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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
    Form 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended October 31, 2004Or[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934For the transition period
from                         toCommission file number: 333-107539
   HLI Operating Company, Inc. (Exact name of registrant as specified in its charter)
 Delaware
    
    30-0167742(State or other jurisdiction of
    
    (IRS Employer Identification No.)incorporation or organization)15300 Centennial Drive
    
    48167Northville, Michigan
    
    (Zip Code)(Address of principal executive offices)
 Registrants telephone number, including area code:
(734) 737-5000 Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes
x     No
4 Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12(b)-2 of the Act). Yes 4    No x APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Act subsequent
to the distributions of securities under a plan confirmed by a court. Yes x
    No 4 The
number of shares of common stock outstanding as of December 15, 2004
was 590,000 shares.




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HLI Operating Company, Inc.
QUARTERLY REPORT ON FORM 10-Q TABLE OF CONTENTS PagePART I.FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Statements of Operations
    
    
    
    3Consolidated Balance Sheets
    
    
    
4Consolidated Statements of Cash Flows
    
    
    
5Notes to Consolidated Financial Statements
    
    
    
6Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    
    30Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    
    42Item 4. Controls and Procedures
    
    
    
    42PART II.
OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    
    43Item 2. Changes in Securities and Use of Proceeds
    
    
    
    43Item 3. Defaults upon Senior Securities
    
    
    
    43Item 4. Submission of Matters to a Vote of Security Holders
    
    
    
    44Item 5. Other Information
    
    
    
    44Item 6. Exhibits
    
    
    
    44Signatures
    
    
    
    45Amendment No. 4 dated as of November 10, 2004Certification of Curtis J. Clawson, Pursuant to Section 302Certification of James A. Yost, Pursuant to Section 302Certification of Curtis J. Clawson, Pursuant to Section 906Certification of James A. Yost, Pursuant 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 2004 means the period beginning February 1,
2004, and ending January 31, 2005). This report contains forward looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995 with respect to the financial condition, results of operations, and
business of the Company. All statements other than statements of historical
fact we make in this Quarterly Report are forward-looking. Such forward-looking
statements include, among others, those statements including the words
expect, anticipate, intend, believe and similar language. These forward
looking statements involve certain risks and uncertainties. Our actual results
may differ significantly from those projected in the forward-looking
statements. Factors that may cause actual results to differ materially from
those contemplated by such forward looking statements include, among others:
(1) competitive pressure in the Companys industry; (2) fluctuations in the
price of steel, aluminum and other raw materials; (3) general economic
conditions are less favorable than expected; (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
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; and (8) the risks described in our most
recent Annual Report onForm 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 onForm 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 onForm 10-Qand the Company does not
intend to provide such updates. 2




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HLI OPERATING COMPANY, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Dollars in millions)
 Three Months
    
    Three MonthsEnded
    
    EndedOctober 31,
    
    October 31,2004
    
    2003(Unaudited)Net sales
    
    $
    556.2
    
    
    $
    530.9Cost of goods sold
    
    
    506.1
    
    
    
    461.6Gross profit
    
    
    50.1
    
    
    
    69.3Marketing, general and administrative
    
    
    39.4
    
    
    
    33.1Asset impairments and other restructuring charges
    
    
    2.9
    
    
    
    19.6Other (income) expense, net
    
    
    0.6
    
    
    
    2.7Earnings from operations
    
    
    7.2
    
    
    
    13.9Interest expense, net
    
    
    12.3
    
    
    
    14.7Other non-operating (income) expense, net
    
    
    1.1
    
    
    
    0.2Loss before taxes on income and minority interest
    
    
    (6.2
    )
    
    
    (1.0
    )Income tax provision
    
    
    3.7
    
    
    
    6.1Loss before minority interest
    
    
    (9.9
    )
    
    
    (7.1
    )Minority interest
    
    
    1.9
    
    
    
    1.0Net loss
    
    $
    (11.8
    )
    
    $
    (8.1
    )
 See accompanying notes to consolidated financial statements. 3




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HLI OPERATING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions) Successor
    
    PredecessorNine Months
    
    Five Months
    
    Four MonthsEnded
    
    Ended
    
    EndedOctober 31,
    
    October 31,
    
    May 31,2004
    
    2003
    
    2003(Unaudited)Net sales
    
    $
    1,674.0
    
    
    $
    859.2
    
    
    $
    689.8Cost of goods sold
    
    
    1,500.5
    
    
    
    760.5
    
    
    
    611.3Gross profit
    
    
    173.5
    
    
    
    98.7
    
    
    
    78.5Marketing, general and administrative
    
    
    123.2
    
    
    
    58.0
    
    
    
    41.6Asset impairments and other restructuring charges
    
    
    6.2
    
    
    
    19.6
    
    
    
    6.4Other (income) expense, net
    
    
    1.2
    
    
    
    4.8
    
    
    
    (1.9
    )Reorganization items
    
    
    
    
    
    
    
    
    
    
    45.0Fresh start accounting adjustments
    
    
    
    
    
    
    
    
    
    
    (63.1
    )Earnings from operations
    
    
    42.9
    
    
    
    16.3
    
    
    
    50.5Interest expense, net
    
    
    39.1
    
    
    
    27.3
    
    
    
    22.7Other non-operating (income) expense
    
    
    1.0
    
    
    
    0.3
    
    
    
    Loss on early extinguishment of debt
    
    
    12.2
    
    
    
    
    
    
    
    Earnings (loss) before taxes on income, minority
interest, extraordinary gain on debt discharge
    
    
    (9.4
    )
    
    
    (11.3
    )
    
    
    27.8Income tax provision
    
    
    14.3
    
    
    
    8.7
    
    
    
    60.3Loss before minority interest and extraordinary gain
on debt discharge
    
    
    (23.7
    )
    
    
    (20.0
    )
    
    
    (32.5
    )Minority interest
    
    
    6.0
    
    
    
    1.8
    
    
    
    1.2Loss before extraordinary gain on debt discharge
    
    
    (29.7
    )
    
    
    (21.8
    )
    
    
    (33.7
    )Extraordinary gain on debt discharge, net of tax of $0
    
    
    
    
    
    
    
    
    
    
    1,076.7Net income (loss)
    
    $
    (29.7
    )
    
    $
    (21.8
    )
    
    $
    1,043.0
 See accompanying notes to consolidated financial statements. 4




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HLI OPERATING COMPANY, INC. AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS
 (Dollars in millions)
 October 31,
    
    January 31,2004
    
    2004(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    27.8
    
    
    $
    48.5Receivables
    
    
    377.5
    
    
    
    325.5Inventories
    
    
    194.6
    
    
    
    189.3Prepaid expenses and other
    
    
    18.6
    
    
    
    29.0Total current assets
    
    
    618.5
    
    
    
    592.3Property, plant and equipment, net
    
    
    978.1
    
    
    
    966.5Goodwill
    
    
    409.3
    
    
    
    416.2Intangible assets, net
    
    
    230.2
    
    
    
    237.2Other assets
    
    
    55.1
    
    
    
    85.5Total assets
    
    $
    2,291.2
    
    
    $
    2,297.7LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Bank borrowings and other notes
    
    $
    3.9
    
    
    $
    14.2Current portion of long-term debt
    
    
    11.1
    
    
    
    11.3Accounts payable and accrued liabilities
    
    
    397.4
    
    
    
    355.5Total current liabilities
    
    
    412.4
    
    
    
    381.0Long-term debt, net of current portion
    
    
    638.3
    
    
    
    752.4Pension and other long-term liabilities
    
    
    517.2
    
    
    
    526.5Redeemable preferred stock
    
    
    11.1
    
    
    
    10.5Minority interest
    
    
    28.3
    
    
    
    23.2Commitments and contingenciesStockholders equity:Common stock, par value $0.01 per share: 600,000 shares
authorized; 590,000 issued and
outstanding at October 31, 2004 and
January 31, 2004, respectively
    
    
    
    
    
    
    Additional paid in capital
    
    
    679.7
    
    
    
    557.8Accumulated deficit
    
    
    (77.3
    )
    
    
    (47.6
    )Accumulated other comprehensive income
    
    
    81.5
    
    
    
    93.9Total stockholders equity
    
    
    683.9
    
    
    
    604.1Total liabilities and stockholders equity
    
    $
    2,291.2
    
    
    $
    2,297.7
 See accompanying notes to consolidated financial statements. 5




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HLI OPERATING COMPANY, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Dollars in millions)
 Successor
    
    PredecessorNine Months
    
    Five Months
    
    Four MonthsEnded
    
    Ended
    
    EndedOctober 31,
    
    October 31,
    
    May 31,2004
    
    2003
    
    2003(Unaudited)Cash flows from operating activities:Net income (loss)
    
    $
    (29.7
    )
    
    $
    (21.8
    )
    
    $
    1,043.0Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:Depreciation and amortization
    
    
    128.3
    
    
    
    67.1
    
    
    
    46.4Amortization of deferred financing fees
    
    
    2.8
    
    
    
    1.4
    
    
    
    1.6Change in deferred income taxes
    
    
    (11.2
    )
    
    
    (6.9
    )
    
    
    52.6Asset impairments and other restructuring charges
    
    
    6.2
    
    
    
    19.6
    
    
    
    6.4Minority interest
    
    
    6.0
    
    
    
    1.8
    
    
    
    1.2Preferred stock dividends
    
    
    0.6
    
    
    
    0.3
    
    
    
    Compensation expense related to restricted stock units
    
    
    4.9
    
    
    
    2.1
    
    
    
    Loss on extinguishment of debt
    
    
    12.2
    
    
    
    
    
    
    
    (Gain) loss on sale of assets and businesses
    
    
    
    
    
    
    0.3
    
    
    
    (0.4
    )Changes in operating assets and liabilities:Receivables
    
    
    (51.0
    )
    
    
    (22.9
    )
    
    
    (13.7
    )Inventories
    
    
    (4.7
    )
    
    
    14.5
    
    
    
    (4.0
    )Prepaid expenses and other
    
    
    3.1
    
    
    
    4.0
    
    
    
    5.2Accounts payable and accrued liabilities
    
    
    35.8
    
    
    
    29.2
    
    
    
    (6.9
    )Chapter 11 items:Reorganization items
    
    
    
    
    
    
    
    
    
    
    45.0Fresh start accounting adjustments
    
    
    
    
    
    
    
    
    
    
    (63.1
    )Extraordinary gain on debt discharge
    
    
    
    
    
    
    
    
    
    
    (1,076.7
    )Interest accrued on Credit Agreement
    
    
    
    
    
    
    
    
    
    
    16.9Payments related to Chapter 11 Filings
    
    
    (1.1
    )
    
    
    (34.2
    )
    
    
    (22.4
    )Cash provided by operating activities
    
    
    102.2
    
    
    
    54.5
    
    
    
    31.1Cash flows from investing activities:Purchase of property, plant, equipment and tooling
    
    
    (109.2
    )
    
    
    (41.1
    )
    
    
    (26.3
    )Purchase of equipment previously leased
    
    
    
    
    
    
    
    
    
    
    (23.6
    )Proceeds from sale of assets
    
    
    0.6
    
    
    
    0.8
    
    
    
    0.8Cash used for investing activities
    
    
    (108.6
    )
    
    
    (40.3
    )
    
    
    (49.1
    )Cash flows from financing activities:Change in borrowings under DIP Facility
    
    
    
    
    
    
    
    
    
    
    (49.9
    )Changes in bank borrowings and credit facility
    
    
    2.8
    
    
    
    (11.9
    )
    
    
    (9.8
    )Repayment of notes payable issued in connection with
purchases of businesses
    
    
    (13.1
    )
    
    
    
    
    
    
    (2.0
    )Repayment of long-term debt
    
    
    (8.2
    )
    
    
    (74.0
    )
    
    
    Net proceeds from issuance of common stock
    
    
    117.0
    
    
    
    
    
    
    
    Proceeds from (redemption of) New Senior Notes, net of
discount and related fees
    
    
    (96.7
    )
    
    
    
    
    
    
    242.8Proceeds from (redemption of) New Term Loan, net of
related fees
    
    
    (16.0
    )
    
    
    (1.1
    )
    
    
    436.1Prepetition Lenders Payment amount
    
    
    
    
    
    
    
    
    
    
    (477.3
    )Payment to holders of Old Senior Notes
    
    
    
    
    
    
    
    
    
    
    (13.0
    )Cash provided by (used for) financing activities
    
    
    (14.2
    )
    
    
    (87.0
    )
    
    
    126.9Effect of exchange rate changes on cash and cash equivalents
    
    
    (0.1
    )
    
    
    2.7
    
    
    
    4.1Increase (decrease) in cash and cash equivalents
    
    
    (20.7
    )
    
    
    (70.1
    )
    
    
    113.0Cash and cash equivalents at beginning of period
    
    
    48.5
    
    
    
    179.1
    
    
    
    66.1Cash and cash equivalents at end of period
    
    $
    27.8
    
    
    $
    109.0
    
    
    $
    179.1Supplemental data:Cash paid for interest
    
    
    34.0
    
    
    
    10.3
    
    
    
    5.8Cash paid for income taxes
    
    
    15.7
    
    
    
    15.5
    
    
    
    2.9
 See accompanying notes to consolidated financial statements. 6




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HLI OPERATING COMPANY, INC. AND SUBSIDIARIES 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Nine Months Ended October 31, 2004, Five Months Ended October 31, 2003 and
Four Months Ended May 31, 2003
(Unaudited)
 Note 1. Description of Business, Chapter 11 Filings and Emergence from Chapter
11 These financial statements should be read in conjunction with the
financial statements included in the Companys Annual Report on Form 10-K for
the fiscal year ended January 31, 2004 as filed with the Securities and
Exchange Commission (SEC) on April 14, 2004. Description of Business Unless otherwise indicated, references to Company mean (i) prior in the
effectiveness of Old Hayes Plan of Reorganization (as defined below) and the
related restructuring, to Old Hayes and its consolidated subsidiaries (the
Predecessor), and (ii) after the effectiveness of Old Hayes Plan of
Reorganization and the related restructuring to HLI Operating Company, Inc.,
and its consolidated subsidiaries (the Successor). References to fiscal year
means the Companys year commencing on February 1 of that year and ending on
January 31 of the following year (i.e., fiscal 2004 refers to the period
beginning February 1, 2004 and ending January 31, 2005, fiscal 2003 refers to
the period beginning February 1, 2003 and ending January 31, 2004). The Company is a leading supplier of wheels, wheel-end attachments,
aluminum structural components and automotive brake components. The Company is
the worlds largest manufacturer of automotive wheels. In addition, the Company
also designs and manufactures wheels and brake components for commercial
highway vehicles, and powertrain components and aluminum non-structural
components for the automotive, commercial highway, heating and general
equipment industries. Chapter 11 Filings On December 5, 2001, Old Hayes, 30 of its wholly-owned domestic
subsidiaries and one wholly-owned Mexican subsidiary (collectively, the
Debtors) filed voluntary petitions for reorganization relief (the Chapter 11
Filings or the Filings) under Chapter 11 of the Bankruptcy Code in the
United States Bankruptcy Court for the District of Delaware (the Bankruptcy
Court). On December 16, 2002, certain of the Debtors filed a proposed joint plan
of reorganization with the Bankruptcy Court. On April 9, 2003, the Debtors
filed a modified first amended joint plan of reorganization (the Plan of
Reorganization) which received the requisite support from creditors authorized
to vote thereon. The following five Debtors were not proponents of the Plan of
Reorganization and are not subject to the terms thereof: HLI Netherlands
Holdings, Inc., CMI Quaker Alloy, Inc., Hayes Lemmerz Funding Company, LLC,
Hayes Lemmerz Funding Corporation, and Hayes Lemmerz International Import, Inc.
(collectively, the Non-reorganizing Debtors). The Plan of Reorganization provided for the cancellation of the existing
common stock of Old Hayes and the issuance of cash, new common stock in the
reorganized Company and other property to certain creditors of Old Hayes in
respect of certain classes of claims. The Plan of Reorganization was confirmed
by an order of the Bankruptcy Court on May 12, 2003, which order has become
final and non-appealable. Emergence from Chapter 11 On June 3, 2003 (the Effective Date), Old Hayes and each of the 27
Debtors proposing the Plan of Reorganization emerged from Chapter 11
proceedings pursuant to the Plan of Reorganization, which was confirmed by an
order of the Bankruptcy Court on May 12, 2003, which order has become final and
non-appealable. The Non-reorganizing Debtors were not proponents of the Plan of
Reorganization and are not subject to the terms thereof. On June 3, 2003, the
Bankruptcy Court entered an order dismissing the Chapter 11 Filings of the
Non-reorganizing Debtors. Pursuant to the Plan of Reorganization, Old Hayes caused the formation of
(i) a new holding company, HLI Holding Company, Inc., a Delaware corporation
(HoldCo), (ii) HLI Parent Company, Inc., a Delaware corporation and a wholly
owned subsidiary of HoldCo (ParentCo), and (iii) HLI Operating Company, Inc,
a Delaware corporation and a wholly owned subsidiary of ParentCo (HLI). On
the Effective Date, (i) HoldCo was renamed Hayes Lemmerz International, Inc.
(New Hayes), (ii) New Hayes contributed to ParentCo 30,0000,000 shares of its
common stock, par value $.01 per share (the New Common Stock), and 957,447
series A warrants and 957,447 series B warrants to acquire New Common Stock of
New Hayes (the Series A Warrants and Series B Warrants, respectively),
(iii) ParentCo in turn contributed such shares of New Common Stock and Series A
Warrants and Series B 7




