |           | $            | 18.3 |              |              | $     |  |              |       | $     | 90.7 |   |   | $ |  |       |       | $     | 109.0 | 
|                                                           |                                                                                           |                                                          |                                            |           |              |      |              |              |       |   |              |       |       |      |  

37



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






CONDENSED CONSOLIDATING STATEMENTS OF CASH
FLOWS


Predecessor Company


For the Four Months Ended May 31,
2003


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

38



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






CONDENSED CONSOLIDATING STATEMENTS OF CASH
FLOWS

Predecessor Company


For the Nine Months Ended October 31,
2002


|                                                           |                                                                                           |                                                  |       |           |              |   |              |              |       |   |              |       |       |   |   |   |   |   |      |       |       |  
|---------------------------------------------------------- | ----------------------------------------------------------------------------------------- | ------------------------------------------------ | ----- | --------- | ------------ | - | ------------ | ------------ | ----- | - | ------------ | ----- | ----- | - | - | - | - | - | ---- | ----- | ----- | -
|                                                           |                                                                                           |                                                  |       | Guarantor |              |   | Nonguarantor |              |       |   |              |      
|                                                           |                                                                                           | Parent                                           |       |           | Subsidiaries |   |              | Subsidiaries |       |   | Eliminations |       | Total |  
|                                                           |                                                                                           |                                                  |       |           |              |   |              |              |       |   |              |       |       |  
|                                                           |                                                                                           |                                                 
|                                                           |                                                                                           | (Millions of dollars)                            |      
|                                                           |                                                                                           |                                                 
|                                                           |                                                                                           | (Unaudited)                                      |      
|Cash flows provided by (used for) operating
    activities |                                                                                           | $                                                | (11.7 | )         |              | $ | 6.7          |              |       | $ | 48.9         |       |       | $ |  |   |   | $ | 43.9 |      
|Cash flows from investing activities:                      |                                                                                           |                                                  |       |           |              |   |              |              |       |   |              |       |       |   |   |   |   |   |      |      
|                                                           | Acquisition of property, plant, equipment, and
    tooling                                |                                                  |       | (6.6      | )            |   |              | (33.4        | )     |   |              | (29.9 | )     |   |   |  |   |   |      | (69.9 | )    
|                                                           | Proceeds from sale of non-core businesses                                                 |                                                  |       |          |              |   |              | 0.8          |       |   |              | 8.3   |       |   |   |  |   |   |      | 9.1   |      
|                                                           | Purchase of businesses                                                                    |                                                  |       |          |              |   |              | (2.1         | )     |   |              | (5.1  | )     |   |   |  |   |   |      | (7.2  | )    
|                                                           |                                                                                           |                                                  |       |           |              |   |              |              |       |   |              |       |       |   |  
|                                                           |                                                                                           | Cash provided by (used for) investing activities |       |           | (6.6         | ) |              |              | (34.7 | ) |              |       | (26.7 | ) |   |   |  |   |      |       | (68.0 | )
|Cash flows from financing activities:                      |                                                                                           |                                                  |       |           |              |   |              |              |       |   |              |       |       |   |   |   |   |   |      |      
|                                                           | Increase in bank borrowings, revolving facility
    and DIP facility                      |                                                  |       | 41.1      |              |   |              |             |       |   |              | (20.1 | )     |   |   |  |   |   |      | 21.0  |      
|                                                           | Repayment of bank borrowings, revolving facility,
    and long term debt from refinancing |                                                  |       |          |              |   |              | 1.0          |       |   |              | (1.0  | )     |   |   |  |   |   |      |      |      
|                                                           |                                                                                           |                                                  |       |           |              |   |              |              |       |   |              |       |       |   |  
|                                                           |                                                                                           | Cash provided by (used for) financing activities |       |           | 41.1         |   |              |              | 1.0   |   |              |       | (21.1 | ) |   |   |  |   |      |       | 21.0  |  
|Increase (decrease) in parent loans and
    advances       |                                                                                           |                                                  | (22.2 | )         |              |   | 27.0         |              |       |   | (4.8         | )     |       |   |  |   |   |   |     |      
|Effect of exchange rates of cash and cash
    equivalents  |                                                                                           |                                                  |      |           |              |   |             |              |       |   | 3.3          |       |       |   |  |   |   |   | 3.3  |      
|                                                           |                                                                                           |                                                  |       |           |              |   |              |              |       |   |              |       |       |   |  
|                                                           | Net increase (decrease) in cash and cash
    equivalents                                  |                                                  |       | 0.6       |              |   |              |             |       |   |              | (0.4  | )     |   |   |  |   |   |      | 0.2   |      
|Cash and cash equivalents at beginning of period           |                                                                                           |                                                  | 11.3  |           |              |   | 0.4          |              |       |   | 33.5         |       |       |   |  |   |   |   | 45.2 |      
|                                                           |                                                                                           |                                                  |       |           |              |   |              |              |       |   |              |       |       |   |  
|Cash and cash equivalents at end of period                 |                                                                                           | $                                                | 11.9  |           |              | $ | 0.4          |              |       | $ | 33.1         |       |       | $ |  |   |   | $ | 45.4 |      
|                                                           |                                                                                           |                                                  |       |           |              |   |              |              |       |   |              |       |       |   |  

39



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##### Table of Contents








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

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

This discussion should be read in conjunction
with Hayes Lemmerz International, Inc.s (Old
Hayes) Annual Report on Form 10-K for the fiscal year
ended January 31, 2003 as filed with the Securities and
Exchange Commission (the SEC) on April 2, 2003
and the other information included herein.



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

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
2003 refers to the period beginning February 1, 2003
and ending January 31, 2004, fiscal 2002 refers
to the period beginning February 1, 2002 and ending
January 31, 2003).

