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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
   Form 10-Q (Mark One)x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended July 31, 2004oro
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from            to Commission file number: 333-107539  HLI Operating Company, Inc. (Exact name of registrant as specified in its charter)
 Delaware
    
    30-0167742(State or other jurisdiction of
incorporation or organization)
    
    (IRS Employer Identification No.)
 15300 Centennial Drive Northville, Michigan(Address of principal executive offices)
    
    48167(Zip Code)
 Registrants telephone number, including area code:
(734) 737-5000 Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12(b)-2 of the Act). Yes [ ] No [ X ] APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Act subsequent
to the distributions of securities under a plan confirmed by a court. Yes [X]
No [ ] The number of shares of common stock outstanding as of September 7, 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 Statements
    
    
    
    3Consolidated Statements of Operations
    
    
    
    3Consolidated Balance Sheets
    
    
    
    5Consolidated Statements of Cash Flows
    
    
    
    6Notes to Consolidated Financial Statements
    
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    
    29Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    
    42Item 4. Controls and Procedures
    
    
    
    42PART II.
OTHER INFORMATION
    
    
    
    43Item 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
    
    
    
    43Item 5. Other Information
    
    
    
    43Item 6. Exhibits and Reports on Form 8-K
    
    
    
    43Signatures
    
    
    
    45Registration Rights AgreementAmendment No. 3, dated as of May 6, 2004Waiver of Certain Post Closing Covenants302 Certification of Curtis J. Clawson302 Certification of James A. Yost906 Certification of Curtis J. Clawson906 Certification of James A. Yost
  FORWARD LOOKING STATEMENTS 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. These forward looking statements involve certain risks
and uncertainties. No assurance can be given that any of such matters will be
realized. Factors that may cause actual results to differ materially from those
contemplated by such forward looking statements include, among others, the
following possibilities: (1) competitive pressure in the Companys industry
increases significantly; (2) general economic conditions are less favorable
than expected; (3) the Companys dependence on the automotive industry (which
has historically been cyclical); (4) pricing pressure from automotive industry
customers; (5) changes in the financial markets affecting the Companys
financial structure and the Companys cost of capital and borrowed money; (6)
the uncertainties inherent in international operations and foreign currency
fluctuations; and (7) uncertainties related to conflict in the Middle East. The
Company has no duty under the Private Securities Litigation Reform Act of 1995
to update the forward looking statements in this Quarterly Report on Form 10-Q
and the Company does not intend to provide such updates. 2




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HLI OPERATING COMPANY, INC. AND SUBSIDIARIES 
 
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions)
(Unaudited) Successor
    
    PredecessorThree Months
    
    Two Months
    
    One MonthEnded
    
    Ended
    
    EndedJuly 31,
    
    July 31,
    
    May 31,2004
    
    2003
    
    2003Net sales
    
    $
    523.7
    
    
    $
    328.3
    
    
    $
    174.5Cost of goods sold
    
    
    474.4
    
    
    
    298.9
    
    
    
    147.8Gross profit
    
    
    49.3
    
    
    
    29.4
    
    
    
    26.7Marketing, general and administration
    
    
    39.9
    
    
    
    24.9
    
    
    
    7.7Asset impairments and other restructuring charges
    
    
    0.9
    
    
    
    
    
    
    
    2.3Other (income) expense, net
    
    
    (1.0
    )
    
    
    2.1
    
    
    
    (1.3
    )Reorganization items
    
    
    
    
    
    
    
    
    
    
    31.9Fresh start accounting adjustments
    
    
    
    
    
    
    
    
    
    
    (63.1
    )Earnings from operations
    
    
    9.5
    
    
    
    2.4
    
    
    
    49.2Interest expense, net
    
    
    13.7
    
    
    
    12.6
    
    
    
    5.8Other non-operating expense
    
    
    
    
    
    
    0.1
    
    
    
    Earnings (loss) before taxes on income, minority
interest and extraordinary gain on debt discharge
    
    
    (4.2
    )
    
    
    (10.3
    )
    
    
    43.4Income tax provision
    
    
    5.6
    
    
    
    2.6
    
    
    
    54.4Loss before minority interest and extraordinary
gain on debt discharge
    
    
    (9.8
    )
    
    
    (12.9
    )
    
    
    (11.0
    )Minority interest
    
    
    1.5
    
    
    
    0.8
    
    
    
    0.2Loss before extraordinary gain on debt discharge
    
    
    (11.3
    )
    
    
    (13.7
    )
    
    
    (11.2
    )Extraordinary gain on debt discharge, net of tax $0
    
    
    
    
    
    
    
    
    
    
    1,076.7Net income (loss)
    
    $
    (11.3
    )
    
    $
    (13.7
    )
    
    $
    1,065.5
 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)
(Unaudited) Successor
    
    PredecessorSix Months
    
    Two Months
    
    Four MonthsEnded
    
    Ended
    
    EndedJuly 31,
    
    July 31,
    
    May 31,2004
    
    2003
    
    2003Net sales
    
    $
    1,117.8
    
    
    $
    328.3
    
    
    $
    689.8Cost of goods sold
    
    
    994.4
    
    
    
    298.9
    
    
    
    611.3Gross profit
    
    
    123.4
    
    
    
    29.4
    
    
    
    78.5Marketing, general and administration
    
    
    83.8
    
    
    
    24.9
    
    
    
    41.6Asset impairments and other restructuring charges
    
    
    3.3
    
    
    
    
    
    
    
    6.4Other (income) expense, net
    
    
    0.6
    
    
    
    2.1
    
    
    
    (1.9
    )Reorganization items
    
    
    
    
    
    
    
    
    
    
    45.0Fresh start accounting adjustments
    
    
    
    
    
    
    
    
    
    
    (63.1
    )Earnings from operations
    
    
    35.7
    
    
    
    2.4
    
    
    
    50.5Interest expense, net
    
    
    26.8
    
    
    
    12.6
    
    
    
    22.7Other non-operating (income) expense
    
    
    (0.1
    )
    
    
    0.1
    
    
    
    Loss on early extinguishment of debt
    
    
    12.2
    
    
    
    
    
    
    
    Earnings (loss) before taxes on income, minority
interest, extraordinary gain on debt discharge
    
    
    (3.2
    )
    
    
    (10.3
    )
    
    
    27.8Income tax provision
    
    
    10.6
    
    
    
    2.6
    
    
    
    60.3Loss before minority interest and extraordinary
gain on debt discharge
    
    
    (13.8
    )
    
    
    (12.9
    )
    
    
    (32.5
    )Minority interest
    
    
    4.1
    
    
    
    0.8
    
    
    
    1.2Loss before extraordinary gain on debt discharge
    
    
    (17.9
    )
    
    
    (13.7
    )
    
    
    (33.7
    )Extraordinary gain on debt discharge, net of tax $0
    
    
    
    
    
    
    
    
    
    
    1,076.7Net income (loss)
    
    $
    (17.9
    )
    
    $
    (13.7
    )
    
    $
    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) July 31,
    
    January 31,2004
    
    2004(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    49.1
    
    
    $
    48.5Receivables
    
    
    325.0
    
    
    
    325.5Inventories
    
    
    204.1
    
    
    
    189.3Prepaid expenses and other
    
    
    21.3
    
    
    
    29.0Total current assets
    
    
    599.5
    
    
    
    592.3Property, plant and equipment, net
    
    
    966.4
    
    
    
    966.5Goodwill
    
    
    407.2
    
    
    
    416.2Intangible assets, net
    
    
    225.2
    
    
    
    237.2Other assets
    
    
    51.6
    
    
    
    85.5Total assets
    
    $
    2,249.9
    
    
    $
    2,297.7LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Bank borrowings and other notes
    
    $
    4.0
    
    
    $
    14.2Current portion of long-term debt
    
    
    10.1
    
    
    
    11.3Accounts payable and accrued liabilities
    
    
    362.1
    
    
    
    355.5Total current liabilities
    
    
    376.2
    
    
    
    381.0Long-term debt, net of current portion
    
    
    641.2
    
    
    
    752.4Pension and other long-term liabilities
    
    
    517.7
    
    
    
    526.5Redeemable preferred stock
    
    
    10.9
    
    
    
    10.5Minority interest
    
    
    25.9
    
    
    
    23.2Commitments and contingenciesStockholders equity:Common stock, par value $0.01 per share:600,000 shares authorized; 590,000 issued and
outstanding at July 31, 2004 and January 31, 2004
    
    
    
    
    
    
    Additional paid in capital
    
    
    678.1
    
    
    
    557.8Accumulated deficit
    
    
    (65.5
    )
    
    
    (47.6
    )Accumulated other comprehensive income
    
    
    65.4
    
    
    
    93.9Total stockholders equity
    
    
    678.0
    
    
    
    604.1Total liabilities and stockholders equity
    
    $
    2,249.9
    
    
    $
    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)
(Unaudited) Successor
    