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Warrants to HLI and (iv) pursuant to an Agreement and Plan of Merger,
dated as of June 3, 2003 (the Merger Agreement), between Old Hayes and HLI,
Old Hayes was merged with and into HLI (the Merger), with HLI continuing as
the surviving corporation. Pursuant to the Plan of Reorganization and as a result of the Merger, all
of the issued and outstanding shares of common stock, par value $.01 per share,
of Old Hayes (the Old Common Stock), and any other outstanding equity
securities of Old Hayes, including all options and warrants, were cancelled.
The holders of the existing voting common stock of Old Hayes immediately before
confirmation did not receive any voting shares of the emerging entity or any
other consideration under the Plan of Reorganization as a result of their
ownership interests of the Predecessor. This represented a complete change of
control in the ownership of Old Hayes. Promptly following the Merger, HLI
distributed to certain holders of allowed claims, under the terms of the Plan
of Reorganization, an amount in cash, the New Common Stock, the Series A
Warrants, the Series B Warrants and the Preferred Stock (as defined below).
Prior to the Merger, the Old Common Stock was registered pursuant to Section
12(g) of the Securities Exchange Act of 1934, as amended (the Exchange Act).
In reliance on Rule 12g-3(a) of the Exchange Act, by virtue of the status of
New Hayes as a successor issuer to the Company, the New Common Stock is deemed
registered under Section 12(g) of the Exchange Act. The Company filed a Form 15
with the SEC to terminate the registration of the Old Common Stock under the
Exchange Act. Pursuant to the terms of the Plan of Reorganization, HLI issued 100,000
shares of Preferred Stock, par value $1.00, of HLI (the Preferred Stock) to
the holders of certain allowed claims. In accordance with the terms of the
Preferred Stock, the shares of Preferred Stock are, at the holders option,
exchangeable into a number of fully paid and nonassessable shares of New Common
Stock equal to (i) the aggregate liquidation preference of the shares of
Preferred Stock so exchanged ($100 per share plus all accrued and unpaid
dividends thereon (whether or not declared) to the exchange date) divided by
(ii) 125% of the Emergence Share Price. As determined pursuant to the terms
of the Plan of Reorganization, the Emergence Share Price is $18.50. In connection with the Debtors emergence from Chapter 11, on the
Effective Date, HLI entered into a $550.0 million senior secured credit
facility, as amended by Amendment No. 1 and Waiver to Credit Agreement, dated
October 16, 2003 and Amendment No. 2 and Waiver to the Credit Agreement dated
February 6, 2004, by Amendment No. 3 dated May 6, 2004, by Waiver to the Credit
Agreement dated June 1, 2004 and by Amendment No. 4, Waiver and Consent to
Credit Agreement dated November 10, 2004 (as amended, the New Credit
Facility). The New Credit Facility consists of a $450.0 million six-year
amortizing term loan (the New Term Loan) and a five-year $100.0 million
revolving credit facility (the Revolving Credit Facility). In addition, HLI
issued on the Effective Date an aggregate of $250.0 million principal amount of
10 1/2% senior notes due 2010 (the New Senior Notes). The proceeds from the
initial $450.0 million of borrowings under the New Credit Facility and the net
proceeds from the New Senior Notes were used to make payments required under
the Plan of Reorganization, including the repayment of Old Hayes DIP Facility
and a payment of $477.3 million to certain prepetition lenders, to pay related
transaction costs and to refinance certain debt. Reorganization Items Reorganization items as reported in the consolidated statements of
operations included herein are comprised of income, expense and loss items that
were realized or incurred by the Debtors as a direct result of Old Hayes
decision to reorganize under Chapter 11. During the four months ended May 31,
2003 reorganization items were as follows (dollars in millions): PredecessorFour MonthsEndedMay 31,2003Critical employee retention plan provision
    
    $
    11.7Professional fees directly related to the
Filings
    
    
    30.8Creditors Trust obligation
    
    
    2.0Other
    
    
    0.5Total
    
    $
    45.0
 On May 30, 2002, the Bankruptcy Court entered an order approving, among
other things, the critical employee retention plan (the CERP) filed with the
Bankruptcy Court in February 2002 which was designed to compensate certain
critical employees in order to assure their retention and availability during
the Companys restructuring. The plan has two components which (i) rewarded
critical employees who remained with the Company (and certain affiliates of the
Company who are not directly involved in the restructuring) during and through
the completion of the restructuring (the Retention Bonus) and (ii) provided
additional incentives to a more limited group of the most senior critical
employees if the enterprise value upon completing the restructuring exceeded an
established baseline (the Restructuring Performance Bonus). Thirty-five percent, or approximately $3.0 million, of the Retention Bonus
was paid on October 1, 2002. The remaining portion of the Retention Bonus of
approximately $5.9 million was paid on June 13, 2003. Further, the
Restructuring Performance Bonus provided under the CERP was paid after the
consummation of the restructuring as discussed below. 8




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##### Table of Contents



Based on Old Hayes compromise total enterprise value of $1,250.0 million
as confirmed by the Bankruptcy Court, the aggregate amount of the Restructuring
Performance Bonus is $12.1 million. Of the aggregate $12.1 million,
approximately $6.0 million was paid in cash on July 1, 2003, and approximately
$2.0 million was paid on August 28, 2003 as determined by the New Hayes Board
of Directors. The remaining portion of the Restructuring Performance Bonus was
paid in 215,935 shares of restricted units of New Hayes on July 28, 2003.
Pursuant to provisions contained in the CERP, the restricted units will vest as
follows, subject to the participants continued employment:  
    
    one half of the restricted units vested on June 3, 2004, the first anniversary of the Effective Date, and;
    
    one half of the restricted units will vest on the second anniversary of the Effective Date. Cash payments with respect to other reorganization items consisted
primarily of professional fees and cure payments and were approximately $20.3
million and $21.2 million during the five months ended October 31, 2003 and the
four months ended May 31, 2003, respectively. Note 2. Basis of Presentation and Stock-Based Compensation Basis of Presentation As discussed in Note 1, Old Hayes filed a voluntary petition for
reorganization relief under Chapter 11 of the Bankruptcy Code in December 2001
and emerged from Chapter 11 on June 3, 2003. Upon emergence from Chapter 11,
the Company implemented fresh start accounting principles (see Note 3, Fresh
Start Accounting) pursuant to American Institute of Certified Public
Accountants (AICPA) Statement of Position 90-7, Financial Reporting by
Entities in Reorganization under the Bankruptcy Code (SOP 90-7). SOP 90-7
requires the segregation of liabilities subject to compromise by the Bankruptcy
Court as of the bankruptcy filing date, and identification of all transactions
and events that are directly associated with the reorganization of the
Predecessor. As a result of the application of fresh start accounting on May
31, 2003, and in accordance with SOP 90-7, the post-emergence financial results
of the Company for the period ending October 31, 2004 and the period ended
October 31, 2003 are presented as the Successor and the pre-emergence
financial results of the Company for the period ending May 31, 2003 are
presented as the Predecessor. Comparative financial statements do not
straddle the emergence date because in effect the Successor Company represents
a new entity. Per share and share information for the Predecessor Company for
all periods presented on the consolidated statement of operations have been
omitted as such information is deemed to be not meaningful. The Companys unaudited interim consolidated financial statements do not
include all of the disclosures required by accounting principles generally
accepted in the United States of America for annual financial statements. In
the opinion of management, all adjustments considered necessary for a fair
presentation of the interim period results have been included. Operating
results for the interim periods presented in fiscal 2004 are not necessarily
indicative of the results that may be expected for the full fiscal year ending
January 31, 2005. Certain prior period amounts have been reclassified to conform to the
current year presentation. Stock-Based Compensation New Hayes accounts for its stock-based compensation in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations. As such,
compensation expense is recorded on the date of grant only if the current
market price of the underlying stock exceeds the exercise price. New Hayes
follows the provisions of Statement of Financial Accounting Standards (SFAS)
No. 123, Accounting for Stock-Based Compensation, and discloses pro forma net
income (loss) and pro forma earnings (loss) per share as if employee stock
option grants were treated as compensation expense using the fair-value-based
method defined in SFAS No. 123. In December 2002, the Financial Accounting Standards Board (FASB) issued
SFAS No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure, an amendment of FASB Statement No. 123. This Statement amends SFAS
No. 123 to provide alternative methods of transition for a voluntary change to
the fair value method of accounting for stock-based employee compensation. In
addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual and interim financial statements. If compensation expense had been determined based on the fair value at the
grant date consistent with the method prescribed in SFAS No. 123, the Companys
net loss and loss per share amounts would have been adjusted to the pro forma
amounts below (Dollars in millions): 9




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##### Table of Contents



Three Months
    
    Nine Months
    
    Five MonthsEnded
    
    Ended
    
    EndedOctober 31,
    
    October 31,
    
    October 31,2004
    
    2004
    
    2003Net loss:As reported
    
    $
    (11.8
    )
    
    $
    (29.7
    )
    
    $
    (19.2
    )Pro forma
    
    
    (11.5
    )
    
    
    (34.0
    )
    
    
    (21.2
    )
 As of the Effective Date, all options under the Predecessor Companys
stock option plans were cancelled and those plans were terminated. Accordingly,
no pro forma net income (loss) or pro forma earnings (loss) per share have been
presented for any of the stock options granted under those terminated plans. The Company recognized $4.9 million of compensation expense related to
restricted stock units during the nine months ended October 31, 2004. Note 3. Fresh Start Accounting Pursuant
to SOP 90-7, the accounting for the effects of Old Hayes reorganization occurred once the Plan of Reorganization was confirmed by the
Bankruptcy Court and there were no remaining contingencies material to
completing the implementation of the plan. The fresh start accounting
principles pursuant to SOP 90-7 provide, among other things, for the Company to
determine the value to be assigned to the equity of the reorganized Company as
of a date selected for financial reporting purposes. As discussed in Note 1,
the Debtors emerged from Chapter 11 on June 3, 2003, and the Company has
selected May 31, 2003 for financial reporting purposes as the date to implement
fresh start accounting principles. Pursuant
to SOP 90-7, the results of operations of the Company ended May 31,
2003 include (i) a pre-emergence extraordinary gain of $1,076.7 million
resulting from the discharge of debt and other liabilities under the Plan of
Reorganization; (ii) pre-emergence charges to earnings of $25.9 million
recorded as Reorganization items related to certain costs and expenses
resulting from the Plan of Reorganization becoming effective; and (iii) a
pre-emergence pre-tax gain of $63.1 million ($17.1 million, net of tax)
resulting from the aggregate remaining changes to the net carrying value of Old
Hayess pre-emergence assets and liabilities to reflect the fair values under
fresh start accounting. Old Hayes compromise total enterprise value was $1,250.0 million, with a
total value for common equity of $544.4 million, excluding the estimated fair
value of the Preferred Stock and the Series A Warrants and Series B Warrants
issued on the Effective Date. The Preferred Stock is classified as a liability
in the consolidated balance sheet and referred to as redeemable preferred
stock. Under fresh start accounting, the compromise total enterprise value has
been allocated to the Companys assets based on their respective fair values in
conformity with the purchase method of accounting for business combinations in
accordance with SFAS No. 141, Business Combinations; any portion not
attributed to specific tangible or identified intangible assets has been
recorded as an indefinite-lived intangible asset referred to as reorganization
value in excess of amounts allocable to identifiable assets and reported as
goodwill. The valuations required to determine the fair value of certain of the
Companys assets as presented below represent the results of the valuation
procedures performed by the Companys valuation specialist at May 31, 2003. Valuation of Compromise Total Enterprise Value and Reorganization Value in
Excess of Amounts Allocable to Identifiable Assets (Goodwill) The compromise total enterprise value (reorganization value) represents
the amount of resources available, or that become available, for the
satisfaction of post-petition liabilities and allowed claims, as negotiated
between the Debtors and the creditors (the interested parties). This value
along with other terms of the Plan of Reorganization were determined only after
extensive arms-length negotiations amongst the interested parties. Each
interested party developed its view of what the value should be based primarily
upon expected future cash flows of the business after emergence from Chapter
11, discounted at rates reflecting perceived business and financial risks. This
value is viewed as the fair value of the entity before considering liabilities
and approximates the amount a willing buyer would pay for the assets of the
Company immediately after restructuring. The amount of reorganization value in excess of amounts allocated to
identifiable assets (goodwill) is a function of compromise total enterprise
value. While the Company believes that the compromise total enterprise value
approximates fair value, differences between the methodology used in testing
for goodwill impairment and the negotiated value could adversely impact the
Companys future results of operations. The consolidated balance sheet presented below gives effect to the Plan of
Reorganization and the application of fresh start accounting at May 31, 2003 10




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##### Table of Contents



REORGANIZED CONDENSED CONSOLIDATED BALANCE SHEET
May 31, 2003
(Dollars in millions) Predecessor
    
    Discharge of
    
    Cancellation
    
    
    
    
    
    SuccessorMay 31,
    
    Debt and Exit
    
    of Old
    
    Fresh Start
    
    May 31,2003
    
    Financing
    
    Equity
    
    Adjustments
    
    2003(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    89.3
    
    
    $
    89.8
    (a)
    
    $
    
    
    
    $
    
    
    

    $
    179.1Receivables
    
    
    299.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    299.9Inventories
    
    
    186.0
    
    
    
    
    
    
    
    
    
    
    
    5.2
    (j)
    
    
    191.2Prepaid expenses and other
    
    
    27.0
    
    
    
    1.3
    (b)
    
    
    
    
    
    
    (7.8
    )(k)
    
    
    20.5Total current assets
    
    
    602.2
    
    
    
    91.1
    
    
    
    
    
    
    
    (2.6
    )
    
    
    690.7Property, plant and equipment,
net
    
    
    959.7
    
    
    
    54.0
    (c)
    
    
    
    
    
    
    (95.3
    )(l)
    
    
    918.4Old goodwill
    
    
    198.3
    
    
    
    
    
    
    
    
    
    
    
    (198.3
    )(m)
    
    
    New goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    390.9
    (n)
    
    
    390.9Intangible assets
    
    
    103.8
    
    
    
    
    
    
    
    
    
    
    
    121.9
    (o)
    
    
    225.7Other assets
    
    
    60.9
    
    
    
    19.9
    (d)
    
    
    
    
    
    
    0.4
    (k)(l)
    
    
    81.2Total assets
    
    $
    1,924.9
    
    
    $
    165.0
    
    
    $
    
    
    
    $
    217.0
    
    
    $
    2,306.9LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:DIP facility
    
    $
    59.7
    
    
    $
    (59.7
    )(e)
    
    $
    
    
    
    
    
    
    
    $
    Bank borrowings and other
notes
    
    
    13.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13.0Current portion of long-term
debt
    
    
    39.6
    
    
    
    4.5
    (f)
    
    
    
    
    
    
    
    
    
    
    44.1Accounts payable and accrued
liabilities
    
    
    303.8
    
    
    
    33.6
    (g)
    
    
    
    
    
    
    9.1
    (k)(p)
    
    
    346.5Total current liabilities
    
    
    416.1
    
    
    
    (21.6
    )
    
    
    
    
    
    
    9.1
    
    
    
    403.6Long-term debt, net of current
portion
    
    
    62.0
    
    
    
    31.0
    (f)
    
    
    
    
    
    
    
    
    
    
    93.0New Term Loan
    
    
    
    
    
    
    445.5
    (f)
    
    
    
    
    
    
    
    
    
    
    445.5New Senior Notes, net of
discount
    
    
    
    
    
    
    248.5
    (f)
    
    
    
    
    
    
    
    
    
    
    248.5Pension and other long-term
liabilities
    
    
    343.5
    
    
    
    0.5
    (g)
    
    
    
    
    
    
    195.5
    (k)(p)
    
    
    539.5Redeemable preferred stock
    
    
    
    
    
    
    10.0
    (f)
    
    
    
    
    
    
    
    
    
    
    10.0Minority interest
    
    
    17.8
    
    
    
    
    
    
    
    
    
    
    
    (4.7
    )(q)
    
    
    13.1Liabilities subject to
compromise
    
    
    2,153.4
    
    
    
    (2,153.4
    )(h)
    
    
    
    
    
    
    
    
    
    
    Commitments and contingenciesStockholders equity (deficit):New Common Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    New additional paid-in capital
    
    
    
    
    
    
    553.7
    
    
    
    
    
    
    
    
    
    
    
    553.7Old Common Stock
    
    
    0.3
    
    
    
    
    
    
    
    (0.3
    )(i)
    
    
    
    
    
    
    Old additional paid in capital
    
    
    235.1
    
    
    
    
    
    
    
    (235.1
    )(i)
    
    
    
    
    
    
    Old common stock in treasury at
cost
    
    
    (25.7
    )
    
    
    
    
    
    
    25.7
    (i)
    
    
    
    
    
    
    Accumulated deficit
    
    
    (1,201.8
    )
    
    
    1,050.8
    (h)
    
    
    209.7
    (i)
    
    
    (58.7
    )(m)
    
    
    Accumulated other comprehensive
loss
    
    
    (75.8
    )
    
    
    
    
    
    
    
    
    
    
    75.8
    (m)
    
    
    Total stockholders equity
(deficit)
    
    
    (1,067.9
    )
    
    
    1,604.5
    
    
    
    
    
    
    
    17.1
    
    
    
    553.7Total liabilities and
stockholders equity
(deficit)
    
    $
    1,924.9
    
    
    $
    165.0
    
    
    $
    
    
    
    $
    217.0
    
    
    $
    2,306.9
 Adjustments reflected in the reorganized condensed consolidated balance
sheet are as follows:  a)
    
    Represents adjustment to reflect a portion of the proceeds from the New
Senior Notes and the New Credit Facility, net of a $13.0 million cash
payment to former holders of the Companys 11 7/8% senior notes due 2006
(the Old Senior Notes).b)
    
    Represents escrowed property taxes and insurance required in connection
with exit financing.c)
    
    Represents capitalization of $54.0 million of assets resulting from
repayment or refinancing of certain synthetic leases. 11




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##### Table of Contents



d)
    
    Represents recognition of debt issuance costs recorded as other assets
consisting of fees and expenses of the New Credit Facility of $13.9
million, and fees and expenses of the New Senior Notes of $6.0 million.e)
    
    Represents repayment of the DIP Facility on the Effective Date.f)
    
    Represents new capitalization structure after giving effect to the Plan
of Reorganization. New Hayes recorded the Series A Warrants and Series B
Warrants at fair value. New Hayes also determined that its Series A
Warrants and Series B Warrants met the criteria for classification as
liabilities. As such they will be measured at fair value at each reporting
period with changes in fair value recognized in interest expense. The
Company also has recorded the redeemable preferred stock at fair value
which equals the stated liquidation preference. The fair value of the
redeemable preferred stock was $10.0 million and the Series A Warrants and
Series B Warrants fair value was approximately $9.3 million at emergence.
The Series A Warrants and Series B Warrants were valued utilizing the
Black-Scholes model that requires the estimation of several variables in
the formula. The redeemable preferred stock of subsidiary was valued using
a market/capitalization approach that capitalizes the dividend stream of
similar instruments issued by a comparative group using capitalization
rates that reflect prevailing market yields. The use of this approach
provides a range of possible fair values. This range was evaluated by the
Company before it selected a capitalization rate of 8.0% which
approximated the mean rate of the comparative group. The use of different
valuation techniques could have resulted in different conclusions of the
fair value of these instruments.g)
    
    Represents accrual or settlement of short- and long-term liabilities
upon emergence under the Plan of Reorganization as follows (Dollars in
millions): Accrual of contingent professional fees
    
    $
    8.5Accrual of the portion of the Restructuring Performance Bonus
component of the CERP to be paid in cash
    