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

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



| |                   
| | ------------------
| | Chapter 11 Filings

On December 5, 2001, 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

40



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##### Table of Contents



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 contributed to
ParentCo 30,0000,000 shares of its common stock, par value
$.01 per share (the New Common Stock), and
957,447 series A warrants and
957,447 series B warrants to acquire New Common Stock
of New Hayes (the Series A Warrants and
Series B Warrants, respectively),
(iii) ParentCo in turn contributed such shares of New
Common Stock and Series A Warrants and Series B
Warrants to HLI and (iv) pursuant to an Agreement and Plan
of Merger, dated as of June 3, 2003 (the Merger
Agreement), between 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, which was
subsequently amended on October 16, 2003 by Amendment
No. 1 and Waiver to 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

41



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##### Table of Contents



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

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

|                                                                              |  |             |      |  |              |   |      |             |  |   |      |  
|----------------------------------------------------------------------------- |  | ----------- | ---- |  | ------------ | - | ---- | ----------- |  | - | ---- | -
|                                                                              |  |            
|                                                                              |  | Predecessor |     
|                                                                              |  |             |     
|                                                                              |  | Four Months |      |  | Three Months |   |      | Nine Months | 
|                                                                              |  | Ended       |      |  | Ended        |   |      | Ended       | 
|                                                                              |  | May 31,     |      |  | October 31,  |   |      | October 31, | 
|                                                                              |  | 2003        |      |  | 2002         |   |      | 2002        | 
|                                                                              |  |             |      |  |              |   |      |             | 
|Critical employee retention plan provision                                    |  | $           | 11.7 |  |              | $ | 0.8  |             |  | $ | 6.0  |  
|Estimated accrued liability for rejected
    prepetition leases and contracts |  |             |     |  |              |   |     |             |  |   | 9.5  |  
|Professional fees directly related to the Filing                              |  |             | 30.8 |  |              |   | 6.3  |             |  |   | 20.9 |  
|Creditors Trust obligation                                                   |  |             | 2.0  |  |              |   |     |             |  |   |     |  
|Settlement of prepetition liabilities                                         |  |             |     |  |              |   |     |             |  |   | (1.2 | )
|Other                                                                         |  |             | 0.5  |  |              |   | (0.1 | )           |  |   | (0.3 | )
|                                                                              |  |             |      |  |              |   |      |             | 
|Total                                                                         |  | $           | 45.0 |  |              | $ | 7.0  |             |  | $ | 34.9 |  
|                                                                              |  |             |      |  |              |   |      |             | 

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

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

Based on 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.    

42



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##### Table of Contents



Cash payments with respect to other
reorganization items consisted primarily of professional fees
and cure payments and were approximately $20.3 million and
$21.2 million during the five months ended October 31,
2003 and the four months ended May 31, 2003, respectively.
Cash payments with respect to reorganization items were
approximately $53.2 million during the nine months ended
October 31, 2002, and consisted primarily of professional
fee payments, critical vendor payments, the Retention Bonus and
a portion of accrued interest and fees under the Companys
prepetition credit agreements.

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 October 31, 2003 are
presented as the Successor and the pre-emergence
financial results of the Company for the period ending
May 31, 2003 are presented as the Predecessor.
Comparative financial statements do not straddle the Effective
Date because in effect the Successor Company represents a new
entity. As a result of applying fresh start accounting the
Successor will have increased depreciation and amortization
expense, no reorganization items, no fresh start accounting
adjustments and lower interest expense in comparison to the
Predecessor. Depreciation expense of the Successor is expected
to be approximately $7.5 million higher annually resulting
from: (a) an increase in the carrying value of certain
plant, equipment and tooling to fair value under fresh start
accounting; (b) revisions to remaining estimated useful
lives under fresh start accounting; and (c) the increase in
the carrying value of other property, plant, equipment and
tooling from refinancing certain synthetic leases. Amortization
expense of the Successor is expected to be approximately
$10.4 million higher annually resulting from an increase in
the carrying value of definite-lived intangible assets to fair
value under fresh start accounting. Interest expense is expected
to decrease resulting from the Successors new capital
structure.

For purposes of the periods presented in
Managements Discussion and Analysis of Financial Condition
and Result of Operations, the Successor five months ended
October 31, 2003 and the Predecessor four months ended
May 31, 2003 have been combined for convenience of
discussion and are collectively referred to as fiscal 2003
nine months.

Results of Operations

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



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



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

|                  |       |                                |       |       |      |   |       |          |  |   |       |      |  
|----------------- | ----- | ------------------------------ | ----- | ----- | ---- | - | ----- | -------- |  | - | ----- | ---- | -
|                  |       |                               
|                  |       | Three Months Ended October 31, |      
|                  |       |                                |      
|                  |       | 2003                           |       |       | 2002 |   |       | $ Change | 
|                  |       |                                |       |       |      |   |       |          | 
|                  |       |                               
|                  |       | (millions)                     |      
|Automotive Wheels |       | $                              | 310.1 |       |      | $ | 307.8 |          |  | $ | 2.3   |     
|Components        |       |                                | 188.8 |       |      |   | 203.7 |          |  |   | (14.9 | )   
|Other             |       |                                | 32.0  |       |      |   | 23.9  |          |  |   | 8.1   |     
|                  |       |                                |       |       |      |   |       |          | 
|                  | Total |                                | $     | 530.9 |      |   | $     | 535.4    |  |   | $     | (4.5 | )
|                  |       |                                |       |       |      |   |       |          | 

The Companys net sales for the third
quarter of fiscal 2003 decreased $4.5 million from
$535.4 million in the third quarter of 2002 to
$530.9 million in the third quarter of 2003. After
adjusting for the net impact of favorable exchange rate
fluctuations, relative to the U.S. dollar, net sales for the
third quarter of 2003 declined 6.3% or approximately
$34 million as compared to the same period in 2002.

43



---



##### Table of Contents



Net sales from the Companys Automotive
Wheels segment increased $2.3 million to
$310.1 million in the third quarter of fiscal 2003 from
$307.8 million in the third quarter of fiscal 2002. The net
impact of favorable foreign exchange rate fluctuations, relative
to the U.S. dollar, increased sales by approximately
$25 million. This was partially offset by lower industry
production volumes globally, which decreased sales by
approximately $23 million.

Net sales from Components decreased
$14.9 million to $188.8 million in the third quarter
of 2003 from $203.7 in the same quarter in 2002. The net impact
of lower unit volumes primarily due to lower industry production
and the expiration of certain programs decreased net sales by
approximately $28 million. These reductions were partially
offset by favorable product mix and favorable fluctuations in
foreign exchange rates, which increased net sales by
approximately $14 million and $4 million, respectively.

Other net sales increased $8.1 million to
$32.0 million in the third quarter of 2003 from
$23.9 million in the third quarter of 2002. This increase
is primarily due to increased volumes in the Companys
commercial highway and aftermarket operations.