    PredecessorSix Months
    
    Two Months
    
    Four MonthsEnded
    
    Ended
    
    EndedJuly 31,
    
    July 31,
    
    May 31,2004
    
    2003
    
    2003Cash flows from operating activities:Net income (loss)
    
    $
    (17.9
    )
    
    $
    (13.7
    )
    
    $
    1,043.0Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Depreciation and amortization
    
    
    85.9
    
    
    
    26.7
    
    
    
    46.4Amortization of deferred financing fees
    
    
    1.9
    
    
    
    0.6
    
    
    
    1.6Change in deferred income taxes
    
    
    (6.8
    )
    
    
    (1.8
    )
    
    
    52.6Asset impairments and other restructuring charges
    
    
    3.3
    
    
    
    
    
    
    
    6.4Minority interest
    
    
    4.1
    
    
    
    0.8
    
    
    
    1.2Preferred stock dividends
    
    
    0.4
    
    
    
    0.1
    
    
    
    Compensation expense related to restricted stock units
    
    
    3.2
    
    
    
    
    
    
    
    Loss on extinguishment of debt
    
    
    12.2
    
    
    
    
    
    
    
    (Gain) loss on sale of assets
    
    
    (0.3
    )
    
    
    0.3
    
    
    
    (0.4
    )Changes in operating assets and liabilities:Receivables
    
    
    (2.1
    )
    
    
    28.5
    
    
    
    (13.7
    )Inventories
    
    
    (16.3
    )
    
    
    7.1
    
    
    
    (4.0
    )Prepaid expenses and other
    
    
    0.2
    
    
    
    (0.7
    )
    
    
    5.2Accounts payable and accrued liabilities
    
    
    12.9
    
    
    
    18.8
    
    
    
    (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
    )
    
    
    (22.3
    )
    
    
    (22.4
    )Cash provided by operating activities
    
    
    79.6
    
    
    
    44.4
    
    
    
    31.1Cash flows from investing activities:Purchase of property, plant, equipment and tooling
    
    
    (68.0
    )
    
    
    (19.5
    )
    
    
    (26.3
    )Purchase of equipment previously leased
    
    
    
    
    
    
    
    
    
    
    (23.6
    )Proceeds from sale of assets
    
    
    1.7
    
    
    
    
    
    
    
    0.8Cash used for investing activities
    
    
    (66.3
    )
    
    
    (19.5
    )
    
    
    (49.1
    )Cash flows from financing activities:Change in borrowings under DIP Facility
    
    
    
    
    
    
    
    
    
    
    (49.9
    )Changes in bank borrowings and credit facility
    
    
    2.9
    
    
    
    (65.0
    )
    
    
    (9.8
    )Repayment of notes payable issued in connection with
purchases of businesses
    
    
    (13.1
    )
    
    
    
    
    
    
    (2.0
    )Repayment of long-term debt
    
    
    (5.5
    )
    
    
    
    
    
    
    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
    )
    
    
    
    
    
    
    436.1Prepetition Lenders Payment amount
    
    
    
    
    
    
    
    
    
    
    (477.3
    )Payment to holders of Old Senior Notes
    
    
    
    
    
    
    
    
    
    
    (13.0
    )Cash provided by (used for) financing activities
    
    
    (11.4
    )
    
    
    (65.0
    )
    
    
    126.9Effect of exchange rate changes on cash and cash equivalents
    
    
    (1.3
    )
    
    
    1.6
    
    
    
    4.1Increase(decrease) in cash and cash equivalents
    
    
    0.6
    
    
    
    (38.5
    )
    
    
    113.0Cash and cash equivalents at beginning of period
    
    
    48.5
    
    
    
    179.1
    
    
    
    66.1Cash and cash equivalents at end of period
    
    $
    49.1
    
    
    $
    140.6
    
    
    $
    179.1Supplemental data:Cash paid for interest
    
    $
    24.4
    
    
    $
    2.0
    
    
    $
    5.8Cash paid for income taxes
    
    
    7.2
    
    
    
    6.5
    
    
    
    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
Six Months Ended July 31, 2004, Two Months Ended July 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 fiscal 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 and 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 7




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series A warrants and 957,447 series B warrants to acquire New Common
Stock of New Hayes (the Series A Warrants and Series B Warrants,
respectively), (iii) ParentCo in turn contributed such shares of New Common
Stock and Series A Warrants and Series B Warrants to HLI and (iv) pursuant to
an Agreement and Plan of Merger, dated as of June 3, 2003 (the Merger
Agreement), between Old Hayes and HLI, Old Hayes was merged with and into HLI
(the Merger), with HLI continuing as the surviving corporation. Pursuant to the Plan of Reorganization and as a result of the Merger, all
of the issued and outstanding shares of common stock, par value $.01 per share,
of Old Hayes (the Old Common Stock), and any other outstanding equity
securities of Old Hayes, including all options and warrants, were cancelled.
The holders of the existing voting common stock of Old Hayes immediately before
confirmation did not receive any voting shares of the emerging entity or any
other consideration under the Plan of Reorganization as a result of their
ownership interests of the Predecessor. This represented a complete change of
control in the ownership of Old Hayes. Promptly following the Merger, HLI
distributed to certain holders of allowed claims, under the terms of the Plan
of Reorganization, an amount in cash, the New Common Stock, the Series A
Warrants, the Series B Warrants and the Preferred Stock (as defined below).
Prior to the Merger, the Old Common Stock was registered pursuant to Section
12(g) of the Securities Exchange Act of 1934, as amended (the Exchange Act).
In reliance on Rule 12g-3(a) of the Exchange Act, by virtue of the status of
New Hayes as a successor issuer to the Company, the New Common Stock is deemed
registered under Section 12(g) of the Exchange Act. The Company filed a Form 15
with the SEC to terminate the registration of the Old Common Stock under the
Exchange Act. Pursuant to the terms of the Plan of Reorganization, HLI issued 100,000
shares of Preferred Stock, par value $1.00, of HLI (the Preferred Stock) to
the holders of certain allowed claims. In accordance with the terms of the
Preferred Stock, the shares of Preferred Stock are, at the holders option,
exchangeable into a number of fully paid and nonassessable shares of New Common
Stock equal to (i) the aggregate liquidation preference of the shares of
Preferred Stock so exchanged ($100 per share plus all accrued and unpaid
dividends thereon (whether or not declared) to the exchange date) divided by
(ii) 125% of the Emergence Share Price. As determined pursuant to the terms
of the Plan of Reorganization, the Emergence Share Price is $18.50. In connection with the Debtors emergence from Chapter 11, on the
Effective Date, HLI entered into a $550.0 million senior secured credit
facility, as amended by Amendment No. 1 and Waiver to Credit Agreement, dated
October 16, 2003, Amendment No. 2 and Waiver to the Credit Agreement dated
February 6, 2004, by Amendment No. 3 dated May 6, 2004 and by Waiver to Credit
Agreement dated June 1, 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 of the Predecessor 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 one month
and four months ended May 31, 2003 respectively, reorganization items were as
follows (dollars in millions): PredecessorOne Month
    
    Four MonthsEnded
    
    EndedMay 31, 2003
    
    May 31, 2003Critical employee retention plan provision
    
    $
    10.5
    
    
    $
    11.7Professional fees directly related to the Filings
    
    
    19.3
    
    
    
    30.8Creditors Trust obligation
    
    
    2.0
    
    
    
    2.0Other
    
    
    0.1
    
    
    
    0.5Total
    
    $
    31.9
    
    
    $
    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 8




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##### Table of Contents



limited group of the most senior critical employees if the enterprise
value upon completing the restructuring exceeded an established baseline (the
Restructuring Performance Bonus). Thirty-five percent, or approximately $3.0 million, of the Retention Bonus
was paid on October 1, 2002. The remaining portion of the Retention Bonus of
approximately $5.9 million was paid on June 13, 2003. Further, the
Restructuring Performance Bonus provided under the CERP was paid after the
consummation of the restructuring as discussed below. Based on Old Hayes compromise total enterprise value of $1,250.0 million
as confirmed by the Bankruptcy Court, the aggregate amount of the Restructuring
Performance Bonus is $12.1 million. Of the aggregate $12.1 million,
approximately $6.0 million was paid in cash on July 1, 2003, and approximately
$2.0 million was paid on August 28, 2003 as determined by New Hayes Board of
Directors. The remaining portion of the Restructuring Performance Bonus was
paid in 215,935 shares of restricted units of New Hayes on July 28, 2003.
Pursuant to provisions contained in the CERP, the restricted units will vest as
follows, subject to the participants continued employment:  
    
    one half of the restricted units 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 not
discussed above consisted
primarily of professional fees and cure payments and were approximately $10.4
million and $21.2 million during the two months ended July 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 July 31, 2004 and the period ended
July 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. 9