    
    9.0Accrual of obligation to fund the Creditors Trust
    
    
    1.5Payment of accrued professional fees
    
    
    (13.1
    )Payment of accrued interest on the DIP Facility
    
    
    (0.4
    )Deferral of cure payments for assumed contracts and other
priority and administrative claims
    
    
    19.2Accrual of state tax liability for restructuring transactions
upon emergence
    
    
    6.5Other accrued liabilities incurred upon emergence
    
    
    2.9Net adjustment to accounts payable, accrued liabilities, and
pension and other long-term liabilities
    
    $
    34.1
  h)
    
    Represents the elimination of pre-petition liabilities discharged under
the Plan of Reorganization as follows (dollars in millions): Liabilities subject to compromise
    
    $
    2,153.4Form of settlement:Issuance of New Common Stock of HoldCo
    
    
    (544.4
    )Issuance of New Preferred Stock of HLI
    
    
    (10.0
    )Issuance of Series A Warrants and Series B Warrants
    
    
    (9.3
    )Repayment of remaining Old Senior Note proceeds
    
    
    (13.0
    )Prepetition Lenders Payment Amount
    
    
    (477.3
    )Amounts reclassified to accounts payable and accrued
liabilities for certain estimated cure payments with
respect to assumption of prepetition executory contracts
and unexpired leases, and other priority and administrative
claims
    
    
    (22.7
    )Gain on discharge of debt
    
    
    1,076.7Accrual of estimated contingent professional fees, cash
portion of the Restructuring Performance Bonus, Creditors
Trust obligation and tax expense related to restructuring
activities
    
    
    (25.9
    )Net adjustment to accumulated deficit
    
    $
    1,050.8
  i)
    
    Represents cancellation of Old Common Stock under fresh start
accounting.j)
    
    Represents adjustment to reflect the increase in the fair value of
inventory under fresh start accounting. Work-in-process and finished goods
were valued at the expected selling price less costs to complete, selling
and disposal cost and a normal profit. Raw materials and supplies were
valued using the cost approach. 12




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##### Table of Contents



k)
    
    Represents the adjustment of deferred tax assets and liabilities
resulting from fair value adjustments under fresh start accounting as
follows (dollars in millions): Prepaid expenses and other
    
    $
    (7.8
    )Other assets
    
    
    4.5Accounts payable and accrued liabilities
    
    
    (2.4
    )Pension and other long-term liabilities
    
    
    (46.3
    )Net adjustment
    
    
    (52.0
    )
  l)
    
    Primarily represents net adjustments to reflect the decrease of
property, plant, equipment and tooling to fair value under fresh start
accounting based on results of valuation procedures performed by the
Companys valuation specialist. The valuation methodologies employed
included the use of the market value and replacement cost approach for
personal property and the use of the cost, income and sales comparison
approaches for real property.m)
    
    Represents elimination of pre-emergence goodwill, equity accounts and
retained earnings under fresh start accounting.n)
    
    Represents new goodwill resulting from the excess of reorganization
value over the amounts allocable to the fair value of identifiable assets
and liabilities. The allocation of compromise enterprise value and goodwill was as follows
(dollars in millions): Assets:Current assets
    
    $
    690.7Property, plant and equipment
    
    
    918.4Goodwill
    
    
    390.9Intangible assets
    
    
    225.7Other assets
    
    
    81.2Liabilities:Current liabilities
    
    
    403.6New Preferred Stock of HLI
    
    
    10.0Other long-term liabilities
    
    
    1,339.6New common equity
    
    
    553.7Assumed obligations:New Term Loan, including current portion
    
    
    450.0New Senior Notes, net of discount
    
    
    248.5Redeemable preferred stock
    
    
    10.0Other assumed obligations, net of excess cash
    
    
    (12.2
    )Total compromise enterprise value
    
    $
    1,250.0
  o)
    
    Represents adjustment of $121.9 million to reflect the fair value of
identified intangible assets based on results of valuation procedures
performed by the Companys valuation specialist. See Note 6 for additional
disclosure regarding the category of intangibles and a description of the
valuation methodology.p)
    
    Primarily reflects the additional liability of $155.2 million under
fresh-start accounting for any pension and retiree medical plan costs as
determined by the Companys actuaries. This net additional liability had
been deferred pre-emergence in accordance with Statement of Financial
Accounting Standards (SFAS) Nos. 87 and 106. The actuarial assumptions
used in computing the liabilities were as follows: InternationalNorth American Plans
    
    PlansPension Benefits
    
    Other Benefits
    
    Pension BenefitsWeighted average assumptions:Discount Rate
    
    
    5.75
    %
    
    
    5.75
    %
    
    
    5.0-5.5
    %Expected return on plan assets
    
    
    8.0
    %
    
    
    N/A
    
    
    
    5.0

    %Rate of compensation increase
    
    
    4.75
    %
    
    
    N/A
    
    
    
    2.1
    %
  q)
    
    Reflects the adjustment to minority interest as a result of fair value
adjustments under fresh start accounting. Note 4. Inventories The major classes of inventory are as follows (dollars in millions): 13




---



##### Table of Contents



October 31,
    
    January 31,2004
    
    2004Raw materials
    
    $
    51.2
    
    
    $
    48.3Work-in-process
    
    
    41.2
    
    
    
    42.2Finished goods
    
    
    58.4
    
    
    
    61.8Spare parts and supplies
    
    
    43.8
    
    
    
    37.0Total
    
    $
    194.6
    
    
    $
    189.3
 Note 5. Property, Plant and Equipment The major classes of property, plant and equipment are as follows (dollars
in millions): October 31,
    
    January 31,2004
    
    2004Land
    
    $
    45.3
    
    
    $
    42.4Buildings
    
    
    224.4
    
    
    
    212.5Machinery and equipment
    
    
    894.3
    
    
    
    793.7Capital lease assets
    
    
    8.4
    
    
    
    8.41,172.4
    
    
    
    1,057.0Accumulated depreciation
    
    
    (194.3
    )
    
    
    (90.5
    )Property, plant and equipment, net
    
    $
    978.1
    
    
    $
    966.5
 Note 6. Goodwill and Other Intangible Assets Goodwill and other intangible assets consist of the following (dollars in
millions): October 31, 2004
    
    January 31, 2004Gross
    
    
    
    
    
    Net
    
    Gross
    
    
    
    
    
    NetCarrying
    
    Accumulated
    
    Carrying
    
    Carrying
    
    Accumulated
    
    CarryingAmount
    
    Amortization
    
    Amount
    
    Amount
    
    Amortization
    
    AmountAmortized intangible assets:Customer relationships and contracts
    
    $
    167.3
    
    
    $
    (11.9
    )
    
    $
    155.4
    
    
    $
    169.3
    
    
    $
    (5.8
    )
    
    $
    163.5Unpatented technology
    
    
    41.5
    
    
    
    (7.9
    )
    
    
    33.6
    
    
    
    36.7
    
    
    
    (4.6
    )
    
    
    32.1$
    208.8
    
    
    $
    (19.8
    )
    
    $
    189.0
    
    
    $
    206.0
    
    
    $
    (10.4
    )
    
    $
    195.6Non amortized intangible assets:Tradenames
    
    $
    41.2
    
    
    
    
    
    
    
    
    
    
    $
    41.6Goodwill
    
    $
    409.3
    
    
    
    
    
    
    
    
    
    
    $
    416.2
 The Company expects that ongoing amortization expense will approximate
between $10.0 million and $13.0 million in each of the next five fiscal years. The changes in the net carrying amount of goodwill by segment for the nine
months ended October 31, 2004 were as follows (dollars in millions): AutomotiveWheels
    
    Components
    
    Other
    
    TotalBalance as of January 31, 2004
    
    $
    416.2
    
    
    $
    
    
    
    $
    
    
    
    $
    416.2Effects of currency translation
    
    
    (12.2
    )
    
    
    
    
    
    
    
    
    
    
    (12.2
    )Acquisitions and purchase accounting
adjustments
    
    
    5.3
    
    
    
    
    
    
    
    
    
    
    
    5.3Balance as of October 31, 2004
    
    $
    409.3
    
    
    $
    
    
    
    $
    
    
    
    $
    409.3
 14




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##### Table of Contents



Note 7. Asset Impairments and Other Restructuring Charges The Company recorded asset impairment losses and other restructuring
charges of $6.2 million for the nine months ended October 31, 2004 and $19.6
million and $6.4 million for the Successor five months ended October 31, 2003
and Predecessor four months ended May 31, 2003, respectively. Asset impairments and other restructuring charges by segment are as
follows (dollars in millions): SuccessorNine Months Ended October 31, 2004AutomotiveWheels
    
    Components
    
    Other
    
    TotalFacility closure costs
    
    $
    1.0
    
    
    $
    (0.2
    )
    
    $
    
    
    
    $
    0.8Impairment of machinery, equipment and
tooling
    
    
    0.7
    
    
    
    
    
    
    
    
    
    
    
    0.7Severance and other restructuring costs
    
    
    4.1
    
    
    
    0.6
    
    
    
    
    
    
    
    4.7Total
    
    $
    5.8
    
    
    $
    0.4
    
    
    $
    
    
    
    $
    6.2
 SuccessorFive Months Ended October 31, 2003AutomotiveWheels
    
    Components
    
    Other
    
    TotalImpairment of manufacturing facilities
    
    $
    
    
    
    $
    0.8
    
    
    $
    
    
    
    $
    0.8Impairment of machinery, equipment and
tooling
    
    
    12.1
    
    
    
    6.7
    
    
    
    
    
    
    
    18.8Total
    
    $
    12.1
    
    
    $
    7.5
    
    
    $
    
    
    
    $
    19.6
 PredecessorFour Months Ended May 31, 2003AutomotiveWheels
    
    Components
    
    Other
    
    TotalImpairment of manufacturing facilities
    
    $
    0.5
    
    
    $
    0.1
    
    
    $
    
    
    
    $
    0.6Impairment of machinery, equipment and
tooling
    
    
    1.5
    
    
    
    3.3
    
    
    
    
    
    
    
    4.8Facility closure costs
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    0.9Severance and other restructuring costs
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.1Total
    
    $
    3.0
    
    
    $
    3.4
    
    
    $
    
    
    
    $
    6.4
 Impairment of Facilities In the third quarter of fiscal 2003, the Company recorded an estimated
asset impairment loss of $0.8 million on the Wabash, Indiana building, which
was written down to fair value based on expected proceeds from the sale of such
building. During the first quarter of fiscal 2003, the Predecessor Company recorded
asset impairment losses of $0.6 million to write down the fair value of its
Petersburg, Michigan facility and its Thailand greenfield site based on current
real estate market conditions. The Thailand greenfield site was subsequently
sold by the Company in August 2003 and the Petersburg, Michigan Facility was
sold during the first quarter of 2004. Impairment of Machinery, Equipment and Tooling In October of fiscal 2004, the Company recorded impairment losses of $0.7
million due primarily to a change in managements plan for the future use of
idled machinery, equipment and production tooling related to the closure of its
Howell manufacturing facility. Such investments in fixed assets were written
down to fair value. In the third quarter of fiscal 2003, the Company recorded estimated
impairment losses of $18.8 million on machinery, equipment and production
tooling at its Gainesville, Georgia, La Mirada, California and Wabash, Indiana
manufacturing facilities. Such investments in fixed assets were written down to
fair value. 15




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##### Table of Contents



In May 2003, the Predecessor Company recorded asset impairment losses of
$1.6 million on certain machinery and equipment in its Components segment due
primarily to a change in managements plan for the future use of idled
machinery and equipment. Such investments in fixed assets were written down to
fair value. During the first quarter of fiscal 2003, the Company recorded asset
impairment losses of $1.5 million on certain machinery and equipment in its
Automotive Wheels segment and $1.7 million in its Components segment due
primarily to a change in managements plan for the future use of idled
machinery and equipment. Such investments in fixed assets were written down to
fair value. Facility Closures On
April 1, 2004, the Predecessor Company announced the closure of its Howell,
Michigan manufacturing facility. As part of managements on-going
rationalization initiatives, the decision to close the Howell facility was
based on improving capacity utilization and overall efficiency of the Company.
Production of the aluminum wheels manufactured at the facility has been
transferred to other manufacturing facilities in the United States. During the
nine months ended October 31, 2004, the Company has recorded $1.0 million of
facility closure costs. The Company anticipates that it will incur and
recognize additional restructuring and other closure costs of approximately
$2.5 million during the remainder of fiscal 2004 and into fiscal 2005,
primarily related to lease terminations, plant decommissioning and maintenance
subsequent to the shutdown date. In conjunction with the sale of its Petersburg, Michigan facility in the
first quarter of fiscal 2004, the Company reversed $0.2 million in facility
closure costs that had previously been accrued. During the first four months of fiscal 2003, the Predecessor Company
recognized additional restructuring charges of $0.9 million related to the
closure of its Bowling Green, Kentucky facility. These charges relate to
additional plant closure costs and terminated employee health care benefits.
Of these and other closure costs previously recognized, substantially all have
been paid out by July 31, 2004. The Company expects to incur and record an
additional $0.3 million in decommissioning costs related to the Bowling Green
facility closure during the remainder of fiscal 2004. Severance and Other Restructuring Costs During the nine months ended October 31, 2004, the Company recorded $3.3
million of severance and other restructuring charges related to the Howell
facility closure. Also in the third quarter of fiscal 2004 the Company recorded
severance charges related to the rationalization of its South African facility
of $0.8 million and $0.6 million of severance charges related to the
rationalization of its suspension operations. Facility Exit Cost and Severance Accruals The following table describes the activity in the balance sheet accounts
affected by the severance and other restructuring charges noted above during
the nine months ended October 31, 2004 (dollars in millions): CashPaymentsSeverance
    
    andJanuary 31,
    
    and Other
    
    Effects of
    
    October 31,2004
    
    Restructuring
    
    Foreign
    
    2004Accrual
    
    Charges
    
    Currency
    
    AccrualFacility exit costs
    
    $
    1.7
    
    
    $
    1.5
    
    
    $
    (2.9
    )
    
    $
    0.3Severance
    
    
    1.0
    
    
    
    4.7
    
    
    
    (4.6
    )
    
    
    1.1$
    2.7
    
    
    $
    6.2
    
    
    $
    (7.5
    )
    
    $
    1.4
 Note 8. Debt Bank Borrowing and Other Notes Bank borrowings and other notes of $3.9 million as of October 31, 2004
consist primarily of short-term credit facilities of the Companys foreign
subsidiaries. Bank borrowings and other notes of $14.2 million at January 31,
2004 consist primarily of short-term credit facilities of the Companys foreign
subsidiaries, as well as notes payable of $1.1 million and $10.5 million issued
in conjunction with the Companys acquisition of an additional 35% ownership
interest in its Turkish joint venture and acquisition of an aluminum wheel
plant formerly operated as part of the Companys Mexican joint venture,
respectively. 16




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##### Table of Contents



Long-Term Debt Long-term debt consists of the following (dollars in millions): October 31,
    
    January 31,2004
    
    2004Various foreign bank and government loans maturing through
2006, weighted average interest rates of 5.7% at October 31,
2004 and January 31, 2004
    
    $
    24.1
    
    
    $
    28.6New Term Loan maturing 2009, weighted average interest rate
of 5.8% and 5.0% at October 31, 2004 and January 31, 2004,
respectively
    
    
    428.4
    
    
    
    447.810 1/2% New Senior Notes, net of discount of $0.8 million
and $1.4 million at October 31, 2004 and January 31, 2004,
respectively, due 2010
    
    
    161.7
    
    
    
    248.6Mortgage note payable
    
    
    22.3
    
    
    
    22.5Capital lease obligations
    
    
    12.9
    
    
    
    16.2Total long-term debt
    
    
    649.4
    
    
    
    763.7Less current portion of long-term debt
    
    
    11.1
    
    
    
    11.3Long-term debt, net of current portion
    
    $
    638.3
    
    
    $
    752.4
 As discussed in Note 1, the Debtors emerged from Chapter 11 on June 3,
2003. In connection with the Debtors emergence on the Effective Date, HLI
entered into a $550.0 million senior secured credit facility, which was
subsequently amended on October 16, 2003 by Amendment No. 1 and Waiver to
Credit Agreement, on February 6, 2004 by Amendment No. 2 and Waiver to the
Credit Agreement, on May 6, 2004 by Amendment No. 3, on June 1, 2004 by Waiver
to the Credit Agreement and on November 10, 2004 by Amendment No. 4, Waiver and
Consent to Credit Agreement to, among other things, reduce the interest rate on
the term loan portion of the senior secured credit facility by 100 basis
points, (as amended, the New Credit Facility). The New Credit Facility
consists of a $450.0 million six-year amortizing term loan (the New Term
Loan) and a five-year $100.0 million revolving credit facility (the Revolving
Credit Facility). In addition, HLI issued on the Effective Date an aggregate
of $250.0 million principal amount of 10 1/2% senior notes due 2010 (the New
Senior Notes). The proceeds from the initial $450.0 million of borrowings
under the New Credit Facility and the net proceeds from the New Senior Notes
were used to make payments required under the Plan of Reorganization, including
the repayment of the Companys DIP Facility and a payment of $477.3 million to
certain prepetition lenders, to pay related transaction costs and to refinance
certain debt. As of October 31, 2004, there were no outstanding borrowings and $18.7
million in letters of credit issued under the Revolving Credit Facility. The
amount available to borrow under the Revolving Credit Facility at October 31,
2004 was approximately $81.3 million. Early Repayment of Long-Term Debt On February 11, 2004, the Company closed on a primary offering of
7,720,970 shares of its common stock for net proceeds of $117.0 million. On
March 12, 2004, the Company used a portion of the net proceeds to redeem $87.5
million aggregate principal amount, plus accrued and unpaid interest thereon,
of its outstanding New Senior Notes at a redemption price of 110.5%. This
redemption resulted in a loss on early extinguishment of $11.8 million during
the first quarter of fiscal 2004, including $2.6 million related to original
issue discount and debt issuance costs on the redeemed portion of the New
Senior Notes. The Company also used a portion of the primary stock offering proceeds to
prepay $16.0 million, plus accrued and unpaid interest thereon, of its New Term
Loan on February 12, 2004. Upon prepayment, the Company recognized a loss on
early extinguishment of $0.4 million related to debt issuance costs on the
prepaid portion of the New Term Loan. 17




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##### Table of Contents



Note 9. Employee Benefit Plans The 2004 and 2003 amounts shown below reflect the defined benefit pension
and other postretirement benefit expense for each period (dollars in millions): North American PlansInternational PlansPension Benefits
    