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

|                                                                                                          |                                    |              |      |   |      |   |      |     | 
|--------------------------------------------------------------------------------------------------------- | ---------------------------------- | ------------ | ---- | - | ---- | - | ---- | --- | 
|                                                                                                          |                                    |             
|                                                                                                          |                                    | Three Months |     
|                                                                                                          |                                    | Ended        |     
|                                                                                                          |                                    | October 31,  |     
|                                                                                                          |                                    |              |     
|                                                                                                          |                                    | 2003         |      |   | 2002 |  
|                                                                                                          |                                    |              |      |   |      |  
|Earnings (loss) from operations                                                                           |                                    | $            | 13.9 |   |      | $ | 26.9 |    
|Excluding:                                                                                                |                                    |              |      |   |      |   |      |    
|                                                                                                          | Fresh start accounting adjustments |              |      |  |      |   |      |    | 
|                                                                                                          | Reorganization items               |              |      |  |      |   |      | 7.0 | 
|                                                                                                          |                                    |              |      |   |      |  
|Earnings (loss) from operations excluding
    fresh start accounting adjustments and reorganization items |                                    | $            | 13.9 |   |      | $ | 33.9 |    
|                                                                                                          |                                    |              |      |   |      |  

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

|                                                                                                          |                                                |                                     |      |      |            |   |     |       |     |   |       |   |   |   |      |      |      | 
|--------------------------------------------------------------------------------------------------------- | ---------------------------------------------- | ----------------------------------- | ---- | ---- | ---------- | - | --- | ----- | --- | - | ----- | - | - | - | ---- | ---- | ---- | 
|                                                                                                          |                                                |                                    
|                                                                                                          |                                                | Three Months Ended October 31, 2003 |     
|                                                                                                          |                                                |                                     |     
|                                                                                                          |                                                | Automotive                          |      |      |           
|                                                                                                          |                                                | Wheels                              |      |      | Components |   |     | Other |     |   | Total |  
|                                                                                                          |                                                |                                     |      |      |            |   |     |       |     |   |       |  
|Earnings (loss) from operations excluding
    fresh start accounting adjustments and reorganization items |                                                | $                                   | 10.6 |      |            | $ | 4.8 |       |     | $ | (1.5  | ) |   | $ | 13.9 |     
|Fresh start accounting adjustments                                                                        |                                                |                                     |     |      |            |   |    |       |     |   |      |   |   |   |     |     
|Reorganization items                                                                                      |                                                |                                     |     |      |            |   |    |       |     |   |      |   |   |   |     |     
|Asset impairments and other restructuring charges:                                                        |                                                |                                     |      |      |            |   |     |       |     |   |       |   |   |   |      |     
|                                                                                                          | Impairment of manufacturing facilities         |                                     | $    |     |            |   | $   | 0.8   |     |   | $     |  |   |   | $    | 0.8  |     
|                                                                                                          | Impairment of machinery, equipment and tooling |                                     |      | 12.1 |            |   |     | 6.7   |     |   |       |  |   |   |      | 18.8 |     
|                                                                                                          |                                                |                                     |      |      |            |   |     |       |     |   |       |  
|                                                                                                          |                                                | Total                               |      | $    | 12.1       |   |     | $     | 7.5 |   |       | $ |  |   |      | $    | 19.6 | 
|                                                                                                          |                                                |                                     |      |      |            |   |     |       |     |   |       |  

44



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##### Table of Contents



|                                                                                                          |                                                |                                     |      |      |            |   |      |       |   |   |       |      |      |   |      |      |       |  
|--------------------------------------------------------------------------------------------------------- | ---------------------------------------------- | ----------------------------------- | ---- | ---- | ---------- | - | ---- | ----- | - | - | ----- | ---- | ---- | - | ---- | ---- | ----- | -
|                                                                                                          |                                                |                                    
|                                                                                                          |                                                | Three Months Ended October 31, 2002 |     
|                                                                                                          |                                                |                                     |     
|                                                                                                          |                                                | Automotive                          |      |      |           
|                                                                                                          |                                                | Wheels                              |      |      | Components |   |      | Other |   |   | Total |     
|                                                                                                          |                                                |                                     |      |      |            |   |      |       |   |   |       |     
|Earnings (loss) from operations excluding
    fresh start accounting adjustments and reorganization items |                                                | $                                   | 21.5 |      |            | $ | 17.4 |       |   | $ | (5.0  | )    |      | $ | 33.9 |     
|Reorganization items                                                                                      |                                                |                                     | (0.1 | )    |            |   |     |       |   |   | (6.9  | )    |      |   | (7.0 | )   
|Asset impairments and other restructuring charges:                                                        |                                                |                                     |      |      |            |   |      |       |   |   |       |      |      |   |      |     
|                                                                                                          | Impairment of manufacturing facilities         |                                     | $    | (0.3 | )          |   | $    |      |   |   | $     |     |      |   | $    | (0.3 | )    
|                                                                                                          | Impairment of machinery, equipment and tooling |                                     |      | (5.3 | )          |   |      |      |   |   |       |     |      |   |      | (5.3 | )    
|                                                                                                          | Severance and other restructuring costs        |                                     |      | (0.9 | )          |   |      |      |   |   |       | (3.5 | )    |   |      | (4.4 | )    
|                                                                                                          |                                                |                                     |      |      |            |   |      |       |   |   |       |     
|                                                                                                          |                                                | Total                               |      | $    | (6.5       | ) |      | $     |  |   |       | $    | (3.5 | ) |      | $    | (10.0 | )
|                                                                                                          |                                                |                                     |      |      |            |   |      |       |   |   |       |     

Earnings from operations excluding fresh start
accounting adjustments and reorganization items decreased by
$20.0 million in the third quarter of fiscal 2003 to
$13.9 million, from $33.9 million in the third quarter
of 2002. Adjusted for the net impact of foreign exchange rate
fluctuations relative to the U.S. dollar, the Companys
earnings from operations excluding fresh start accounting
adjustments and reorganization items decreased by approximately
$23 million from the third quarter of fiscal 2002.

Earnings from operations excluding fresh start
accounting adjustments and reorganization items from the
Companys Automotive Wheels operations decreased
$10.9 million in the third quarter of fiscal 2003 from the
same period in fiscal 2002. The decrease in third quarter fiscal
2003 earnings, compared to the same period in 2002, is primarily
attributable to approximately $6 million higher asset
impairment losses and approximately $4 million higher
depreciation and amortization expense. In the third quarter of
fiscal 2003, the Company recorded asset impairment losses of
$12.1 million based on its most recent sales projections,
which estimated that the future undiscounted cash flows from its
La Mirada, California and Gainesville, Georgia manufacturing
facilities would not be sufficient to recover the carrying value
of the fixed assets at those facilities. During the third
quarter of 2002 the Company recognized asset impairments losses
and other restructuring charges of $6.5 million primarily
due to a change in managements plans for the future use of
idled machinery and equipment and the discontinuance of certain
machinery and equipment due to changes in product mix.
Depreciation and amortization expense is higher due primarily to
the Companys adoption of fresh start accounting upon
emergence from Chapter 11. Lower OEM production
requirements reduced earnings from operations during the third
quarter of fiscal 2003, as compared to the same period in 2002.

