##### 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, 2005                                             
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from           to                                             

Commission file number: 333-107539





HLI Operating Company, Inc.


(Exact name of registrant as specified in its charter)


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

Registrants telephone number, including area code:


(734) 737-5000


o þ


þ o


o þ




þ o












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##### 










HLI
OPERATING COMPANY, INC.


QUARTERLY REPORT ON FORM 10-Q


TABLE OF CONTENTS


|                                                                                            |  |                                                                                           |    |      |    | 
|------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                                                                                            |  |                                                                                           |    | Page |   
|                                                                                            |  |                                                                                           |    |      |   
|PART I. FINANCIAL INFORMATION                                                              
|Item 1.                                                                                     |  | Financial Statements                                                                      |    |      | 2  | 
|                                                                                            |  | Consolidated Statements of Operations                                                     |    |      | 2  | 
|                                                                                            |  | Condensed Consolidated Balance Sheets                                                     |    |      | 3  | 
|                                                                                            |  | Consolidated Statements of Cash Flows                                                     |    |      | 4  | 
|                                                                                            |  | Consolidated Statements of Changes in
    Stockholders Equity (Deficit)                  |    |      | 5  | 
|                                                                                            |  | Notes to Consolidated Financial
    Statements                                            |    |      | 6  | 
|Item 2.                                                                                     |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations |    |      | 27 | 
|Item 3.                                                                                     |  | Quantitative and Qualitative Disclosures
    about Market Risk                            |    |      | 44 | 
|Item 4.                                                                                     |  | Controls and Procedures                                                                   |    |      | 44 | 
|PART II. OTHER INFORMATION                                                                 
|Item 1.                                                                                     |  | Legal Proceedings                                                                         |    |      | 45 | 
|Item 2.                                                                                     |  | Changes in Securities and Use of
    Proceeds                                             |    |      | 45 | 
|Item 3.                                                                                     |  | Defaults upon Senior Securities                                                           |    |      | 45 | 
|Item 4.                                                                                     |  | Submission of Matters to a Vote of Security
    Holders                                   |    |      | 45 | 
|Item 5.                                                                                     |  | Other Information                                                                         |    |      | 45 | 
|Item 6.                                                                                     |  | Exhibits                                                                                  |    |      | 46 | 
|Signatures                                                                                  |  |                                                                                           | 47 |     
|Certification of Curtis J. Clawson, Chairman of the Board, President and CEO to Section 302
|Certification of James A. Yost, Vice President, and CFO to Section 302                     
|Certification of Curtis J. Clawson, Chairman of the Board, President and CEO to Section 906
|Certification of James A. Yost, Vice President, and CFO to Section 906                     



Unless otherwise indicated, references to the
Company mean HLI Operating Company, Inc., and
its subsidiaries, and references to a fiscal year means the
Companys year commencing on February 1 of that year and
ending January 31 of the following year (e.g., fiscal 2005 means
the period beginning February 1, 2005, and ending
January 31, 2006). This report contains forward looking
statements within the meaning of the Private Securities
Litigation Reform Act of 1995 with respect to the financial
condition, results of operations, and business of the Company.
All statements other than statements of historical fact made in
this Quarterly Report are forward-looking. Such forward-looking
statements include, among others, those statements including the
words expect, anticipate,
intend, believe and similar language.
These forward looking statements involve certain risks and
uncertainties. The Companys actual results may differ
significantly from those projected in the forward-looking
statements. Factors that may cause actual results to differ
materially from those contemplated by such forward looking
statements include, among others: (1) competitive pressure
in the Companys industry; (2) fluctuations in the
price of steel, aluminum and other raw materials;
(3) changes in general economic conditions; (4) the
Companys dependence on the automotive industry (which has
historically been cyclical) and on a small number of major
customers for the majority of its sales; (5) pricing
pressure from automotive industry customers and the potential
for re-sourcing of business to lower-cost providers overseas;
(6) changes in the financial markets or the Companys
debt ratings affecting the Companys financial structure
and the Companys cost of capital and borrowed money;
(7) the uncertainties inherent in international operations
and foreign currency fluctuations; (8) the Companys
ability to divest non-core assets and businesses; and
(9) the risks described in our most recent Annual Report on
Form 10-K. You are cautioned not to place undue reliance on
the forward-looking statements, which speak only as of the date
of this Quarterly Report on Form 10-Q. The Company has no
duty under the Private Securities Litigation Reform Act of 1995
to update the forward looking statements in this Quarterly
Report on Form 10-Q and the Company does not intend to
provide such updates.


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##### Table of Contents








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

HLI OPERATING COMPANY, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)


|                                                                                                                                                                        |                                                                                                                                             |                       |       |       |                   |   |       |      |   |   |         |       |   |   |         |       |   |  | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | ----- | ----- | ----------------- | - | ----- | ---- | - | - | ------- | ----- | - | - | ------- | ----- | - |  | 
|                                                                                                                                                                        |                                                                                                                                             | Three Months Ended    |       |       | Nine Months Ended |  
|                                                                                                                                                                        |                                                                                                                                             | October 31,           |       |       | October 31,       |  
|                                                                                                                                                                        |                                                                                                                                             |                       |       |       |                   |  
|                                                                                                                                                                        |                                                                                                                                             | 2005                  |       |       | 2004              |   |       | 2005 |   |   | 2004    |      
|                                                                                                                                                                        |                                                                                                                                             |                       |       |       |                   |   |       |      |   |   |         |      
|                                                                                                                                                                        |                                                                                                                                             | (Dollars in millions) |      
|Net sales                                                                                                                                                               |                                                                                                                                             | $                     | 604.0 |       |                   | $ | 545.9 |      |   | $ | 1,749.2 |       |   | $ | 1,612.6 |      
|Cost of goods sold                                                                                                                                                      |                                                                                                                                             |                       | 548.7 |       |                   |   | 491.7 |      |   |   | 1,600.5 |       |   |   | 1,442.6 |      
|                                                                                                                                                                        |                                                                                                                                             |                       |       |       |                   |   |       |      |   |   |         |      
|                                                                                                                                                                        | Gross profit                                                                                                                                |                       |       | 55.3  |                   |   |       | 54.2 |   |   |         | 148.7 |   |   |         | 170.0 |  
|Marketing, general, and administrative                                                                                                                                  |                                                                                                                                             |                       | 37.5  |       |                   |   | 38.2  |      |   |   | 123.0   |       |   |   | 116.3   |      
|Asset impairments and other restructuring charges                                                                                                                       |                                                                                                                                             |                       | 3.8   |       |                   |   | 2.9   |      |   |   | 37.6    |       |   |   | 6.2     |      
|Other (income) expense, net                                                                                                                                             |                                                                                                                                             |                       | (2.8  | )     |                   |   | 0.1   |      |   |   | 6.8     |       |   |   | (0.5    | )    
|                                                                                                                                                                        |                                                                                                                                             |                       |       |       |                   |   |       |      |   |   |         |      
|                                                                                                                                                                        | Earnings (loss) from operations                                                                                                             |                       |       | 16.8  |                   |   |       | 13.0 |   |   |         | (18.7 | ) |   |         | 48.0  |  
|Interest expense, net                                                                                                                                                   |                                                                                                                                             |                       | 18.4  |       |                   |   | 11.9  |      |   |   | 49.7    |       |   |   | 39.2    |      
|Other non-operating expense                                                                                                                                             |                                                                                                                                             |                       | 0.2   |       |                   |   | 1.0   |      |   |   | 0.6     |       |   |   | 1.2     |      
|Loss on early extinguishment of debt                                                                                                                                    |                                                                                                                                             |                       |      |       |                   |   |      |      |   |   |        |       |   |   | 12.2    |      
|                                                                                                                                                                        |                                                                                                                                             |                       |       |       |                   |   |       |      |   |   |         |      
|                                                                                                                                                                        | Earnings (loss) from continuing operations before taxes,
    minority interest, and cumulative effect of change in accounting
    principle |                       |       | (1.8  | )                 |   |       | 0.1  |   |   |         | (69.0 | ) |   |         | (4.6  | )
|Income tax expense                                                                                                                                                      |                                                                                                                                             |                       | 10.2  |       |                   |   | 5.2   |      |   |   | 18.8    |       |   |   | 15.9    |      
|                                                                                                                                                                        |                                                                                                                                             |                       |       |       |                   |   |       |      |   |   |         |      
|                                                                                                                                                                        | Loss from continuing operations before minority interest and
    cumulative effect of change in accounting principle                        |                       |       | (12.0 | )                 |   |       | (5.1 | ) |   |         | (87.8 | ) |   |         | (20.5 | )
|Minority interest                                                                                                                                                       |                                                                                                                                             |                       | 2.4   |       |                   |   | 2.2   |      |   |   | 7.5     |       |   |   | 6.0     |      
|                                                                                                                                                                        |                                                                                                                                             |                       |       |       |                   |   |       |      |   |   |         |      
|                                                                                                                                                                        | Loss from continuing operations before cumulative effect of
    change in accounting principle                                              |                       |       | (14.4 | )                 |   |       | (7.3 | ) |   |         | (95.3 | ) |   |         | (26.5 | )
|(Income) loss from discontinued operations, net of tax of $0.4,
    $0.4, $0.8, and $0.4 in the three and nine months ended
    October 31, 2005 and 2004, respectively |                                                                                                                                             |                       | (0.8  | )     |                   |   | 0.3   |      |   |   | (3.5    | )     |   |   | (2.4    | )    
|Cumulative effect of change in accounting principle, net of tax
    of $0.8                                                                                             |                                                                                                                                             |                       |      |       |                   |   |      |      |   |   |        |       |   |   | (2.6    | )    
|                                                                                                                                                                        |                                                                                                                                             |                       |       |       |                   |   |       |      |   |   |         |      
|                                                                                                                                                                        | Net loss                                                                                                                                    |                       | $     | (13.6 | )                 |   | $     | (7.6 | ) |   | $       | (91.8 | ) |   | $       | (21.5 | )
|                                                                                                                                                                        |                                                                                                                                             |                       |       |       |                   |   |       |      |   |   |         |      



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HLI OPERATING COMPANY, INC. AND SUBSIDIARIES





CONDENSED CONSOLIDATED BALANCE SHEETS


(Unaudited)


|                                         |                                           |                                                                                                            |                                            |        |             |         |       |        |   |         | 
|---------------------------------------- | ----------------------------------------- | ---------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | ----------- | ------- | ----- | ------ | - | ------- | 
|                                         |                                           | October 31,                                                                                                |                                            |        | January 31, |        
|                                         |                                           | 2005                                                                                                       |                                            |        | 2005        |        
|                                         |                                           |                                                                                                            |                                            |        |             |        
|                                         |                                           | (Dollars in millions)                                                                                      |                                           
|ASSETS                                  
|Current assets:                          |                                           |                                                                                                            |                                            |        |             |         |       |       
|                                         | Cash and cash equivalents                 |                                                                                                            | $                                          | 86.6   |             |         | $     | 34.9   |  
|                                         | Receivables                               |                                                                                                            |                                            | 274.2  |             |         |       | 226.8  |  
|                                         | Other receivables                         |                                                                                                            |                                            | 118.8  |             |         |       | 77.0   |  
|                                         | Inventories                               |                                                                                                            |                                            | 178.3  |             |         |       | 205.0  |  
|                                         | Prepaid expenses and other current assets |                                                                                                            |                                            | 17.3   |             |         |       | 21.4   |  
|                                         | Assets held for sale                      |                                                                                                            |                                            | 38.9   |             |         |       | 30.4   |  
|                                         |                                           |                                                                                                            |                                            |        |             |        
|                                         |                                           |                                                                                                            | Total current assets                       |        |             | 714.1   |       |        |   | 595.5   | 
|Property, plant, and equipment, net      |                                           |                                                                                                            | 878.4                                      |        |             |         | 971.1 |       
|Goodwill                                 |                                           |                                                                                                            | 382.2                                      |        |             |         | 417.9 |       
|Intangible assets, net                   |                                           |                                                                                                            | 209.9                                      |        |             |         | 233.3 |       
|Assets held for sale                     |                                           |                                                                                                            | 25.5                                       |        |             |         | 29.3  |       
|Other assets                             |                                           |                                                                                                            | 62.2                                       |        |             |         | 54.9  |       
|                                         |                                           |                                                                                                            |                                            |        |             |        
|                                         |                                           |                                                                                                            | Total assets                               |        | $           | 2,272.3 |       |        | $ | 2,302.0 | 
|                                         |                                           |                                                                                                            |                                            |        |             |        
|                                        
|LIABILITIES AND STOCKHOLDERS EQUITY    
|Current liabilities:                     |                                           |                                                                                                            |                                            |        |             |         |       |       
|                                         | Bank borrowings and other notes           |                                                                                                            | $                                          | 24.6   |             |         | $     | 0.6    |  
|                                         | Current portion of long-term debt         |                                                                                                            |                                            | 19.3   |             |         |       | 10.5   |  
|                                         | Accounts payable and accrued liabilities  |                                                                                                            |                                            | 405.9  |             |         |       | 394.7  |  
|                                         | Liabilities held for sale                 |                                                                                                            |                                            | 17.0   |             |         |       | 10.6   |  
|                                         |                                           |                                                                                                            |                                            |        |             |        
|                                         |                                           |                                                                                                            | Total current liabilities                  |        |             | 466.8   |       |        |   | 416.4   | 
|Long-term debt, net of current portion   |                                           |                                                                                                            | 729.6                                      |        |             |         | 631.1 |       
|Pension and other long-term liabilities  |                                           |                                                                                                            | 480.2                                      |        |             |         | 506.5 |       
|Liabilities held for sale                |                                           |                                                                                                            | 1.5                                        |        |             |         | 1.2   |       
|Redeemable preferred stock of subsidiary |                                           |                                                                                                            | 11.9                                       |        |             |         | 11.3  |       
|Minority interest                        |                                           |                                                                                                            | 32.7                                       |        |             |         | 33.7  |       
|Stockholders equity:                    |                                           |                                                                                                            |                                            |        |             |         |       |       
|                                         | Common stock, par value $0.01 per share:  |                                                                                                            |                                            |        |             |         |       |        |  
|                                         |                                           | 600,000 shares authorized; 590,000
    issued and outstanding at October 31, 2005 and
    January 31, 2005 |                                            |        |            |         |       |        |  |        
|                                         | Additional paid in capital                |                                                                                                            |                                            | 685.2  |             |         |       | 680.3  |  
|                                         | Accumulated deficit                       |                                                                                                            |                                            | (209.4 | )           |         |       | (117.6 | )
|                                         | Accumulated other comprehensive income    |                                                                                                            |                                            | 73.8   |             |         |       | 139.1  |  
|                                         |                                           |                                                                                                            |                                            |        |             |        
|                                         |                                           |                                                                                                            | Total stockholders equity                 |        |             | 549.6   |       |        |   | 701.8   | 
|                                         |                                           |                                                                                                            |                                            |        |             |        
|                                         |                                           |                                                                                                            | Total liabilities and stockholders equity |        | $           | 2,272.3 |       |        | $ | 2,302.0 | 
|                                         |                                           |                                                                                                            |                                            |        |             |        