    Other Benefits
    
    Pension BenefitsThree
    
    Three
    
    Three
    
    Three
    
    Three
    
    ThreeMonths
    
    Months
    
    Months
    
    Months
    
    Months
    
    MonthsEnded
    
    Ended
    
    Ended
    
    Ended
    
    Ended
    
    EndedOctober 31,
    
    October 31,
    
    October 31,
    
    October 31,
    
    October 31,
    
    October 31,2004
    
    2003
    
    2004
    
    2003
    
    2004
    
    2003Service cost
    
    $
    0.1
    
    
    $
    0.1
    
    
    $
    
    
    
    $
    
    
    
    $
    0.2
    
    
    $
    0.5Interest cost
    
    
    2.8
    
    
    
    2.8
    
    
    
    2.7
    
    
    
    2.9
    
    
    
    1.9
    
    
    
    1.9Expected return on plan assets
    
    
    (2.4
    )
    
    
    (2.3
    )
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    0.1Amortization of prior service cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    Amortization of net (gain)/loss
    
    
    
    
    
    
    
    
    
    
    (0.3
    )
    
    
    
    
    
    
    
    
    
    
    Net periodic benefit cost
    
    $
    0.5
    
    
    $
    0.6
    
    
    $
    2.4
    
    
    $
    2.9
    
    
    $
    2.3
    
    
    $
    2.5
 North American Plans
    
    International PlansPension Benefits
    
    Other Benefits
    
    Pension BenefitsSuccessor
    
    Predecessor
    
    Successor
    
    Predecessor
    
    Successor
    
    PredecessorNine
    
    Five
    
    Four
    
    Nine
    
    Five
    
    Four
    
    Nine
    
    Five
    
    FourMonths
    
    Months
    
    Months
    
    Months
    
    Months
    
    Months
    
    Months
    
    Months
    
    MonthsEnded
    
    Ended
    
    Ended
    
    Ended
    
    Ended
    
    Ended
    
    Ended
    
    Ended
    
    EndedOctober 31,
    
    October 31,
    
    May 31,
    
    October 31,
    
    October 31,
    
    May 31,
    
    October 31,
    
    October 31,
    
    May 31,2004
    
    2003
    
    2003
    
    2004
    
    2003
    
    2003
    
    2004
    
    2003
    
    2003Service cost
    
    $
    0.2
    
    
    $
    0.2
    
    
    $
    0.2
    
    
    $
    0.1
    
    
    $
    
    
    
    $

    
    
    
    $
    0.6
    
    
    $
    0.6
    
    
    $
    0.3Interest cost
    
    
    8.4
    
    
    
    4.6
    
    
    
    3.9
    
    
    
    9.2
    
    
    
    4.9
    
    
    
    4.0
    
    
    
    5.8
    
    
    
    3.2
    
    
    
    2.3Expected return on plan assets
    
    
    (7.2
    )
    
    
    (3.8
    )
    
    
    (3.1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    0.1
    
    
    
    Amortization of prior service cost
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    0.3
    
    
    
    
    
    
    
    0.1Amortization of net (gain)/loss
    
    
    
    
    
    
    
    
    
    
    0.9
    
    
    
    (0.6
    )
    
    
    
    
    
    
    1.9
    
    
    
    
    
    
    
    
    
    
    
    0.1Net periodic benefit cost
    
    $
    1.4
    
    
    $
    1.0
    
    
    $
    2.0
    
    
    $
    8.7
    
    
    $
    4.9
    
    
    $
    6.0
    
    
    $
    6.9
    
    
    $
    3.9
    
    
    $
    2.8
 During the first nine months of fiscal 2004 the Company contributed $5.0
million in cash to its North American pension plans and expects to contribute
an additional $0.7 million during the fourth quarter of fiscal 2004. The Medicare Prescription Drug, Improvement and Modernization Act, which
was signed into law on December 8, 2003, expanded Medicare to include, for the
first time, coverage for prescription drugs. The Company sponsors retiree
welfare programs and has determined that this legislation reduces the Companys
costs for some of these programs. In accordance with guidance from the FASB,
the Company has adopted the provisions of FSP 106-2 in the third quarter of
2004 and has elected to recognize the effect of the subsidy retroactively. The
reduction in interest costs related to the third quarter of fiscal 2004 was
$0.2 million and the increased amortization of net gain for the same period was
$0.2 million. The reduction in the Companys accumulated postretirement
benefit obligation was approximately $13.3 million. Note 10. Loss Per Share No loss per share is presented for the Company as none of its outstanding
common stock is publicly traded. Note 11. Comprehensive Income (Loss) The components of comprehensive income (loss) are as follows (dollars in
millions): Successor
    
    PredecessorNine Months
    
    Five Months
    
    Four MonthsEnded
    
    Ended
    
    EndedOctober 31,
    
    October 31,
    
    May 31,2004
    
    2003
    
    2003Net income (loss)
    
    $
    (22.2
    )

    
    $
    (19.2
    )
    
    $
    1,043.0Currency translation adjustments
    
    
    (12.4
    )
    
    
    18.7
    
    
    
    31.4Elimination of Predecessor equity accounts under
fresh start accounting
    
    
    
    
    
    
    
    
    
    
    75.8Reclassification adjustment for amount included in
fresh start adjustment
    
    
    
    
    
    
    
    
    
    
    (75.8
    )Total comprehensive income (loss)
    
    $
    (34.6
    )
    
    $
    (0.5
    )
    
    $
    1,074.4
 18




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##### Table of Contents



Note 12. Taxes on Income Income tax expense was $3.7 million for the three months ended October 31,
2004, $14.3 million for the nine months ended October 31, 2004, $6.1 million
for the Successor three months ended October 31, 2003, $8.7 million for the
Successor five months ended October 31, 2003 and $60.3 million for the
Predecessor four months ended May 31, 2003. The expense related to Successor
periods was the result of tax related to operations in foreign jurisdictions as
well as various states. The expense related to Predecessor periods was the
result of recording deferred tax liabilities related to fresh start accounting
adjustments in foreign jurisdictions, state taxes related to the merger between
the Predecessor and HLI, and tax related to operations in foreign jurisdictions
as well as various states. The income tax rate varies from the United States
statutory income tax rate due primarily to losses in the United States without
recognition of a corresponding income tax benefit. The Company has determined that a valuation allowance is required against
all net deferred tax assets in the United States and certain deferred tax
assets in foreign jurisdictions. As such, there was no United States federal
income tax benefit recorded against current losses On October 22, 2004 The American Jobs Creation Act of 2004 (the Act) was
signed into law by the President. This Act provides for a special one-time tax
deduction of 85.0% of certain foreign earnings that are repatriated to a U.S.
taxpayer, provided certain criteria are met. The Company has not yet completed
its analysis of the impact of the Act mainly due to the lack of clarification
on certain provisions within the Act. Once such clarification is provided, the
Company anticipates completing the analysis in a timely manner. The potential
amount considered for repatriation, if any, and the resulting income tax
impact, have not been determined. Note 13. Common Stock Offering On February 11, 2004, New Hayes closed on a primary offering of 7,720,970
shares of common stock, and a secondary offering of 2 million shares of its
common stock. The Company used the net proceeds of $117.0 million that it
received from the primary offering to redeem $87.5 million aggregate principal
amount, plus accrued and unpaid interest thereon, of its outstanding New Senior
Notes on March 12, 2004, to prepay $16.0 million, plus accrued and unpaid
interest thereon, of its New Term Loan on February 12, 2004, and for general
corporate purposes. (See Note 8.) Note 14. Cumulative Adjustment In September 2004, an employee reported certain accounting irregularities
at the Companys facility in Cadillac, Michigan, which produces cast suspension
components. An investigation was conducted by outside legal counsel under the
direction of the Audit Committee. Based on that investigation, the Company
determined that certain amounts had been improperly recorded as assets on the
Companys consolidated balance sheets rather than treated as expenses on the
Companys consolidated statements of operations, resulting in an understatement
of the Companys net loss in fiscal 2003 of approximately $0.9 million and no
net change to the Companys net loss in the first six months of fiscal 2004.
Since the impact to the fiscal 2003 annual and quarterly reporting periods and
fiscal 2004 first half financial statements was not material in any individual
reporting period, the Company recorded a cumulative adjustment (additional
expense) of approximately $0.9 million in the third quarter of 2004 to reflect
the proper accounting treatment. The investigation conducted by outside legal counsel found that a former
employee was responsible for the improper accounting entries at that Cadillac
facility, which resulted in the financial impacts noted below. The Company
terminated the employee responsible. The investigation found no evidence that
there were similar issues at other facilities in the business unit. The expenses, properly recorded in the respective periods, would have
impacted net loss during fiscal 2003 and first half 2004 as follows (dollars in
millions): Impact onInterim Period
    
    Net LossPredecessorThree Months Ended April 30, 2003
    
    $
    One Month Ended May 31, 2003
    
    $
    ( 0.1
    )Four Months Ended May 31, 2003
    
    $
    ( 0.1
    )SuccessorTwo Months Ended July 31, 2003
    
    $
    ( 0.4
    )Three Months Ended October 31, 2003
    
    $
    ( 0.1
    )Three Months Ended January 1, 2004
    
    $
    (0.3
    )Eight Months Ended January 1, 2004
    
    $
    (0.8
    )
 19




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##### Table of Contents



Impact onInterim Period
    
    Net LossThree Months Ended April 30, 2004
    
    $
    0.1Three Months Ended July 31, 2004
    
    $
    (0.1
    )Six Months Ended July 31, 2004
    
    $
    
 Note 15. Segment Reporting The Company is organized based primarily on markets served and products
produced. Under this organization structure, the Companys operating segments
have been aggregated into three reportable segments: Automotive Wheels,
Components, and Other. The Other category includes Commercial Highway products,
the corporate office and elimination of intercompany activities, none of which
meet the requirements of being classified as an operating segment. Earnings
(loss) from operations excluding fresh start accounting adjustments and
reorganization items is used as a non-GAAP measure of the Companys primary
profitability measure because it excludes fresh start accounting adjustments
and reorganization items which do not represent normal operating performance of
the Company, as these items relate only to the Companys Chapter 11 Filings and
emergence. The following tables present revenues and other financial information by
business segment (dollars in millions): SuccessorNine Months Ended October 31, 2004AutomotiveWheels
    
    Components
    
    Other
    
    TotalNet sales
    
    $
    1,019.5
    
    
    $
    532.1
    
    
    $
    122.4
    
    
    $
    1,674.0Earnings (loss) from operations
    
    
    46.7
    
    
    
    (7.7
    )
    
    
    3.9
    
    
    
    42.9Asset impairments and other restructuring
charges
    
    
    (5.8
    )
    
    
    (0.4
    )
    
    
    
    
    
    
    (6.2
    )Total assets
    
    
    1,656.6
    
    
    
    545.9
    
    
    
    88.7
    
    
    
    2,291.2
 SuccessorFive Months Ended October 31, 2003AutomotiveWheels
    
    Components
    
    Other
    
    TotalNet sales
    
    $
    509.4
    
    
    $
    299.4
    
    
    $
    50.4
    
    
    $
    859.2Earnings (loss) from operations
    
    
    19.1
    
    
    
    3.4
    
    
    
    (6.2
    )
    
    
    16.3Asset impairments and other restructuring
charges
    
    
    (12.1
    )
    
    
    (7.5
    )
    
    
    
    
    
    
    (19.6
    )
 PredecessorFour Months Ended May 31, 2003AutomotiveWheels
    
    Components
    
    Other
    
    TotalNet sales
    
    $
    403.5
    
    
    $
    248.1
    
    
    $
    38.2
    
    
    $
    689.8Earnings (loss) from operations
    
    
    85.4
    
    
    
    37.2
    
    
    
    (72.1
    )
    
    
    50.5Asset impairments and other restructuring
charges
    
    
    (3.0
    )
    
    
    (3.4
    )
    
    
    
    
    
    
    (6.4
    )Reorganization items
    
    
    (0.1
    )
    
    
    0.2
    
    
    
    (45.1
    )
    
    
    (45.0
    )Fresh start adjustments
    
    
    57.9
    
    
    
    27.7
    
    
    
    (22.5
    )
    
    
    63.1Extraordinary gain on debt discharge
    
    
    81.1
    
    
    
    58.3
    
    
    
    937.3
    
    
    
    1,076.7
 SuccessorAs of January 31, 2004AutomotiveWheels
    
    Components
    
    Other
    
    TotalTotal assets
    
    $
    1,490.6
    
    
    $
    542.4
    
    
    $
    264.7
    
    
    $
    2,297.7
 Note 16. Condensed Consolidating Financial Statements The following condensed consolidating financial statements present the
financial information required with respect to those entities which guarantee
certain debt of the Company. 20




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##### Table of Contents



The condensed consolidating financial statements are presented on the
equity method. Under this method, the investments in subsidiaries are recorded
at cost and adjusted for the Companys share of the subsidiaries cumulative
results of operations, capital contributions, distributions and other equity
changes. The principal elimination entries eliminate investments in
subsidiaries and intercompany balances and transactions. Guarantor and Nonguarantor Financial Statements As further discussed in Notes 1 and 8, in connection with the Plan of
Reorganization, HLI issued $250.0 million aggregate principal amount of the New
Senior Notes. The New Senior Notes are guaranteed by New Hayes and
ParentCo and substantially all of New Hayes domestic
subsidiaries (other than HLI as the issuer of the New Senior Notes)
(collectively, the Guarantor Subsidiaries). None of New Hayes foreign
subsidiaries have guaranteed the New Senior Notes, nor have two of New Hayes
domestic subsidiaries owned by foreign subsidiaries of New Hayes (collectively,
the Nonguarantor Subsidiaries). 21




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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Successor Company
For the Nine Months Ended October 31, 2004
(Dollars in millions) Guarantor
    
    NonguarantorIssuer
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    Total(Unaudited)Net sales
    
    $
    2.3
    
    
    $
    797.1
    
    
    $
    895.6
    
    
    $
    (21.0
    )
    
    $
    1,674.0Cost of goods sold
    
    
    17.7
    
    
    
    738.5
    
    
    
    765.3
    
    
    
    (21.0
    )
    
    
    1,500.5Gross profit (loss)
    
    
    (15.4
    )
    
    
    58.6
    
    
    
    130.3
    
    
    
    
    
    
    
    173.5Marketing, general and administrative
    
    
    (1.7
    )
    
    
    68.2
    
    
    
    56.7
    
    
    
    
    
    
    
    123.2Equity in (earnings) losses of
subsidiaries and joint ventures
    
    
    (12.8
    )
    
    
    2.6
    
    
    
    
    
    
    
    10.2
    
    
    
    Asset impairments and other
restructuring charges
    
    
    (0.1
    )
    
    
    5.3
    
    
    
    1.0
    
    
    
    
    
    
    
    6.2Other expense (income), net
    
    
    (1.5
    )
    
    
    0.2
    
    
    
    1.0
    
    
    
    1.5
    
    
    
    1.2Earnings (loss) from operations
    
    
    0.7
    
    
    
    (17.7
    )
    
    
    71.6
    
    
    
    (11.7
    )
    
    
    42.9Interest (income) expense, net
    
    
    17.6
    
    
    
    0.2
    
    
    
    21.3
    
    
    
    
    
    
    
    39.1Other non-operating (income) expense
    
    
    0.6
    
    
    
    
    
    
    
    0.4
    
    
    
    
    
    
    
    1.0Loss on early extinguishment of debt
    
    
    12.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12.2Earnings (loss) before taxes on income
and minority interest
    
    
    (29.7
    )
    
    
    (17.9
    )
    
    
    49.9
    
    
    
    (11.7
    )
    
    
    (9.4
    )Income tax provision
    
    
    
    
    
    
    1.4
    
    
    
    12.9
    
    
    
    
    
    
    
    14.3Earnings (loss) before minority interest
    
    
    (29.7
    )
    
    
    (19.3
    )
    
    
    37.0
    
    
    
    (11.7
    )
    
    
    (23.7
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    6.0
    
    
    
    
    
    
    
    6.0Net income (loss)
    
    $
    (29.7
    )
    
    $
    (19.3
    )
    
    $
    31.0
    
    
    $
    (11.7
    )
    
    $
    (29.7
    )
 22




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##### Table of Contents

\

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Successor Company
For the Five Months Ended October 31, 2003
(Dollars in millions) Guarantor
    
    NonguarantorIssuer
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    Total(Unaudited)Net sales
    
    $
    1.9
    
    
    $
    463.0
    
    
    $
    412.7
    
    
    $
    (18.4
    )
    
    $
    859.2Cost of goods sold
    
    
    8.4
    
    
    
    419.0
    
    
    
    351.5
    
    
    
    (18.4
    )
    
    
    760.5Gross profit (loss)
    
    
    (6.5
    )
    
    
    44.0
    
    
    
    61.2
    
    
    
    
    
    
    
    98.7Marketing, general and administrative
    
    
    6.2
    
    
    
    28.2
    
    
    
    23.6
    
    
    
    
    
    
    
    58.0Equity in (earnings) losses of
subsidiaries and joint ventures
    
    
    16.1
    
    
    
    1.0
    
    
    
    
    
    
    
    (17.1
    )
    
    
    Asset impairments and other
restructuring charges
    
    
    
    
    
    
    19.6
    
    
    
    
    
    
    
    
    
    
    
    19.6Other expense (income), net
    
    
    0.3
    
    
    
    (0.4
    )
    
    
    4.9
    
    
    
    
    
    
    
    4.8Earnings (loss) from operations
    
    
    (29.1
    )
    
    
    (4.4
    )
    
    
    32.7
    
    
    
    17.1
    
    
    
    16.3Interest (income) expense, net
    
    
    (7.6
    )
    
    
    23.2
    
    
    
    11.7
    
    
    
    
    
    
    
    27.3Earnings (loss) before subsidiary
preferred stock dividends, taxes on
income and minority interest
    
    
    (21.5
    )
    
    
    (27.6
    )
    
    
    21.0
    
    
    
    17.1
    
    
    
    (11.0
    )Subsidiary preferred stock dividends
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.3Earnings (loss) before taxes on income
and minority interest
    
    
    (21.8
    )
    
    
    (27.6
    )
    
    
    21.0
    
    
    
    17.1
    
    
    
    (11.3
    )Income tax provision
    
    
    
    
    
    
    1.1
    
    
    
    7.6
    
    
    
    
    
    
    
    8.7Earnings (loss) before minority interest
    
    
    (21.8
    )
    
    
    (28.7
    )
    
    
    13.4
    
    
    
    17.1
    
    
    
    (20.0
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    1.8
    
    
    
    
    
    
    
    1.8Net income (loss)
    
    $
    (21.8
    )
    
    $
    (28.7
    )
    
    $
    11.6
    
    
    $
    17.1
    
    
    $
    (21.8
    )
 23




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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Predecessor Company
For the Four Months Ended May 31, 2003
(Dollars in millions) Guarantor
    
    NonguarantorParent
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    Total(Unaudited)Net sales
    