Components earnings from operations excluding
fresh start accounting adjustments and reorganization items
decreased by $12.6 million in the third quarter of fiscal
2003 compared to the same period in fiscal 2002. In the third
quarter of fiscal 2003, the Company recorded asset impairment
losses of $7.5 million at its Wabash, Indiana facility
based on its most recent sales projections, which estimated that
the future undiscounted cash flows would not be sufficient to
recover the carrying value of the fixed assets at that facility.
Lower OEM production requirements reduced earnings from
operations excluding fresh start accounting adjustments and
reorganization items by approximately $9 million in the
Companys Components segment during the third quarter of
fiscal 2003, as compared to the third quarter of fiscal 2002.
Components also recorded $5 million higher depreciation and
amortization expense, due primarily to the Companys
adoption of fresh start accounting during emergence from
Chapter 11. These reductions were partially offset by
favorable product mix and improved operating performance at the
Companys Montague, Michigan facility which increased
earnings from operations excluding fresh start accounting
adjustments and reorganization items by approximately
$9 million. The Montague facility incurred abnormally high
start-up costs and inefficiencies associated with new program
launches during fiscal 2002.

The Companys Other segment recorded an
increase in earnings from operations excluding fresh start
accounting adjustments and reorganization of $3.5 million,
up from a loss of $5 million during the third quarter of
fiscal 2002. In the third quarter of fiscal 2002, the
Companys Other segment recorded $3.5 million in
restructuring charges primarily related to supplemental
retirement benefits and continued medical benefits.

45



---



##### Table of Contents





| |                      
| | ---------------------
| | Interest Expense, net

Interest expense was $14.7 million for the
third quarter of fiscal 2003 and $19.0 million for the
third quarter of fiscal 2002. Interest expense between the two
periods is not comparable because of the Companys new
capital structure established upon emergence from
Chapter 11. See Notes (1) and (11) to the consolidated
financial statements included herein regarding the
Companys new capital structure.



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

Income tax expense was $6.1 million for the
third quarter of fiscal 2003, and is the result of taxes related
to operations in foreign jurisdictions as well as in various
states. The Company has determined that a valuation allowance is
required against all net deferred tax assets in the United
States and certain deferred tax assets in foreign jurisdictions.
As such, there is no United States federal income tax benefit
recorded against current losses.



| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | Nine Months Ended October 31, 2003
    Compared to Nine Months Ended October 31,
    2002



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

|                  |       |                               |       |         |      |   |       |          |  |   |       |      | 
|----------------- | ----- | ----------------------------- | ----- | ------- | ---- | - | ----- | -------- |  | - | ----- | ---- | 
|                  |       |                              
|                  |       | Nine Months Ended October 31, |      
|                  |       |                               |      
|                  |       | 2003                          |       |         | 2002 |   |       | $ Change | 
|                  |       |                               |       |         |      |   |       |          | 
|                  |       |                              
|                  |       | (millions)                    |      
|Automotive Wheels |       | $                             | 913.0 |         |      | $ | 883.7 |          |  | $ | 29.3  |     
|Components        |       |                               | 547.5 |         |      |   | 568.6 |          |  |   | (21.1 | )   
|Other             |       |                               | 88.5  |         |      |   | 73.8  |          |  |   | 14.7  |     
|                  |       |                               |       |         |      |   |       |          | 
|                  | Total |                               | $     | 1,549.0 |      |   | $     | 1,526.1  |  |   | $     | 22.9 | 
|                  |       |                               |       |         |      |   |       |          | 

The Companys net sales for the nine months
ended October 31, 2003 increased $22.9 million from
$1,526.1 million in the nine months ended October 31,
2002 to $1,549.0 million in the nine months ended
October 31, 2003. After adjusting for the net impact of
favorable exchange rate fluctuations, relative to the U.S.
dollar, net sales for the first nine months of 2003 declined
4.9% or approximately $74 million as compared to the same
period in 2002.

Net sales from the Companys Automotive
Wheels segment increased $29.3 million to
$913.0 million during the first nine months of fiscal 2003
from $883.7 million during the first nine months of fiscal
2002. The Companys net sales were favorably impacted by
favorable foreign exchange rate fluctuations relative to the
U.S. dollar, which increased sales by approximately
$81 million, and a favorable product mix. This increase was
partially offset by decreased unit pricing and lower customer
production requirements in North America, primarily due to the
termination and balancing out of certain programs.

Net sales from Components decreased
$21.1 million to $547.5 million during the first nine
months of 2003 from $568.6 million during the same period
in 2002. The decrease in Components net sales was primarily due
to lower customer production requirements, the termination and
balancing out of certain programs and lower unit pricing, and
was partially offset by a more favorable product mix primarily
at the Companys Montague, Michigan facility, which
launched several new programs in 2002. The impact of the closure
of the Companys Petersburg, Michigan facility and the sale
of the Companys Maulbronn, Germany foundry during the
first nine months of fiscal 2002 reduced net sales by
approximately $16 million during the first nine months of
2003 compared to the same period in fiscal 2002. This was
partially offset by the impact of favorable foreign exchange
rate fluctuations, which increased net sales by approximately
$14 million.

Other net sales increased $14.7 million to
$88.5 million during the first nine months of 2003 from
$73.8 million during the first nine months of 2002 due
primarily to higher volumes in the Companys commercial
highway and aftermarket operations.