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##### Table of Contents



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 would have been adjusted to the pro forma
amounts below (dollars in millions): Three Months
    
    Six Months
    
    Two MonthsEnded
    
    Ended
    
    EndedJuly 31, 2004
    
    July 31, 2004
    
    July 31, 2003Net loss:As reported
    
    $
    (11.3
    )
    
    $
    (17.9
    )
    
    $
    (13.7
    )Pro forma
    
    
    (13.2
    )
    
    
    (21.2
    )
    
    
    (13.7
    )
 As of the Effective Date, all options under the Predecessor Companys
stock option plans were cancelled and those plans were terminated. Accordingly,
no pro forma net income (loss) has been
presented for any of the stock options granted under those terminated plans. The Company recognized $3.2 million of compensation expense related to
restricted stock units during the six months ended July 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 the
Company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. 10




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##### Table of Contents



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. 11




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##### Table of Contents



REORGANIZED CONDENSED CONSOLIDATED BALANCE SHEET
May 31, 2003
(Dollars in millions)
(Unaudited) Predecessor
    
    Discharge of
    
    Cancellation
    
    
    
    
    
    SuccessorMay 31,
    
    Debt and Exit
    
    of
    
    Fresh Start
    
    May 31,2003
    
    Financing
    
    Old Equity
    
    Adjustments
    
    2003ASSETSCurrent 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
    
    
    
    
    
    
    
    (f)
    
    
    
    
    
    
    
    
    
    
    New additional paid-in capital
    
    
    
    
    
    
    553.7
    (f)
    
    
    
    
    
    
    
    
    
    
    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. 12




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##### Table of Contents



c)
    
    Represents capitalization of $54.0 million of assets resulting
from repayment or refinancing of certain synthetic leases.d)
    
    Represents recognition of debt issuance costs recorded as other
assets consisting of fees and expenses of the New Credit Facility of
$13.9 million, and fees and expenses of the New Senior Notes of $6.0
million.e)
    
    Represents repayment of the DIP Facility on the Effective Date.f)
    
    Represents new capitalization structure after giving effect to
the Plan of Reorganization. New Hayes recorded the Series A Warrants
and Series B Warrants at fair value. New Hayes also determined that
its Series A Warrants and Series B Warrants met the criteria for
classification as liabilities. As such they will be measured at fair
value at each reporting period with changes in fair value recognized
in interest expense. 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 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
 13




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##### Table of Contents



i)
    
    Represents cancellation of Old Common Stock under fresh start
accounting.j)
    
    Represents adjustment to reflect the increase in the fair value
of inventory under fresh start accounting. Work-in-process and
finished goods were valued at the expected selling price less costs to
complete, selling and disposal cost and a normal profit. Raw materials
and supplies were valued using the cost approach.k)
    
    Represents the adjustment of deferred tax assets and liabilities
resulting from fair value adjustments under fresh start accounting as
follows (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: 14




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##### Table of Contents



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): July 31,
    
    January 31,2004
    
    2004Raw materials
    
    $
    46.2
    
    
    $
    48.3Work-in-process
    
    
    48.4
    
    
    
    42.2Finished goods
    
    
    70.9
    
    
    
    61.8Spare parts and supplies
    
    
    38.6
    
    
    
    37.0Total
    
    $
    204.1
    
    
    $
    189.3
 Note 5. Property, Plant and Equipment The major classes of property, plant and equipment are as follows (dollars
in millions): July 31,
    
    January 31,2004
    
    2004Land
    
    $
    44.6
    
    
    $
    42.4Buildings
    
    
    220.0
    
    
    
    212.5Machinery and equipment
    
    
    853.4
    
    
    
    793.7Capital lease assets
    
    
    8.4
    
    
    
    8.41,126.4
    
    
    
    1,057.0Accumulated depreciation
    
    
    (160.0
    )
    
    
    (90.5
    )Property, plant and equipment, net
    
    $
    966.4
    
    
    $
    966.5
 Note 6. Goodwill and Other Intangible Assets Goodwill and other intangible assets consist of the following (dollars in
millions): July 31, 2004
    
    January 31, 2004Gross
    
    
    
    
    
    Net
    
    Gross
    
    
    
    
    
    NetCarrying
    
    Accumulated
    
    Carrying
    
    Carrying
    
    Accumulated
    
    CarryingAmount
    
    Amortization
    
    Amount
    
    Amount
    
    Amortization
    
    AmountAmortized intangible assets:Customer relationships and contracts
    
    $
    165.1
    
    
    $
    (9.6
    )
    
    $
    155.5
    
    
    $
    169.3
    
    
    $
    (5.8
    )
    
    $
    163.5Unpatented technology
    
    
    35.9
    
    
    
    (6.6
    )
    
    
    29.3
    
    
    
    36.7
    
    
    
    (4.6
    )
    
    
    32.1$
    201.0
    
    
    $
    (16.2
    )
    
    $
    184.8
    
    
    $
    206.0
    
    
    $
    (10.4
    )
    
    $
    195.6Non amortized intangible assets:Tradenames
    
    $
    40.4
    
    
    
    
    
    
    
    
    
    
    $
    41.6Goodwill
    
    $
    407.2
    
    
    
    
    
    
    
    
    
    
    $
    416.2
 The Company expects that ongoing amortization expense will approximate
between $13 million and $16 million in each of the next five fiscal years. The changes in the net carrying amount of goodwill by segment for the six
months ended July 31, 2004 were as follows (dollars in millions): 15




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##### Table of Contents



AutomotiveWheels
    
    Components
    
    Other
    
    TotalBalance as of January 31, 2004
    
    $
    416.2
    
    
    $
    
    
    
    $
    
    
    
    $
    416.2Effects of currency translation
    
    
    (13.9
    )
    
    
    
    
    
    
    
    
    
    
    (13.9
    )Acquisitions and purchase accounting
adjustments
    
    
    4.9
    
    
    
    
    
    
    
    
    
    
    
    4.9Balance as of July 31, 2004
    
    $
    407.2
    
    
    $
    
    
    
    $
    
    
    
    $
    407.2
 Note 7. Asset Impairments and Other Restructuring Charges The Company recorded asset impairment losses and other restructuring
charges of $3.3 million for the six months ended July 31, 2004 and $6.4 million
for the four months ended May 31, 2003. There were no such charges recorded in
the two months ended July 31, 2003. Asset impairments and other restructuring charges by segment are as
follows (dollars in millions): SuccessorSix Months Ended July 31, 2004AutomotiveWheels
    
    Components
    
    Other
    
    TotalFacility closure costs
    
    $
    0.3
    
    
    $
    (0.2
    )
    
    $
    
    
    
    $
    0.1Severance and other restructuring costs
    
    
    3.2
    
    
    
    
    
    
    
    
    
    
    
    3.2Total
    
    $
    3.5
    
    
    $
    (0.2
    )
    
    $
    
    
    
    $
    3.3
 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 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 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 idle machinery
and equipment. Such investments in fixed assets were written down to fair value
based on the expected scrap value, if any, of such machinery and equipment. 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 idle machinery
and equipment. Such investments in fixed assets were written down to fair value
based on the expected scrap value, if any, of such machinery, equipment and
tooling. Facility Closures On April 1, 2004, the Company announced the closure of its Howell,
Michigan manufacturing facility. As part of managements on-going
rationalization initiatives, the decision to close the Howell facility was
based on improving capacity utilization and overall efficiency of the Company.
Production of the aluminum wheels manufactured at the facility has been
transferred to other manufacturing facilities in the United States. As of July
31, 2004, the Company has recorded $3.5 million of facility closure costs on
severance and other restructuring charges and has paid out approximately $3.3
million related to the Howell facility closure. The Company anticipates that it
will incur and recognize additional restructuring and other closure costs of
approximately $4.0 million 16




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##### Table of Contents



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. 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 six months ended July 31, 2004 (dollars in millions): CashPaymentsSeverance
    
    andJanuary 31,
    
    and Other
    
    Effects of
    
    July 31,2004
    
    Restructuring
    
    Foreign
    
    2004Accrual
    
    Charges
    
    Currency
    
    AccrualFacility exit costs
    
    $
    1.7
    
    
    $
    0.1
    
    
    $
    (1.2
    )
    
    $
    0.6Severance
    
    
    1.0
    
    
    
    3.2
    
    
    
    (4.1
    )
    
    
    0.1$
    2.7
    
    
    $
    3.3
    
    
    $
    (5.3
    )
    
    $
    0.7
 Note 8. Debt Bank Borrowing and Other Notes Bank borrowings and other notes of $4.0 million as of July 31, 2004
consists 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 consists primarily of short-term credit facilities of the Companys
foreign subsidiaries, as well as notes payable of $1.1 million and $10.5
million issued in conjunction with the Companys acquisition of an additional
35% ownership interest in its Turkish joint venture and acquisition of an
aluminum wheel plant formerly operated as part of the Companys Mexican joint
venture, respectively. Long-Term Debt Long-term debt consists of the following (dollars in millions): July 31,
    
    January 31,2004
    
    2004Various foreign bank and government loans maturing through 2006,
weighted average interest rates of 5.7% at July 31, 2004
and January 31, 2004
    
    $
    23.9
    
    
    $
    28.6New Term Loan maturing 2009, weighted average interest rate
of 5.2% and 5.0% at July 31, 2004 and January 31, 2004, respectively.
    