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HLI OPERATING COMPANY, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                                                          |                                                                                      |                                          |                                                  |       |       |       |       |        |       |        |  
|------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------ | ---------------------------------------- | ------------------------------------------------ | ----- | ----- | ----- | ----- | ------ | ----- | ------ | -
|                                                                                                                          |                                                                                      | Nine Months Ended                        |                                                 
|                                                                                                                          |                                                                                      | October 31,                              |                                                 
|                                                                                                                          |                                                                                      |                                          |                                                 
|                                                                                                                          |                                                                                      | 2005                                     |                                                  |       | 2004  |      
|                                                                                                                          |                                                                                      |                                          |                                                  |       |       |      
|                                                                                                                          |                                                                                      | (Unaudited)                              |                                                 
|                                                                                                                          |                                                                                      | (Dollars in millions)                    |                                                 
|Cash flows from operating activities:                                                                                     |                                                                                      |                                          |                                                  |       |       |       |       |       
|Loss from continuing operations                                                                                           |                                                                                      | $                                        | (95.3                                            | )     |       | $     | (23.9 | )     
|Adjustments to reconcile net loss from continuing operations to
    net cash provided by (used for) operating activities: |                                                                                      |                                          |                                                  |       |       |       |       |       
|                                                                                                                          | Depreciation and amortization                                                        |                                          |                                                  | 126.2 |       |       |       | 124.2  |      
|                                                                                                                          | Amortization of deferred financing fees and accretion of discount                    |                                          |                                                  | 4.8   |       |       |       | 2.8    |      
|                                                                                                                          | Change in deferred income taxes                                                      |                                          |                                                  | (7.3  | )     |       |       | (6.1   | )    
|                                                                                                                          | Asset impairments                                                                    |                                          |                                                  | 32.6  |       |       |       | 0.7    |      
|                                                                                                                          | Minority interest                                                                    |                                          |                                                  | 7.5   |       |       |       | 6.0    |      
|                                                                                                                          | Preferred stock dividends accrued                                                    |                                          |                                                  | 0.6   |       |       |       | 0.6    |      
|                                                                                                                          | Equity compensation expense                                                          |                                          |                                                  | 4.9   |       |       |       | 4.9    |      
|                                                                                                                          | Loss on early extinguishment of debt                                                 |                                          |                                                  |      |       |       |       | 12.2   |      
|                                                                                                                          | (Gain) loss on sale of assets                                                        |                                          |                                                  | (1.3  | )     |       |       | 0.1    |      
|                                                                                                                          | Changes in operating assets and liabilities that increase
    (decrease) cash flows: |                                          |                                                  |       |       |       |       |        |      
|                                                                                                                          |                                                                                      | Receivables                              |                                                  |       | (63.1 | )     |       |        | (57.4 | )     
|                                                                                                                          |                                                                                      | Other receivables                        |                                                  |       | (41.7 | )     |       |        |      |       
|                                                                                                                          |                                                                                      | Inventories                              |                                                  |       | 16.0  |       |       |        | 0.1   |       
|                                                                                                                          |                                                                                      | Prepaid expenses and other               |                                                  |       | (3.3  | )     |       |        | 1.0   |       
|                                                                                                                          |                                                                                      | Accounts payable and accrued liabilities |                                                  |       | 12.7  |       |       |        | 25.2  |       
|                                                                                                                          | Payments related to Chapter 11 Filings                                               |                                          |                                                  | (0.1  | )     |       |       | (1.1   | )    
|                                                                                                                          |                                                                                      |                                          |                                                  |       |       |      
|                                                                                                                          |                                                                                      |                                          | Cash provided by (used for) operating activities |       |       | (6.8  | )     |        |       | 89.3   |  
|                                                                                                                          |                                                                                      |                                          |                                                  |       |       |      
|Cash flows from investing activities:                                                                                     |                                                                                      |                                          |                                                  |       |       |       |       |       
|                                                                                                                          | Purchase of property, plant, equipment, and tooling                                  |                                          |                                                  | (95.6 | )     |       |       | (112.4 | )    
|                                                                                                                          | Proceeds from sale of assets                                                         |                                          |                                                  | 18.5  |       |       |       | 0.7    |      
|                                                                                                                          |                                                                                      |                                          |                                                  |       |       |      
|                                                                                                                          |                                                                                      |                                          | Cash used for investing activities               |       |       | (77.1 | )     |        |       | (111.7 | )
|                                                                                                                          |                                                                                      |                                          |                                                  |       |       |      
|Cash flows from financing activities:                                                                                     |                                                                                      |                                          |                                                  |       |       |       |       |       
|                                                                                                                          | Changes in bank borrowings and credit facilities                                     |                                          |                                                  | 23.9  |       |       |       | 0.8    |      
|                                                                                                                          | Net proceeds from issuance of common stock                                           |                                          |                                                  |      |       |       |       |       |      
|                                                                                                                          | Capital contribution                                                                 |                                          |                                                  |      |       |       |       | 117.0  |      
|                                                                                                                          | Redemption of Senior Notes, net of discount and related fees                         |                                          |                                                  |      |       |       |       | (96.7  | )    
|                                                                                                                          | Repayment of Term Loan B, net of related fees                                        |                                          |                                                  | (73.8 | )     |       |       | (16.0  | )    
|                                                                                                                          | Borrowings from Term Loan C                                                          |                                          |                                                  | 150.0 |       |       |       |       |      
|                                                                                                                          | Borrowings (repayment) of long-term debt                                             |                                          |                                                  | 33.7  |       |       |       | (8.3   | )    
|                                                                                                                          | Repayment of notes payable issued in connection with purchases
    of businesses     |                                          |                                                  |      |       |       |       | (13.1  | )    
|                                                                                                                          |                                                                                      |                                          |                                                  |       |       |      
|                                                                                                                          |                                                                                      |                                          | Cash provided by (used for) financing activities |       |       | 133.8 |       |        |       | (16.3  | )
|                                                                                                                          |                                                                                      |                                          |                                                  |       |       |      
|Net cash provided by discontinued operations                                                                              |                                                                                      |                                          | 2.5                                              |       |       |       | 4.5   |       
|Adjustment for the elimination of the one month lag                                                                       |                                                                                      |                                          |                                                 |       |       |       | 1.4   |       
|Effect of exchange rate changes on cash and cash equivalents                                                              |                                                                                      |                                          | (0.7                                             | )     |       |       | 3.2   |       
|                                                                                                                          |                                                                                      |                                          |                                                  |       |       |      
|                                                                                                                          | Increase (decrease) in cash and cash equivalents                                     |                                          |                                                  | 51.7  |       |       |       | (29.6  | )    
|Cash and cash equivalents at beginning of period                                                                          |                                                                                      |                                          | 34.9                                             |       |       |       | 48.5  |       
|                                                                                                                          |                                                                                      |                                          |                                                  |       |       |      
|Cash and cash equivalents at end of period                                                                                |                                                                                      | $                                        | 86.6                                             |       |       | $     | 18.9  |       
|                                                                                                                          |                                                                                      |                                          |                                                  |       |       |      
|Supplemental data:                                                                                                        |                                                                                      |                                          |                                                  |       |       |       |       |       
|                                                                                                                          | Cash paid for interest                                                               |                                          | $                                                | 37.5  |       |       | $     | 34.0   |      
|                                                                                                                          | Cash paid for income taxes                                                           |                                          | $                                                | 18.3  |       |       | $     | 15.7   |      



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HLI OPERATING COMPANY, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(DEFICIT)


(Unaudited)


|                            |                                     |                                             |         |     |       |   |         |          |  |              |             |  |               |        |        |       |       |   |       |       |   |   |       |       |        |  
|--------------------------- | ----------------------------------- | ------------------------------------------- | ------- | --- | ----- | - | ------- | -------- |  | ------------ | ----------- |  | ------------- | ------ | ------ | ----- | ----- | - | ----- | ----- | - | - | ----- | ----- | ------ | -
|                            |                                     |                                             |         |     |       |   |         | Retained |  |              | Accumulated |  |               |       
|                            |                                     |                                             |         |     |       |   |         | Earnings |  |              | Other       |  |               |       
|                            |                                     |                                             |         | Par |       |   | Paid in |          |  | (Accumulated |             |  | Comprehensive |        |        |      
|                            |                                     | Shares                                      |         |     | Value |   |         | Capital  |  |              | Deficit)    |  |               | Income |        |       | Total |  
|                            |                                     |                                             |         |     |       |   |         |          |  |              |             |  |               |        |        |       |       |  
|                            |                                     | (Dollars in millions, except share amounts) |        
|Balance at January 31, 2005 |                                     |                                             | 590,000 |     |       | $ |        |          |  | $            | 680.3       |  |               | $      | (117.6 | )     |       | $ | 139.1 |       |   | $ | 701.8 |      
|Comprehensive income:       |                                     |                                             |         |     |       |   |         |          |  |              |             |  |               |        |        |       |       |   |       |       |   |   |       |      
|                            | Net loss                            |                                             |         |     |       |   |         |          |  |              |             |  |               |        |        | (91.8 | )     |   |       |       |   |   |       | (91.8 | )     
|                            | Currency translation
    adjustment |                                             |         |     |       |   |         |          |  |              |             |  |               |        |        |       |       |   |       | (65.3 | ) |   |       | (65.3 | )     
|                            |                                     |                                             |         |     |       |   |         |          |  |              |             |  |               |        |        |       |       |  
|                            |                                     | Total comprehensive loss                    |         |     |       |   |         |          |  |              |             |  |               |        |        |       |       |   |       |       |   |   |       |       | (157.1 | )
|Equity compensation expense |                                     |                                             |         |     |       |   |         |          |  |              | 4.9         |  |               |        |        |       |       |   |       |       |   |   | 4.9   |      
|                            |                                     |                                             |         |     |       |   |         |          |  |              |             |  |               |        |        |       |       |  
|Balance at October 31, 2005 |                                     |                                             | 590,000 |     |       | $ |        |          |  | $            | 685.2       |  |               | $      | (209.4 | )     |       | $ | 73.8  |       |   | $ | 549.6 |      
|                            |                                     |                                             |         |     |       |   |         |          |  |              |             |  |               |        |        |       |       |  



5



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Nine Months Ended October 31, 2005 and 2004


(Unaudited)


(Dollars in millions, unless otherwise stated)




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





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







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



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









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##### Table of Contents



HLI OPERATING COMPANY, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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



|                         |       |             |      |       |             |   |      |       | 
|------------------------ | ----- | ----------- | ---- | ----- | ----------- | - | ---- | ----- | 
|                         |       | October 31, |      |       | January 31, |  
|                         |       | 2005        |      |       | 2005        |  
|                         |       |             |      |       |             |  
|Raw materials            |       | $           | 42.5 |       |             | $ | 53.4 |      
|Work-in-process          |       |             | 36.1 |       |             |   | 47.0 |      
|Finished goods           |       |             | 61.2 |       |             |   | 68.5 |      
|Spare parts and supplies |       |             | 38.5 |       |             |   | 36.1 |      
|                         |       |             |      |       |             |  
|                         | Total |             | $    | 178.3 |             |   | $    | 205.0 | 
|                         |       |             |      |       |             |  

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##### Table of Contents



HLI OPERATING COMPANY, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|        |                                     
|------- | ------------------------------------
|Note 4. | Assets and Liabilities Held for Sale



|                                     |                         |                                         |   |      |             |  |   |      |      | 
|------------------------------------ | ----------------------- | --------------------------------------- | - | ---- | ----------- |  | - | ---- | ---- | 
|                                     |                         | October 31,                             |   |      | January 31, | 
|                                     |                         | 2005                                    |   |      | 2005        | 
|                                     |                         |                                         |   |      |             | 
|Current Assets Held for Sale:        |                         |                                         |   |      |             |  |   |     
|                                     | Buildings               |                                         | $ | 6.4  |             |  | $ | 7.7  |     
|                                     | Business                |                                         |   | 10.5 |             |  |   |     |     
|                                     | Discontinued operations |                                         |   | 22.0 |             |  |   | 22.7 |     
|                                     |                         |                                         |   |      |             | 
|                                     |                         | Total current assets held for sale      |   |      | 38.9        |  |   |      | 30.4 | 
|Noncurrent assets held for sale:     |                         |                                         |   |      |             |  |   |     
|                                     | Discontinued operations |                                         |   | 25.5 |             |  |   | 29.3 |     
|                                     |                         |                                         |   |      |             | 
|                                     |                         | Total assets held for sale              |   | $    | 64.4        |  |   | $    | 59.7 | 
|                                     |                         |                                         |   |      |             | 
|Current liabilities held for sale:   |                         |                                         |   |      |             |  |   |     
|                                     | Business                |                                         | $ | 7.8  |             |  | $ |     |     
|                                     | Discontinued operations |                                         |   | 9.2  |             |  |   | 10.6 |     
|                                     |                         |                                         |   |      |             | 
|                                     |                         | Total current liabilities held for sale |   |      | 17.0        |  |   |      | 10.6 | 
|Long term liabilities held for sale: |                         |                                         |   |      |             |  |   |     
|                                     | Discontinued operations |                                         |   | 1.5  |             |  |   | 1.2  |     
|                                     |                         |                                         |   |      |             | 
|                                     |                         | Total liabilities held for sale         |   | $    | 18.5        |  |   | $    | 11.8 | 
|                                     |                         |                                         |   |      |             | 









|        |                        
|------- | -----------------------
|Note 5. | Discontinued Operations