46



---



##### Table of Contents





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

|                                                                                                          |                                    |             |      |       |      |   |      |      | 
|--------------------------------------------------------------------------------------------------------- | ---------------------------------- | ----------- | ---- | ----- | ---- | - | ---- | ---- | 
|                                                                                                          |                                    |            
|                                                                                                          |                                    | Nine Months |     
|                                                                                                          |                                    | Ended       |     
|                                                                                                          |                                    | October 31, |     
|                                                                                                          |                                    |             |     
|                                                                                                          |                                    | 2003        |      |       | 2002 |  
|                                                                                                          |                                    |             |      |       |      |  
|Earnings (loss) from operations                                                                           |                                    | $           | 66.8 |       |      | $ | (0.4 | )   
|Excluding:                                                                                                |                                    |             |      |       |      |   |      |     
|                                                                                                          | Fresh start accounting adjustments |             |      | (63.1 | )    |   |      |     | 
|                                                                                                          | Reorganization items               |             |      | 45.0  |      |   |      | 34.9 | 
|                                                                                                          |                                    |             |      |       |      |  
|Earnings (loss) from operations excluding
    fresh start accounting adjustments and reorganization items |                                    | $           | 48.7 |       |      | $ | 34.5 |     
|                                                                                                          |                                    |             |      |       |      |  

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

|                                                                                   |                                                |                                    |      |       |            |   |      |       |       |   |       |   |   |   |       |       |       |  
|---------------------------------------------------------------------------------- | ---------------------------------------------- | ---------------------------------- | ---- | ----- | ---------- | - | ---- | ----- | ----- | - | ----- | - | - | - | ----- | ----- | ----- | -
|                                                                                   |                                                |                                   
|                                                                                   |                                                | Nine Months Ended October 31, 2003 |     
|                                                                                   |                                                |                                    |     
|                                                                                   |                                                | Automotive                         |      |       |           
|                                                                                   |                                                | Wheels                             |      |       | Components |   |      | Other |       |   | Total |  
|                                                                                   |                                                |                                    |      |       |            |   |      |       |       |   |       |  
|Earnings (loss) from operations excluding
    fresh start and reorganization items |                                                | $                                  | 46.7 |       |            | $ | 12.7 |       |       | $ | (10.7 | ) |   | $ | 48.7  |      
|Fresh start adjustments                                                            |                                                |                                    | 57.9 |       |            |   | 27.7 |       |       |   | (22.5 | ) |   |   | 63.1  |      
|Reorganization items                                                               |                                                |                                    | (0.1 | )     |            |   | 0.2  |       |       |   | (45.1 | ) |   |   | (45.0 | )    
|Asset impairments and other restructuring charges:                                 |                                                |                                    |      |       |            |   |      |       |       |   |       |   |   |   |       |      
|                                                                                   | Impairment of manufacturing facilities         |                                    | $    | (0.5  | )          |   | $    | (0.9  | )     |   | $     |  |   |   | $     | (1.4  | )    
|                                                                                   | Impairment of machinery, equipment and tooling |                                    |      | (13.6 | )          |   |      | (10.0 | )     |   |       |  |   |   |       | (23.6 | )    
|                                                                                   | Facility closure costs                         |                                    |      | (0.9  | )          |   |      |      |       |   |       |  |   |   |       | (0.9  | )    
|                                                                                   | Severance and other restructuring costs        |                                    |      | (0.1  | )          |   |      |      |       |   |       |  |   |   |       | (0.1  | )    
|                                                                                   |                                                |                                    |      |       |            |   |      |       |       |   |       |  
|                                                                                   |                                                | Total                              |      | $     | (15.1      | ) |      | $     | (10.9 | ) |       | $ |  |   |       | $     | (26.0 | )
|                                                                                   |                                                |                                    |      |       |            |   |      |       |       |   |       |  

|                                                                                   |                                                |                                    |      |       |            |   |      |       |      |   |       |      |      |   |       |       |       |  
|---------------------------------------------------------------------------------- | ---------------------------------------------- | ---------------------------------- | ---- | ----- | ---------- | - | ---- | ----- | ---- | - | ----- | ---- | ---- | - | ----- | ----- | ----- | -
|                                                                                   |                                                |                                   
|                                                                                   |                                                | Nine Months Ended October 31, 2002 |     
|                                                                                   |                                                |                                    |     
|                                                                                   |                                                | Automotive                         |      |       |           
|                                                                                   |                                                | Wheels                             |      |       | Components |   |      | Other |      |   | Total |     
|                                                                                   |                                                |                                    |      |       |            |   |      |       |      |   |       |     
|Earnings (loss) from operations excluding
    fresh start and reorganization items |                                                | $                                  | 26.1 |       |            | $ | 21.7 |       |      | $ | (13.3 | )    |      | $ | 34.5  |      
|Reorganization items                                                               |                                                |                                    | (9.3 | )     |            |   | 0.9  |       |      |   | (26.5 | )    |      |   | (34.9 | )    
|Asset impairments and other restructuring charges:                                 |                                                |                                    |      |       |            |   |      |       |      |   |       |      |      |   |       |      
|                                                                                   | Impairment of manufacturing facilities         |                                    | $    | (0.3  | )          |   | $    | (0.3  | )    |   | $     |     |      |   | $     | (0.6  | )    
|                                                                                   | Impairment of machinery, equipment and tooling |                                    |      | (21.8 | )          |   |      | (0.8  | )    |   |       |     |      |   |       | (22.6 | )    
|                                                                                   | Facility closure costs                         |                                    |      | (6.7  | )          |   |      |      |      |   |       |     |      |   |       | (6.7  | )    
|                                                                                   | Severance and other restructuring costs        |                                    |      | (1.4  | )          |   |      |      |      |   |       | (4.0 | )    |   |       | (5.4  | )    
|                                                                                   |                                                |                                    |      |       |            |   |      |       |      |   |       |     
|                                                                                   |                                                | Total                              |      | $     | (30.2      | ) |      | $     | (1.1 | ) |       | $    | (4.0 | ) |       | $     | (35.3 | )
|                                                                                   |                                                |                                    |      |       |            |   |      |       |      |   |       |     

The Companys earnings from operations
excluding fresh start accounting adjustments and reorganization
items increased by $14.2 million in the first nine months
of fiscal 2003 to $48.7 million, up from earnings of
$34.5 million in the first nine months of 2002. Adjusted
for the net impact of foreign exchange rate fluctuations
relative to the U.S. dollar, the Companys earnings from
operations excluding fresh start accounting adjustments and
reorganization items increased by approximately $6 million
from the first nine months of 2002.