    
    429.5
    
    
    
    447.810 1/2% New Senior Notes, net of discount of $0.8 million and $1.4
million at July 31, 2004 and January 31, 2004, respectively, due 2010
    
    
    161.7
    
    
    
    248.6Mortgage note payable
    
    
    22.4
    
    
    
    22.5Capital lease obligations
    
    
    13.8
    
    
    
    16.2Total long-term debt
    
    
    651.3
    
    
    
    763.7Less current portion of long-term debt
    
    
    10.1
    
    
    
    11.3Long-term debt, net of current portion
    
    $
    641.2
    
    
    $
    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 17




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##### Table of Contents



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 and on June 1, 2004 by Waiver to the Credit Agreement to, among other
things, reduce the interest rate on the term loan portion of the senior secured
credit facility by 100 basis points, (as amended, the New Credit Facility).
The New Credit Facility consists of a $450.0 million six-year amortizing term
loan (the New Term Loan) and a five-year $100.0 million revolving credit
facility (the Revolving Credit Facility). In addition, HLI issued on the
Effective Date an aggregate of $250.0 million principal amount of 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 July 31, 2004, there were no outstanding borrowings and $17.8
million in letters of credit issued under the Revolving Credit Facility. The
amount available to borrow under the Revolving Credit Facility at July 31, 2004
was approximately $82.2 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. 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 Plans
    
    International PlansPension Benefits
    
    Other Benefits
    
    Pension BenefitsSuccessor
    
    Predecessor
    
    Successor
    
    Predecessor
    
    Successor
    
    PredecessorThree
    
    Two
    
    One
    
    Three
    
    Two
    
    One
    
    Three
    
    Two
    
    OneMonths Ended
    
    Months Ended
    
    Month Ended
    
    Months Ended
    
    Months Ended
    
    Month Ended
    
    Months Ended
    
    Months Ended
    
    Month EndedJuly 31, 2004
    
    July 31, 2003
    
    May 31, 2003
    
    July 31, 2004
    
    July 31, 2003
    
    May 31, 2003
    
    July 31, 2004
    
    July 31, 2003
    
    May 31, 2003Service cost
    
$
    0.1
    
    
$
    0.1
    
    
$
    0.1
    
    
$
    
    
    
$
    
    
    
$
    
    
    
$
    0.2
    
    
$
    0.2
    
    
$
    0.1Interest cost
    
    
    2.8
    
    
    
    1.8
    
    
    
    1.0
    
    
    
    2.9
    
    
    
    2.0
    
    
    
    1.0
    
    
    
    1.9
    
    
    
    1.3
    
    
    
    0.6Expected return on plan assets
    
    
    (2.4
    )
    
    
    (1.5
    )
    
    
    (0.8
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    Amortization of net (gain)/loss
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    (0.2
    )
    
    
    
    
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    Net periodic benefit cost
    
    $
    0.5
    
    
    $
    0.4
    
    
    $
    0.5
    
    
    $
    2.7
    
    
    $
    2.0
    
    
    $
    1.5
    
    
    $
    2.3
    
    
    $
    1.5
    
    
    $
    0.7
 North American Plans
    
    International PlansPension Benefits
    
    Other Benefits
    
    Pension BenefitsSuccessor
    
    Predecessor
    
    Successor
    
    Predecessor
    
    Successor
    
    PredecessorSix
    
    Two
    
    Four
    
    Six
    
    Two
    
    Four
    
    Six
    
    Two
    
    FourMonths Ended
    
    Months Ended
    
    Months Ended
    
    Months Ended
    
    Months Ended
    
    Months Ended
    
    Months Ended
    
    Months Ended
    
    Months EndedJuly 31, 2004
    
    July 31, 2003
    
    May 31, 2003
    
    July 31, 2004
    
    July 31, 2003
    
    May 31, 2003
    
    July 31, 2004
    
    July 31, 2003
    
    May 31, 2003Service cost
    
$
    0.2
    
    
$
    0.1
    
    
$
    0.2
    
    
$
    
    
    
$
    
    
    
$
    
    
    
$
    0.4
    
    
$
    0.2
    
    
$
    0.3Interest cost
    
    
    5.6
    
    
    
    1.8
    
    
    
    3.9
    
    
    
    5.8
    
    
    
    2.0
    
    
    
    4.0
    
    
    
    3.9
    
    
    
    1.3
    
    
    
    2.3Expected return on plan assets
    
    
    (4.8
    )
    
    
    (1.5
    )
    
    
    (3.1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    0.2
    
    
    
    
    
    
    
    0.1Amortization of net (gain)/loss
    
    
    
    
    
    
    
    
    
    
    0.9
    
    
    
    (0.4
    )
    
    
    
    
    
    
    1.9
    
    
    
    
    
    
    
    
    
    
    
    0.1Net periodic benefit cost
    
    $
    1.0
    
    
    $
    0.4
    
    
    $
    2.0
    
    
    $
    5.4
    
    
    $
    2.0
    
    
    $
    6.0
    
    
    $
    4.6
    
    
    $
    1.5
    
    
    $
    2.8
 The Company expects to contribute $5.7 million to its North American
pension plans in fiscal 2004. 18




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##### Table of Contents



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
    
    PredecessorSix Months
    
    Two Months
    
    Four MonthsEnded
    
    Ended
    
    EndedJuly 31,
    
    July 31,
    
    May 31,2004
    
    2003
    
    2003Net income (loss)
    
    $
    (17.9
    )
    
    $
    (13.7
    )
    
    $
    1,043.0Currency translation adjustments
    
    
    (28.5
    )
    
    
    12.7
    
    
    
    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)
    
    $
    (46.4
    )
    
    $
    (1.0
    )
    
    $
    1,074.4
 Note 12. Taxes on Income Income tax expense was $5.6 million for the three months ended July 31,
2004, $10.6 million for the six months ended July 31, 2004, $2.6 million for
the Successor two months ended July 31, 2003, $54.4 million for
the Predecessor one month ended May 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. 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. 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): 19




---



##### Table of Contents



SuccessorSix Months Ended July 31, 2004AutomotiveWheels
    
    Components
    
    Other
    
    TotalNet sales
    
    $
    675.2
    
    
    $
    358.5
    
    
    $
    84.1
    
    
    $
    1,117.8Earnings from operations
    
    
    31.4
    
    
    
    0.8
    
    
    
    3.5
    
    
    
    35.7Asset impairments and other
restructuring charges
    
    
    (3.5
    )
    
    
    0.2
    
    
    
    
    
    
    
    (3.3
    )Total assets
    
    
    1,576.9
    
    
    
    526.3
    
    
    
    146.7
    
    
    
    2,249.9
 SuccessorTwo Months Ended July 31, 2003AutomotiveWheels
    
    Components
    
    Other
    
    TotalNet sales
    
    $
    199.3
    
    
    $
    110.6
    
    
    $
    18.4
    
    
    $
    328.3Earnings (loss) from operations
    
    
    8.5
    
    
    
    (1.4
    )
    
    
    (4.7
    )
    
    
    2.4Total assets
    
    
    1,494.2
    
    
    
    606.0
    
    
    
    143.9
    
    
    
    2,244.1
 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 15. 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. 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). 20




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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Successor Company
For the Six Months Ended July 31, 2004
(Dollars in millions)
(Unaudited) Guarantor
    
    NonguarantorIssuer
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    TotalNet sales
    
    $
    1.8
    
    
    $
    535.5
    
    
    $
    593.3
    
    
    $
    (12.8
    )
    
    $
    1,117.8Cost of goods sold
    
    
    13.2
    
    
    
    487.5
    
    
    
    506.5
    
    
    
    (12.8
    )
    
    
    994.4Gross profit (loss)
    
    
    (11.4
    )
    
    
    48.0
    
    
    
    86.8
    
    
    
    
    
    
    
    123.4Marketing, general and
administration
    
    
    (1.6
    )
    
    
    46.0
    
    
    
    39.4
    
    
    
    
    
    
    
    83.8Equity in (earnings) losses of
subsidiaries and joint ventures
    
    
    (14.7
    )
    
    
    2.7
    
    
    
    
    
    
    
    12.0
    
    
    
    Asset impairments and other
restructuring charges
    
    
    (0.2
    )
    
    
    3.5
    
    
    
    
    
    
    
    
    
    
    