8



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                          |                                 |             |      |      |             |   |      |      | 
|----------------------------------------- | ------------------------------- | ----------- | ---- | ---- | ----------- | - | ---- | ---- | 
|                                          |                                 | October 31, |      |      | January 31, |  
|                                          |                                 | 2005        |      |      | 2005        |  
|                                          |                                 |             |      |      |             |  
|Receivables                               |                                 | $           | 14.6 |      |             | $ | 14.6 |     
|Inventories                               |                                 |             | 7.2  |      |             |   | 7.6  |     
|Prepaid expenses and other current assets |                                 |             | 0.2  |      |             |   | 0.5  |     
|Property, plant and equipment, net        |                                 |             | 25.4 |      |             |   | 29.2 |     
|Other assets                              |                                 |             | 0.1  |      |             |   | 0.1  |     
|                                          |                                 |             |      |      |             |  
|                                          | Total assets held for sale      |             | $    | 47.5 |             |   | $    | 52.0 | 
|                                          |                                 |             |      |      |             |  
|Accounts payable and accrued liabilities  |                                 | $           | 9.2  |      |             | $ | 10.6 |     
|Other long term liabilities               |                                 |             | 1.5  |      |             |   | 1.2  |     
|                                          |                                 |             |      |      |             |  
|                                          | Total liabilities held for sale |             | $    | 10.7 |             |   | $    | 11.8 | 
|                                          |                                 |             |      |      |             |  



|                                   |                   |              |      |     |             |   |      |      |   |   |      |     |  |   |      |     | 
|---------------------------------- | ----------------- | ------------ | ---- | --- | ----------- | - | ---- | ---- | - | - | ---- | --- |  | - | ---- | --- | 
|                                   |                   | Three Months |      |     | Nine Months |  
|                                   |                   | Ended        |      |     | Ended       |  
|                                   |                   | October 31,  |      |     | October 31, |  
|                                   |                   |              |      |     |             |  
|                                   |                   | 2005         |      |     | 2004        |   |      | 2005 |   |   | 2004 |    
|                                   |                   |              |      |     |             |   |      |      |   |   |      |    
|Net sales                          |                   | $            | 28.2 |     |             | $ | 24.5 |      |   | $ | 85.3 |     |  | $ | 83.9 |    
|                                   |                   |              |      |     |             |   |      |      |   |   |      |    
|Earnings before income tax expense |                   | $            | 1.2  |     |             | $ | 0.1  |      |   | $ | 4.3  |     |  | $ | 2.8  |    
|Income tax expense                 |                   |              | 0.4  |     |             |   | 0.4  |      |   |   | 0.8  |     |  |   | 0.4  |    
|                                   |                   |              |      |     |             |   |      |      |   |   |      |    
|                                   | Net income (loss) |              | $    | 0.8 |             |   | $    | (0.3 | ) |   | $    | 3.5 |  |   | $    | 2.4 | 
|                                   |                   |              |      |     |             |   |      |      |   |   |      |    



|        |                                     
|------- | ------------------------------------
|Note 6. | Goodwill and Other Intangible Assets



|                                 |                        |                  |       |       |                  |   |       |          |   |       |          |       |  |              |       |       |          |   |       |       |   |   |       |       | 
|-------------------------------- | ---------------------- | ---------------- | ----- | ----- | ---------------- | - | ----- | -------- | - | ----- | -------- | ----- |  | ------------ | ----- | ----- | -------- | - | ----- | ----- | - | - | ----- | ----- | 
|                                 |                        | October 31, 2005 |       |       | January 31, 2005 |  
|                                 |                        |                  |       |       |                  |  
|                                 |                        | Gross            |       |       |                  |   | Net   |          |   | Gross |          |       |  |              | Net   |      
|                                 |                        | Carrying         |       |       | Accumulated      |   |       | Carrying |   |       | Carrying |       |  | Accumulated  |       |       | Carrying |  
|                                 |                        | Amount           |       |       | Amortization     |   |       | Amount   |   |       | Amount   |       |  | Amortization |       |       | Amount   |  
|                                 |                        |                  |       |       |                  |   |       |          |   |       |          |       |  |              |       |       |          |  
|Amortized intangible assets:     |                        |                  |       |       |                  |   |       |          |   |       |          |       |  |              |       |       |          |   |       |       |   |   |       |      
|                                 | Customer relationships |                  | $     | 160.4 |                  |   | $     | (19.2    | ) |       | $        | 141.2 |  |              | $     | 169.8 |          |   | $     | (14.5 | ) |   | $     | 155.3 | 
|                                 | Customer contracts     |                  |       | 3.0   |                  |   |       | (0.8     | ) |       |          | 2.2   |  |              |       | 3.0   |          |   |       | (0.6  | ) |   |       | 2.4   | 
|                                 | Unpatented technology  |                  |       | 41.3  |                  |   |       | (14.5    | ) |       |          | 26.8  |  |              |       | 41.1  |          |   |       | (8.6  | ) |   |       | 32.5  | 
|                                 |                        |                  |       |       |                  |   |       |          |   |       |          |       |  |              |       |       |          |  
|                                 |                        | $                | 204.7 |       |                  | $ | (34.5 | )        |   | $     | 170.2    |       |  | $            | 213.9 |       |          | $ | (23.7 | )     |   | $ | 190.2 |      
|                                 |                        |                  |       |       |                  |   |       |          |   |       |          |       |  |              |       |       |          |  
|Non amortized intangible assets: |                        |                  |       |       |                  |   |       |          |   |       |          |       |  |              |       |       |          |   |       |       |   |   |       |      
|                                 | Tradenames             |                  | $     | 39.7  |                  |   |       |          |   |       |          |       |  |              | $     | 43.1  |          |   |       |       |   |   |       |       | 
|                                 | Goodwill               |                  | $     | 382.2 |                  |   |       |          |   |       |          |       |  |              | $     | 417.9 |          |   |       |       |   |   |       |       | 

9



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                                 |  |            |       |   |            |   |       |  |       |   |   |  |  |   |       |  
|------------------------------------------------ |  | ---------- | ----- | - | ---------- | - | ----- |  | ----- | - | - |  |  | - | ----- | -
|                                                 |  | Automotive |       |   |            |   |       |  |      
|                                                 |  | Wheels     |       |   | Components |   | Other |  | Total |  
|                                                 |  |            |       |   |            |   |       |  |       |  
|Balance as of January 31, 2005                   |  | $          | 417.9 |   |            | $ |      |  |       | $ |  |  |  | $ | 417.9 |  
|Effects of currency translation                  |  |            | (34.4 | ) |            |   |      |  |       |   |  |  |  |   | (34.4 | )
|Acquisitions and purchase accounting adjustments |  |            | (1.3  | ) |            |   |      |  |       |   |  |  |  |   | (1.3  | )
|                                                 |  |            |       |   |            |   |       |  |       |   |   | 
|Balance as of October 31, 2005                   |  | $          | 382.2 |   |            | $ |      |  |       | $ |  |  |  | $ | 382.2 |  
|                                                 |  |            |       |   |            |   |       |  |       |   |   | 



|        |                                                 
|------- | ------------------------------------------------
|Note 7. | Bank Borrowings, Other Notes, and Long-Term Debt








|                                                                                                                                                                                 |                |             |       |       |             |   |       |       | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ----------- | ----- | ----- | ----------- | - | ----- | ----- | 
|                                                                                                                                                                                 |                | October 31, |       |       | January 31, |  
|                                                                                                                                                                                 |                | 2005        |       |       | 2005        |  
|                                                                                                                                                                                 |                |             |       |       |             |  
|Various foreign bank and government loans maturing through 2006,
    weighted average interest rates of 4.6% and 6.4% at
    October 31, 2005 and January 31, 2005, respectively |                | $           | 16.7  |       |             | $ | 18.6  |      
|Term Loan B maturing 2009, weighted average interest rate
    of 7.2% and 6.2% at October 31, 2005 and January 31,
    2005, respectively                                        |                |             | 353.4 |       |             |   | 427.3 |      
|Term Loan C maturing 2010, weighted average interest rate
    of 9.3% at October 31, 2005                                                                                        |                |             | 150.0 |       |             |   |      |      
|101/2% Senior
    Notes due 2010, net of discount of $0.8 million at
    October 31, 2005 and January 31, 2005                                                                   |                |             | 161.7 |       |             |   | 161.7 |      
|Revolving Credit Facility, weighted average interest rate of
    7.8% at October 31, 2005                                                                                        |                |             | 30.0  |       |             |   |      |      
|Mortgage note payable                                                                                                                                                            |                |             | 22.1  |       |             |   | 22.2  |      
|Capital lease obligations                                                                                                                                                        |                |             | 15.0  |       |             |   | 11.8  |      
|                                                                                                                                                                                 |                |             |       |       |             |  
|                                                                                                                                                                                 |                |             | 748.9 |       |             |   | 641.6 |      
|Less current portion of long-term debt                                                                                                                                           |                |             | 19.3  |       |             |   | 10.5  |      
|                                                                                                                                                                                 |                |             |       |       |             |  
|                                                                                                                                                                                 | Long-term debt |             | $     | 729.6 |             |   | $     | 631.1 | 
|                                                                                                                                                                                 |                |             |       |       |             |  



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



10



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












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

1 2 1 2 1 2






11



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






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









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





|        |                                                                  
|------- | -----------------------------------------------------------------
|Note 8. | Pension Plans and Postretirement Benefits Other Than
    Pensions



12



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HLI OPERATING COMPANY, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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

|                                   |  |                      |      |   |                     |   |      |                  |  |   |             |  |  |             |      |   |             |   |     |  |  |   |     | 
|---------------------------------- |  | -------------------- | ---- | - | ------------------- | - | ---- | ---------------- |  | - | ----------- |  |  | ----------- | ---- | - | ----------- | - | --- |  |  | - | --- | 
|                                   |  | North American Plans |      |   | International Plans |  
|                                   |  |                      |      |   |                     |  
|                                   |  | Pension Benefits     |      |   | Other Benefits      |   |      | Pension Benefits | 
|                                   |  |                      |      |   |                     |   |      |                  | 
|                                   |  | Nine Months          |      |   | Nine Months         |   |      | Nine Months      |  |   | Nine Months |  |  | Nine Months |      |   | Nine Months |  
|                                   |  | Ended                |      |   | Ended               |   |      | Ended            |  |   | Ended       |  |  | Ended       |      |   | Ended       |  
|                                   |  | October 31,          |      |   | October 31,         |   |      | October 31,      |  |   | October 31, |  |  | October 31, |      |   | October 31, |  
|                                   |  | 2005                 |      |   | 2004                |   |      | 2005             |  |   | 2004        |  |  | 2005        |      |   | 2004        |  
|                                   |  |                      |      |   |                     |   |      |                  |  |   |             |  |  |             |      |   |             |  
|Service cost                       |  | $                    | 0.8  |   |                     | $ | 0.2  |                  |  | $ | 0.1         |  |  | $           | 0.1  |   |             | $ | 0.8 |  |  | $ | 0.6 | 
|Interest cost                      |  |                      | 8.0  |   |                     |   | 8.4  |                  |  |   | 8.0         |  |  |             | 8.1  |   |             |   | 5.9 |  |  |   | 5.8 | 
|Expected return on plan assets     |  |                      | (7.1 | ) |                     |   | (7.2 | )                |  |   |            |  |  |             |     |   |             |   | 0.1 |  |  |   | 0.2 | 
|Amortization of prior service cost |  |                      |     |   |                     |   |     |                  |  |   |            |  |  |             |     |   |             |   |    |  |  |   | 0.3 | 
|Amortization of net (gain)/loss    |  |                      |     |   |                     |   |     |                  |  |   |            |  |  |             | (0.9 | ) |             |   | 0.3 |  |  |   |    | 
|                                   |  |                      |      |   |                     |   |      |                  |  |   |             |  |  |             |      |   |             |  
|Net periodic benefit cost          |  | $                    | 1.7  |   |                     | $ | 1.4  |                  |  | $ | 8.1         |  |  | $           | 7.3  |   |             | $ | 7.1 |  |  | $ | 6.9 | 
|                                   |  |                      |      |   |                     |   |      |                  |  |   |             |  |  |             |      |   |             |  