47



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Earnings from operations excluding fresh start
accounting adjustments and reorganization items at the
Companys Automotive Wheels operations increased
$20.6 million from the first nine months of fiscal 2002
compared to the same period in 2003. During the first nine
months of fiscal 2003, Automotive Wheels recorded asset
impairment losses and restructuring charges of
$15.1 million primarily related to its La Mirada,
California and Gainesville, Georgia manufacturing facilities.
During the first nine months of fiscal 2002, Automotive Wheels
recorded $30.2 million of asset impairment losses and other
restructuring charges primarily due to asset impairment losses
of $15.5 million at its La Mirada, California facility,
$3.3 million of impairment losses at its Sedalia, Missouri
and $2.2 million at the Companys Howell, Michigan
facility, as well as $6.7 million in facility closure costs
related to its Somerset, Kentucky facility. Automotive Wheels
recorded asset impairment losses when it determined, based on
its most recent sales projections, that its current estimate of
the future undiscounted cash flows from the facilities would not
be sufficient to recover the carrying value of that
facilitys fixed assets and production tooling and also
when managements plan for the future use of machinery and
equipment changed. The charges recorded at Somerset included
amounts related to lease termination costs and other closure
costs subsequent to the shut down date. The remaining increase
in earnings from the Companys Automotive Wheels operations
excluding fresh start accounting adjustments and reorganization
items is due primarily to improved operating performance and
favorable fluctuations in foreign exchange rates relative to the
U.S. dollar which improved earnings from operations excluding
fresh start accounting adjustments and reorganization items by
approximately $12 million and $7 million,
respectively. This was partially offset by lower OEM production
requirements in North America and higher depreciation and
amortization expense, which decreased earnings from operations
excluding fresh start accounting adjustments and reorganization
items by approximately $8 million and $5 million,
respectively. Earnings from operations excluding fresh start
accounting adjustments and reorganization items for the nine
months ended October 31, 2003 also includes the
$3.6 million fair value adjustment to inventory included in
the Successors opening balance sheet which negatively
impacted earnings.

Components earnings from operations excluding
fresh start accounting adjustments and reorganization items
decreased by $9.0 million in the first nine months of
fiscal 2003 compared to the same period in fiscal 2002. During
the first nine months of fiscal 2002 and 2003, Components
recorded asset impairment losses of $1.1 million and
$10.9 million respectively. Components recorded asset
impairment losses when it determined, based on its most recent
sales projections, that its current estimate of the future
undiscounted cash flows from the Wabash, Indiana facility would
not be sufficient to recover the carrying value of that
facilitys building, fixed assets and production tooling.
Improved operating performance primarily at the Companys
Montague, MI facility and European Components operations
increased earnings from operations excluding fresh start
accounting adjustments and reorganization items by approximately
$29 million during the first nine months of 2003. This
increase was offset by lower OEM production requirements and
higher depreciation and amortization expense, due primarily to
the Companys adoption of fresh start accounting during
emergence from Chapter 11, which decreased earnings from
operations excluding fresh start accounting adjustments and
reorganization items by approximately $18 million and
$12 million, respectively.

Other loss from operations excluding fresh start
accounting adjustments and reorganization items was
$10.7 million in the first nine months of fiscal 2003
compared to $13.3 million in the same period in 2002. This
difference is due primarily to $4.0 million of
restructuring costs recorded in the nine month period ended
October 31, 2002.



| |                      
| | ---------------------
| | Interest Expense, net

Interest expense was $50.0 million for the
first nine months of fiscal 2003 and $53.7 million for the
same period of fiscal 2002. Interest expense amounts between the
two periods are not comparable, due to the Companys new
capital structure established upon emergence from
Chapter 11. See Notes (1) and (11) to the
consolidated financial statements included herein regarding the
Companys new capital structure.

48



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

Income tax expense was $69.0 million for the
first nine months of fiscal 2003. This expense is the result of
deferred taxes related to fresh start accounting adjustments in
foreign jurisdictions, $6.5 million of state tax related to
the merger between the Predecessor and HLI, and tax related to
operations in foreign jurisdictions as well as in various
states. The Company has determined that a valuation allowance is
required against all net deferred tax assets in the United
States and certain deferred tax assets in foreign jurisdictions.
As such, there is no United States federal income tax benefit
recorded against current losses.



| |                  
| | -----------------
| | Net Income (Loss)

The net income for the nine months ended
October 31, 2003 includes an extraordinary gain on
discharge of debt of $1,076.7 million realized upon
emergence from Chapter 11. The net loss for the nine months
ended October 31, 2002 includes the cumulative effect of
change in accounting principle of $554.4 million related to
the adoption of SFAS No. 142 and the impairment of goodwill
of the Predecessor.



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



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

The Companys operations provided
$85.6 million in cash in the first nine months of fiscal
2003 compared to $43.9 million in the first nine months of
fiscal 2002. This increase is partially due to the improvement
in domestic vendor payment terms, decreased inventory levels and
higher profits, offset by higher tax and interest payments.

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

Capital expenditures for the first nine months of
fiscal 2003 were $67.4 million. These expenditures were
primarily for additional machinery and equipment to improve
productivity and reduce costs, to meet demand for new vehicle
platforms and to meet expected requirements for the
Companys products. The Company anticipates capital
expenditures for fiscal 2003 will be approximately
$115 million to $125 million relating primarily to
meeting demand for new vehicle platforms and supporting
maintenance and cost reduction programs.

The Company anticipates capital expenditures for
fiscal 2004 will be approximately $140 million relating
primarily to meeting demand for new vehicle platforms and
supporting maintenance and cost reduction programs.



| |                        
| | -----------------------
| | 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 will pay an
additional $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 will be 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%.

As more fully discussed above, on June 3,
2003, in connection with the Debtors emergence from
Chapter 11, HLI entered into the $550.0 million New
Credit Facility, consisting of the $450.0 million

49



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New Term Loan and the $100.0 million
Revolving Credit Facility. HLI also issued an aggregate of
$250.0 million New Senior Notes. New Hayes and
substantially all of its material direct and indirect domestic
subsidiaries have guaranteed HLIs obligations under the
New Credit Facility, and New Hayes 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
October 31, 2003, there were no outstanding borrowings and
$22.5 million in letters of credit issued under the
Revolving Credit Facility. The amount available to borrow under
the revolving credit facility at October 31, 2003 was
approximately $77.5 million. As more fully discussed in
Note (15), Subsequent Events, to the consolidated financial
statements included herein, New Hayes and the Company intend to
use the net proceeds received in a proposed primary offering of
New Hayes New Common Stock to repay a portion of
outstanding debt and for general corporate purposes.


In addition, upon the Debtors 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, might require the Company to purchase or re-sell the
leased assets within a specified period of time, generally one
year, based on amounts specified in the lease agreements. In
connection with the Companys emergence from
Chapter 11, the Company purchased these assets for
$23.6 million.