    3.3Other expense (income), net
    
    
    (1.6
    )
    
    
    
    
    
    
    0.7
    
    
    
    1.5
    
    
    
    0.6Earnings (loss) from operations
    
    
    6.7
    
    
    
    (4.2
    )
    
    
    46.7
    
    
    
    (13.5
    )
    
    
    35.7Interest (income) expense, net
    
    
    12.1
    
    
    
    
    
    
    
    14.7
    
    
    
    
    
    
    
    26.8Other non-operating (income) expense
    
    
    0.3
    
    
    
    
    
    
    
    (0.4
    )
    
    
    
    
    
    
    (0.1
    )Loss on early extinguishment of debt
    
    
    12.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12.2Earnings (loss) before taxes on
income and minority interest
    
    
    (17.9
    )
    
    
    (4.2
    )
    
    
    32.4
    
    
    
    (13.5
    )
    
    
    (3.2
    )Income tax provision
    
    
    
    
    
    
    1.3
    
    
    
    9.3
    
    
    
    
    
    
    
    10.6Earnings (loss) before minority
interest
    
    
    (17.9
    )
    
    
    (5.5
    )
    
    
    23.1
    
    
    
    (13.5
    )
    
    
    (13.8
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    4.1
    
    
    
    
    
    
    
    4.1Net income (loss)
    
    $
    (17.9
    )
    
    $
    (5.5
    )
    
    $
    19.0
    
    
    $
    (13.5
    )
    
    $
    (17.9
    )
 21




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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Successor Company
For the Two Months Ended July 31, 2003
(Dollars in millions)
(Unaudited) Guarantor
    
    NonguarantorIssuer
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    TotalNet sales
    
    $
    0.8
    
    
    $
    159.5
    
    
    $
    173.8
    
    
    $
    (5.8
    )
    
    $
    328.3Cost of goods sold
    
    
    3.9
    
    
    
    150.4
    
    
    
    150.4
    
    
    
    (5.8
    )
    
    
    298.9Gross profit (loss)
    
    
    (3.1
    )
    
    
    9.1
    
    
    
    23.4
    
    
    
    
    
    
    
    29.4Marketing, general and
administration
    
    
    4.0
    
    
    
    10.4
    
    
    
    10.5
    
    
    
    
    
    
    
    24.9Equity in (earnings) losses of
subsidiaries and joint ventures
    
    
    8.7
    
    
    
    0.3
    
    
    
    
    
    
    
    (9.0
    )
    
    
    Other expense (income), net
    
    
    0.2
    
    
    
    (0.8
    )
    
    
    2.7
    
    
    
    
    
    
    
    2.1Earnings (loss) from operations
    
    
    (16.0
    )
    
    
    (0.8
    )
    
    
    10.2
    
    
    
    9.0
    
    
    
    2.4Interest (income) expense, net
    
    
    (2.4
    )
    
    
    8.5
    
    
    
    6.5
    
    
    
    
    
    
    
    12.6Other non-operating (income)
expense
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1Earnings (loss) before taxes on
income and minority interest
    
    
    (13.7
    )
    
    
    (9.3
    )
    
    
    3.7
    
    
    
    9.0
    
    
    
    (10.3
    )Income tax provision
    
    
    
    
    
    
    0.5
    
    
    
    2.1
    
    
    
    
    
    
    
    2.6Earnings (loss) before minority
interest
    
    
    (13.7
    )
    
    
    (9.8
    )
    
    
    1.6
    
    
    
    9.0
    
    
    
    (12.9
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    0.8
    
    
    
    
    
    
    
    0.8Net income (loss)
    
    $
    (13.7
    )
    
    $
    (9.8
    )
    
    $
    0.8
    
    
    $
    9.0
    
    
    $
    (13.7
    )
 22




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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)
(Unaudited) Guarantor
    
    NonguarantorParent
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    TotalNet 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 administration
    
    
    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
 23




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##### Table of Contents



CONDENSED CONSOLIDATING BALANCE SHEETS
Successor Company
As of July 31, 2004
(Dollars in millions)
(Unaudited) Guarantor
    
    NonguarantorIssuer
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    TotalCash and cash equivalents
    
    $
    (10.8
    )
    
    $
    
    
    
    $
    59.9
    
    
    $
    
    
    
    $
    49.1Receivables
    
    
    2.1
    
    
    
    110.6
    
    
    
    212.3
    
    
    
    
    
    
    
    325.0Inventories
    
    
    5.9
    
    
    
    89.9
    
    
    
    108.3
    
    
    
    
    
    
    
    204.1Prepaid expenses and other
    
    
    5.6
    
    
    
    10.4
    
    
    
    5.3
    
    
    
    
    
    
    
    21.3Total current assets
    
    
    2.8
    
    
    
    210.9
    
    
    
    385.8
    
    
    
    
    
    
    
    599.5Net property, plant and equipment
    
    
    38.3
    
    
    
    351.9
    
    
    
    576.2
    
    
    
    
    
    
    
    966.4Goodwill and other assets
    
    
    1,303.8
    
    
    
    49.4
    
    
    
    602.6
    
    
    
    (1,271.8
    )
    
    
    684.0Total assets
    
    $
    1,344.9
    
    
    $
    612.2
    
    
    $
    1,564.6
    
    
    $
    (1,271.8
    )
    
    $
    2,249.9Bank borrowings and other notes
    
    $
    
    
    
    $
    
    
    
    $
    4.0
    
    
    $
    
    
    
    $
    4.0Current portion of long-term debt
    
    
    4.5
    
    
    
    0.2
    
    
    
    5.4
    
    
    
    
    
    
    
    10.1Accounts payable and accrued liabilities
    
    
    65.1
    
    
    
    75.2
    
    
    
    221.8
    
    
    
    
    
    
    
    362.1Total current liabilities
    
    
    69.6
    
    
    
    75.4
    
    
    
    231.2
    
    
    
    
    
    
    
    376.2Long-term debt, net of current portion
    
    
    609.0
    
    
    
    8.2
    
    
    
    24.0
    
    
    
    
    
    
    
    641.2Pension and other long-term liabilities.
    
    
    269.4
    
    
    
    0.4
    
    
    
    247.9
    
    
    
    
    
    
    
    517.7Redeemable preferred stock of subsidiary
    
    
    10.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10.9Minority interest
    
    
    
    
    
    
    
    
    
    
    25.9
    
    
    
    
    
    
    
    25.9Parent loans
    
    
    (292.0
    )
    
    
    (31.3
    )
    
    
    322.1
    
    
    
    1.2
    
    
    
    Common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Additional paid-in capital
    
    
    678.1
    
    
    
    617.4
    
    
    
    624.6
    
    
    
    (1,242.0
    )
    
    
    678.1Retained earnings (accumulated deficit).
    
    
    (65.5
    )
    
    
    (58.2
    )
    
    
    40.3
    
    
    
    17.9
    
    
    
    (65.5
    )Accumulated other comprehensive loss
    
    
    65.4
    
    
    
    0.3
    
    
    
    48.6
    
    
    
    (48.9
    )
    
    
    65.4Total stockholders equity
    
    
    678.0
    
    
    
    559.5
    
    
    
    713.5
    
    
    
    (1,273.0
    )
    
    
    678.0Total liabilities and stockholders
equity
    
    $
    1,344.9
    
    
    $
    612.2
    
    
    $
    1,564.6
    
    
    $
    (1,271.8
    )
    
    $
    2,249.9
 24




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##### Table of Contents



CONDENSED CONSOLIDATING BALANCE SHEETS
Successor Company
As of January 31, 2004
(Dollars in millions)
(Unaudited) Guarantor
    
    NonguarantorIssuer
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    TotalCash 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
 25




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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Successor Company
For the Six Months Ended July 31, 2004
(Dollars in millions)
(Unaudited) Guarantor
    
    NonguarantorIssuer
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    TotalCash flows provided by (used for) operating
activities
    
    $
    (25.5
    )
    
    $
    39.6
    
    
    $
    65.5
    
    
    $
    
    
    
    $
    79.6Cash flows from investing activities:Acquisition of property, plant, equipment,
and tooling
    
    
    (3.3
    )
    
    
    (29.2
    )
    
    
    (35.5
    )
    
    
    
    
    
    
    (68.0
    )Proceeds from sale of non-core businesses
    
    
    1.6
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    1.7Cash used for investing activities
    
    
    (1.7
    )
    
    
    (29.1
    )
    
    
    (35.5
    )
    
    
    
    
    
    
    (66.3
    )Cash flows from financing activities:Changes in bank borrowings and credit facility.
    