13



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HLI OPERATING COMPANY, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|        |                                                  
|------- | -------------------------------------------------
|Note 9. | Asset Impairments and Other Restructuring Charges



|                                                |  |                                     |     |  |            |   |     |       |  |       |   |  |  |   |     | 
|----------------------------------------------- |  | ----------------------------------- | --- |  | ---------- | - | --- | ----- |  | ----- | - |  |  | - | --- | 
|                                                |  | Three Months Ended October 31, 2005 |    
|                                                |  |                                     |    
|                                                |  | Automotive                          |     |  |           
|                                                |  | Wheels                              |     |  | Components |   |     | Other |  | Total |  
|                                                |  |                                     |     |  |            |   |     |       |  |       |  
|Facility closure costs                          |  | $                                   | 1.5 |  |            | $ |    |       |  | $     |  |  |  | $ | 1.5 | 
|Impairment of machinery, equipment, and tooling |  |                                     | 1.1 |  |            |   | 0.7 |       |  |       |  |  |  |   | 1.8 | 
|Severance and other restructuring costs         |  |                                     | 0.5 |  |            |   |    |       |  |       |  |  |  |   | 0.5 | 
|                                                |  |                                     |     |  |            |   |     |       |  |       |   | 
|Total                                           |  | $                                   | 3.1 |  |            | $ | 0.7 |       |  | $     |  |  |  | $ | 3.8 | 
|                                                |  |                                     |     |  |            |   |     |       |  |       |   | 

|                                                |  |                                     |     |  |            |   |     |       |  |       |   |  |  |   |     | 
|----------------------------------------------- |  | ----------------------------------- | --- |  | ---------- | - | --- | ----- |  | ----- | - |  |  | - | --- | 
|                                                |  | Three Months Ended October 31, 2004 |    
|                                                |  |                                     |    
|                                                |  | Automotive                          |     |  |           
|                                                |  | Wheels                              |     |  | Components |   |     | Other |  | Total |  
|                                                |  |                                     |     |  |            |   |     |       |  |       |  
|Facility closure costs                          |  | $                                   | 0.7 |  |            | $ |    |       |  | $     |  |  |  | $ | 0.7 | 
|Impairment of machinery, equipment, and tooling |  |                                     | 0.7 |  |            |   |    |       |  |       |  |  |  |   | 0.7 | 
|Severance and other restructuring costs         |  |                                     | 0.9 |  |            |   | 0.6 |       |  |       |  |  |  |   | 1.5 | 
|                                                |  |                                     |     |  |            |   |     |       |  |       |   | 
|Total                                           |  | $                                   | 2.3 |  |            | $ | 0.6 |       |  | $     |  |  |  | $ | 2.9 | 
|                                                |  |                                     |     |  |            |   |     |       |  |       |   | 

|                                                |  |                                    |     |  |            |   |      |       |  |       |   |  |  |   |      | 
|----------------------------------------------- |  | ---------------------------------- | --- |  | ---------- | - | ---- | ----- |  | ----- | - |  |  | - | ---- | 
|                                                |  | Nine Months Ended October 31, 2005 |    
|                                                |  |                                    |    
|                                                |  | Automotive                         |     |  |           
|                                                |  | Wheels                             |     |  | Components |   |      | Other |  | Total |  
|                                                |  |                                    |     |  |            |   |      |       |  |       |  
|Facility closure costs                          |  | $                                  | 2.7 |  |            | $ |     |       |  | $     |  |  |  | $ | 2.7  | 
|Impairment of machinery, equipment, and tooling |  |                                    | 1.8 |  |            |   | 30.7 |       |  |       |  |  |  |   | 32.5 | 
|Severance and other restructuring costs         |  |                                    | 2.4 |  |            |   |     |       |  |       |  |  |  |   | 2.4  | 
|                                                |  |                                    |     |  |            |   |      |       |  |       |   | 
|Total                                           |  | $                                  | 6.9 |  |            | $ | 30.7 |       |  | $     |  |  |  | $ | 37.6 | 
|                                                |  |                                    |     |  |            |   |      |       |  |       |   | 

|                                                |  |                                    |     |  |            |   |      |       |  |       |   |  |  |   |     | 
|----------------------------------------------- |  | ---------------------------------- | --- |  | ---------- | - | ---- | ----- |  | ----- | - |  |  | - | --- | 
|                                                |  | Nine Months Ended October 31, 2004 |    
|                                                |  |                                    |    
|                                                |  | Automotive                         |     |  |           
|                                                |  | Wheels                             |     |  | Components |   |      | Other |  | Total |  
|                                                |  |                                    |     |  |            |   |      |       |  |       |  
|Facility closure costs                          |  | $                                  | 1.0 |  |            | $ | (0.2 | )     |  | $     |  |  |  | $ | 0.8 | 
|Impairment of machinery, equipment, and tooling |  |                                    | 0.7 |  |            |   |     |       |  |       |  |  |  |   | 0.7 | 
|Severance and other restructuring costs         |  |                                    | 4.1 |  |            |   | 0.6  |       |  |       |  |  |  |   | 4.7 | 
|                                                |  |                                    |     |  |            |   |      |       |  |       |   | 
|Total                                           |  | $                                  | 5.8 |  |            | $ | 0.4  |       |  | $     |  |  |  | $ | 6.2 | 
|                                                |  |                                    |     |  |            |   |      |       |  |       |   | 



| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | Asset Impairment Losses and Other Restructuring Charges
    for the Three Months Ended October 31, 2005



14



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | Asset Impairment Losses and Other Restructuring Charges
    for the Three Months Ended October 31, 2004





| |                                                                                                       
| | ------------------------------------------------------------------------------------------------------
| | Asset Impairment Losses and Other Restructuring Charges
    for the Nine Months Ended October 31, 2005





| |                                                                                                       
| | ------------------------------------------------------------------------------------------------------
| | Asset Impairment Losses and Other Restructuring Charges
    for the Nine Months Ended October 31, 2004





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



|                    |  |             |     |            |               |   |              |            |  |   |             |   |  |   |     | 
|------------------- |  | ----------- | --- | ---------- | ------------- | - | ------------ | ---------- |  | - | ----------- | - |  | - | --- | 
|                    |  |             |     | Accrual of |               |   | Cash         |            |  |  
|                    |  |             |     | Severance  |               |   | Payments and |            |  |  
|                    |  | January 31, |     |            | and Other     |   |              | Effects of |  |   | October 31, |  
|                    |  | 2005        |     |            | Restructuring |   |              | Foreign    |  |   | 2005        |  
|                    |  | Accrual     |     |            | Charges       |   |              | Currency   |  |   | Accrual     |  
|                    |  |             |     |            |               |   |              |            |  |   |             |  
|Facility exit costs |  | $           | 0.2 |            |               | $ | 2.7          |            |  | $ | (2.6        | ) |  | $ | 0.3 | 
|Severance           |  |             | 0.7 |            |               |   | 2.4          |            |  |   | (1.9        | ) |  |   | 1.2 | 
|                    |  |             |     |            |               |   |              |            |  |   |             |  
|                    |  | $           | 0.9 |            |               | $ | 5.1          |            |  | $ | (4.5        | ) |  | $ | 1.5 | 
|                    |  |             |     |            |               |   |              |            |  |   |             |  



15



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|         |                
|-------- | ---------------
|Note 10. | Taxes on Income



|                             |  |                                |       |   |         |   |      |    |  |   |         |   |  |   |      | 
|---------------------------- |  | ------------------------------ | ----- | - | ------- | - | ---- | -- |  | - | ------- | - |  | - | ---- | 
|                             |  | Three Months Ended October 31, |      
|                             |  |                                |      
|                             |  | 2005                           |       |   | 2004    |  
|                             |  |                                |       |   |         |  
|                             |  | US                             |       |   | Foreign |   |      | US |  |   | Foreign |  
|                             |  |                                |       |   |         |   |      |    |  |   |         |  
|Pre-tax income (loss)        |  | $                              | (16.6 | ) |         | $ | 14.8 |    |  | $ | (25.0   | ) |  | $ | 25.1 | 
|Income tax expense (benefit) |  |                                | 0.1   |   |         |   | 10.1 |    |  |   | (0.2    | ) |  |   | 5.4  | 

|                             |  |                               |        |   |         |   |      |    |  |   |         |   |  |   |      | 
|---------------------------- |  | ----------------------------- | ------ | - | ------- | - | ---- | -- |  | - | ------- | - |  | - | ---- | 
|                             |  | Nine Months Ended October 31, |       
|                             |  |                               |       
|                             |  | 2005                          |        |   | 2004    |  
|                             |  |                               |        |   |         |  
|                             |  | US                            |        |   | Foreign |   |      | US |  |   | Foreign |  
|                             |  |                               |        |   |         |   |      |    |  |   |         |  
|Pre-tax income (loss)        |  | $                             | (110.9 | ) |         | $ | 41.9 |    |  | $ | (64.5   | ) |  | $ | 59.9 | 
|Income tax expense (benefit) |  |                               | 0.7    |   |         |   | 18.1 |    |  |   | 1.1     |   |  |   | 14.8 | 





16



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##### Table of Contents



HLI OPERATING COMPANY,  INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|         |                      
|-------- | ---------------------
|Note 11. | Common Stock Offering





|         |                               
|-------- | ------------------------------
|Note 12. | Prior Period Accounting Errors





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

17



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|         |                  
|-------- | -----------------
|Note 13. | Segment Reporting









|                                                  |  |                                     |       |  |            |   |       |       |  |   |       |   |  |   |       | 
|------------------------------------------------- |  | ----------------------------------- | ----- |  | ---------- | - | ----- | ----- |  | - | ----- | - |  | - | ----- | 
|                                                  |  | Three Months Ended October 31, 2005 |      
|                                                  |  |                                     |      
|                                                  |  | Automotive                          |       |  |           
|                                                  |  | Wheels                              |       |  | Components |   |       | Other |  |   | Total |  
|                                                  |  |                                     |       |  |            |   |       |       |  |   |       |  
|Net sales                                         |  | $                                   | 423.3 |  |            | $ | 180.7 |       |  | $ |      |   |  | $ | 604.0 | 
|Asset impairments and other restructuring charges |  |                                     | 3.1   |  |            |   | 0.7   |       |  |   |      |   |  |   | 3.8   | 
|Earnings (loss) from operations                   |  |                                     | 22.2  |  |            |   | (1.7  | )     |  |   | (3.7  | ) |  |   | 16.8  | 

|                                                  |  |                                     |       |  |            |   |       |       |  |   |       |   |  |   |       | 
|------------------------------------------------- |  | ----------------------------------- | ----- |  | ---------- | - | ----- | ----- |  | - | ----- | - |  | - | ----- | 
|                                                  |  | Three Months Ended October 31, 2004 |      
|                                                  |  |                                     |      
|                                                  |  | Automotive                          |       |  |           
|                                                  |  | Wheels                              |       |  | Components |   |       | Other |  |   | Total |  
|                                                  |  |                                     |       |  |            |   |       |       |  |   |       |  
|Net sales                                         |  | $                                   | 370.1 |  |            | $ | 175.8 |       |  | $ |      |   |  | $ | 545.9 | 
|Asset impairments and other restructuring charges |  |                                     | 2.3   |  |            |   | 0.6   |       |  |   |      |   |  |   | 2.9   | 
|Earnings (loss) from operations                   |  |                                     | 23.9  |  |            |   | (7.8  | )     |  |   | (3.1  | ) |  |   | 13.0  | 

|                                                  |  |                                    |         |  |            |   |       |       |  |   |       |   |  |   |         |  
|------------------------------------------------- |  | ---------------------------------- | ------- |  | ---------- | - | ----- | ----- |  | - | ----- | - |  | - | ------- | -
|                                                  |  | Nine Months Ended October 31, 2005 |        
|                                                  |  |                                    |        
|                                                  |  | Automotive                         |         |  |           
|                                                  |  | Wheels                             |         |  | Components |   |       | Other |  |   | Total |  
|                                                  |  |                                    |         |  |            |   |       |       |  |   |       |  
|Net sales                                         |  | $                                  | 1,215.9 |  |            | $ | 533.3 |       |  | $ |      |   |  | $ | 1,749.2 |  
|Asset impairments and other restructuring charges |  |                                    | 6.9     |  |            |   | 30.7  |       |  |   |      |   |  |   | 37.6    |  
|Earnings (loss) from operations                   |  |                                    | 45.6    |  |            |   | (43.3 | )     |  |   | (21.0 | ) |  |   | (18.7   | )

|                                                  |  |                                    |         |  |            |   |       |       |  |   |       |   |  |   |         | 
|------------------------------------------------- |  | ---------------------------------- | ------- |  | ---------- | - | ----- | ----- |  | - | ----- | - |  | - | ------- | 
|                                                  |  | Nine Months Ended October 31, 2004 |        
|                                                  |  |                                    |        
|                                                  |  | Automotive                         |         |  |           
|                                                  |  | Wheels                             |         |  | Components |   |       | Other |  |   | Total |  
|                                                  |  |                                    |         |  |            |   |       |       |  |   |       |  
|Net sales                                         |  | $                                  | 1,077.8 |  |            | $ | 534.8 |       |  | $ |      |   |  | $ | 1,612.6 | 
|Asset impairments and other restructuring charges |  |                                    | 5.8     |  |            |   | 0.4   |       |  |   |      |   |  |   | 6.2     | 
|Earnings (loss) from operations                   |  |                                    | 61.3    |  |            |   | (6.8  | )     |  |   | (6.5  | ) |  |   | 48.0    | 

18



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|             |  |                        |         |  |            |   |       |       |  |   |       |  |  |   |         | 
|------------ |  | ---------------------- | ------- |  | ---------- | - | ----- | ----- |  | - | ----- |  |  | - | ------- | 
|             |  | As of October 31, 2005 |        
|             |  |                        |        
|             |  | Automotive             |         |  |           
|             |  | Wheels                 |         |  | Components |   |       | Other |  |   | Total | 
|             |  |                        |         |  |            |   |       |       |  |   |       | 
|Total assets |  | $                      | 1,397.4 |  |            | $ | 493.1 |       |  | $ | 381.8 |  |  | $ | 2,272.3 | 

|             |  |                        |         |  |            |   |       |       |  |   |       |  |  |   |         | 
|------------ |  | ---------------------- | ------- |  | ---------- | - | ----- | ----- |  | - | ----- |  |  | - | ------- | 
|             |  | As of January 31, 2005 |        
|             |  |                        |        
|             |  | Automotive             |         |  |           
|             |  | Wheels                 |         |  | Components |   |       | Other |  |   | Total | 
|             |  |                        |         |  |            |   |       |       |  |   |       | 
|Total assets |  | $                      | 1,378.8 |  |            | $ | 541.4 |       |  | $ | 381.8 |  |  | $ | 2,302.0 | 



|         |                                             
|-------- | --------------------------------------------
|Note 14. | Condensed Consolidating Financial Statements