    $
    61.0
    
    
    $
    330.3
    
    
    $
    307.0
    
    
    $
    (8.5
    )
    
    $
    689.8Cost of goods sold
    
    
    61.3
    
    
    
    297.6
    
    
    
    260.9
    
    
    
    (8.5
    )
    
    
    611.3Gross profit (loss)
    
    
    (0.3
    )
    
    
    32.7
    
    
    
    46.1
    
    
    
    
    
    
    
    78.5Marketing, general and administrative
    
    
    5.5
    
    
    
    19.1
    
    
    
    18.5
    
    
    
    (1.5
    )
    
    
    41.6Equity in (earnings) losses of
subsidiaries and joint ventures
    
    
    (132.1
    )
    
    
    (7.9
    )
    
    
    (0.1
    )
    
    
    140.1
    
    
    
    Asset impairments and other restructuring
charges
    
    
    0.3
    
    
    
    4.9
    
    
    
    1.2
    
    
    
    
    
    
    
    6.4Other expense (income), net
    
    
    (0.3
    )
    
    
    (1.4
    )
    
    
    (1.0
    )
    
    
    0.8
    
    
    
    (1.9
    )Fresh Start accounting adjustments
    
    
    
    
    
    
    253.4
    
    
    
    (316.5
    )
    
    
    
    
    
    
    (63.1
    )Reorganization items
    
    
    13.3
    
    
    
    31.7
    
    
    
    
    
    
    
    
    
    
    
    45.0Earnings (loss) from operations
    
    
    113.0
    
    
    
    (267.1
    )
    
    
    344.0
    
    
    
    (139.4
    )
    
    
    50.5Interest expense, net
    
    
    2.8
    
    
    
    16.4
    
    
    
    3.5
    
    
    
    
    
    
    
    22.7Earnings (loss) before taxes on income,
minority interest and extraordinary
gain on debt discharge
    
    
    110.2
    
    
    
    (283.5
    )
    
    
    340.5
    
    
    
    (139.4
    )
    
    
    27.8Income tax provision
    
    
    (0.3
    )
    
    
    7.4
    
    
    
    53.2
    
    
    
    
    
    
    
    60.3Earnings (loss) before minority
interest and extraordinary gain on
debt discharge
    
    
    110.5
    
    
    
    (290.9
    )
    
    
    287.3
    
    
    
    (139.4
    )
    
    
    (32.5
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    1.2
    
    
    
    
    
    
    
    1.2Earnings (loss) before extraordinary gain
on debt discharge
    
    
    110.5
    
    
    
    (290.9
    )
    
    
    286.1
    
    
    
    (139.4
    )
    
    
    (33.7
    )Extraordinary gain on debt discharge
    
    
    932.5
    
    
    
    142.9
    
    
    
    1.3
    
    
    
    
    
    
    
    1,076.7Net income (loss)
    
    $
    1,043.0
    
    
    $
    (148.0
    )
    
    $
    287.4
    
    
    $
    (139.4
    )
    
    $
    1,043.0
 24




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##### Table of Contents



CONDENSED CONSOLIDATING BALANCE SHEETS
Successor Company
As of October 31, 2004

(Dollars in millions) Guarantor
    
    NonguarantorIssuer
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    Total(Unaudited)Cash and cash equivalents
    
    $
    (19.8
    )
    
    $
    
    
    
    $
    47.6
    
    
    $
    
    
    
    $
    27.8Receivables
    
    
    0.1
    
    
    
    150.3
    
    
    
    227.1
    
    
    
    
    
    
    
    377.5Inventories
    
    
    6.1
    
    
    
    81.6
    
    
    
    106.9
    
    
    
    
    
    
    
    194.6Prepaid expenses and other
    
    
    4.9
    
    
    
    8.9
    
    
    
    4.8
    
    
    
    
    
    
    
    18.6Total current assets
    
    
    (8.7
    )
    
    
    240.8
    
    
    
    386.4
    
    
    
    
    
    
    
    618.5Net property, plant and
equipment
    
    
    40.9
    
    
    
    347.6
    
    
    
    589.6
    
    
    
    
    
    
    
    978.1Goodwill and other assets
    
    
    1,273.2
    
    
    
    48.3
    
    
    
    615.7
    
    
    
    (1,242.6
    )
    
    
    694.6Total assets
    
    $
    1,305.4
    
    
    $
    636.7
    
    
    $
    1,591.7
    
    
    $
    (1,242.6
    )
    
    $
    2,291.2Bank borrowings and other notes
    
    $
    
    
    
    $
    
    
    
    $
    3.9
    
    
    $
    
    
    
    $
    3.9Current portion of long-term
debt
    
    
    4.5
    
    
    
    1.1
    
    
    
    5.5
    
    
    
    
    
    
    
    11.1Accounts payable and accrued
liabilities
    
    
    76.2
    
    
    
    92.9
    
    
    
    228.3
    
    
    
    
    
    
    
    397.4Total current liabilities
    
    
    80.7
    
    
    
    94.0
    
    
    
    237.7
    
    
    
    
    
    
    
    412.4Long-term debt, net of current
portion
    
    
    607.9
    
    
    
    7.3
    
    
    
    23.1
    
    
    
    
    
    
    
    638.3Pension and other long-term
liabilities
    
    
    262.3
    
    
    
    0.4
    
    
    
    254.5
    
    
    
    
    
    
    
    517.2Redeemable preferred stock of
subsidiary
    
    
    11.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11.1Minority interest
    
    
    
    
    
    
    
    
    
    
    28.3
    
    
    
    
    
    
    
    28.3Parent loans
    
    
    (340.5
    )
    
    
    (10.5
    )
    
    
    350.3
    
    
    
    0.7
    
    
    
    Additional paid-in capital
    
    
    679.7
    
    
    
    617.3
    
    
    
    584.5
    
    
    
    (1,201.8
    )
    
    
    679.7Retained earnings (accumulated
deficit)
    
    
    (77.3
    )
    
    
    (72.0
    )
    
    
    52.9
    
    
    
    19.1
    
    
    
    (77.3
    )Accumulated other comprehensive
loss
    
    
    81.5
    
    
    
    0.2
    
    
    
    60.4
    
    
    
    (60.6
    )
    
    
    81.5Total stockholders equity
    
    
    683.9
    
    
    
    545.5
    
    
    
    697.8
    
    
    
    (1,243.3
    )
    
    
    683.9Total liabilities and
stockholders equity
    
    $
    1,305.4
    
    
    $
    636.7
    
    
    $
    1,591.7
    
    
    $
    (1,242.6
    )
    
    $
    2,291.2
 25




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##### Table of Contents



CONDENSED CONSOLIDATING BALANCE SHEETS
Successor Company
As of January 31, 2004
(Dollars in millions) Guarantor
    
    NonguarantorIssuer
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    Total(Unaudited)Cash and cash equivalents
    
    $
    (3.2
    )
    
    $
    (0.6
    )
    
    $
    52.3
    
    
    $
    
    
    
    $
    48.5Receivables
    
    
    1.2
    
    
    
    133.1
    
    
    
    191.2
    
    
    
    
    
    
    
    325.5Inventories
    
    
    5.7
    
    
    
    86.5
    
    
    
    97.1
    
    
    
    
    
    
    
    189.3Prepaid expenses and other
    
    
    6.8
    
    
    
    8.9
    
    
    
    13.3
    
    
    
    
    
    
    
    29.0Total current assets
    
    
    10.5
    
    
    
    227.9
    
    
    
    353.9
    
    
    
    
    
    
    
    592.3Net property, plant and
equipment
    
    
    36.6
    
    
    
    355.5
    
    
    
    574.4
    
    
    
    
    
    
    
    966.5Goodwill and other assets
    
    
    1,339.4
    
    
    
    83.3
    
    
    
    618.9
    
    
    
    (1,302.7
    )
    
    
    738.9Total assets
    
    $
    1,386.5
    
    
    $
    666.7
    
    
    $
    1,547.2
    
    
    $
    (1,302.7
    )
    
    $
    2,297.7Bank borrowings and other notes
    
    $
    
    
    
    $
    
    
    
    $
    14.2
    
    
    $
    
    
    
    $
    14.2Current portion of long-term
debt
    
    
    4.5
    
    
    
    
    
    
    
    6.8
    
    
    
    
    
    
    
    11.3Accounts payable and accrued
liabilities
    
    
    83.3
    
    
    
    83.8
    
    
    
    188.4
    
    
    
    
    
    
    
    355.5Total current liabilities
    
    
    87.8
    
    
    
    83.8
    
    
    
    209.4
    
    
    
    
    
    
    
    381.0Long-term debt, net of current
portion
    
    
    714.3
    
    
    
    8.4
    
    
    
    29.7
    
    
    
    
    
    
    
    752.4Pension and other long-term
liabilities
    
    
    263.1
    
    
    
    0.4
    
    
    
    263.0
    
    
    
    
    
    
    
    526.5Redeemable preferred Stock of
Subsidiary
    
    
    10.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10.5Minority interest
    
    
    
    
    
    
    
    
    
    
    23.2
    
    
    
    
    
    
    
    23.2Parent loans
    
    
    (293.3
    )
    
    
    (24.5
    )
    
    
    315.4
    
    
    
    2.4
    
    
    
    Liabilities subject to
compromise
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additional paid-in capital
    
    
    557.8
    
    
    
    652.3
    
    
    
    626.6
    
    
    
    (1,278.9
    )
    
    
    557.8Retained earnings (accumulated
deficit)
    
    
    (47.6
    )
    
    
    (53.5
    )
    
    
    21.6
    
    
    
    31.9
    
    
    
    (47.6
    )Accumulated other comprehensive
income (loss)
    
    
    93.9
    
    
    
    (0.2
    )
    
    
    58.3
    
    
    
    (58.1
    )
    
    
    93.9Total stockholders equity
    
    
    604.1
    
    
    
    598.6
    
    
    
    706.5
    
    
    
    (1,305.1
    )
    
    
    604.1Total liabilities and
stockholders equity
    
    $
    1,386.5
    
    
    $
    666.7
    
    
    $
    1,547.2
    
    
    $
    (1,302.7
    )
    
    $
    2,297.7
 26




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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Successor Company
For the Nine Months Ended October 31, 2004
(Dollars in millions) Guarantor
    
    NonguarantorIssuer
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    Total(Unaudited)Cash flows provided by (used for)
operating activities
    
    $
    (24.3
    )
    
    $
    32.7
    
    
    $
    93.8
    
    
    $
    
    
    
    $
    102.2Cash flows from investing activities:Acquisition of property, plant,
equipment, and tooling
    
    
    (7.0
    )
    
    
    (45.3
    )
    
    
    (56.9
    )
    
    
    
    
    
    
    (109.2
    )Proceeds from sale of non-core
businesses
    
    
    0.5
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.6Cash used for investing
activities
    
    
    (6.5
    )
    
    
    (45.2
    )
    
    
    (56.9
    )
    
    
    
    
    
    
    (108.6
    )Cash flows from financing activities:Changes in bank borrowings and
credit facility
    
    
    
    
    
    
    
    
    
    
    2.8
    
    
    
    
    
    
    
    2.8Repayment of notes payable issued
in connection with the purchase
of businesses
    
    
    
    
    
    
    
    
    
    
    (13.1
    )
    
    
    
    
    
    
    (13.1
    )Repayment of long term debt
    
    
    (3.0
    )
    
    
    
    
    
    
    (5.2
    )
    
    
    
    
    
    
    (8.2
    )Capital contribution
    
    
    117.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    117.0Redemption of New Senior Notes, net
of discount and related fees
    
    
    (96.7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (96.7
    )Prepayment of New Term Loan, net of
related fees
    
    
    (16.0
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16.0
    )Cash provided by (used for)
financing activities
    
    
    1.3
    
    
    
    
    
    
    
    (15.5
    )
    
    
    
    
    
    
    (14.2
    )Increase (decrease) in parent loans
and advances
    
    
    12.9
    
    
    
    13.1
    
    
    
    (26.0
    )
    
    
    
    
    
    
    Effect of exchange rates of cash and
cash equivalents
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.1
    )Net increase (decrease) in cash and
cash equivalents
    
    
    (16.6
    )
    
    
    0.6
    
    
    
    (4.7
    )
    
    
    
    
    
    
    (20.7
    )Cash and cash equivalents at
beginning of period
    
    
    (3.2
    )
    
    
    (0.6
    )
    
    
    52.3
    
    
    
    
    
    
    
    48.5Cash and cash equivalents at end of
period
    
    $
    (19.8
    )
    
    $
    
    
    
    $
    47.6
    
    
    $
    
    
    
    $
    27.8
 27




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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Successor Company
For the Five Months Ended October 31, 2003
(Dollars in millions) Guarantor
    
    NonguarantorIssuer
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    Total(Unaudited)Cash flows provided by (used
for) operating activities
    
    $
    (9.4
    )
    
    $
    26.1
    
    
    $
    37.8
    
    
    $
    
    
    
    $
    54.5Cash flows from investing
activities:Acquisition of property,
plant, equipment, and
tooling
    
    
    (1.9
    )
    
    
    (22.5
    )
    
    
    (16.7
    )
    
    
    
    
    
    
    (41.1
    )Proceeds from sale of assets
and businesses
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.5
    
    
    
    
    
    
    
    0.8Cash used for investing
activities
    
    
    (1.7
    )
    
    
    (22.4
    )
    
    
    (16.2
    )
    
    
    
    
    
    
    (40.3
    )Cash flows from financing
activities:Increase in bank borrowings,
revolving facility and DIP
facility
    
    
    
    
    
    
    
    
    
    
    (11.9
    )
    
    
    
    
    
    
    (11.9
    )Repayment of Term Debt
    
    
    
    
    
    
    
    
    
    
    (1.1
    )
    
    
    
    
    
    
    (1.1
    )Repayment of bank borrowings,
revolving facility, and
long term debt from
refinancing
    
    
    
    
    
    
    
    
    
    
    (74.0
    )
    
    
    
    
    
    
    (74.0
    )Cash used for financing
activities
    
    
    
    
    
    
    
    
    
    
    (87.0
    )
    
    
    
    
    
    
    (87.0
    )Increase (decrease) in parent
loans and advances
    
    
    (78.6
    )
    
    
    (3.4
    )
    
    
    82.0
    
    
    
    
    
    
    
    Effect of exchange rates of cash
and cash equivalents
    
    
    
    
    
    
    
    
    
    
    2.7
    
    
    
    
    
    
    
    2.7Net increase (decrease) in
cash and cash
equivalents
    
    
    (89.7
    )
    
    
    0.3
    
    
    
    19.3
    
    
    
    
    
    
    
    (70.1
    )Cash and cash equivalents at
beginning of period
    
    
    108.0
    
    
    
    (0.3
    )
    
    
    71.4
    
    
    
    
    
    
    
    179.1Cash and cash equivalents
at end of period
    
    $
    18.3
    
    
    $
    
    
    
    $
    90.7
    
    
    $
    
    
    
    $
    109.0
 28




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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Predecessor Company
For the Four Months Ended May 31, 2003
(Dollars in millions) Guarantor
    
    NonguarantorParent
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    Total(Unaudited)Cash flows provided by (used for) operating
activities
    
    $
    (7.5
    )
    
    $
    14.7
    
    
    $
    23.9
    
    
    $
    
    
    
    $
    31.1Cash flows from investing activities:Acquisition of property, plant,
equipment, and tooling
    
    
    (24.9
    )
    
    
    (15.4
    )
    
    
    (9.6
    )
    
    
    
    
    
    
    (49.9
    )Proceeds from sale of non-core
Businesses
    
    
    
    
    
    
    0.5
    
    
    
    0.3
    
    
    
    
    
    
    
    0.8Cash used for investing activities
    
    
    (24.9
    )
    
    
    (14.9
    )
    
    
    (9.3
    )
    
    
    
    
    
    
    (49.1
    )Cash flows from financing activities:Changes in bank borrowings, credit
facilities, DIP facility and other
notes
    
    
    (59.7
    )
    
    
    (2.0
    )
    
    
    
    
    
    
    
    
    
    
    (61.7
    )Proceeds from debt issuance
    
    
    678.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    678.9Prepetition lenders payment
    
    
    (477.3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (477.3
    )Payment to holders of Old Senior Notes
    
    
    (13.0
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13.0
    )Cash provided by (used for) financing
activities
    
    
    128.9
    
    
    
    (2.0
    )
    
    
    
    
    
    
    
    
    
    
    126.9Increase (decrease) in parent loans and
advances
    
    
    (1.9
    )
    
    
    2.2
    
    
    
    (0.3
    )
    
    
    
    
    
    
    Effect of exchange rates of cash and cash
equivalents
    
    
    
    
    
    
    
    
    
    
    4.1
    
    
    
    
    
    
    
    4.1Net increase (decrease) in cash and cash
equivalents
    
    
    94.6
    
    
    
    
    
    
    
    18.4
    
    
    
    
    
    
    
    113.0Cash and cash equivalents at beginning of
period
    
    
    13.3
    
    
    
    
    
    
    
    52.8
    
    
    
    
    
    
    
    66.1Cash and cash equivalents at end of
period
    
    $
    107.9
    
    
    $
    
    
    
    $
    71.2
    
    
    $
    
    
    