    
    
    
    
    
    
    
    
    
    2.9
    
    
    
    
    
    
    
    2.9Repayment of notes payable issued in connection
with the purchase of businesses
    
    
    
    
    
    
    
    
    
    
    (13.1
    )
    
    
    
    
    
    
    (13.1
    )Repayment of long term debt
    
    
    (1.9
    )
    
    
    
    
    
    
    (3.6
    )
    
    
    
    
    
    
    (5.5
    )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
    
    
    2.4
    
    
    
    
    
    
    
    (13.8
    )
    
    
    
    
    
    
    (11.4
    )Increase (decrease) in parent loans and advances
    
    
    17.2
    
    
    
    (9.9
    )
    
    
    (7.3
    )
    
    
    
    
    
    
    Effect of exchange rates of cash and cash
equivalents
    
    
    
    
    
    
    
    
    
    
    (1.3
    )
    
    
    
    
    
    
    (1.3
    )Net increase (decrease) in cash and cash
equivalents
    
    
    (7.6
    )
    
    
    0.6
    
    
    
    7.6
    
    
    
    
    
    
    
    0.6Cash and cash equivalents at beginning of period
    
    
    (3.2
    )
    
    
    (0.6
    )
    
    
    52.3
    
    
    
    
    
    
    
    48.5Cash and cash equivalents at end of period
    
    $
    (10.8
    )
    
    $
    
    
    
    $
    59.9
    
    
    $
    
    
    
    $
    49.1
 26




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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Successor Company
For the Two Months Ended July 31, 2003
(Dollars in millions)
(Unaudited) Guarantor
    
    NonguarantorIssuer
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    TotalCash flows provided by (used for)
operating activities
    
    $
    (85.8
    )
    
    $
    29.8
    
    
    $
    100.4
    
    
    $
    
    
    
    $
    44.4Cash flows from investing activities:Acquisition of property, plant, equipment,
and tooling
    
    
    (0.6
    )
    
    
    (7.6
    )
    
    
    (11.3
    )
    
    
    
    
    
    
    (19.5
    )Cash used for investing activities
    
    
    (0.6
    )
    
    
    (7.6
    )
    
    
    (11.3
    )
    
    
    
    
    
    
    (19.5
    )Cash flows from financing activities:Increase in bank borrowings, revolving
facility and DIP facility
    
    
    
    
    
    
    
    
    
    
    (65.0
    )
    
    
    
    
    
    
    (65.0
    )Cash used for financing activities
    
    
    
    
    
    
    
    
    
    
    (65.0
    )
    
    
    
    
    
    
    (65.0
    )Increase (decrease) in parent loans
and advances
    
    
    32.5
    
    
    
    (21.8
    )
    
    
    (10.7
    )
    
    
    
    
    
    
    Effect of exchange rates of cash and
cash equivalents
    
    
    
    
    
    
    
    
    
    
    1.6
    
    
    
    
    
    
    
    1.6Net increase (decrease) in cash and
cash equivalents
    
    
    (53.9
    )
    
    
    0.4
    
    
    
    15.0
    
    
    
    
    
    
    
    (38.5
    )Cash and cash equivalents at beginning
of period
    
    
    108.0
    
    
    
    (0.3
    )
    
    
    71.4
    
    
    
    
    
    
    
    179.1Cash and cash equivalents at end
of period
    
    $
    54.1
    
    
    $
    0.1
    
    
    $
    86.4
    
    
    $
    
    
    
    $
    140.6
 27




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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)
(Unaudited) Guarantor
    
    NonguarantorParent
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    TotalCash 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
 28




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##### Table of Contents



Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations Executive Summary This discussion should be read in conjunction with the Companys Annual
Report on Form 10-K for the fiscal year ended January 31, 2004 as filed with
the Securities and Exchange Commission on April 12, 2004 and the other
information included herein. Company Overview Unless otherwise indicated, references to Company mean (i) prior 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 fiscal 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 and fiscal 2003
refers to the period beginning February 1, 2003 and ending January 31, 2004). Originally founded in 1908, the Company is a leading worldwide producer of
aluminum and steel wheels for the light vehicle market. The Company is a
leading provider of steel wheels for the commercial highway market and is also
a leading supplier in the high growth market for lightweight aluminum products,
including suspension, brake and powertrain components. The Company is a leading
supplier of the automotive wheels used by 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 more than 300
commercial highway vehicle customers throughout the world. The Companys
products are presently on 16 of the top 20 selling platforms for passenger cars
in the United States. The Company has a sales and marketing organization of dedicated customer
teams located in all major vehicle producing regions. The Companys ability to
support its customers globally is further enhanced by the Companys broad
global presence in terms of sales offices, manufacturing facilities and
engineering/technical centers. On
December 5, 2001, Old Hayes, 30 of its wholly-owned domestic subsidiaries and one
wholly-owned Mexican subsidiary filed voluntary petitions under Chapter 11 of
the U.S. Bankruptcy Code. Old Hayes emerged from bankruptcy on June 3, 2003. In
connection with the emergence from Chapter 11, the Company entered into a
$550.0 million senior secured credit facility, as amended. The New Credit
Facility consists of a $450.0 million six-year amortizing term loan (the New
Term Loan) and a five-year $100.0 million revolving credit facility. In
addition, HLI issued an aggregate of $250.0 million principal amount of 10 1/2%
senior notes due 2010 (the New Senior Notes). On February 11, 2004, Hayes
Lemmerz International, Inc. closed on a primary offering of 7.7 million shares
of common stock, and a secondary offering of 2.0 million shares of its common
stock. The Company used the net proceeds 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 six months of fiscal 2004, the Company
had sales of $1.1 billion, with approximately 49% 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 six months of fiscal 2004, the Company had
earnings from operations of $35.7 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 29




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##### Table of Contents



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 30,000,000 shares of its
common stock, par value $.01 per share (the New Common Stock), and 957,447
series A warrants and 957,447 series B warrants to acquire New Common Stock of
New Hayes (the Series A Warrants and Series B Warrants, respectively),
(iii) ParentCo in turn contributed such shares of New Common Stock and Series A
Warrants and Series B Warrants to HLI and (iv) pursuant to an Agreement and
Plan of Merger, dated as of June 3, 2003 (the Merger Agreement), between Old
Hayes and HLI, Old Hayes was merged with and into HLI (the Merger), with HLI
continuing as the surviving corporation. Pursuant to the Plan of Reorganization and as a result of the Merger, all
of the issued and outstanding shares of common stock, par value $.01 per share,
of Old Hayes (the Old Common Stock), and any other outstanding equity
securities of Old Hayes, including all options and warrants, were cancelled.
The holders of the existing voting common stock of Old Hayes immediately before
confirmation did not receive any voting shares of the emerging entity or any
other consideration under the Plan of Reorganization as a result of their
ownership interests of the Predecessor. This represented a complete change of
control in the ownership of Old Hayes. Promptly following the Merger, HLI
distributed to certain holders of allowed claims, under the terms of the Plan
of Reorganization, an amount in cash, the New Common Stock, the Series A
Warrants, the Series B Warrants and the Preferred Stock (as defined below).
Prior to the Merger, the Old Common Stock was registered pursuant to Section
12(g) of the Securities Exchange Act of 1934, as amended (the Exchange Act).
In reliance on Rule 12g-3(a) of the Exchange Act, by virtue of the status of
New Hayes as a successor issuer to the Company, the New Common Stock is deemed
registered under Section 12(g) of the Exchange Act. The Company filed a Form 15
with the SEC to terminate the registration of the Old Common Stock under the
Exchange Act. Pursuant to the terms of the Plan of Reorganization, HLI issued 100,000
shares of Preferred Stock, par value $1.00, of HLI (the Preferred Stock) to
the holders of certain allowed claims. In accordance with the terms of the
Preferred Stock, the shares of Preferred Stock are, at the holders option,
exchangeable into a number of fully paid and nonassessable shares of New Common
Stock equal to (i) the aggregate liquidation preference of the shares of
Preferred Stock so exchanged ($100 per share plus all accrued and unpaid
dividends thereon (whether or not declared) to the exchange date) divided by
(ii) 125% of the Emergence Share Price. As determined pursuant to the terms
of the Plan of Reorganization, the Emergence Share Price is $18.50. In connection with the Debtors emergence from Chapter 11, on the
Effective Date, HLI entered into a $550.0 million senior secured credit
facility, as amended by Amendment No. 1 and Waiver to Credit Agreement, dated
October 16, 2003, by Amendment No. 2 and Waiver to the Credit Agreement dated
February 6, 2004, Amendment No. 3 dated May 6, 2004, and by Waiver to the Credit
Agreement dated June 1, 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. 30




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##### Table of Contents



Reorganization Items Reorganization items as reported in the consolidated statements of
operations of the Predecessor 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 one month and
four months ended May 31, 2003 respectively, reorganization items were as
follows (dollars in millions): PredecessorOne Month
    
    Four MonthsEnded
    
    EndedMay 31, 2003
    
    May 31, 2003Critical employee retention plan provision
    
    $
    10.5
    
    
    $
    11.7Professional fees directly related to the Filings
    
    
    19.3
    
    
    