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



19



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS


For the Nine Months Ended October 31, 2005


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

20



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS


For the Nine Months Ended October 31, 2004


|                                                                   |                                                                                                |  |                       |       |           |              |   |              |              |   |   |              |       |  |       |       |       |   |   |         |       |  
|------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------- |  | --------------------- | ----- | --------- | ------------ | - | ------------ | ------------ | - | - | ------------ | ----- |  | ----- | ----- | ----- | - | - | ------- | ----- | -
|                                                                   |                                                                                                |  |                       |       | Guarantor |              |   | Nonguarantor |              |   |   |              |      
|                                                                   |                                                                                                |  | Issuer                |       |           | Subsidiaries |   |              | Subsidiaries |   |   | Eliminations |       |  | Total |      
|                                                                   |                                                                                                |  |                       |       |           |              |   |              |              |   |   |              |       |  |       |      
|                                                                   |                                                                                                |  | (Dollars in millions)
|                                                                   |                                                                                                |  | (Unaudited)           |       |           |              |   |              |              |   |   |              |       |  |       |       |       |   |   |         |      
|Net sales                                                          |                                                                                                |  | $                     | 2.3   |           |              | $ | 730.8        |              |   | $ | 900.5        |       |  | $     | (21.0 | )     |   | $ | 1,612.6 |      
|Cost of goods sold                                                 |                                                                                                |  |                       | 17.7  |           |              |   | 682.7        |              |   |   | 763.2        |       |  |       | (21.0 | )     |   |   | 1,442.6 |      
|                                                                   |                                                                                                |  |                       |       |           |              |   |              |              |   |   |              |       |  |       |      
|                                                                   | Gross profit (loss)                                                                            |  |                       |       | (15.4     | )            |   |              | 48.1         |   |   |              | 137.3 |  |       |       |      |   |   |         | 170.0 |  
|Marketing, general, and administrative                             |                                                                                                |  |                       | (1.7  | )         |              |   | 62.7         |              |   |   | 55.3         |       |  |       |      |       |   |   | 116.3   |      
|Equity in (earnings) losses of subsidiaries and joint
    ventures |                                                                                                |  |                       | (21.0 | )         |              |   | 2.6          |              |   |   |             |       |  |       | 18.4  |       |   |   |        |      
|Asset impairments and other restructuring charges                  |                                                                                                |  |                       | (0.1  | )         |              |   | 5.3          |              |   |   | 1.0          |       |  |       |      |       |   |   | 6.2     |      
|Other (income) expense, net                                        |                                                                                                |  |                       | (1.5  | )         |              |   | 0.2          |              |   |   | (0.7         | )     |  |       | 1.5   |       |   |   | (0.5    | )    
|                                                                   |                                                                                                |  |                       |       |           |              |   |              |              |   |   |              |       |  |       |      
|                                                                   | Earnings (loss) from operations                                                                |  |                       |       | 8.9       |              |   |              | (22.7        | ) |   |              | 81.7  |  |       |       | (19.9 | ) |   |         | 48.0  |  
|Interest (income) expense, net                                     |                                                                                                |  |                       | 17.6  |           |              |   | 0.4          |              |   |   | 21.2         |       |  |       |      |       |   |   | 39.2    |      
|Other non-operating expense                                        |                                                                                                |  |                       | 0.6   |           |              |   |             |              |   |   | 0.6          |       |  |       |      |       |   |   | 1.2     |      
|Loss on early extinguishment of debt                               |                                                                                                |  |                       | 12.2  |           |              |   |             |              |   |   |             |       |  |       |      |       |   |   | 12.2    |      
|                                                                   |                                                                                                |  |                       |       |           |              |   |              |              |   |   |              |       |  |       |      
|                                                                   | Earnings (loss) from continuing operations before taxes on
    income and minority interest    |  |                       |       | (21.5     | )            |   |              | (23.1        | ) |   |              | 59.9  |  |       |       | (19.9 | ) |   |         | (4.6  | )
|Income tax expense                                                 |                                                                                                |  |                       |      |           |              |   | 1.1          |              |   |   | 14.8         |       |  |       |      |       |   |   | 15.9    |      
|                                                                   |                                                                                                |  |                       |       |           |              |   |              |              |   |   |              |       |  |       |      
|                                                                   | Earnings (loss) from continuing operations before minority
    interest                        |  |                       |       | (21.5     | )            |   |              | (24.2        | ) |   |              | 45.1  |  |       |       | (19.9 | ) |   |         | (20.5 | )
|Minority interest                                                  |                                                                                                |  |                       |      |           |              |   |             |              |   |   | 6.0          |       |  |       |      |       |   |   | 6.0     |      
|                                                                   |                                                                                                |  |                       |       |           |              |   |              |              |   |   |              |       |  |       |      
|                                                                   | Loss from continuing operations before cumulative effect of
    change in accounting principle |  |                       |       | (21.5     | )            |   |              | (24.2        | ) |   |              | 39.1  |  |       |       | (19.9 | ) |   |         | (26.5 | )
|(Income) loss from discontinued operations, net of tax             |                                                                                                |  |                       |      |           |              |   | (4.9         | )            |   |   | 2.5          |       |  |       |       |       |   |   | (2.4    | )    
|Cumulative effect of change in accounting principle                |                                                                                                |  |                       |      |           |              |   |             |              |   |   | (2.6         | )     |  |       |      |       |   |   | (2.6    | )    
|                                                                   |                                                                                                |  |                       |       |           |              |   |              |              |   |   |              |       |  |       |      
|                                                                   | Net income (loss)                                                                              |  |                       | $     | (21.5     | )            |   | $            | (19.3        | ) |   | $            | 39.2  |  |       | $     | (19.9 | ) |   | $       | (21.5 | )
|                                                                   |                                                                                                |  |                       |       |           |              |   |              |              |   |   |              |       |  |       |      

21



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


CONDENSED CONSOLIDATING BALANCE SHEETS


As of October 31, 2005


|                                              |                                            |  |                       |         |           |              |   |              |              |  |   |              |         |  |       |          |          |   |   |        |         | 
|--------------------------------------------- | ------------------------------------------ |  | --------------------- | ------- | --------- | ------------ | - | ------------ | ------------ |  | - | ------------ | ------- |  | ----- | -------- | -------- | - | - | ------ | ------- | 
|                                              |                                            |  |                       |         | Guarantor |              |   | Nonguarantor |              |  |   |              |        
|                                              |                                            |  | Issuer                |         |           | Subsidiaries |   |              | Subsidiaries |  |   | Eliminations |         |  | Total |         
|                                              |                                            |  |                       |         |           |              |   |              |              |  |   |              |         |  |       |         
|                                              |                                            |  | (Dollars in millions)
|                                              |                                            |  | (Unaudited)          
|Cash and cash equivalents                     |                                            |  | $                     | (1.3    | )         |              | $ | 0.1          |              |  | $ | 87.8         |         |  | $     |         |          |   | $ | 86.6   |        
|Receivables                                   |                                            |  |                       | (141.7  | )         |              |   | 154.4        |              |  |   | 261.5        |         |  |       |         |          |   |   | 274.2  |        
|Other receivables                             |                                            |  |                       | 118.8   |           |              |   |             |              |  |   |             |         |  |       |         |          |   |   | 118.8  |        
|Inventories                                   |                                            |  |                       | 1.7     |           |              |   | 68.0         |              |  |   | 108.6        |         |  |       |         |          |   |   | 178.3  |        
|Prepaid expenses and other                    |                                            |  |                       | 5.8     |           |              |   | 5.2          |              |  |   | 6.3          |         |  |       |         |          |   |   | 17.3   |        
|Assets held for sale                          |                                            |  |                       | 2.1     |           |              |   | 30.4         |              |  |   | 6.4          |         |  |       |         |          |   |   | 38.9   |        
|                                              |                                            |  |                       |         |           |              |   |              |              |  |   |              |         |  |       |         
|                                              | Total current assets                       |  |                       |         | (14.6     | )            |   |              | 258.1        |  |   |              | 470.6   |  |       |          |         |   |   |        | 714.1   | 
|Property, plant, and equipment, net           |                                            |  |                       | 35.6    |           |              |   | 281.1        |              |  |   | 561.7        |         |  |       |         |          |   |   | 878.4  |        
|Goodwill and other assets                     |                                            |  |                       | 1,220.1 |           |              |   | 43.9         |              |  |   | 593.3        |         |  |       | (1,203.0 | )        |   |   | 654.3  |        
|Assets held for sale                          |                                            |  |                       |        |           |              |   | 18.5         |              |  |   | 7.0          |         |  |       |         |          |   |   | 25.5   |        
|                                              |                                            |  |                       |         |           |              |   |              |              |  |   |              |         |  |       |         
|                                              | Total assets                               |  |                       | $       | 1,241.1   |              |   | $            | 601.6        |  |   | $            | 1,632.6 |  |       | $        | (1,203.0 | ) |   | $      | 2,272.3 | 
|                                              |                                            |  |                       |         |           |              |   |              |              |  |   |              |         |  |       |         
|Bank borrowings and other notes               |                                            |  | $                     |        |           |              | $ |             |              |  | $ | 24.6         |         |  | $     |         |          |   | $ | 24.6   |        
|Current portion of long-term debt             |                                            |  |                       | 4.6     |           |              |   | 3.0          |              |  |   | 11.7         |         |  |       |         |          |   |   | 19.3   |        
|Accounts payable and accrued
    liabilities  |                                            |  |                       | 71.1    |           |              |   | 85.0         |              |  |   | 249.8        |         |  |       |         |          |   |   | 405.9  |        
|Liabilities held for sale                     |                                            |  |                       |        |           |              |   | 15.8         |              |  |   | 1.2          |         |  |       |         |          |   |   | 17.0   |        
|                                              |                                            |  |                       |         |           |              |   |              |              |  |   |              |         |  |       |         
|                                              | Total current liabilities                  |  |                       |         | 75.7      |              |   |              | 103.8        |  |   |              | 287.3   |  |       |          |         |   |   |        | 466.8   | 
|Long-term debt, net of current portion        |                                            |  |                       | 712.7   |           |              |   | 11.5         |              |  |   | 5.4          |         |  |       |         |          |   |   | 729.6  |        
|Pension and other long-term
    liabilities   |                                            |  |                       | 238.3   |           |              |   | (1.0         | )            |  |   | 242.9        |         |  |       |         |          |   |   | 480.2  |        
|Liabilities held for sale                     |                                            |  |                       |        |           |              |   | 1.7          |              |  |   | (0.2         | )       |  |       |         |          |   |   | 1.5    |        
|Redeemable preferred stock                    |                                            |  |                       | 11.9    |           |              |   |             |              |  |   |             |         |  |       |         |          |   |   | 11.9   |        
|Minority interest                             |                                            |  |                       |        |           |              |   |             |              |  |   | 32.7         |         |  |       |         |          |   |   | 32.7   |        
|Parent loans                                  |                                            |  |                       | (347.1  | )         |              |   | 6.7          |              |  |   | 336.0        |         |  |       | 4.4      |          |   |   |       |        
|Common stock                                  |                                            |  |                       |        |           |              |   |             |              |  |   |             |         |  |       |         |          |   |   |       |        
|Additional paid-in capital                    |                                            |  |                       | 685.2   |           |              |   | 633.8        |              |  |   | 588.5        |         |  |       | (1,222.3 | )        |   |   | 685.2  |        
|Retained earnings (accumulated
    deficit)   |                                            |  |                       | (209.4  | )         |              |   | (154.9       | )            |  |   | 79.6         |         |  |       | 75.3     |          |   |   | (209.4 | )      
|Accumulated other comprehensive income (loss) |                                            |  |                       | 73.8    |           |              |   |             |              |  |   | 60.4         |         |  |       | (60.4    | )        |   |   | 73.8   |        
|                                              |                                            |  |                       |         |           |              |   |              |              |  |   |              |         |  |       |         
|                                              | Total stockholders equity                 |  |                       |         | 549.6     |              |   |              | 478.9        |  |   |              | 728.5   |  |       |          | (1,207.4 | ) |   |        | 549.6   | 
|                                              |                                            |  |                       |         |           |              |   |              |              |  |   |              |         |  |       |         
|                                              | Total liabilities and stockholders equity |  |                       | $       | 1,241.1   |              |   | $            | 601.6        |  |   | $            | 32.6    |  |       | $        | (1,203.0 | ) |   | $      | 2,272.3 | 
|                                              |                                            |  |                       |         |           |              |   |              |              |  |   |              |         |  |       |         