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

The Company derived approximately half of its
fiscal 2002 net sales on a worldwide basis from Ford,
DaimlerChrysler and General Motors and their subsidiaries. The
Companys sales levels and margins could be adversely
affected as a result of pricing pressures caused by new
competitors in foreign markets, such as China. These factors 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.

50



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

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

|                                             |  |                       |      |  |           |   |       |           |  |   |         |  |  |       |       |  |  |   |       | 
|-------------------------------------------- |  | --------------------- | ---- |  | --------- | - | ----- | --------- |  | - | ------- |  |  | ----- | ----- |  |  | - | ----- | 
|                                             |  |                      
|                                             |  | Payment due by Period |     
|                                             |  |                       |     
|                                             |  | Less than             |      |  |           |   | After |           |  |  
|                                             |  | 1 year                |      |  | 1-3 years |   |       | 4-5 years |  |   | 5 years |  |  | Total |      
|                                             |  |                       |      |  |           |   |       |           |  |   |         |  |  |       |      
|Long-term debt and capital lease obligations |  | $                     | 11.6 |  |           | $ | 26.5  |           |  | $ | 473.8   |  |  | $     | 248.5 |  |  | $ | 760.4 | 
|Redeemable preferred stock                   |  |                       |     |  |           |   |      |           |  |   |        |  |  |       | 10.3  |  |  |   | 10.3  | 
|Short-term borrowings                        |  |                       | 1.6  |  |           |   |      |           |  |   |        |  |  |       |      |  |  |   | 1.6   | 
|Operating leases                             |  |                       | 18.1 |  |           |   | 25.9  |           |  |   | 1.1     |  |  |       | 0.2   |  |  |   | 45.3  | 
|Capital expenditures                         |  |                       | 13.8 |  |           |   |      |           |  |   |        |  |  |       |      |  |  |   | 13.8  | 
|                                             |  |                       |      |  |           |   |       |           |  |   |         |  |  |       |      
|Total obligations                            |  | $                     | 45.1 |  |           | $ | 52.4  |           |  | $ | 474.9   |  |  | $     | 259.0 |  |  | $ | 831.4 | 
|                                             |  |                       |      |  |           |   |       |           |  |   |         |  |  |       |      



| |                             
| | ----------------------------
| | 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.

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

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



| |                            
| | ---------------------------
| | Goodwill Impairment Testing

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

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

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

The Company will test goodwill for impairment
January 31 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.

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| |                                                       
| | ------------------------------------------------------
| | Valuation allowances on deferred income tax
    assets

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



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

In May 2003, the FASB issued Statement
No. 150, Accounting for Certain Financial Instruments
with Characteristics of Both Liabilities and Equity
(SFAS No. 150). SFAS No. 150 requires that
certain classes of free-standing financial instruments that
embody obligations for entities be classified as liabilities.
Generally, SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003 and
is otherwise effective at the beginning of the first interim
period beginning after June 15, 2003. In accordance with
the provisions of SFAS No. 150, the redeemable preferred
stock of HLI Operating Company, Inc., is classified as a
liability in the consolidated balance sheet as of
October 31, 2003. Other than this classification, the
adoption of SFAS No. 150 did not have a material impact on
the financial position or results of operations of the Company.
In November 2003, the FASB issued FASB Staff Position
No. 150-3, Effective Date, Disclosures, and
Transition for Mandatorily Redeemable Financial Instruments of
Certain Nonpublic Entities and Certain Mandatorily Redeemable
Noncontrolling Interests under FASB Statement 150,
which indefinitely deferred the SFAS No. 150 measurement
requirements for mandatorily redeemable financial instruments.
Accordingly, the redeemable preferred stock of HLI Operating
Company, Inc. is recorded at its fair value upon issuance, plus
accrued but unpaid dividends thereon, as of October 31,
2003.

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

In January 2003, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest
Entities. Interpretation No. 46 provides guidance for
identifying a controlling interest in a Variable Interest Entity
(VIE) established by means other than voting interests.
Interpretation No. 46 also requires consolidation of a VIE
by an enterprise that holds such a controlling interest when it
is determined that the investor will absorb a majority of the
VIEs expected losses or residual returns, if they occur.
The effective date for this Interpretation is July 1, 2003.
Adoption of this pronouncement did not have any effect on the
Companys financial position or results of operations.

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

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Adoption of this pronouncement did not have a
material effect on the financial statements of the Company.







Item 3.     Quantitative
and Qualitative Disclosures about Market Risk


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



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

The Company has global operations and thus makes
investments and enters into transactions in various foreign
currencies. In order to minimize the risks associated with
global diversification, the Company first seeks to internally
net foreign exchange exposures, and uses derivative financial
instruments to hedge any remaining net exposure. The Company
uses forward foreign currency exchange contracts on a limited
basis to reduce the cash flow impact of non-functional currency
denominated transactions. The gains and losses from these
hedging instruments generally offset the gains or losses from
the hedged items and are recognized in the same period the
hedged items are settled. The Company also uses forward foreign
currency exchange contracts to hedge its net investment in
certain of its foreign subsidiaries. The net impact of such
hedges is recorded as currency translation adjustments within
other comprehensive income (loss).



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

The Company generally manages its risk associated
with interest rate movements through the use of a combination of
variable and fixed rate debt. Under the Companys
post-emergence capital structure at October 31, 2003,
approximately $471.4 million of the Companys debt was
variable rate debt. A 10% increase or decrease in the interest
rate on variable rate debt would affect earnings by
approximately $2.7 million on an annual basis.



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

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

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






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

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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 Accounting,
Director of Internal Audit, Senior Counsel, and Manager of
Financial Reporting and Governance as its other members. As of
the end of the period covered by this report, the Companys
Chief Executive Officer and Chief Financial Officer, along with
the Disclosure Committee, evaluated the Companys
Disclosure Controls and Procedures. The Companys Chief
Executive Officer and Chief Financial Officer have concluded,
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.