    30.8Creditors Trust obligation
    
    
    2.0
    
    
    
    2.0Other
    
    
    0.1
    
    
    
    0.5Total
    
    $
    31.9
    
    
    $
    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. 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 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 not discussed
above consisted
primarily of professional fees and cure payments and were approximately $10.4
million and $21.2 million during the two months ended July 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 31




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##### Table of Contents



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 July 31, 2004 Compared to Three Months Ended July 31,
2003 Net Sales Three Months Ended July 31,2004
    
    2003
    
    $ Change(Dollars in millions)Automotive Wheels
    
    $
    323.0
    
    
    $
    299.8
    
    
    $
    23.2Components
    
    
    157.9
    
    
    
    174.6
    
    
    
    (16.7
    )Other
    
    
    42.8
    
    
    
    28.4
    
    
    
    14.4Total
    
    $
    523.7
    
    
    $
    502.8
    
    
    $
    20.9
 The Companys net sales for the second quarter of 2004 increased $20.9
million to $523.7 million from $502.8 million in the second quarter of 2003.
After adjusting for the net impact of favorable exchange rate fluctuations
relative to the U.S. dollar, net sales for the second quarter of 2004 increased
approximately $8.2 million as compared to the same period in 2003. Net sales from the Companys Automotive Wheels segment increased $23.2
million to $323.0 million in the second quarter of fiscal 2004 from $299.8
million in the second quarter of 2003. Automotive Wheels net sales were
favorably impacted by foreign exchange rate fluctuations relative to the U.S.
dollar, which increased sales by approximately $11 million. The remaining
increase in sales is primarily due to increased volume demand 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. These increases were
partially offset by decreased unit pricing globally. Additionally, pricing
pressures caused by new competitors in foreign markets, such as China, led
North American OEMs to selectively resource parts of the Companys future
business to competitors during the second quarter of fiscal 2003, resulting in
lower customer production requirements in 2004. Net sales from Components decreased $16.7 million to $157.9 million in
second quarter 2004 from $174.6 million in second quarter 2003. Components net
sales decreased by approximately $19 million due to lower customer production
requirements. Decreased unit pricing globally was partially offset by a
favorable product mix. The impact of favorable foreign exchange rate
fluctuations increased net sales by approximately $2 million. Other net sales increased $14.4 million to $42.8 million during second
quarter 2004 from $28.4 million during second quarter 2003. 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 primary profitability measure because it excludes fresh start
accounting adjustments and reorganization items which do not represent normal
operating performance of the Company as these items relate only to the
Companys Chapter 11 Filings and emergence. Earnings from operations excluding
fresh start accounting adjustments and reorganization items is calculated as
follows (dollars in millions): Three MonthsEnded July 31,2004
    
    2003Earnings from operations
    
    $
    9.5
    
    
    $
    51.6Excluding:Fresh start accounting adjustments
    
    
    
    
    
    
    (63.1
    )Reorganization items
    
    
    
    
    
    
    31.9Earnings from operations excluding fresh start accounting
adjustments and reorganization items
    
    $
    9.5
    
    
    $
    20.4
 The following tables present earnings (loss) from operations excluding
fresh start accounting adjustments and reorganization items, as well as other
information by segment (dollars in millions): 32




---



##### Table of Contents



Three Months Ended July 31, 2004AutomotiveWheels
    
    Components
    
    Other
    
    TotalEarnings (loss) from operations
    
    $
    14.9
    
    
    $
    (8.5
    )
    
    $
    3.1
    
    
    $
    9.5Asset impairments and other restructuring
charges:Facility closure costs
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Severance and other restructuring costs.
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    0.9Total asset impairments and other
restructuring charges:
    
    $
    0.9
    
    
    $
    
    
    
    $
    
    
    
    $
    0.9
 Three Months Ended July 31, 2003AutomotiveWheels
    
    Components
    
    Other
    
    TotalEarnings (loss) from operations excluding fresh
start accounting adjustment and
reorganization items
    
    $
    18.9
    
    
    $
    4.7
    
    
    $
    (3.2
    )
    
    $
    20.4Fresh start accounting adjustments
    
    
    57.9
    
    
    
    27.7
    
    
    
    (22.5
    )
    
    
    63.1Reorganization items
    
    
    (0.1
    )
    
    
    
    
    
    
    (31.8
    )
    
    
    (31.9
    )Asset impairments and other restructuring
charges:Impairment of machinery, equipment and
tooling
    
    $
    
    
    
    $
    1.6
    
    
    $
    
    
    
    $
    1.6Facility closure costs
    
    
    0.6
    
    
    
    
    
    
    
    
    
    
    
    0.6Severance and other restructuring costs
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.1Total asset impairments and other
restructuring charges:
    
    $
    0.7
    
    
    $
    1.6
    
    
    $
    
    
    
    $
    2.3
 The Companys earnings from operations excluding fresh start accounting
adjustments and reorganization items decreased by $10.9 million in the second
quarter of fiscal 2004 to $9.5 million, from earnings of $20.4 million in the
second quarter of fiscal 2003. Adjusted for the net impact of foreign exchange
rate fluctuations relative to the U.S. dollar, the Companys earnings from
operations excluding fresh start accounting adjustments and reorganization
items decreased by approximately $12.7 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 excluding fresh start accounting adjustments and
reorganization items at the Companys Automotive Wheels operations decreased by
$4.0 million in the second quarter of fiscal 2004 to $14.9 million compared to
the same period in 2003. Increased volumes abroad, improved operating
performance and the impact of consolidating earnings from the Companys Manisa,
Turkey facility acquired during the fourth quarter of fiscal 2003 increased
earnings by approximately $14 million. Favorable fluctuations in foreign
exchange rates relative to the U.S. dollar increased earnings approximately $2
million, but were offset by an increase in depreciation and amortization of
approximately $3 million. Other factors negatively impacted earnings such as,
lower OEM production requirements in North America, increased steel pricing, an
unfavorable product mix and lower unit pricing globally which decreased
earnings from operations by approximately $17 million. During the second
quarter of fiscal 2004, the Companys Automotive Wheels segment recorded
facility closure and severance costs of approximately $1 million associated
with the Companys Howell, Michigan facility. During the second quarter of
fiscal 2003, the Company recognized restructuring and facility closure costs of
$0.7 million related to the closure of its Bowling Green, Kentucky facility.
Additionally, in the second quarter of fiscal 2003, earnings in the Companys
wheel operations were impacted by the following events associated with the
Companys emergence from Chapter 11: a $3.6 million fair value adjustment to
inventory included in the Successors opening balance sheet, which negatively
impacted earnings, and the favorable settlement of certain pre-petition claims,
which favorably impacted earnings by $2.2 million. 33




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##### Table of Contents



Components earnings from operations excluding fresh start accounting
adjustments and reorganization items decreased by $13.2
million in the second quarter of fiscal 2004 to a loss of $8.5 million
compared to earnings of $4.7 million during the same period in fiscal 2003.
Lower OEM production requirements, decreased unit pricing, an unfavorable
product mix and increased steel and iron prices decreased earnings from
operations by approximately $11 million in the second quarter of fiscal 2004.
Improved operating performance was offset by increased selling, administrative
and engineering costs, which decreased earnings from operations approximately
$2 million. During the second quarter of fiscal 2003 Components recorded asset
impairment losses of approximately $1.6 million at various facilities due to a
change in managements plan for the future use of idle machinery and equipment.
In the second quarter of fiscal 2003, earnings in the Companys components
operations were impacted by the following events associated with the Companys
emergence from Chapter 11: a $1.6 million fair value adjustment to inventory
included in the Successors opening balance sheet, which negatively impacted
earnings, and the favorable settlement of certain pre-petition claims, which
favorably impacted earnings by $3.9 million. Earnings from operations excluding fresh start accounting adjustments and
reorganization items in the Companys Other segment increased by
$6.3 million
in the second quarter of fiscal 2004 to $3.1 million. Improved operating
performance and increased volumes in the Companys commercial highway and
aftermarket operations increased earnings approximately $3 million. In the
second quarter of fiscal 2004, the Company incurred approximately $1 million
lower post-emergence professional fees, and attained favorable
resolutions of
certain pre-petition liabilities, which
favorably impacted earnings by approximately $3 million. During the second
quarter of fiscal 2004 the Companys North American pension and retiree medical
costs declined approximately $1 million, increasing earnings. In the second
quarter of fiscal 2003, earnings in the Companys other segment was impacted by
the favorable settlement of certain pre-petition claims, which favorably
impacted earnings by $1.5 million. Interest Expense, net Interest
expense was $13.7 million for the second quarter of fiscal 2004
and $18.4 million for the second quarter of fiscal 2003. Interest expense
between the two periods is not comparable because of the Companys new capital
structure established upon emergence from Chapter 11. See Notes 1 and 8 to the
consolidated financial statements included herein regarding the Companys new
capital structure. Income Taxes Income
tax expense was $5.6 million on pre-tax loss of $4.2 million and
$57.0 million on pre-tax income of $33.1 million for the second quarter of
fiscal 2004 and fiscal 2003, respectively. Income tax expense between the two
periods is not comparable due 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) The net income for the three months ended July 31, 2003 includes an
extraordinary gain on discharge of debt and other liabilities of $1,076.7
million realized upon emergence from Chapter 11. Six Months Ended July 31, 2004 Compared to Six Months Ended July 31, 2003 Net Sales Six Months Ended July 31,(Dollars in millions)2004
    