22



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


CONDENSED CONSOLIDATING BALANCE SHEETS


As of January 31, 2005


|                                              |                                            |                       |         |           |              |   |              |              |  |   |              |         |  |       |          |          |   |   |        |         |  | 
|--------------------------------------------- | ------------------------------------------ | --------------------- | ------- | --------- | ------------ | - | ------------ | ------------ |  | - | ------------ | ------- |  | ----- | -------- | -------- | - | - | ------ | ------- |  | 
|                                              |                                            |                       |         | Guarantor |              |   | Nonguarantor |              |  |   |              |        
|                                              |                                            | Issuer                |         |           | Subsidiaries |   |              | Subsidiaries |  |   | Eliminations |         |  | Total |         
|                                              |                                            |                       |         |           |              |   |              |              |  |   |              |         |  |       |         
|                                              |                                            | (Dollars in millions) |        
|                                              |                                            | (Unaudited)           |        
|Cash and cash equivalents                     |                                            | $                     | (9.3    | )         |              | $ | (0.2         | )            |  | $ | 44.4         |         |  | $     |         |          |   | $ | 34.9   |        
|Receivables                                   |                                            |                       | (135.0  | )         |              |   | 140.2        |              |  |   | 221.6        |         |  |       |         |          |   |   | 226.8  |        
|Other receivables                             |                                            |                       | 77.0    |           |              |   |             |              |  |   |             |         |  |       |         |          |   |   | 77.0   |        
|Inventories                                   |                                            |                       | 4.6     |           |              |   | 82.5         |              |  |   | 117.9        |         |  |       |         |          |   |   | 205.0  |        
|Prepaid expenses and other                    |                                            |                       | 8.2     |           |              |   | 7.6          |              |  |   | 5.6          |         |  |       |         |          |   |   | 21.4   |        
|Assets held for sale                          |                                            |                       | 3.2     |           |              |   | 22.1         |              |  |   | 5.1          |         |  |       |         |          |   |   | 30.4   |        
|                                              |                                            |                       |         |           |              |   |              |              |  |   |              |         |  |       |         
|                                              | Total current assets                       |                       |         | (51.3     | )            |   |              | 252.2        |  |   |              | 394.6   |  |       |          |         |   |   |        | 595.5   | 
|Property, plant, and equipment, net           |                                            |                       | 38.9    |           |              |   | 321.0        |              |  |   | 611.2        |         |  |       |         |          |   |   | 971.1  |        
|Goodwill and other assets                     |                                            |                       | 1,291.7 |           |              |   | 52.4         |              |  |   | 640.2        |         |  |       | (1,278.2 | )        |   |   | 706.1  |        
|Assets held for sale                          |                                            |                       |        |           |              |   | 21.2         |              |  |   | 8.1          |         |  |       |         |          |   |   | 29.3   |        
|                                              |                                            |                       |         |           |              |   |              |              |  |   |              |         |  |       |         
|                                              | Total assets                               |                       | $       | 1,279.3   |              |   | $            | 646.8        |  |   | $            | 1,654.1 |  |       | $        | (1,278.2 | ) |   | $      | 2,302.0 | 
|                                              |                                            |                       |         |           |              |   |              |              |  |   |              |         |  |       |         
|Bank borrowings and other notes               |                                            | $                     |        |           |              | $ |             |              |  | $ | 0.6          |         |  | $     |         |          |   | $ | 0.6    |        
|Current portion of long-term debt             |                                            |                       | 4.6     |           |              |   | 1.3          |              |  |   | 4.6          |         |  |       |         |          |   |   | 10.5   |        
|Accounts payable and accrued liabilities      |                                            |                       | 76.1    |           |              |   | 80.3         |              |  |   | 238.3        |         |  |       |         |          |   |   | 394.7  |        
|Liabilities held for sale                     |                                            |                       |        |           |              |   | 8.3          |              |  |   | 2.3          |         |  |       |         |          |   |   | 10.6   |        
|                                              |                                            |                       |         |           |              |   |              |              |  |   |              |         |  |       |         
|                                              | Total current liabilities                  |                       |         | 80.7      |              |   |              | 89.9         |  |   |              | 245.8   |  |       |          |         |   |   |        | 416.4   | 
|Long-term debt, net of current portion        |                                            |                       | 606.6   |           |              |   | 7.1          |              |  |   | 17.4         |         |  |       |         |          |   |   | 631.1  |        
|Pension and other long-term
    liabilities   |                                            |                       | 251.9   |           |              |   | (0.6         | )            |  |   | 255.2        |         |  |       |         |          |   |   | 506.5  |        
|Liabilities held for sale                     |                                            |                       |        |           |              |   | 1.0          |              |  |   | 0.2          |         |  |       |         |          |   |   | 1.2    |        
|
|Redeemable preferred stock                    |                                            |                       | 11.3    |           |              |   |             |              |  |   |             |         |  |       |         |          |   |   | 11.3   |        
|
|Minority interest                             |                                            |                       |        |           |              |   |             |              |  |   | 33.7         |         |  |       |         |          |   |   | 33.7   |        
|Parent loans                                  |                                            |                       | (373.0  | )         |              |   | 27.0         |              |  |   | 345.5        |         |  |       | 0.5      |          |   |   |       |        
|
|Common stock                                  |                                            |                       |        |           |              |   |             |              |  |   |             |         |  |       |         |          |   |   |       |        
|Additional paid-in capital                    |                                            |                       | 680.3   |           |              |   | 617.4        |              |  |   | 588.0        |         |  |       | (1,205.4 | )        |   |   | 680.3  |        
|
|Retained earnings (accumulated deficit)       |                                            |                       | (117.6  | )         |              |   | (95.2        | )            |  |   | 62.2         |         |  |       | 33.0     |          |   |   | (117.6 | )      
|Accumulated other comprehensive income (loss) |                                            |                       | 139.1   |           |              |   | 0.2          |              |  |   | 106.1        |         |  |       | (106.3   | )        |   |   | 139.1  |        
|                                              |                                            |                       |         |           |              |   |              |              |  |   |              |         |  |       |         
|                                              | Total stockholders equity                 |                       |         | 701.8     |              |   |              | 522.4        |  |   |              | 756.3   |  |       |          | (1,278.2 | ) |   |        | 701.8   | 
|                                              |                                            |                       |         |           |              |   |              |              |  |   |              |         |  |       |         
|                                              | Total liabilities and stockholders equity |                       | $       | 1,279.3   |              |   | $            | 646.8        |  |   | $            | 1,654.1 |  |       | $        | (1,278.2 | ) |   | $      | 2,302.0 | 
|                                              |                                            |                       |         |           |              |   |              |              |  |   |              |         |  |       |         

23



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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


For the Nine Months Ended October 31, 2005


|                                                       |                                                    |                                       |                       |       |           |              |   |              |              |     |   |              |       |       |   |   |   |   |   |      |       |       | 
|------------------------------------------------------ | -------------------------------------------------- | ------------------------------------- | --------------------- | ----- | --------- | ------------ | - | ------------ | ------------ | --- | - | ------------ | ----- | ----- | - | - | - | - | - | ---- | ----- | ----- | 
|                                                       |                                                    |                                       |                       |       | Guarantor |              |   | Nonguarantor |              |     |   |              |      
|                                                       |                                                    |                                       | Issuer                |       |           | Subsidiaries |   |              | Subsidiaries |     |   | Eliminations |       | Total |  
|                                                       |                                                    |                                       |                       |       |           |              |   |              |              |     |   |              |       |       |  
|                                                       |                                                    |                                       | (Dollars in millions)
|                                                       |                                                    |                                       | (Unaudited)          
|Cash flows provided by (used for) operating activities |                                                    |                                       | $                     | (83.8 | )         |              | $ | 15.2         |              |     | $ | 61.8         |       |       | $ |  |   |   | $ | (6.8 | )    
|                                                       |                                                    |                                       |                       |       |           |              |   |              |              |     |   |              |       |       |   |  
|Cash flows from investing activities:                  |                                                    |                                       |                       |       |           |              |   |              |              |     |   |              |       |       |   |   |   |   |   |      |      
|                                                       | Purchase of property, plant, equipment and tooling |                                       |                       |       | (0.9      | )            |   |              | (46.9        | )   |   |              | (47.8 | )     |   |   |   |   |   |      | (95.6 | )    
|                                                       | Proceeds from disposal of assets and businesses    |                                       |                       |       | 0.5       |              |   |              | 13.7         |     |   |              | 4.3   |       |   |   |   |   |   |      | 18.5  |      
|                                                       |                                                    |                                       |                       |       |           |              |   |              |              |     |   |              |       |       |   |  
|                                                       | Cash used for investing activities                 |                                       |                       |       | (0.4      | )            |   |              | (33.2        | )   |   |              | (43.5 | )     |   |   |  |   |   |      | (77.1 | )    
|                                                       |                                                    |                                       |                       |       |           |              |   |              |              |     |   |              |       |       |   |  
|Cash flows from financing activities:                  |                                                    |                                       |                       |       |           |              |   |              |              |     |   |              |       |       |   |   |   |   |   |      |      
|                                                       | Changes in bank borrowings and credit facility     |                                       |                       |       |          |              |   |              |             |     |   |              | 23.9  |       |   |   |   |   |   |      | 23.9  |      
|                                                       | Repayment of Term Loan B, net of related fees      |                                       |                       |       | (73.8     | )            |   |              |             |     |   |              |      |       |   |   |   |   |   |      | (73.8 | )    
|                                                       | Borrowings from Term Loan C                        |                                       |                       |       | 150.0     |              |   |              |             |     |   |              |      |       |   |   |   |   |   |      | 150.0 |      
|                                                       | Borrowings (repayment) of long term debt           |                                       |                       |       | 29.9      |              |   |              | 6.3          |     |   |              | (2.5  | )     |   |   |   |   |   |      | 33.7  |      
|                                                       |                                                    |                                       |                       |       |           |              |   |              |              |     |   |              |       |       |   |  
|                                                       |                                                    | Cash provided by financing activities |                       |       |           | 106.1        |   |              |              | 6.3 |   |              |       | 21.4  |   |   |   |  |   |      |       | 133.8 | 
|                                                       |                                                    |                                       |                       |       |           |              |   |              |              |     |   |              |       |       |   |  
|Increase (decrease) in parent loans and advances       |                                                    |                                       |                       | (13.9 | )         |              |   | 6.0          |              |     |   | 7.9          |       |       |   |  |   |   |   |     |      
|Net cash provided by discontinued operations           |                                                    |                                       |                       |      |           |              |   | 6.0          |              |     |   | (3.5         | )     |       |   |  |   |   |   | 2.5  |      
|Effect of exchange rates on cash and cash equivalents  |                                                    |                                       |                       |      |           |              |   |             |              |     |   | (0.7         | )     |       |   |  |   |   |   | (0.7 | )    
|                                                       |                                                    |                                       |                       |       |           |              |   |              |              |     |   |              |       |       |   |  
|                                                       | Increase in cash and cash equivalents              |                                       |                       |       | 8.0       |              |   |              | 0.3          |     |   |              | 43.4  |       |   |   |  |   |   |      | 51.7  |      
|Cash and cash equivalents at beginning of period       |                                                    |                                       |                       | (9.3  | )         |              |   | (0.2         | )            |     |   | 44.4         |       |       |   |  |   |   |   | 34.9 |      
|                                                       |                                                    |                                       |                       |       |           |              |   |              |              |     |   |              |       |       |   |  
|Cash and cash equivalents at end of period             |                                                    |                                       | $                     | (1.3  | )         |              | $ | 0.1          |              |     | $ | 87.8         |       |       | $ |  |   |   | $ | 86.6 |      
|                                                       |                                                    |                                       |                       |       |           |              |   |              |              |     |   |              |       |       |   |  

24



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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


For the Nine Months Ended October 31, 2004


|                                                                                 |                                                    |                                                  |                       |       |           |              |   |              |              |       |   |              |       |       |   |   |   |   |   |       |        |        |  
|-------------------------------------------------------------------------------- | -------------------------------------------------- | ------------------------------------------------ | --------------------- | ----- | --------- | ------------ | - | ------------ | ------------ | ----- | - | ------------ | ----- | ----- | - | - | - | - | - | ----- | ------ | ------ | -
|                                                                                 |                                                    |                                                  |                       |       | Guarantor |              |   | Nonguarantor |              |       |   |              |      
|                                                                                 |                                                    |                                                  | Issuer                |       |           | Subsidiaries |   |              | Subsidiaries |       |   | Eliminations |       | Total |  
|                                                                                 |                                                    |                                                  |                       |       |           |              |   |              |              |       |   |              |       |       |  
|                                                                                 |                                                    |                                                  | (Dollars in millions)
|                                                                                 |                                                    |                                                  | (Unaudited)          
|Cash flows provided by (used for) operating activities                           |                                                    |                                                  | $                     | (21.3 | )         |              | $ | 27.1         |              |       | $ | 83.5         |       |       | $ |  |   |   | $ | 89.3  |       
|                                                                                 |                                                    |                                                  |                       |       |           |              |   |              |              |       |   |              |       |       |   |  
|Cash flows from investing activities:                                            |                                                    |                                                  |                       |       |           |              |   |              |              |       |   |              |       |       |   |   |   |   |   |       |       
|                                                                                 | Purchase of property, plant, equipment and tooling |                                                  |                       |       | (7.0      | )            |   |              | (44.2        | )     |   |              | (61.2 | )     |   |   |  |   |   |       | (112.4 | )     
|                                                                                 | Proceeds from sale of assets                       |                                                  |                       |       | 0.5       |              |   |              | (0.1         | )     |   |              | 0.3   |       |   |   |  |   |   |       | 0.7    |       
|                                                                                 |                                                    |                                                  |                       |       |           |              |   |              |              |       |   |              |       |       |   |  
|                                                                                 |                                                    | Cash used for investing activities               |                       |       |           | (6.5         | ) |              |              | (44.3 | ) |              |       | (60.9 | ) |   |   |  |   |       |        | (111.7 | )
|                                                                                 |                                                    |                                                  |                       |       |           |              |   |              |              |       |   |              |       |       |   |  
|Cash flows from financing activities:                                            |                                                    |                                                  |                       |       |           |              |   |              |              |       |   |              |       |       |   |   |   |   |   |       |       
|Changes in bank borrowings and credit facility                                   |                                                    |                                                  |                       |      |           |              |   |             |              |       |   | 0.8          |       |       |   |  |   |   |   | 0.8   |       
|Capital contribution                                                             |                                                    |                                                  |                       | 117.0 |           |              |   |             |              |       |   |             |       |       |   |  |   |   |   | 117.0 |       
|Proceeds from (redemption of) Senior Notes, net of discount and
    related fees |                                                    |                                                  |                       | (96.7 | )         |              |   |             |              |       |   |             |       |       |   |  |   |   |   | (96.7 | )     
|Proceeds from (redemption of) Term Loan, net of related fees                     |                                                    |                                                  |                       | (16.0 | )         |              |   |             |              |       |   |             |       |       |   |  |   |   |   | (16.0 | )     
|Repayment of long-term debt                                                      |                                                    |                                                  |                       | (3.0  | )         |              |   |             |              |       |   | (5.3         | )     |       |   |  |   |   |   | (8.3  | )     
|Repayment of notes payable issued in connection with purchases
    of businesses |                                                    |                                                  |                       |      |           |              |   |             |              |       |   | (13.1        | )     |       |   |  |   |   |   | (13.1 | )     
|                                                                                 |                                                    |                                                  |                       |       |           |              |   |              |              |       |   |              |       |       |   |  
|                                                                                 |                                                    | Cash provided by (used for) financing activities |                       |       |           | 1.3          |   |              |              |      |   |              |       | (17.6 | ) |   |   |  |   |       |        | (16.3  | )
|                                                                                 |                                                    |                                                  |                       |       |           |              |   |              |              |       |   |              |       |       |   |  
|Increase (decrease) in parent loans and advances                                 |                                                    |                                                  |                       | 12.9  |           |              |   | 13.1         |              |       |   | (26.0        | )     |       |   |  |   |   |   |      |       
|Net cash provided by discontinued operations                                     |                                                    |                                                  |                       |      |           |              |   | 4.7          |              |       |   | (0.2         | )     |       |   |  |   |   |   | 4.5   |       
|Adjustment for the elimination of the one month lag                              |                                                    |                                                  |                       |      |           |              |   |             |              |       |   | 1.4          |       |       |   |  |   |   |   | 1.4   |       
|Effect of exchange rates on cash and cash equivalents                            |                                                    |                                                  |                       |      |           |              |   |             |              |       |   | 3.2          |       |       |   |  |   |   |   | 3.2   |       
|                                                                                 |                                                    |                                                  |                       |       |           |              |   |              |              |       |   |              |       |       |   |  
|                                                                                 |                                                    | Increase (decrease) in cash and cash equivalents |                       |       |           | (13.6        | ) |              |              | 0.6   |   |              |       | (16.6 | ) |   |   |  |   |       |        | (29.6  | )
|Cash and cash equivalents at beginning of period                                 |                                                    |                                                  |                       | (3.2  | )         |              |   | (0.6         | )            |       |   | 52.3         |       |       |   |  |   |   |   | 48.5  |       
|                                                                                 |                                                    |                                                  |                       |       |           |              |   |              |              |       |   |              |       |       |   |  
|Cash and cash equivalents at end of period                                       |                                                    |                                                  | $                     | (16.8 | )         |              | $ | (0.0         | )            |       | $ | 35.7         |       |       | $ |  |   |   | $ | 18.9  |       
|                                                                                 |                                                    |                                                  |                       |       |           |              |   |              |              |       |   |              |       |       |   |  