    $
    179.1
 29




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##### Table of Contents



Note 17. Subsequent Events On December 9, 2004 the Company established an accounts receivable
securitization facility, which will provide up to $75.0 million in funding from
commercial paper conduits sponsored by commercial lenders. The actual amount of
funding available at any given time is based on availability of eligible
receivables and other customary factors. Pursuant to the securitization
facility, certain of the Companys subsidiaries will sell trade accounts
receivables to a non-consolidated Special Purpose Entity which resells the
receivables to a Qualifying Special Purpose Entity which will then pledge the
receivables to secure borrowings from commercial paper conduits. The
securitization transactions will be accounted for as sales of the receivables
under the provisions of SFAS No. 140 Accounting Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, and will be removed from
the consolidated balance sheets. The proceeds received will be included in cash
flows from operating activities in the consolidated statements of cash flows.
Costs associated with the receivables facility will be recorded as other
expense in the consolidated statements of operations. The Company expects to
begin selling receivables pursuant to the securitization program during the
fourth quarter of fiscal 2004. Also on December 9, 2004, the Company announced its plan to explore the
potential divestiture of the Commercial Highway Hub and Drum business. This
includes facilities in Berea, KY, Chattanooga, TN, and Mexico City, Mexico. 
 Item 2.Managements Discussion and Analysis of Financial Condition and
Results of Operations Executive Summary This discussion should be read in conjunction with the Companys Annual
Report on Form 10-K for the fiscal year ended January 31, 2004 as filed with
the Securities and Exchange Commission on April 12, 2004 and the other
information included herein. Company Overview Unless otherwise indicated, references to Company mean (i) prior in the
effectiveness of Old Hayes Plan of Reorganization (as defined below) and the
related restructuring, to Old Hayes and its consolidated subsidiaries (the
Predecessor), and (ii) after the effectiveness of Old Hayes Plan of
Reorganization and the related restructuring to HLI Operating Company, Inc.,
and its consolidated subsidiaries (the Successor). References to fiscal year
means the Companys year commencing on February 1 of that year and ending on
January 31 of the following year (i.e., fiscal 2004 refers to the period
beginning February 1, 2004 and ending January 31, 2005, fiscal 2003 refers to
the period beginning February 1, 2003 and ending January 31, 2004). Originally founded in 1908, the Company is a leading worldwide producer of
aluminum and steel wheels for the light vehicle market. The Company is a
leading provider of steel wheels for the commercial highway market and is also
a leading supplier in the market for lightweight aluminum products, including
suspension, brake and powertrain components. The Company is a leading supplier
of the automotive wheels used by Original Equipment Manufacturers (OEMs) in
North America and Europe. The Company has a global footprint with 43 facilities
and one joint venture located in 14 countries around the world. The Company
sells products to every major North American, Japanese and European
manufacturer of passenger cars and light trucks, as well as commercial highway
vehicle customers throughout the world. The Company has a sales and marketing organization of dedicated customer
teams located in all major vehicle producing regions. The Companys ability to
support its customers globally is further enhanced by the Companys broad
global presence in terms of sales offices, manufacturing facilities and
engineering/technical centers. Also on December 9, 2004, the Company announced its plan to explore the
potential divestiture of the Commercial Highway Hub and Drum business. This
includes facilities in Berea, KY, Chattanooga, TN, and Mexico City, Mexico. On December 5, 2001, Old Hayes, 30 of its wholly-owned domestic
subsidiaries and one wholly-owned Mexican subsidiary filed voluntary petitions
under Chapter 11 of the U.S. Bankruptcy Code. Old Hayes emerged from bankruptcy
on June 3, 2003. In connection with the emergence from Chapter 11, the Company
entered into a $550.0 million senior secured credit facility, as amended. The
New Credit Facility consists of a $450.0 million six-year amortizing term loan
(the New Term Loan) and a five-year $100.0 million revolving credit facility.
In addition, HLI issued an aggregate of $250.0 million principal amount of 10
1/2% senior notes due 2010 (the New Senior Notes). On February 11, 2004,
Hayes Lemmerz International, Inc. closed on a primary offering of 7.7 million
shares of common stock, and a secondary offering of 2.0 million shares of its
common stock. The Company used the net proceeds that it received from the
primary offering to redeem $87.5 million aggregate principal amount, plus
accrued and unpaid interest thereon, of its outstanding New Senior Notes on
March 12, 2004, to prepay $16.0 million, plus accrued and unpaid interest
thereon, of its New Term Loan on February 12, 2004, and for general corporate
purposes. In fiscal 2003, the Company had net sales of $2.1 billion, with
approximately 48% of the Companys net sales for that period derived from
international markets, and in the first nine months of fiscal 2004, the Company
had sales of $1.7 billion, with 30




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##### Table of Contents



approximately 50% of the Companys net sales
for that period derived from international markets. The Company had earnings
from operations in fiscal 2003 of $62.0 million (which includes the impact of
certain gains and expenses related to its emergence from Chapter 11
proceedings), and in the first nine months of fiscal 2004, the Company had
earnings from operations of $42.9 million. Chapter 11 Filings On December 5, 2001, Old Hayes, 30
of its wholly-owned domestic subsidiaries and one wholly-owned Mexican
subsidiary (collectively, the Debtors) filed voluntary petitions for
reorganization relief (the Chapter 11 Filings or the Filings) under Chapter
11 of the Bankruptcy Code in the United States Bankruptcy Court for the
District of Delaware (the Bankruptcy Court). On December 16, 2002, certain of the Debtors filed a proposed joint plan
of reorganization with the Bankruptcy Court. On April 9, 2003, the Debtors
filed a modified first amended joint plan of reorganization (the Plan of
Reorganization) which received the requisite support from creditors authorized
to vote thereon. The following five Debtors were not proponents of the Plan of
Reorganization and are not subject to the terms thereof: HLI Netherlands
Holdings, Inc., CMI Quaker Alloy, Inc., Hayes Lemmerz Funding Company, LLC,
Hayes Lemmerz Funding Corporation, and Hayes Lemmerz International Import, Inc.
(collectively, the Non-reorganizing Debtors). The Plan of Reorganization provided for the cancellation of the existing
common stock of Old Hayes and the issuance of cash, new common stock in the
reorganized Company and other property to certain creditors of the Company in
respect of certain classes of claims. The Plan of Reorganization was confirmed
by an order of the Bankruptcy Court on May 12, 2003, which order has become
final and non-appealable. Emergence from Chapter 11 On June 3, 2003 (the Effective Date), Old Hayes and each of the 27
Debtors proposing the Plan of Reorganization emerged from Chapter 11
proceedings pursuant to the Plan of Reorganization, which was confirmed by an
order of the Bankruptcy Court on May 12, 2003, which order has become final and
non-appealable. The Non-reorganizing Debtors were not proponents of the Plan of
Reorganization and are not subject to the terms thereof. On June 3, 2003, the
Bankruptcy Court entered an order dismissing the Chapter 11 Filings of the
Non-reorganizing Debtors. Pursuant to the Plan of Reorganization, Old Hayes caused the formation of
(i) a new holding company, HLI Holding Company, Inc., a Delaware corporation
(HoldCo), (ii) HLI Parent Company, Inc., a Delaware corporation and a wholly
owned subsidiary of HoldCo (ParentCo), and (iii) HLI Operating Company, Inc,
a Delaware corporation and a wholly owned subsidiary of ParentCo (HLI). On
the Effective Date, (i) HoldCo was renamed Hayes Lemmerz International, Inc.
(New Hayes), (ii) New Hayes contributed to ParentCo 30,0000,000 shares of its
common stock, par value $.01 per share (the New Common Stock), and 957,447
series A warrants and 957,447 series B warrants to acquire New Common Stock of
New Hayes (the Series A Warrants and Series
B Warrants, respectively), (iii) ParentCo in turn contributed such shares
of New Common Stock and Series A Warrants and Series B Warrants to HLI and (iv)
pursuant to an Agreement and Plan of Merger, dated as of June 3, 2003 (the
Merger Agreement), between Old Hayes and HLI, Old Hayes was merged with and
into HLI (the Merger), with HLI continuing as the surviving corporation. 31




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##### Table of Contents



Pursuant to the Plan of Reorganization and as a result of the Merger, all
of the issued and outstanding shares of common stock, par value $.01 per share,
of Old Hayes (the Old Common Stock), and any other outstanding equity
securities of Old Hayes, including all options and warrants, were cancelled.
The holders of the existing voting common stock of Old Hayes immediately before
confirmation did not receive any voting shares of the emerging entity or any
other consideration under the Plan of Reorganization as a result of their
ownership interests of the Predecessor. This represented a complete change of
control in the ownership of Old Hayes. Promptly following the Merger, HLI
distributed to certain holders of allowed claims, under the terms of the Plan
of Reorganization, an amount in cash, the New Common Stock, the Series A
Warrants, the Series B Warrants and the Preferred Stock (as defined below).
Prior to the Merger, the Old Common Stock was registered pursuant to Section
12(g) of the Securities Exchange Act of 1934, as amended (the Exchange Act).
In reliance on Rule 12g-3(a) of the Exchange Act, by virtue of the status of
New Hayes as a successor issuer to the Company, the New Common Stock is deemed
registered under Section 12(g) of the Exchange Act. Old Hayes filed a Form 15
with the SEC to terminate the registration of the Old Common Stock under the
Exchange Act. Pursuant to the terms of the Plan of Reorganization, HLI issued 100,000
shares of Preferred Stock, par value $1.00, of HLI (the Preferred Stock) to
the holders of certain allowed claims. In accordance with the terms of the
Preferred Stock, the shares of Preferred Stock are, at the holders option,
exchangeable into a number of fully paid and nonassessable shares of New Common
Stock equal to (i) the aggregate liquidation preference of the shares of
Preferred Stock so exchanged ($100 per share plus all accrued and unpaid
dividends thereon (whether or not declared) to the exchange date) divided by
(ii) 125% of the Emergence Share Price. As determined pursuant to the terms
of the Plan of Reorganization, the Emergence Share Price is $18.50. In connection with the Debtors emergence from Chapter 11, on the
Effective Date, HLI entered into a $550.0 million senior secured credit
facility, as amended by Amendment No. 1 and Waiver to Credit Agreement, dated
October 16, 2003 and Amendment No. 2 and Waiver to the Credit Agreement dated
February 6, 2004, by Amendment No. 3 dated May 6, 2004, by Waiver to the Credit
Agreement dated June 1, 2004 and by Amendment No. 4, Waiver and Consent to
Credit Agreement dated November 10, 2004 (as amended, the New Credit
Facility). The New Credit Facility consists of a $450.0 million six-year
amortizing term loan (the New Term Loan) and a five-year $100.0 million
revolving credit facility (the Revolving Credit Facility). In addition, HLI
issued on the Effective Date an aggregate of $250.0 million principal amount of
10 1/2% senior notes due 2010 (the New Senior Notes). The proceeds from the
initial $450.0 million of borrowings under the New Credit Facility and the net
proceeds from the New Senior Notes were used to make payments required under
the Plan of Reorganization, including the repayment of Old Hayes DIP Facility
and a payment of $477.3 million to certain prepetition lenders, to pay related
transaction costs and to refinance certain debt. Reorganization Items Reorganization items as reported in the consolidated statements of
operations included herein are comprised of income, expense and loss items that
were realized or incurred by the Debtors as a direct result of Old Hayes
decision to reorganize under Chapter 11. During the four months ended May 31,
2003 reorganization items were as follows (dollars in millions): PredecessorFour MonthsEndedMay 31,2003Critical employee retention plan provision
    
    $
    11.7Professional fees directly related to the
Filings
    
    
    30.8Creditors Trust obligation
    
    
    2.0Other
    
    
    0.5Total
    
    $
    45.0
 On May 30, 2002, the Bankruptcy Court entered an order approving, among
other things, the critical employee retention plan (the CERP) filed with the
Bankruptcy Court in February 2002 which was designed to compensate certain
critical employees in order to assure their retention and availability during
Old Hayes restructuring. The plan has two components which (i) rewarded
critical employees who remained with Old Hayes (and certain affiliates of Old
Hayes who are not directly involved in the restructuring) during and through
the completion of the restructuring (the Retention Bonus) and (ii) provided
additional incentives to a more limited group of the most senior critical
employees if the enterprise value upon completing the restructuring exceeded an
established baseline (the Restructuring Performance Bonus). Thirty-five percent, or approximately $3.0 million, of the Retention Bonus
was paid on October 1, 2002. The remaining portion of the Retention Bonus of
approximately $5.9 million was paid on June 13, 2003. Further, the
Restructuring Performance Bonus provided under the CERP was paid after the
consummation of the restructuring as discussed below. Based on Old Hayes compromise total enterprise value of $1,250.0 million
as confirmed by the Bankruptcy Court, the aggregate amount of the Restructuring
Performance Bonus is $12.1 million. Of the aggregate $12.1 million,
approximately $6.0 million was paid 32




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##### Table of Contents



in cash on July 1, 2003, and approximately
$2.0 million was paid on August 28, 2003 as determined by the New Hayes Board
of Directors. The remaining portion of the Restructuring Performance Bonus was
paid in 215,935 shares of restricted units of New Hayes on July 28, 2003.
Pursuant to provisions contained in the CERP, the restricted units will vest as
follows, subject to the participants continued employment:  
    
    one half of the restricted units vested on June 3, 2004, the first anniversary of the Effective Date, and;
    
    one half of the restricted units will vest on the second anniversary of the Effective Date. Cash payments with respect to other reorganization items consisted
primarily of professional fees and cure payments and were approximately $20.3
million and $21.2 million during the five months ended October 31, 2003 and the
four months ended May 31, 2003, respectively. Results of Operations Sales of the Companys wheels, wheel-end attachments, aluminum structural
components and brake components produced in North America are directly affected
by the overall level of passenger car, light truck and commercial highway
vehicle production of North American OEMs, while sales of its wheels and
automotive castings in Europe are directly affected by the overall vehicle
production in Europe. The North American and European automotive industries are
sensitive to the overall strength of their respective economies. The Company is organized based primarily on markets served and products
produced. Under this organization structure, the Companys operating segments
have been aggregated into three reportable segments: Automotive Wheels,
Components and Other. The Automotive Wheels segment includes results from the
Companys operations that primarily design and manufacture fabricated steel and
cast aluminum wheels for original equipment manufacturers in the global
passenger car and light vehicle markets. The Components segment includes
results from the Companys operations that primarily design and manufacture
suspension, brake and powertrain components for original equipment
manufacturers in the global passenger car and light vehicle markets. The Other
segment includes results from the Companys operations that primarily design
and manufacture wheel and brake products for commercial highway and aftermarket
customers in North America. The Other segment also includes financial results
related to the Companys corporate office and elimination of certain
intercompany activities. Three Months Ended October 31, 2004 Compared to Three Months Ended October 31,
2003 Net Sales Three Months Ended October 31,2004
    
    2003
    
    $ Change(millions)Automotive Wheels
    
    $
    344.3
    
    
    $
    310.1
    
    
    $
    34.2Components
    
    
    173.6
    
    
    
    188.8
    
    
    
    (15.2
    )Other
    
    
    38.3
    
    
    
    32.0
    
    
    
    6.3Total
    
    $
    556.2
    
    
    $
    530.9
    
    
    $
    25.3
 The Companys net sales increased 4.8%, or $25.3 million, to $556.2
million in the third quarter of fiscal 2004 from $530.9 million in the third
quarter of 2003. The Company acquired a controlling interest in its joint
venture in Turkey during the fourth quarter of 2003, the consolidation of those
sales in 2004 and increases in international volumes, increased net sales by
$37 million. Foreign exchange rate fluctuations relative to the U.S. dollar
were favorable during the third quarter of 2004, which increased sales by
approximately $17 million. Partially offsetting these increases was a decrease
of $28 million in North American volumes due to lower OEM production
requirements. Net sales from the Companys Automotive Wheels segment increased 11%, or
$34.2 million to $344.3 million in the third quarter of fiscal 2004 from $310.1
million in the third quarter of 2003. The Company acquired a controlling
interest in its joint venture in Turkey during the fourth quarter of 2003, the
consolidation of those sales in 2004 and increases in international volumes,
increased net sales by $33 million. Foreign exchange rate fluctuations
relative to the U.S. dollar were favorable during the third quarter of 2004,
which increased sales by approximately $15 million. The combination of pricing
pressures caused by new competitors in foreign markets, such as China, and
lower production requirements on existing OEM programs in North America reduced
sales by approximately $14 million. Net sales from Components decreased 8.1%, or $15.2 million to $173.6
million in third quarter 2004 from $188.8 million in third quarter 2003.
Components net sales decreased by approximately $18 million due to lower
customer production requirements, 33




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##### Table of Contents



unfavorable product mix and decreased unit
pricing globally. Partially offsetting these decreases were favorable foreign
exchange rate fluctuations of approximately $3 million and a slight increase in
aluminum pass through pricing. Net sales from the Companys Other segment increased 19.7%, or $6.3
million to $38.3 million during third quarter 2004 from $32.0 million during
third quarter 2003. This increase was primarily due to higher volumes and
favorable pricing in the Companys commercial highway and aftermarket
operations, as demand for Class 8 trucks and commercial highway trailers in
North America increased year-over-year. Earnings (loss) from operations The following tables present earnings (loss) from operations, as well as
other information by segment (dollars in millions): Three Months Ended October 31, 2004AutomotiveWheels
    
    Components
    
    Other
    
    TotalEarnings (loss) from operations
    
    $
    15.3
    
    
    $
    (8.5
    )
    
    $
    0.4
    
    
    $
    7.2Asset impairments and other restructuring
charges: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 asset impairments and other
restructuring charges:
    
    $
    (2.3
    )
    
    $
    (0.6
    )
    
    $
    
    
    
    $
    (2.9
    )
 Three Months Ended October 31, 2003AutomotiveWheels
    
    Components
    
    Other
    
    TotalEarnings (loss) from operations
    
    $
    10.6
    
    
    $
    4.8
    
    
    $
    (1.5
    )
    
    $
    13.9Asset impairments and other restructuring
charges:Impairment of manufacturing facilities
    
    $
    
    
    
    $
    (0.8
    )
    
    $
    
    
    
    $
    (0.8
    )Impairment of machinery, equipment and
tooling
    
    
    (12.1
    )
    
    
    (6.7
    )
    
    
    
    
    
    
    (18.8
    )Total asset impairments and other
restructuring
charges:
    
    $
    (12.1
    )
    
    $
    (7.5
    )
    
    $
    
    
    
    $
    (19.6
    )
 The Companys earnings from operations decreased $6.7 million in the third
quarter of fiscal 2004 to $7.2 million from earnings of $13.9 million in the
third quarter of fiscal 2003. Adjusted for the net impact of foreign exchange
rate fluctuations relative to the U.S. dollar, the Companys earnings from
operations decreased approximately $8.3 million from fiscal 2003. Increased
volumes abroad were offset by lower OEM production requirements in North
America, lower unit pricing globally, and increased steel and iron prices. Earnings from operations at the Companys Automotive Wheels operations
increased $4.7 million in the third quarter of fiscal 2004 to $15.3 million
compared to $10.6 million in the fiscal 2003. Increased volumes abroad,
improved operating performance and the impact of consolidating earnings from
the Companys Turkey facility, in which controlling interest was acquired
during the fourth quarter of fiscal 2003, increased earnings by approximately
$5 million. Favorable fluctuations in foreign exchange rates relative to the
U.S. dollar increased earnings approximately $2 million. Lower OEM production
requirements in North America, increased steel pricing, an unfavorable product
mix and lower unit pricing globally were some of the factors which negatively
impacted earnings operations by approximately $12 million. During the third
quarter of fiscal 2004, the Companys Automotive Wheels segment recorded
facility closure and severance costs of approximately $2.3 million primarily
associated with the Companys Howell, Michigan facility and the rationalization
of its South African facilitys work force. During the third quarter of fiscal
2003, the Company recorded asset impairment losses of $12.1 million based on
its most recent sales projections, which estimated that the future undiscounted
cash flows from its La Mirada, California and Gainesville, Georgia
manufacturing facilities would not be sufficient to recover the carrying value
of the fixed assets at those facilities. Components earnings from operations decreased by $13.3 million in the
third quarter of fiscal 2004 to a loss of $8.5 million compared to earnings of
$4.8 million during the same period in fiscal 2003. Lower OEM production
requirements, decreased unit pricing, unfavorable product mix and increased
steel and iron prices decreased earnings from operations by approximately $16
million in the third quarter of fiscal 2004. Favorable international volumes
and decreases in depreciation costs were offset by unfavorable operating
performance and increased selling, administrative and engineering costs, which
decreased earnings from operations approximately $5 million. In the third
quarter of fiscal 2003, the Company recorded asset impairment losses of $7.5
million at its Wabash, Indiana facility based on its most recent sales
projections, which estimated that the future undiscounted cash flows would not
be sufficient to recover the carrying value of the fixed assets at that
facility. 34