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PART II. OTHER INFORMATION







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

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

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

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

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

During the pendency of the Chapter 11
Filings, the Company took action to terminate certain marketing
and support services, technology license and technical
assistance and shareholders agreements (the
Agreements) relating to the Companys 40%
interest in Hayes Wheels de Mexico, S.A. de C.V., a Mexican
corporation manufacturing aluminum and steel wheels (HW de
Mexico). In the event that such termination is not
effective for any reason, the Company also filed a protective
motion with the

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Bankruptcy Court seeking to reject the
Agreements. DESC Automotriz, S.A. de C.V. (the 60% owner of
HW-Mexico) (DESC), HW de Mexico, and Hayes Wheels
Aluminio, S.A. de C.V. (a subsidiary of HW de Mexico) have
asserted administrative expense claims against the Company in an
amount not less than $20.6 million relating to allegedly
improper actions taken by the Company with respect to HW de
Mexico and certain of the Agreements during the Chapter 11
Filings. As part of the resolution of its objection to
confirmation of the Plan of Reorganization, the Company has
agreed with DESC that if either the Company or Hayes Lemmerz
International-Mexico, Inc. is found liable on these claims and
such claims are entitled to administrative expense claim status,
the Company will pay such liabilities in full in cash in the
amount determined by the court to be entitled to administrative
expense claim status. On June 30, 2003, the Bankruptcy
Court ordered Hayes Mexico to arbitrate the claims in Mexico
City, Mexico. The Company and Hayes Mexico have appealed that
order to the District Court. This appeal is pending. The Company
is presently in discussions with DESC regarding a resolution of
these claims; however, there can be no assurance that such
discussions will result in a resolution of this dispute or what
the terms of any resolution may be.


In October 2003, General Electric Credit
Corporation (GECC) filed an amended administrative
claim in the Bankruptcy Court for $7.5 million relating to
certain leased equipment. The leases were rejected during the
Companys Chapter 11 cases. GECC is alleging that its
damages were incurred post-petition because the equipment was
returned post-petition. If the Bankruptcy Court determines that
GECCs damages are a post-petition expense, GECC may be
entitled to an administrative claim for the claims full
amount. The Company is disputing the amount and the merits of
GECCs claim.

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

The Company was party to a license agreement with
Kuhl Wheels, LLC (Kuhl), whereby Kuhl granted the
Company an exclusive patent license concerning high
vent steel wheel technology known as the Kuhl Wheel (the
Kuhl Wheel), which agreement was terminated as of
January 10, 2003 pursuant to a stipulation between the
Company and Kuhl entered in connection with the Companys
bankruptcy proceeding. The original license agreement (as
amended, the License Agreement), dated May 11,
1999, granted the Company a non-exclusive license for the Kuhl
Wheel technology. The License Agreement was subsequently amended
to provide the Company with an exclusive worldwide license. On
January 14, 2003, the Company filed a Complaint for
Declaratory and Injunctive Relief against Kuhl and its
affiliate, Epilogics Group, in the United States District Court
for the Eastern District of Michigan. The Company commenced such
action seeking a declaration of noninfringement of two United
States patents and injunctive relief to prevent Epilogics Group
and Kuhl from asserting claims of patent infringement against
the Company, and disclosing and using the Companys
technologies, trade secrets and confidential information to
develop, market, license, manufacture or sell automotive wheels.

In the ordinary course of its business, the
Company is a party to other judicial and administrative
proceedings involving its operations and products, which may
include allegations as to manufacturing quality, design and
safety. After reviewing the proceedings that are currently
pending (including the probable outcomes, reasonably anticipated
costs and expenses, availability and limits of insurance rights
under indemnification agreements and established reserves for
uninsured liabilities), management believes

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that the outcome of these proceedings will not
have a material adverse effect on the financial condition or
ongoing results of operations of the Company.







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

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






|        |                                     
|------- | ------------------------------------
|Item 6. | Exhibits and Reports on
    Form 8-K

(a) Exhibits

| |       |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ----- |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.25 |  |  | Hayes Lemmerz International Inc. Long Term
    Incentive Plan (incorporated by reference to Exhibit 10.25
    to the Companys Registration statement No. 333-107539
    on Form S-4 filed on July 31, 2003 as amended).                                                                                                                                                                                                                                                                                                                                                          
| | 10.26 |  |  | Amendment No. 1 and Waiver to Credit
    Agreement, dated as of October 16, 2003, by and among HLI
    Operating Company, Inc., as Borrower, Hayes Lemmerz
    International Inc., the Lenders and Issuers listed therein,
    Citicorp North America, Inc., as Administrative Agent, Lehman
    Commercial Paper, Inc., as Syndication Agent, and General
    Electric Capital Corporation, as Documentation Agent
    (incorporated by reference to Exhibit 10.26 to the
    Companys Registration Statement No. 333-107539 on
    Form S-4 filed on July 31, 2003 as amended).
| | 12.1  |  |  | Ratio of earnings to fixed charges.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | 31.1  |  |  | Certification of Curtis J. Clawson,
    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,
    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 October 31,
2003, Hayes Lemmerz International, Inc. filed a Current Report
on Form 8-K with the SEC as follows:

|                   |  |                 |  |                                                                                
|------------------ |  | --------------- |  | -------------------------------------------------------------------------------
|September 16, 2003 |  | Items 9 and 12, |  | Regulation FD Disclosure, and Results of
    Operations and Financial Condition

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SIGNATURES


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



| |                                                         
| | --------------------------------------------------------
| | HLI OPERATING COMPANY, INC.                             
|
| | /s/ JAMES A. YOST                                       
| |                                                         
| | James A. Yost                                           
| | Vice President, Finance, and Chief Financial
    Officer

December 10, 2003

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EXHIBIT INDEX


|            |       |  |             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|----------- | ----- |  | ----------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |       |  | Description
|            |       |  |            
|            | 10.25 |  |             | Hayes Lemmerz International Inc. Long Term
    Incentive Plan (incorporated by reference to Exhibit 10.25
    to the Companys Registration statement No. 333-107539
    on Form S-4 filed on July 31, 2003 as amended).                                                                                                                                                                                                                                                                                                                                                          
|            | 10.26 |  |             | Amendment No. 1 and Waiver to Credit
    Agreement, dated as of October 16, 2003, by and among HLI
    Operating Company, Inc., as Borrower, Hayes Lemmerz
    International Inc., the Lenders and Issuers listed therein,
    Citicorp North America, Inc., as Administrative Agent, Lehman
    Commercial Paper, Inc., as Syndication Agent, and General
    Electric Capital Corporation, as Documentation Agent
    (incorporated by reference to Exhibit 10.26 to the
    Companys Registration Statement No. 333-107539 on
    Form S-4 filed on July 31, 2003 as amended).
|            | 12.1  |  |             | Ratio of earnings to fixed charges.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            | 31.1  |  |             | Certification of Curtis J. Clawson, 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, 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.*                                                                                                                                                                                                                                                                                                                                                                      



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|  |                               
|- | ------------------------------
|* | Filed electronically herewith.

60