25



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##### Table of Contents



HLI OPERATING COMPANY, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|         |                  
|-------- | -----------------
|Note 15. | Subsequent Events









26



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##### Table of Contents








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

Executive Summary






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







Results of Operations








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



27



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##### Table of Contents





|                                                       |                                                                                                |                                |      |       |       |   |      |          |       |   |          |      |      |  |       |      |      |  
|------------------------------------------------------ | ---------------------------------------------------------------------------------------------- | ------------------------------ | ---- | ----- | ----- | - | ---- | -------- | ----- | - | -------- | ---- | ---- |  | ----- | ---- | ---- | -
|                                                       |                                                                                                | Three Months Ended October 31, |     
|                                                       |                                                                                                |                                |     
|                                                       |                                                                                                | 2005                           |      |       | 2004  |   |      | $ Change |       |   | % Change |     
|                                                       |                                                                                                |                                |      |       |       |   |      |          |       |   |          |     
|Net sales:                                             |                                                                                                |                                |      |       |       |   |      |          |       |   |          |      |      |  |       |     
|                                                       | Automotive Wheels                                                                              |                                | $    | 423.3 |       |   | $    | 370.1    |       |   | $        | 53.2 |      |  |       | 14.4 | %   
|                                                       | Components                                                                                     |                                |      | 180.7 |       |   |      | 175.8    |       |   |          | 4.9  |      |  |       | 2.8  | %   
|                                                       |                                                                                                |                                |      |       |       |   |      |          |       |   |          |     
|                                                       |                                                                                                | Total                          |      | $     | 604.0 |   |      | $        | 545.9 |   |          | $    | 58.1 |  |       |      | 10.6 | %
|                                                       |                                                                                                |                                |      |       |       |   |      |          |       |   |          |     
|Gross profit                                           |                                                                                                | $                              | 55.3 |       |       | $ | 54.2 |          |       | $ | 1.1      |      |      |  | 2.0   | %   
|Marketing, general, and administrative                 |                                                                                                |                                | 37.5 |       |       |   | 38.2 |          |       |   | (0.7     | )    |      |  | (1.8  | )%  
|Asset impairments and other restructuring charges      |                                                                                                |                                | 3.8  |       |       |   | 2.9  |          |       |   | 0.9      |      |      |  | 31.0  | %   
|Other (income) expense, net                            |                                                                                                |                                | (2.8 | )     |       |   | 0.1  |          |       |   | (2.9     | )    |      |  |       |     
|                                                       |                                                                                                |                                |      |       |       |   |      |          |       |   |          |     
|                                                       | Earnings from operations                                                                       |                                |      | 16.8  |       |   |      | 13.0     |       |   |          | 3.8  |      |  |       | 29.2 | %   
|Interest expense, net                                  |                                                                                                |                                | 18.4 |       |       |   | 11.9 |          |       |   | 6.5      |      |      |  | 54.6  | %   
|Other non-operating expense                            |                                                                                                |                                | 0.2  |       |       |   | 1.0  |          |       |   | (0.8     | )    |      |  | (80.0 | )%  
|Income tax expense                                     |                                                                                                |                                | 10.2 |       |       |   | 5.2  |          |       |   | 5.0      |      |      |  | 96.2  | %   
|Minority interest                                      |                                                                                                |                                | 2.4  |       |       |   | 2.2  |          |       |   | 0.2      |      |      |  | 9.1   | %   
|                                                       |                                                                                                |                                |      |       |       |   |      |          |       |   |          |     
|                                                       | Loss from continuing operations before cumulative effect of
    change in accounting principle |                                |      | (14.4 | )     |   |      | (7.3     | )     |   |          | (7.1 | )    |  |       |      |     
|(Income) loss from discontinued operations, net of tax |                                                                                                |                                | (0.8 | )     |       |   | 0.3  |          |       |   | (1.1     | )    |      |  |       |     
|                                                       |                                                                                                |                                |      |       |       |   |      |          |       |   |          |     
|                                                       | Net loss                                                                                       |                                | $    | (13.6 | )     |   | $    | (7.6     | )     |   | $        | (6.0 | )    |  |       | 78.9 | %   
|                                                       |                                                                                                |                                |      |       |       |   |      |          |       |   |          |     



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





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





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



28



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##### Table of Contents





| |                                                  
| | -------------------------------------------------
| | Asset impairments and other restructuring Charges







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





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







| |                        
| | -----------------------
| | Discontinued operations





29



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





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









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



|                                                   |                                                 |                                                         |       |     |      |   |       |          |     |   |      |      |     | 
|-------------------------------------------------- | ----------------------------------------------- | ------------------------------------------------------- | ----- | --- | ---- | - | ----- | -------- | --- | - | ---- | ---- | --- | 
|                                                   |                                                 | Three Months Ended October 31,                          |      
|                                                   |                                                 |                                                         |      
|                                                   |                                                 | 2005                                                    |       |     | 2004 |   |       | $ Change |    
|                                                   |                                                 |                                                         |       |     |      |   |       |          |    
|Net sales                                          |                                                 | $                                                       | 423.3 |     |      | $ | 370.1 |          |     | $ | 53.2 |     
|Asset impairments and other restructuring charges: |                                                 |                                                         |       |     |      |   |       |          |     |   |      |     
|                                                   | Facility closure costs                          |                                                         | $     | 1.5 |      |   | $     | 0.7      |     |   | $    | 0.8  |    
|                                                   | Impairment of machinery, equipment, and tooling |                                                         |       | 1.1 |      |   |       | 0.7      |     |   |      | 0.4  |    
|                                                   | Severance and other restructuring costs         |                                                         |       | 0.5 |      |   |       | 0.9      |     |   |      | (0.4 | )  
|                                                   |                                                 |                                                         |       |     |      |   |       |          |    
|                                                   |                                                 | Total asset impairments and other restructuring charges |       | $   | 3.1  |   |       | $        | 2.3 |   |      | $    | 0.8 | 
|                                                   |                                                 |                                                         |       |     |      |   |       |          |    
|Earnings from operations                           |                                                 | $                                                       | 22.2  |     |      | $ | 23.9  |          |     | $ | (1.7 | )   



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



30



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##### Table of Contents





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





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





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



|                                                   |                                                 |                                                         |       |     |      |   |       |          |     |   |     |      |     | 
|-------------------------------------------------- | ----------------------------------------------- | ------------------------------------------------------- | ----- | --- | ---- | - | ----- | -------- | --- | - | --- | ---- | --- | 
|                                                   |                                                 | Three Months Ended October 31,                          |      
|                                                   |                                                 |                                                         |      
|                                                   |                                                 | 2005                                                    |       |     | 2004 |   |       | $ Change |    
|                                                   |                                                 |                                                         |       |     |      |   |       |          |    
|Net sales                                          |                                                 | $                                                       | 180.7 |     |      | $ | 175.8 |          |     | $ | 4.9 |     
|Asset impairments and other restructuring charges: |                                                 |                                                         |       |     |      |   |       |          |     |   |     |     
|                                                   | Facility closure costs                          |                                                         | $     |    |      |   | $     |         |     |   | $   |     |    
|                                                   | Impairment of machinery, equipment, and tooling |                                                         |       | 0.7 |      |   |       |         |     |   |     | 0.7  |    
|                                                   | Severance and other restructuring costs         |                                                         |       |    |      |   |       | 0.6      |     |   |     | (0.6 | )  
|                                                   |                                                 |                                                         |       |     |      |   |       |          |    
|                                                   |                                                 | Total asset impairments and other restructuring charges |       | $   | 0.7  |   |       | $        | 0.6 |   |     | $    | 0.1 | 
|                                                   |                                                 |                                                         |       |     |      |   |       |          |    
|Loss from operations                               |                                                 | $                                                       | (1.7  | )   |      | $ | (7.8  | )        |     | $ | 6.1 |     



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





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





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



31



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



|                     |  |                                |      |   |      |   |      |          |  |  |      |  
|-------------------- |  | ------------------------------ | ---- | - | ---- | - | ---- | -------- |  |  | ---- | -
|                     |  | Three Months Ended October 31, |     
|                     |  |                                |     
|                     |  | 2005                           |      |   | 2004 |   |      | $ Change | 
|                     |  |                                |      |   |      |   |      |          | 
|Loss from operations |  | $                              | (3.7 | ) |      | $ | (3.1 | )        |  |  | (0.6 | )



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





| |                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------
| | Consolidated Results  Comparison of the Nine
    Months Ended October 31, 2005 to the Nine Months Ended
    October 31, 2004



|                                                                |                                                                                                |                               |       |         |         |   |       |          |         |   |          |       |       |  |        |        |     |  
|--------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | ----------------------------- | ----- | ------- | ------- | - | ----- | -------- | ------- | - | -------- | ----- | ----- |  | ------ | ------ | --- | -
|                                                                |                                                                                                | Nine Months Ended October 31, |      
|                                                                |                                                                                                |                               |      
|                                                                |                                                                                                | 2005                          |       |         | 2004    |   |       | $ Change |         |   | % Change |      
|                                                                |                                                                                                |                               |       |         |         |   |       |          |         |   |          |      
|Net sales:                                                      |                                                                                                |                               |       |         |         |   |       |          |         |   |          |       |       |  |        |       
|                                                                | Automotive Wheels                                                                              |                               | $     | 1,215.9 |         |   | $     | 1,077.8  |         |   | $        | 138.1 |       |  |        | 12.8   | %  
|                                                                | Components                                                                                     |                               |       | 533.3   |         |   |       | 534.8    |         |   |          | (1.5  | )     |  |        | (0.3   | )% 
|                                                                |                                                                                                |                               |       |         |         |   |       |          |         |   |          |      
|                                                                |                                                                                                | Total                         |       | $       | 1,749.2 |   |       | $        | 1,612.6 |   |          | $     | 136.6 |  |        |        | 8.5 | %
|                                                                |                                                                                                |                               |       |         |         |   |       |          |         |   |          |      
|Gross profit                                                    |                                                                                                | $                             | 148.7 |         |         | $ | 170.0 |          |         | $ | (21.3    | )     |       |  | (12.5  | )%    
|Marketing, general, and administrative                          |                                                                                                |                               | 123.0 |         |         |   | 116.3 |          |         |   | 6.7      |       |       |  | 5.8    | %     
|Asset impairments and other restructuring charges               |                                                                                                |                               | 37.6  |         |         |   | 6.2   |          |         |   | 31.4     |       |       |  |        |       
|Other (income) expense, net                                     |                                                                                                |                               | 6.8   |         |         |   | (0.5  | )        |         |   | 7.3      |       |       |  |        |       
|                                                                |                                                                                                |                               |       |         |         |   |       |          |         |   |          |      
|                                                                | Earnings (loss) from operations                                                                |                               |       | (18.7   | )       |   |       | 48.0     |         |   |          | (66.7 | )     |  |        | (139.0 | )% 
|Interest expense, net                                           |                                                                                                |                               | 49.7  |         |         |   | 39.2  |          |         |   | 10.5     |       |       |  | 26.8   | %     
|Other non-operating expense                                     |                                                                                                |                               | 0.6   |         |         |   | 1.2   |          |         |   | (0.6     | )     |       |  | (50.0  | )%    
|Loss on early extinguishment of debt                            |                                                                                                |                               |      |         |         |   | 12.2  |          |         |   | (12.2    | )     |       |  | (100.0 | )%    
|Income tax expense                                              |                                                                                                |                               | 18.8  |         |         |   | 15.9  |          |         |   | 2.9      |       |       |  | 18.2   | %     
|Minority interest                                               |                                                                                                |                               | 7.5   |         |         |   | 6.0   |          |         |   | 1.5      |       |       |  | 25.0   | %     
|                                                                |                                                                                                |                               |       |         |         |   |       |          |         |   |          |      
|                                                                | Loss from continuing operations before cumulative effect of
    change in accounting principle |                               |       | (95.3   | )       |   |       | (26.5    | )       |   |          |       |       |  |        |        |    
|Income from discontinued operations, net of tax                 |                                                                                                |                               | (3.5  | )       |         |   | (2.4  | )        |         |   | (1.1     | )     |       |  | 45.8   | %     
|Cumulative effect of change in accounting principle, net of tax |                                                                                                |                               |      |         |         |   | (2.6  | )        |         |   | 2.6      |       |       |  | (100.0 | )%    
|                                                                |                                                                                                |                               |       |         |         |   |       |          |         |   |          |      
|                                                                | Net loss                                                                                       |                               | $     | (91.8   | )       |   | $     | (21.5    | )       |   | $        | (70.3 | )     |  |        |        |    
|                                                                |                                                                                                |                               |       |         |         |   |       |          |         |   |          |      