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##### Table of Contents



Earnings from operations in the Companys Other segment increased by $1.9
million in the third quarter of fiscal 2004 to $0.4 million from a loss of $1.5
million in the third quarter of 2003. The Companys commercial highway and
aftermarket operations experienced increased volumes, partially offset by an
unfavorable product mix, which increased earnings by approximately $1 million.
Also favorably impacting earnings was improved operating performance, partially
offset by increased depreciation costs, which increased earnings by
approximately $1 million. Interest Expense, net Interest expense decreased 16.3%, or $2.4 million to $12.3 million for the
third quarter of fiscal 2004 from $14.7 million for the third quarter of fiscal
2003. The decreased interest expense in the third quarter of 2004 was primarily
due to an overall reduction in debt levels, primarily arising from debt
redeemed as a result of the Companys equity offering in February 2004. See
Notes 1 and 8 to the consolidated financial statements included herein
regarding the Companys new capital structure. Income Taxes Income tax expense was $3.7 million on pre-tax loss of $3.9 million and
$6.1 million on pre-tax loss of $2.9 million for the third quarter of fiscal
2004 and fiscal 2003, respectively. The income tax rate varies from the United
States statutory income tax rate of 35% due primarily to losses in the United
States without recognition of a corresponding income tax benefit. Net Loss Due to factors mentioned above, net loss increased $3.7 million, to $11.8
million in 2004 from $8.1 million in 2003. Nine Months Ended October 31, 2004 Compared to Nine Months Ended October 31,
2003 Net Sales Nine Months Ended October 31,2004
    
    2003
    
    $ Changemillions)Automotive Wheels
    
    $
    1,019.5
    
    
    $
    912.9
    
    
    $
    106.6Components
    
    
    532.1
    
    
    
    547.5
    
    
    
    (15.4
    )Other
    
    
    122.4
    
    
    
    88.6
    
    
    
    33.8Total
    
    $
    1,674.0
    
    
    $
    1,549.0
    
    
    $
    125.0
 The Companys net sales increased 8.1%, or $125.0 to $1,674.0 million in
the nine months ended October 31, 2004 from $1,549.0 million in the nine months
ended October 31, 2003. After adjusting for the net impact of favorable
exchange rate fluctuations relative to the U.S. dollar, net sales for the first
nine months of 2004 improved 3.9% or approximately $60.9 million compared to
the same period in 2003. Net sales from the Companys Automotive Wheels segment increased $106.6
million from $912.9 million in the first nine months of fiscal 2003 to $1,019.5
million in the first nine months of fiscal 2004. Automotive Wheels net sales
were favorably impacted by foreign exchange rate fluctuations relative to the
U.S. dollar, which increased sales by approximately $56 million. The remaining
increase in sales is primarily due to increased sales volumes in the Companys
international markets and the impact of consolidating sales from the Companys
facility in Turkey after having acquired a controlling interest in the facility
during the fourth quarter of fiscal 2003. Additionally, sales increased
slightly due to aluminum pass through pricing. These increases were partially
offset by decreased unit pricing globally and an unfavorable product mix in
North America. Net sales from Components decreased $15.4 million to $532.1 in the first
nine months of fiscal 2004 from $547.5 million in the first nine months of
2003. The decrease in Components net sales was primarily due to lower customer
production requirements and lower unit pricing globally, which was partially
offset by a favorable product mix. The impact of favorable foreign exchange
rate fluctuations increased net sales by approximately $9 million. Net sales from the Other segment increased $33.8 million from $88.6
million in the first nine months of 2003 to $122.4 in the first nine months of
fiscal 2004. This increase was primarily due to higher volumes in the
Companys commercial highway and aftermarket operations, as demand for Class 8
trucks and commercial highway trailers in North America increased
year-over-year. Earnings (loss) from operations excluding fresh start accounting adjustments
and reorganization items Earnings (loss) from operations excluding fresh start accounting
adjustments and reorganization items is used as a non-GAAP measure of the
Companys profitability because it excludes fresh start accounting adjustments
and reorganization items which do not 35




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##### Table of Contents



represent normal operating performance of
the Company as these items relate only to the Companys Chapter 11 Filings and
emergence. Earnings from operations excluding fresh start accounting
adjustments and reorganization items is calculated as follows (dollars in
millions): Nine MonthsEndedOctober 31,2004
    
    2003Earnings (loss) from operations
    
    $
    42.9
    
    
    $
    66.8Excluding:Fresh start accounting adjustments
    
    
    
    
    
    
    (63.1
    )Reorganization items
    
    
    
    
    
    
    45.0Earnings (loss) from operations excluding fresh start
accounting adjustments and reorganization items
    
    $
    42.9
    
    
    $
    48.7
 The following tables present earnings (loss) from operations excluding
fresh start accounting adjustments and reorganization items, as well as other
information by segment: Nine Months Ended October 31, 2004AutomotiveWheels
    
    Components
    
    Other
    
    TotalEarnings from operations
    
    $
    46.7
    
    
    $
    (7.7
    )
    
    $
    3.9
    
    
    $
    42.9Asset impairments and other restructuring
charges: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 asset impairments and other
restructuring charges:
    
    $
    (5.8
    )
    
    $
    (0.4
    )
    
    $
    
    
    
    $
    (6.2
    )
 Nine Months Ended October 31, 2003AutomotiveWheels
    
    Components
    
    Other
    
    TotalEarnings (loss) from operations excluding
fresh start and reorganization items
    
    $
    46.7
    
    
    $
    12.7
    
    
    $
    (10.7
    )
    
    $
    48.7Fresh start adjustments
    
    
    57.9
    
    
    
    27.7
    
    
    
    (22.5
    )
    
    
    63.1Reorganization items
    
    
    (0.1
    )
    
    
    0.2
    
    
    
    (45.1
    )
    
    
    (45.0
    )Asset impairments and other restructuring
charges:Impairment of manufacturing facilities
    
    $
    (0.5
    )
    
    $
    (0.9
    )
    
    $
    
    
    
    $
    (1.4
    )Impairment of machinery, equipment and
tooling
    
    
    (13.6
    )
    
    
    (10.0
    )
    
    
    
    
    
    
    (23.6
    )Facility closure costs
    
    
    (0.9
    )
    
    
    
    
    
    
    
    
    
    
    (0.9
    )Severance and other restructuring costs
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    (0.1
    )Total asset impairments and other
restructuring costs
    
    $
    (15.1
    )
    
    $
    (10.9
    )
    
    $
    
    
    
    $
    (26.0
    )
 The Companys earnings from operations excluding fresh start accounting
adjustments and reorganization items decreased $5.8 million from $48.7 million
in the first nine months of fiscal 2003 to $42.9 million in the first nine
months of fiscal 2004. Adjusted for the net impact of foreign exchange rate
fluctuations relative to the U.S. dollar, the Companys earnings from
operations excluding fresh start accounting adjustments and reorganization
items decreased approximately $12 million from fiscal 2003. Decreased unit
pricing, increased steel and iron prices, lower OEM production
requirements, and an unfavorable product mix were partially offset by increased
volumes abroad and improved operating performance. Earnings from operations excluding fresh start accounting adjustments and
reorganization items at the Companys Automotive Wheels operations remained
flat between the first nine months of fiscal 2004 and the same period in 2003.
During the first nine months of fiscal 2004, increased volumes abroad, improved
operating performance and the impact of consolidating earnings from the
Companys Turkey facility, in which controlling interest was acquired during
the fourth quarter of fiscal 2003, increased earnings by approximately $30
million. Favorable fluctuations in foreign exchange rates relative to the U.S.
dollar increased earnings approximately $6 million, but were offset by an
increase in depreciation and amortization of approximately $2 million,
primarily related to the Companys adoption of fresh start accounting upon
emergence from Chapter 11. This was offset by lower OEM production requirements
in North America, increased steel pricing, various customer satisfaction issues
and lower unit pricing globally 36




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##### Table of Contents



which decreased earnings from operations by
approximately $38 million. During the first nine months of fiscal 2004, the
Companys Automotive Wheels segment recorded facility closure and severance
costs of approximately $5.8 million primarily associated with the Companys
Howell, Michigan facility. During the first nine months of fiscal 2003,
Automotive Wheels recorded asset impairment losses and restructuring charges of
$15.1 million primarily related to its La Mirada, California and Gainesville,
Georgia manufacturing facilities. Components earnings from operations excluding fresh start accounting
adjustments and reorganization items decreased by $20.4 million in the first
nine months of fiscal 2004 compared to the same period in fiscal 2003. During
the first nine months of 2004, earnings were negatively impacted approximately
$27 million by decreased unit pricing, increased steel and iron prices, lower
OEM production requirements, and an unfavorable product mix. Increased selling,
administrative and engineering costs were partially offset by improved
operating performance and increased international production requirements,
which decreased earnings from operations approximately $2 million. Also, during
the first nine months of fiscal 2004 the Components segment recorded $0.4
million in asset impairments and other restructuring charges while in 2003
$10.9 million was recorded at various facilities due to a change in
managements plan for the future use of idle machinery and equipment. Other income from operations excluding fresh start accounting adjustments
and reorganization items increased $14.6 million from a loss of $10.7 million
in fiscal 2003 to income of $3.9 million in fiscal 2004. The Companys
commercial highway and aftermarket operations experienced increased volumes and
performance levels, partially offset by increased steel pricing, increased
depreciation costs and an unfavorable product mix which increased earnings by
approximately $12 million. Also during the first nine months of fiscal 2004 the
Companys North American pension and retiree medical costs declined
approximately $5 million, due primarily to the Companys implementation of
fresh start accounting upon its emergence from Chapter 11 in 2003. This was
offset by increased selling, administrative and engineering costs which
negatively impacted earnings approximately $4 million. Interest Expense, net Interest expense was $31.9 million for the first nine months of fiscal
2004 and $50.0 million for the same period of fiscal 2003. Interest expense
amounts between the two periods are not comparable, due to the Companys new
capital structure established upon emergence from Chapter 11. See Notes 1 and 8
to the consolidated financial statements included herein regarding the
Companys new capital structure. Income Taxes Income tax expense was $14.3 million on pre-tax loss of $1.9 and $69.0
million on pre-tax income of $19.1 million for the first nine months ended
October 31, 2004 and 2003, respectively. Income tax expense between the two
periods is not comparable due to the Companys emergence from Chapter 11. The
income tax rate varies from the United States statutory income tax rate of 35%
due primarily to losses in the United States without recognition of a
corresponding income tax benefit. Net Income (Loss) Due to the factors mentioned above, net income decreased $1,050.9
million, to a net loss of $29.7 million in 2004 from net income of $1,021.2 million in 2003. The net income for the nine months ended October 31, 2003 includes an
extraordinary gain on discharge of debt of $1,076.7 million realized upon
emergence from Chapter 11. Liquidity and Capital Resources Cash Flows Operating Activities:The Companys cash flows provided by operations
increased $16.6 million to $102.2 million in the first nine months of fiscal
2004 from $85.6 million in the first nine months of fiscal 2003. This
improvement resulted primarily from lower payments related to the Companys
Chapter 11 filings, which was partially offset by increased trade receivables
due to higher sales and the discontinuance of accelerated payment programs in
which the Company participated and payments made under the Companys short term
incentive programs in fiscal 2004. Investing Activities:Cash used for investing activities increased by
$19.2 million to $108.6 million in the first nine months of fiscal 2004 from
$89.4 million in the first nine months of fiscal 2003. Capital expenditures for the first nine months of fiscal 2004 were $109.2
million. These expenditures were primarily for additional machinery and
equipment to improve productivity and reduce costs, to meet demand for new
vehicle platforms and to meet expected requirements for the Companys products.
The Company anticipates capital expenditures for fiscal 2004 will be
approximately $150 37




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##### Table of Contents



million primarily relating to meeting demand for new vehicle
platforms and supporting maintenance and cost reduction programs, including
approximately $13 million for renovation and expansion of its aluminum wheel
plant located in Chihuahua, Mexico. Financing Activities:Cash used for financing activities increased by
$54.1 million during the first nine months of fiscal 2004 compared with the
first nine months of fiscal 2003. On February 11, 2004, New Hayes closed on a primary offering of 7,720,970
shares of its common stock for net proceeds of $117.0 million. On March 12,
2004, the Company used a portion of the net proceeds to redeem $87.5 million
aggregate principal amount, plus accrued and unpaid interest thereon, of its
outstanding New Senior Notes at a redemption price of 110.5%. This redemption
resulted in a loss on early extinguishment of $11.8 million during the first
quarter of fiscal 2004, including $2.6 million related to original issue
discount and debt issuance costs on the redeemed portion of the New Senior
Notes. The Company also used a portion of the primary stock offering proceeds
to prepay $16.0 million, plus accrued and unpaid interest thereon, of its New
Term Loan on February 12, 2004. Upon prepayment, the Company recognized a loss
on early extinguishment of $0.4 million related to debt issuance costs on the
prepaid portion of the New Term Loan. During the first nine months of fiscal 2004, the Company also repaid in
full $13.1 million of notes payable issued in conjunction with the purchases of
its Chihuahua, Mexico and Manisa, Turkey facilities. Sources of Liquidity The principal sources of liquidity for the Companys future operating,
capital expenditure, facility closure, restructuring and reorganization
requirements are expected to be (i) cash flows from operations, (ii) proceeds
from the sale of non-core assets and businesses, (iii) cash and cash
equivalents on hand, (iv) proceeds related to the Companys new $75.0 million
trade receivable securitization program, and (v) borrowings under the $100.0
million revolving credit facility under the New Credit Facility. While the
Company expects that such sources will meet these requirements, there can be no
assurances that such sources will prove to be sufficient, in part, due to
inherent uncertainties about applicable future capital market conditions. The Company continues to implement operational improvements, which consist
of a number of cost-cutting and profit-enhancing initiatives. If the
implementation of the operational improvements is not successful, the Company
may be unable to offer products at competitive prices to generate sufficient
operating funds to pay the interest on the New Senior Notes and make payments
due under its New Credit Facility. In such event, there can be no assurance
that alternative sources of financing would be available to the Company or, if
available, that such financing would be on commercially reasonable terms. Other Liquidity Matters During the third quarter of fiscal 2004, two of the Companys OEM
customers notified the Company of the discontinuance of accelerated payment
programs in which the Company participated. The termination of these programs
negatively impacted cash flow during this quarter by approximately $12.0
million and is expected to negatively impact future cash flow through March
2005 by an additional $25.0 million. The Companys newly established
securitization program is intended to offset the negative impact associated
with the loss of these programs. On November 13, 2003, the Company acquired an additional 35% ownership
interest in its Turkish joint venture for $15.0 million in cash of which $1.1
million was paid in the first quarter of fiscal 2004. As a result of this
acquisition, the Company owns 60% of the subsidiary, Hayes Lemmerz Jantas Jant
Sanayi ve Ticaret A.S., which became a consolidated subsidiary of the Company
beginning in the fourth quarter of fiscal 2003. As part of this transaction,
the Company sold an approximate 7.8% interest in another Turkish subsidiary,
Hayes Lemmerz Inci Jant Sanayi A.S., for $2.4 million. This sale reduced the
Companys holdings in Hayes Lemmerz Inci Jant Sanayi A.S. to 60%. On June 3, 2003, in connection with the Companys emergence from Chapter
11, HLI entered into the $550.0 million New Credit Facility, consisting of the
$450.0 million New Term Loan and the $100.0 million Revolving Credit Facility.
HLI also issued an aggregate of $250.0 million New Senior Notes, which was
subsequently reduced to $161.7 million, net of a discount of $0.8 million. The
Company and substantially all of its material direct and indirect domestic
subsidiaries have guaranteed HLIs obligations under the New Credit Facility,
and the Company and substantially all of its domestic subsidiaries have
guaranteed HLIs obligations under the New Senior Notes. The proceeds from the
initial $450.0 million of borrowings under the New Credit Facility and the net
proceeds from the New Senior Notes were used to make payments required under
the Plan of Reorganization. At October 31, 2004 and December 9, 2004, there
were no outstanding borrowings with $18.7 million and $20.2 million,
respectively, in letters of credit issued under the Revolving Credit Facility.
The amount available to borrow under the Revolving Credit Facility at October
31, 2004 and December 9, 2004 was approximately $81.3 million and $79.8
million, respectively. In addition, upon the Companys emergence from bankruptcy, all of Old
Hayes existing securities, including the Old Common Stock, Old Senior Notes
and Old Subordinated Notes, were cancelled. All amounts outstanding under the
Prepetition Credit 38




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##### Table of Contents



Agreement were satisfied in exchange for: (i) a cash payment
of $477.3 million; (ii) 15,930,000 shares of New Common Stock; and (iii) 53,100
shares of Preferred Stock. All amounts outstanding under the Old Senior Notes
were satisfied in exchange for: (i) a cash payment of approximately $13.0
million; (ii) 13,470,000 shares of New Common Stock; (iii) 44,900 shares of
Preferred Stock; and (iv) a portion of the distributions from the trust
established under the Plan of Reorganization for the benefit of the prepetition
creditors (the Creditors Trust). All amounts outstanding under the Old
Subordinated Notes were satisfied in exchange for a distribution of Series A
Warrants and a portion of the distributions under the Creditors Trust. In
addition, holders of unsecured claims will receive an aggregate amount of
600,000 shares of New Common Stock, 2,000 shares of Preferred Stock, the Series
B Warrants and a portion of the distributions under the Creditors Trust. Upon emergence from Chapter 11, the Company:(i) repaid the DIP Facility
in full; (ii) settled certain of the operating leases discussed below; and
(iii) paid certain other costs and expenses pursuant to the Plan of
Reorganization. Certain of the Companys operating leases covering leased assets with an
original cost of approximately $68.0 million contained provisions which, if
certain events occur or conditions were met, including termination of the
lease, could have required the Company to purchase or re-sell the leased assets
within a specified period of time, generally one year, based on amounts
specified in the lease agreements. In connection with the Companys emergence
from Chapter 11, the Company purchased these assets for $23.6 million. Credit Ratings S&P
    