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



32



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##### Table of Contents







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





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





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





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





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





33



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##### Table of Contents







| |                        
| | -----------------------
| | Discontinued operations







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





| |                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------
| | Segment Results  Comparison of the Nine Months
    Ended October 31, 2005 to the Nine Months Ended
    October 31, 2004



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



|                                                   |                                                 |                                                         |         |     |      |   |         |          |     |   |       |      |     | 
|-------------------------------------------------- | ----------------------------------------------- | ------------------------------------------------------- | ------- | --- | ---- | - | ------- | -------- | --- | - | ----- | ---- | --- | 
|                                                   |                                                 | Nine Months Ended October 31,                           |        
|                                                   |                                                 |                                                         |        
|                                                   |                                                 | 2005                                                    |         |     | 2004 |   |         | $ Change |    
|                                                   |                                                 |                                                         |         |     |      |   |         |          |    
|Net sales                                          |                                                 | $                                                       | 1,215.9 |     |      | $ | 1,077.8 |          |     | $ | 138.1 |     
|Asset impairments and other restructuring charges: |                                                 |                                                         |         |     |      |   |         |          |     |   |       |     
|                                                   | Facility closure costs                          |                                                         | $       | 2.7 |      |   | $       | 1.0      |     |   | $     | 1.7  |    
|                                                   | Impairment of machinery, equipment, and tooling |                                                         |         | 1.8 |      |   |         | 0.7      |     |   |       | 1.1  |    
|                                                   | Severance and other restructuring costs         |                                                         |         | 2.4 |      |   |         | 4.1      |     |   |       | (1.7 | )  
|                                                   |                                                 |                                                         |         |     |      |   |         |          |    
|                                                   |                                                 | Total asset impairments and other restructuring charges |         | $   | 6.9  |   |         | $        | 5.8 |   |       | $    | 1.1 | 
|                                                   |                                                 |                                                         |         |     |      |   |         |          |    
|Earnings from operations                           |                                                 | $                                                       | 45.6    |     |      | $ | 61.3    |          |     | $ | (15.7 | )   



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



34



---



##### Table of Contents





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





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





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



|                                                   |                                                 |                                                         |       |      |      |   |       |          |     |   |       |      |      | 
|-------------------------------------------------- | ----------------------------------------------- | ------------------------------------------------------- | ----- | ---- | ---- | - | ----- | -------- | --- | - | ----- | ---- | ---- | 
|                                                   |                                                 | Nine Months Ended October 31,                           |      
|                                                   |                                                 |                                                         |      
|                                                   |                                                 | 2005                                                    |       |      | 2004 |   |       | $ Change |    
|                                                   |                                                 |                                                         |       |      |      |   |       |          |    
|Net sales                                          |                                                 | $                                                       | 533.3 |      |      | $ | 534.8 |          |     | $ | (1.5  | )   
|Asset impairments and other restructuring charges: |                                                 |                                                         |       |      |      |   |       |          |     |   |       |     
|                                                   | Facility closure costs                          |                                                         | $     |     |      |   | $     | (0.2     | )   |   | $     | 0.2  |     
|                                                   | Impairment of machinery, equipment, and tooling |                                                         |       | 30.7 |      |   |       |         |     |   |       | 30.7 |     
|                                                   | Severance and other restructuring costs         |                                                         |       |     |      |   |       | 0.6      |     |   |       | (0.6 | )   
|                                                   |                                                 |                                                         |       |      |      |   |       |          |    
|                                                   |                                                 | Total asset impairments and other restructuring charges |       | $    | 30.7 |   |       | $        | 0.4 |   |       | $    | 30.3 | 
|                                                   |                                                 |                                                         |       |      |      |   |       |          |    
|Loss from operations                               |                                                 | $                                                       | (43.3 | )    |      | $ | (6.8  | )        |     | $ | (36.5 | )   



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





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





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



35



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##### Table of Contents







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



|                     |  |                               |       |   |      |   |      |          |  |   |       |  
|-------------------- |  | ----------------------------- | ----- | - | ---- | - | ---- | -------- |  | - | ----- | -
|                     |  | Nine Months Ended October 31, |      
|                     |  |                               |      
|                     |  | 2005                          |       |   | 2004 |   |      | $ Change | 
|                     |  |                               |       |   |      |   |      |          | 
|Loss from operations |  | $                             | (21.0 | ) |      | $ | (6.5 | )        |  | $ | (14.5 | )



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





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



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

Operating Activities:


Investing Activities:


Financing Activities: 




36



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##### Table of Contents







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









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







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



|                               |  |     |     |  |         |  |      | 
|------------------------------ |  | --- | --- |  | ------- |  | ---- | 
|                               |  | S&P |     |  | Moodys | 
|                               |  |     |     |  |         | 
|Corporate and Bank Debt rating |  |     | B + |  |         |  | B3   | 
|Senior Note rating             |  |     | B - |  |         |  | Caa3 | 



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





| |   |                                                            
| | - | -----------------------------------------------------------
| |  | declare dividends or redeem or repurchase capital stock    
|
| |  | prepay, redeem or purchase debt, including the Senior Notes

37



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##### Table of Contents





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







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



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



38



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##### Table of Contents









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



|                           |                   |                       |      |      |       |   |      |       |  |   |         |       |  |       |      |      |  |   |       |       | 
|-------------------------- | ----------------- | --------------------- | ---- | ---- | ----- | - | ---- | ----- |  | - | ------- | ----- |  | ----- | ---- | ---- |  | - | ----- | ----- | 
|                           |                   | Payment Due by Period |     
|                           |                   |                       |     
|                           |                   | Less than             |      |      | 1-3   |   |      | 4-5   |  |   | After 5 |       |  |      
|                           |                   | 1 Year                |      |      | Years |   |      | Years |  |   | Years   |       |  | Total |     
|                           |                   |                       |      |      |       |   |      |       |  |   |         |       |  |       |     
|Short-term borrowings      |                   | $                     | 24.6 |      |       | $ |     |       |  | $ |        |       |  | $     |     |      |  | $ | 24.6  |      
|Long-term debt             |                   |                       | 15.8 |      |       |   | 13.7 |       |  |   | 682.3   |       |  |       |     |      |  |   | 711.8 |      
|Mortgage note payable      |                   |                       | 0.2  |      |       |   | 21.9 |       |  |   |        |       |  |       |     |      |  |   | 22.1  |      
|Capital lease obligations  |                   |                       | 3.3  |      |       |   | 4.5  |       |  |   | 7.2     |       |  |       |     |      |  |   | 15.0  |      
|Operating leases           |                   |                       | 10.6 |      |       |   | 11.5 |       |  |   | 3.4     |       |  |       | 0.8  |      |  |   | 26.3  |      
|Redeemable preferred stock |                   |                       |     |      |       |   |     |       |  |   |        |       |  |       | 11.9 |      |  |   | 11.9  |      
|Capital expenditures       |                   |                       | 26.2 |      |       |   |     |       |  |   |        |       |  |       |     |      |  |   | 26.2  |      
|                           |                   |                       |      |      |       |   |      |       |  |   |         |       |  |       |     
|                           | Total obligations |                       | $    | 80.7 |       |   | $    | 51.6  |  |   | $       | 692.9 |  |       | $    | 12.7 |  |   | $     | 837.9 | 
|                           |                   |                       |      |      |       |   |      |       |  |   |         |       |  |       |     



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



|                                                   |  |   |      | 
|-------------------------------------------------- |  | - | ---- | 
|Interest                                           |  | $ | 18.7 | 
|Taxes                                              |  |   | 7.3  | 
|Pension and other post-retirement benefits funding |  |   | 9.6  | 
|Restructuring costs                                |  |   | 2.1  | 
|Various customer satisfaction issues               |  |   | 0.6  | 



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





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



39



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##### Table of Contents









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





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





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



| |                      
| | ---------------------
| | Customers and Pricing





40



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##### Table of Contents





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





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





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







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



41



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##### Table of Contents









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





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





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





42



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##### Table of Contents







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









43



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##### Table of Contents












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








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

Evaluation of Disclosure Controls and Procedures






Changes in Internal Control over Financial Reporting


Internal Control 
Integrated Framework.


44



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##### Table of Contents







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










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



45



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##### Table of Contents








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

| |    |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | -- | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10 | .16 |  | Amendment No. 1, Waiver and Consent
to Amended and Restated Credit Agreement dated as of October 10, 2005
among HLI Operating Company, Inc., Hayes Lemmerz International, Inc.
and Citicorp North America, Inc. as Administrative Agent on behalf of
each Lender executing a Lender Consent (incorporated by reference to
Exhibit 10.23 of the Quarterly Report on Form 10-Q of Hayes Lemmerz
International, Inc. for the three and nine months ended October 31,
2005, filed December 8, 2005).                                                        
|
| | 10 | .17 |  | Framework Agreement on the Ongoing Purchase of Receivables dated
    as of October 10, 2005 by and between Hayes Lemmerz Werke
    GmbH and MHB Financial Services GmbH & Co. KG
(incorporated by reference to Exhibit 10.24 of the Quarterly Report on
Form 10-Q of Hayes Lemmerz International, Inc. for the three and nine
months ended October 31, 2005, filed December 8, 2005).                                                                                                                                                                   
|
| | 10 | .18 |  | Stock Purchase Agreement dated as of October 14, 2005 by
    and among HLI Operating Company, Inc., HLI Commercial Highway
    Holding Company, Inc., and Hayes Lemmerz
    International  Commercial Highway, Inc. and Precision
    Partners Holding Company, as amended by an Amendment to Stock
    Purchase Agreement dated November 11, 2005 (incorporated by
reference to Exhibit 10.25 of the Quarterly Report on Form 10-Q of
Hayes Lemmerz International, Inc. for the three and nine months ended
October 31, 2005, filed December 8, 2005).
|
| | 31 | .1  |  | Certification of Curtis J. Clawson, Chairman of the Board,
    President, and Chief Executive Officer, pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.*                                                                                                                                                                                                                                                                                                                                                                                  
|
| | 31 | .2  |  | Certification of James A. Yost, Vice President, Finance, and
    Chief Financial Officer, pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.*                                                                                                                                                                                                                                                                                                                                                                                               
|
| | 32 | .1  |  | Certification of Curtis J. Clawson, Chairman of the Board,
    President, and Chief Executive Officer, Pursuant to
    18 U.S.C. Section 1350, as Adopted Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.*                                                                                                                                                                                                                                                                                                                               
|
| | 32 | .2  |  | Certification of James A. Yost, Vice President, Finance, and
    Chief Financial Officer, Pursuant to 18 U.S.C.
    Section 1350, as Adopted Pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.*                                                                                                                                                                                                                                                                                                                                            






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

46



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##### Table of Contents






SIGNATURES








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



47



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##### Table of Contents



HLI OPERATING COMPANY, INC.


10-Q EXHIBIT INDEX


| |    |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -- | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10 | .16 |  | Amendment No. 1, Waiver and Consent
to Amended and Restated Credit Agreement dated as of October 10, 2005
among HLI Operating Company, Inc., Hayes Lemmerz International, Inc.
and Citicorp North America, Inc. as Administrative Agent on behalf of
each Lender executing a Lender Consent (incorporated by reference to
Exhibit 10.23 of the Quarterly Report on Form 10-Q of Hayes Lemmerz
International, Inc. for the three and nine months ended October 31,
2005, filed December 8, 2005).                                                         
|
| | 10 | .17 |  | Framework Agreement on the Ongoing Purchase of Receivables dated
    as of October 10, 2005 by and between Hayes Lemmerz Werke
    GmbH and MHB Financial Services GmbH & Co. KG (incorporated by reference to Exhibit 10.24 of the Quarterly Report on
Form 10-Q of Hayes Lemmerz International, Inc. for the three and nine
months ended October 31, 2005, filed December 8, 2005).                                                                                                                                                                    
|
| | 10 | .18 |  | Stock Purchase Agreement dated as of October 14, 2005 by
    and among HLI Operating Company, Inc., HLI Commercial Highway
    Holding Company, Inc., and Hayes Lemmerz
    International  Commercial Highway, Inc. and Precision
    Partners Holding Company, as amended by an Amendment to Stock
    Purchase Agreement dated November 11, 2005  (incorporated by
reference to Exhibit 10.25 of the Quarterly Report on Form 10-Q of
Hayes Lemmerz International, Inc. for the three and nine months ended
October 31, 2005, filed December 8, 2005).
|
| | 31 | .1  |  | Certification of Curtis J. Clawson, Chairman of the Board,
    President, and Chief Executive Officer, pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.*                                                                                                                                                                                                                                                                                                                                                                                   
|
| | 31 | .2  |  | Certification of James A. Yost, Vice President, Finance, and
    Chief Financial Officer, pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.*                                                                                                                                                                                                                                                                                                                                                                                                
|
| | 32 | .1  |  | Certification of Curtis J. Clawson, Chairman of the Board,
    President, and Chief Executive Officer, Pursuant to
    18 U.S.C. Section 1350, as Adopted Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.*                                                                                                                                                                                                                                                                                                                                
|
| | 32 | .2  |  | Certification of James A. Yost, Vice President, Finance, and
    Chief Financial Officer, Pursuant to 18 U.S.C.
    Section 1350, as Adopted Pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.*                                                                                                                                                                                                                                                                                                                                             






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