    MoodysCorporate and Bank Debt rating
    
    BB
    
    Ba3Senior Note rating
    
    
    B+
    
    
    
    B1
 In the event of a downgrading, the Company believes it would continue to
have access to sufficient liquidity, however, the cost of borrowing would
increase and the Companys ability to access certain financial markets could be
limited. Outlook Customers The Company derived approximately half of its fiscal 2003 net sales on a
worldwide basis from Ford, DaimlerChrysler and General Motors and their
subsidiaries. The Companys sales levels and margins could be adversely
affected as a result of pricing pressures caused by new competitors in low-cost
foreign markets, such as China. These factors led to selective resourcing of
future business to competitors in the second quarter of fiscal 2003.
Additionally, these customers have been experiencing decreasing market share in
North America which could result in lower sales volumes for the Company. The Companys net sales are continually affected by pressure from its
major customers to reduce prices. The Companys emphasis on reduction of
production costs, increased productivity and improvement of production
facilities has enabled the Company to respond to this pressure. However, there
is no guarantee that the Company will be as successful at this in the future. The Company expects to launch new business of approximately $130.0
million, $30.0 million and $140.0 million (in aggregate approximately $130.0
million, $180.0 million and $300.0 million) in revenue in fiscal 2006, 2007,
and 2008, respectively. These revenue estimates are incremental to its full
year fiscal 2004 outlook. The Company calculates these amounts by estimating
awarded new and conquest business, as well as expected follow-on business that
the Company currently supplies. These amounts are decreased by estimated
reductions in sales resulting from any platforms that are expected to balance
out and for which the Company is not expected to receive the follow-on reward. Steel Supply Global spot market steel prices have significantly increased during 2003
and into 2004. Factors leading to the higher prices include the increasing
demand for steel in China, industry consolidation and rising raw material
costs. In response to the increasing cost of raw materials, a number of steel
suppliers have implemented surcharges on existing fixed price contracts.
Without the surcharge some suppliers claim they will be unable to provide
adequate supplies of steel. In addition, some of the Companys suppliers have
sought, and others may seek in the future, bankruptcy relief which could affect
the availability or price of steel. These factors could negatively impact the
Companys results of operations as it may be unable to compel suppliers to
comply with existing contracts or to source adequate supplies of steel. The
Company believes it can partially offset the impact of cost increases through
higher scrap sales recoveries and by passing some of these costs through to
certain of its customers. The full impact of steel prices is uncertain given
the volatility in the spot steel market. However, the Company anticipates the
net impact to reduce earnings by approximately $20.0 million in fiscal 2004. Interest Rate and Foreign Exchange Rate Fluctuations 39




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##### Table of Contents



A portion of the Companys debt, including its borrowings under the New
Credit Facility, bears interest at variable rates. Any increase in the interest
rates on the Companys debt will reduce funds available to it for its
operations and future business opportunities. Due to the increase in the Companys operations outside the United States,
the Company has experienced increased foreign currency exchange gains and
losses in the ordinary course of business. As a result, fluctuations in the
exchange rate between the U.S. dollar, the euro and the currencies of other
countries in which the Company conducts its business, may have a material
impact on its financial condition as cash flows generated in other currencies
will be used, in part, to service its dollar-denominated debt. This could
result in an increase in the Companys overall leverage and could result in
less cash flow available for debt repayment should the U.S. dollar appreciate
significantly versus other currencies in which significant cash flows are
generated. In addition, fluctuations in foreign currency exchange rates may affect
the value of the Companys foreign assets and liabilities as reported in U.S.
dollars, which in turn may adversely affect reported earnings and, accordingly,
the comparability of period-to-period results of operations. Changes in
currency exchange rates may affect the relative prices at which the Company and
foreign competitors sell products in the same market. In addition, changes in
the value of the relevant currencies may affect the cost of certain items
required in its operations. There can be no assurance that fluctuations in
interest rates or exchange rates will not have a material adverse effect on the
Companys financial condition or results of operations, or cause significant
fluctuations in quarterly and annual results of operations. Postretirement Benefits On December 8, 2003, President George W. Bush signed the Medicare
Prescription Drug, Improvement and Modernization Act (the Act) into law. The
Act introduces a prescription drug benefit under Medicare as well as a federal
subsidy to sponsors of retiree health care benefit plans that provide a benefit
that is at least actuarially equivalent to the benefit established by the law. In January 2004, the Financial Accounting Standards Board (FASB) issued
FASB Staff Position No. FAS 106-1, Accounting and Disclosure Requirements
Related to the Medicare Prescription Drug, Improvement and Modernization Act of
2003 (FSP 106-1). FSP 106-1 permitted companies that are a sponsor of a
postretirement heath care plan that provides a prescription drug benefit to
either include the effects of the Act in its financial statements or defer
accounting for the Act until the FASB issued guidance on how to account for the
federal subsidy. Such guidance was released by the FASB in May 2004 in Staff
Position No. FAS 106-2 (FSP 106-2). In accordance with the provisions of FSP 106-2, the Company applied the
accounting guidance of the pronouncement in the fiscal quarter ending October
31, 2004. As such, the accumulated postretirement benefit obligation (APBO) and
the net periodic postretirement benefit cost reflect the effects of the Act as
of and for the periods ended October 31, 2004. Off Balance Sheet Arrangements On December 9, 2004 the Company established an accounts receivable
securitization facility, which will provide up to $75.0 million in funding from
commercial paper conduits sponsored by commercial lenders. The actual amount of
funding available at any given time is based on availability of eligible
receivables and other customary factors. Pursuant to the securitization
facility, certain of the Companys subsidiaries will sell trade accounts
receivables to a non-consolidated Special Purpose Entity which resells the
receivables to a Qualifying Special Purpose Entity which will then pledge the
receivables to secure borrowings from commercial paper conduits. The
securitization transactions will be accounted for as sales of the receivables
under the provisions of SFAS No. 140 Accounting Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, and will be removed from
the consolidated balance sheets. The proceeds received will be included in
cash flows from operating activities in the consolidated statements of cash
flows. Costs associated with the receivables facility will be recorded as other
expense in the consolidated statements of operations. The Company expects to
begin selling receivables pursuant to the securitization program during the
fourth quarter of fiscal 2004. 40




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##### Table of Contents



Contractual Obligations The following table identifies the Companys significant contractual
obligations (dollars in millions): Payment Due by PeriodLess than
    
    1-3
    
    4-5
    
    After1 Year
    
    Years
    
    Years
    
    5 Years
    
    TotalLong-term debt
    
    $
    6.0
    
    
    $
    14.2
    
    
    $
    30.2
    
    
    $
    586.1
    
    
    $
    636.5Redeemable preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11.1
    
    
    
    11.1Short-term borrowings
    
    
    3.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.9Capital lease obligations
    
    
    5.1
    
    
    
    7.7
    
    
    
    0.1
    
    
    
    
    
    
    
    12.9Operating leases
    
    
    16.2
    
    
    
    21.9
    
    
    
    11.5
    
    
    
    0.3
    
    
    
    49.9Capital expenditures
    
    
    30.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30.8Total obligations
    
    $
    62.0
    
    
    $
    43.8
    
    
    $
    41.8
    
    
    $
    597.5
    
    
    $
    745.1
 Other Cash Requirements The Company anticipates the following approximate significant cash
requirements to be paid during the remainder of fiscal 2004 (dollars in
millions): Interest
    
    $
    16.5Taxes
    
    
    10.0Pension and other post-retirement benefits funding
    
    
    1.5Various customer satisfaction issues
    
    
    4.5Restructuring costs(1)
    
    
    2.5
  (1)
    
    See Note 7 to the consolidated financial statements included herein
for a discussion of restructuring and other closure costs. Critical Accounting Policies The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period.
Considerable judgment is often involved in making these determinations; the use
of different assumptions could result in significantly different results.
Management believes its assumptions and estimates are reasonable and
appropriate; however, actual results could differ from those estimates. Asset Impairment Losses and Other Restructuring Charges The Companys consolidated statements of operations included herein
reflect an element of operating expenses described as asset impairments and
other restructuring charges. The Company periodically evaluates whether events
and circumstances have occurred that indicate that the remaining useful life of
any of its long lived assets may warrant revision or that the remaining balance
might not be recoverable. When factors indicate that the long lived assets
should be evaluated for possible impairment, the Company uses an estimate of
the future undiscounted cash flows generated by the underlying assets to
determine if a write-down is required. If a write-down is required, the Company
adjusts the book value of the impaired long-lived assets to their estimated
fair values. Fair value is determined through third party appraisals or
discounted cash flow calculations. The related charges are recorded as asset
impairment or, in the case of certain exit costs in connection with a plant
closure or restructuring, a restructuring or other charge in the consolidated
statements of operations. As discussed above and in the notes to the Companys consolidated
financial statements included herein, a number of decisions have occurred or
other factors have indicated that these types of charges are required to be
currently recognized. There can be no assurance that there will not be
additional charges based on future events and that the additional charges would
not have a materially adverse impact on the Companys financial position and
results of operations. Pension and Postretirement Benefits Other Than Pensions Annual net periodic expense and benefit liabilities under the Companys
defined benefit plans are determined on an actuarial basis. Assumptions used in
the actuarial calculations have a significant impact on plan obligations and
expense. Each October, the Company reviews the actual experience compared to
the more significant assumptions used and makes adjustments to the assumptions,
if warranted. The healthcare trend rates are reviewed with the actuaries based
upon the results of their review of claims experience.
Discount rates are based upon an expected benefit payments duration
analysis and the equivalent average yield rate for high-quality fixed-income
investments. 41




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Pension benefits are funded through deposits with trustees and the
expected long-term rate of return on fund assets is based upon actual
historical returns modified for known changes in the market and any expected
change in investment policy. Postretirement benefits are not funded and Company
policy is to pay these benefits as they become due. Certain accounting guidance, including the guidance applicable to
pensions, does not require immediate recognition of the effects of a deviation
between actual and assumed experience or the revision of an estimate. This
approach allows the favorable and unfavorable effects that fall within an
acceptable range to be netted. Although this netting occurs outside the basic
financial statements, the net amount is disclosed as an unrecognized gain or
loss in the footnotes to the Companys financial statements. In accordance with
the fresh start accounting provisions of SOP 90-7, all previously unrecognized
gains or losses were immediately recognized at the emergence date. The Company expects to incur approximately $11.1 million of pension
expense and $9.6 million of retiree benefit expense in fiscal 2004. Goodwill Impairment Testing On February 1, 2002, the Company adopted Financial Accounting Standards
Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets. Under SFAS No. 142, goodwill and other
indefinite-lived intangible assets are no longer amortized; rather those assets
must be tested for impairment annually. Other definite-lived intangible assets
continue to be amortized over their estimated lives. (See Note 6 to the
consolidated financial statements included herein.) The Company tests goodwill for impairment as of November 1st of each
fiscal year, or more frequently should circumstances change or events occur
that would more likely than not reduce the fair value of a reporting unit below
its carrying amount, as provided for in SFAS No. 142. Allowance for Uncollectible Accounts The allowance for uncollectible accounts provides for losses believed to
be inherent within the Companys Receivables, (primarily trade receivables).
Management evaluates both the creditworthiness of specific customers and the
overall probability of losses based upon an analysis of the overall aging of
receivables, past collection trends and general economic conditions. Management
believes, based on its review, that the allowance for uncollectible accounts is
adequate to cover potential losses. Actual results may vary as a result of
unforeseen economic events and the impact those events could have on the
Companys customers. Income Taxes In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment. The Company determined that it
could not conclude that it was more likely than not that the benefits of
certain deferred income tax assets would be realized. As a result of
managements assessment, a valuation allowance was recognized. The valuation
allowance recorded by the Company reduces to zero the net carrying value of all
United States and certain foreign net deferred tax assets. The Company expects
the deferred tax assets, net of the valuation allowance, to be realized as a
result of the reversal of existing taxable temporary differences in the United
States and as a result of projected future taxable income and the reversal of
existing taxable temporary differences in certain foreign locations. The Company has not recorded a deferred tax liability for temporary
differences related to investments in foreign subsidiaries that are essentially
permanent in duration. These temporary differences may become taxable upon a
repatriation of assets from the subsidiaries or a sale or liquidation of the
subsidiaries. 
 Item 3.Quantitative and Qualitative Disclosures About Market Risk For the period ended October 31, 2004, the Company did not experience any
material change in market risk exposures affecting the quantitative and
qualitative disclosures as presented in the Companys Annual Report on Form
10-K for the year ended January 31, 2004. 
 Item 4.Controls and Procedures Definition of Controls Management of the Company, including the Companys Chief Executive Officer
and Chief Financial Officer, has designed, or caused to be designed, and
maintained disclosure controls and procedures, as defined in Exchange Act Rules
13a-15 and 15d-15 (the 42




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##### Table of Contents



Disclosure Controls and Procedures), to reasonably
assure that material information is recorded, processed, summarized and
reported within the time periods specified by the SECs rules and forms and to
reasonably assure that such information is accumulated and communicated to
management, including the Companys Chief Executive Officer and Chief Financial
Officer, in a timely manner to allow for appropriate decisions regarding
required disclosures. Management has also designed internal controls, including
internal controls over financial reporting (the Internal Controls), to
provide reasonable assurance regarding the reliability of the Companys
financial reporting and the preparation of the Companys financial statements
in accordance with accounting principles generally accepted in the United
States (GAAP). Limitations on the Effectiveness of Controls As more fully discussed in the American Institute of Certified Public
Accountants (AICPA) auditing standards pronouncement Consideration Of
Internal Control in a Financial Statement Audit, AU Section 319, paragraphs
 .21 to .24, an internal control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance that the control
objectives will be met. Limitations inherent in any system of internal controls
might include, among other things, (i) faulty human judgment and simple errors
or mistakes, (ii) collusion of two or more people or inappropriate management
override of procedures, (iii) imprecision in estimating and judging
cost-benefit relationships in designing controls and (iv) reductions in the
effectiveness of one deterring component (such as a strong cultural and
governance environment) by a conflicting component (such as may be found in
certain management incentive plans). Because of such inherent limitations in
any system of internal controls, no evaluation of controls can provide absolute
assurance that all weaknesses or instances of fraud, if any, have been
detected. The Company, including its Chief Executive Officer and Chief Financial
Officer, believes that the aforementioned limitations apply to any applicable
system of internal controls, including the Disclosure Controls and Procedures
and Internal Controls. The Company will continue the process of identifying and
implementing corrective actions where required to improve the effectiveness of
its Disclosure Controls and Procedures and Internal Controls. Significant
supplemental resources may continue to be required to prepare the required
financial and other information during this ongoing process. Financial Systems Implementation The Company is currently in the process of upgrading its North American
general ledger and financial computer systems, the first phase of which was
completed in October 2004. The implementation is expected to further improve or
otherwise enhance the Companys Disclosure Controls and Procedures and Internal
Controls. Evaluation of Disclosure Controls and Procedures The Company maintains a disclosure committee reporting to the Chief
Executive Officer of the Company to assist the Chief Executive Officer and
Chief Financial Officer in fulfilling their responsibility in designing,
establishing, maintaining and reviewing the Companys Disclosure Controls and
Procedures (the Disclosure Committee). The Disclosure Committee is currently
chaired by the Companys Chief Financial Officer and includes the Companys
General Counsel, Vice President of Human Resources and Administration,
Corporate Controller  Operations, Treasurer, Assistant General Counsel,
Manager of Financial Reporting and Governance, and Director of Internal Audit
as its other members. As of the end of the period covered by this report, the
Companys Chief Executive Officer and Chief Financial Officer, along with the
Disclosure Committee, evaluated the Companys Disclosure Controls and
Procedures. The Companys Chief Executive Officer and Chief Financial Officer
have concluded, subject to the limitations noted above, that the Disclosure
Controls and Procedures are effective based on such evaluation. Changes in Internal Controls There were no significant changes in the Companys Internal Controls or in
other factors that have materially affected, or are reasonably likely to
affect, Internal Controls over financial reporting during the most recent
fiscal quarter. 
 PART II. OTHER INFORMATION 
 Item 1.Legal Proceedings There have been no material developments in legal proceedings involving
the Company since those reported in the Companys Annual Report on Form 10-K
for the year ended January 31, 2004. 
 Item 2.Changes in Securities and Use of Proceeds None. 
 Item 3.Defaults upon Senior Securities 43




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##### Table of Contents



None. 
 Item 4.Submission of Matters to a Vote of Security Holders None. 
 Item 5.Other Information None. 
 Item 6.Exhibits  10.10
    
    Amendment No. 4 dated as of November 10, 2004, by and among
HLI Operating Company, Inc., as Borrower, Hayes Lemmerz
International, Inc., the Lenders and Issuers listed therein,
Citicorp North America, Inc., as Administrative Agent,
Lehman Commercial Paper, Inc., as Syndication Agent, and
General Electric Capital Corporation, as Documentation
Agent*31.1
    
    Certification of Curtis J. Clawson, President and
Chief Executive Officer, pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.*31.2
    
    Certification of James A. Yost, Vice President, Finance, and
Chief Financial Officer, pursuant to Section 302 of the
Sarbanes Oxley Act of 2002.*32.1
    
    Certification of Curtis J. Clawson, President and
Chief Executive Officer, Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.*32.2
    
    Certification of James A. Yost, Vice President, Finance, and
Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.* * Filed electronically herewith. 44




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##### Table of Contents



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. HLI OPERATING COMPANY, INC./s/ JAMES A. YOSTJames A. YostVice President, Finance,
and Chief Financial Officer
 December 15, 2004 45




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##### Table of Contents



HLI OPERATING COMPANY, INC. 10-Q EXHIBIT INDEX (a) Exhibits  10.12
    
    Amendment No. 4 dated as of November 10, 2004, by and among
HLI Operating Company, Inc., as Borrower, Hayes Lemmerz
International, Inc,. the Lenders and Issuers listed therein,
Citicorp North America, Inc., as Administrative Agent,
Lehman Commercial Paper, Inc., as Syndication Agent, and
General Electric Capital Corporation, as Documentation
Agent*31.1
    
    Certification of Curtis J. Clawson, President and
Chief Executive Officer, pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.*31.2
    
    Certification of James A. Yost, Vice President, Finance, and
Chief Financial Officer, pursuant to Section 302 of the
Sarbanes Oxley Act of 2002.*32.1
    
    Certification of Curtis J. Clawson, President and
Chief Executive Officer, Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.*32.2
    
    Certification of James A. Yost, Vice President, Finance, and
Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.*    *
    Filed electronically herewith. 46