    2003
    
    $ ChangeAutomotive Wheels
    
    $
    675.2
    
    
    $
    602.8
    
    
    $
    72.4Components
    
    
    358.5
    
    
    
    358.7
    
    
    
    (0.2
    )Other
    
    
    84.1
    
    
    
    56.6
    
    
    
    27.5Total
    
    $
    1,117.8
    
    
    $
    1,018.1
    
    
    $
    99.7
 The Companys net sales for the six months ended July 31, 2004 increased
$99.7 million to $1,117.8 million from $1,018.1 million in the six months ended
July 31, 2003. After adjusting for the net impact of favorable exchange rate
fluctuations relative to the U.S. dollar, net sales for the first six months of
fiscal 2004 increased 4.9% or approximately $53 million as compared to the same
period in fiscal 2003. Net sales from the Companys Automotive Wheels segment increased $72.4
million to $675.2 million during the first six months of fiscal 2004 from
$602.8 million during the first six months of fiscal 2003. Automotive Wheels
net sales were favorably impacted 34




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##### Table of Contents



by foreign exchange rate fluctuations relative to the U.S. dollar, which
increased sales by approximately $41 million. The remaining increase in sales
is primarily due to increased volume demand 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. These increases were partially offset by
decreased unit pricing globally. Additionally, pricing pressures caused by new
competitors in foreign markets, such as China, led North American OEMs to
selectively resource parts of the Companys future business to competitors
during the second quarter of fiscal 2003, resulting in lower customer
production requirements in 2004. Net sales from Components decreased $0.2 million to $358.5 million during
the first six months of fiscal 2004 from $358.7 million during the first six
months of fiscal 2003. Components net sales decreased 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 $6 million. Other net sales increased $27.5 million to $84.1 million during the first
six months of fiscal 2004 from $56.6 million compared to the same period in
fiscal 2003. 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 primary profitability measure because it excludes fresh start
accounting adjustments and reorganization items which do not represent normal
operating performance of the Company as these items relate only to the
Companys Chapter 11 Filings and emergence. Earnings from operations excluding
fresh start accounting adjustments and reorganization items is calculated as
follows (dollars in millions): Six MonthsEnded July 31,2004
    
    2003Earnings from operations
    
    $
    35.7
    
    
    $
    52.9Excluding:Fresh start accounting adjustments
    
    
    
    
    
    
    (63.1
    )Reorganization items
    
    
    
    
    
    
    45.0Earnings from operations excluding fresh start accounting
adjustments and reorganization items
    
    $
    35.7
    
    
    $
    34.8
 The following tables present earnings (loss) from operations excluding
fresh start accounting adjustments and reorganization items, as well as other
information by segment (millions of dollars): Six Months Ended July 31, 2004AutomotiveWheels
    
    Components
    
    Other
    
    TotalEarnings from operations
    
    $
    31.4
    
    
    $
    0.8
    
    
    $
    3.5
    
    
    $
    35.7Asset impairments and other restructuring
charges:Facility closure costs
    
    $
    0.3
    
    
    $
    (0.2
    )
    
    $
    
    
    
    $
    0.1Severance and other restructuring costs.
    
    
    3.2
    
    
    
    
    
    
    
    
    
    
    
    3.2Total asset impairments and other
restructuring charges:
    
    $
    3.5
    
    
    $
    (0.2
    )
    
    $
    
    
    
    $
    3.3
 Six Months Ended July 31, 2003AutomotiveWheels
    
    Components
    
    Other
    
    TotalEarnings (loss) from operations excluding fresh
start accounting adjustment and
reorganization items
    
    $
    36.2
    
    
    $
    7.9
    
    
    $
    (9.3
    )
    
    $
    34.8Fresh start accounting 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
    
    
    $
    0.1
    
    
    
    
    
    
    $
    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 asset impairments and other
restructuring charges:
    
    $
    3.0
    
    
    $
    3.4
    
    
    $
    
    
    
    $
    6.4
 35




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The Companys earnings from operations excluding fresh start accounting
adjustments and reorganization items increased by $0.9 million during the first
six months of fiscal 2004 to $35.7 million, from earnings of $34.8 million
during the same period in fiscal 2003. Adjusted for the net impact of foreign
exchange rate fluctuations relative to the U.S. dollar, the Companys earnings
from operations excluding fresh start accounting adjustments and reorganization
items decreased by approximately $3.5 million from fiscal 2003. Increased
volumes abroad and in production of class 8 trucks and commercial highway
trailers in North America were offset by lower OEM production requirements in
North America, lower unit pricing globally, and increased steel and iron
prices. Earnings from operations excluding fresh start accounting adjustments and
reorganization items at the Companys Automotive Wheels operations decreased by
$4.8 million in the first six months of fiscal 2004 to $31.4 million compared
to the same period in 2003. Increased volumes abroad, improved operating
performance and the impact of consolidating earnings from the Companys Manisa,
Turkey facility acquired during the fourth quarter of fiscal 2003 increased
earnings by approximately $26 million. Favorable fluctuations in foreign
exchange rates relative to the U.S. dollar increased earnings approximately $4
million, but were offset by an increase in depreciation and amortization of
approximately $7 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 which decreased
earnings from operations by approximately $29 million. During the first six
months of fiscal 2004, the Companys Automotive Wheels segment recorded
facility closure and severance costs of approximately $3.5 million associated
with the Companys Howell, Michigan facility. During the first six months of
fiscal 2003, the Company recognized restructuring and facility closure costs of
$1.0 million related to the closure of its Bowling Green, Kentucky facility, as
well as asset impairment losses of $0.5 million to write down the fair value of
its Thailand greenfield site based on current real estate market conditions and
it recorded asset impairment losses of $1.5 million at various facilities due
to a change in managements plan for the future use of idle machinery and
equipment. In the first six months of fiscal 2003, earnings in the Companys
wheel operations were impacted by the following events associated with the
Companys emergence from Chapter 11: a $3.6 million fair value adjustment to
inventory included in the Successors opening balance sheet, which negatively
impacted earnings, and the favorable settlement of certain pre-petition claims,
which favorably impacted earnings by $2.2 million. Components earnings from operations excluding fresh start accounting
adjustments and reorganization items decreased by $7.1 during the first six
months of fiscal 2004 to $0.8 million compared to $7.9 million during the same
period in fiscal 2003. Improvements in operating performance were offset by
lower unit pricing, increased steel and iron prices and increased selling,
administrative and engineering costs which decreased earnings from operations
by approximately $9 million during the first six months of fiscal 2004. During
the first six months of fiscal 2003 Components recorded asset impairment losses
of approximately $3.4 million at various facilities due to a change in
managements plan for the future use of idle machinery and equipment. In the
second quarter of fiscal 2003, earnings in the Companys components operations
were impacted by the following events associated with the Companys emergence
from Chapter 11: a $1.6 million fair value adjustment to inventory included in
the Successors opening balance sheet, which negatively impacted earnings, and
the favorable settlement of certain pre-petition claims, which favorably
impacted earnings by $3.9 million. Earnings from operations excluding fresh start accounting adjustments and
reorganization items in the Companys Other segment increased by $12.8 million
in the first six months of fiscal 2004 to $3.5 million, compared to a loss of
$9.3 million during the same period in fiscal 2003. Improved operating
performance and increased volumes in the Companys commercial highway and
aftermarket operations increased earnings approximately $7 million. Subsequent
to the Companys emergence from Chapter 11, the Company continued to incur
post-emergence professional fees during the first six months of fiscal 2004,
which decreased earnings approximately $2 million. This was offset by
favorable resolutions of certain pre-petition liabilities, which
favorably impacted earnings approximately $3 million. During the second quarter of fiscal 2004 the Companys North American pension
and retiree medical costs declined approximately $3 million, increasing
earnings. In the first six months of fiscal 2003, earnings in the Companys
other segment was impacted by the favorable settlement of certain pre-petition
claims, which favorably impacted earnings by $1.5 million. The
remainder of the difference is primarily due to higher allocations to
the Automotive Wheels and Components segments. 36




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Interest Expense, net Interest
expense was $26.8 million for the first six months of fiscal 2004
and $35.3 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 $10.6 million on pre-tax loss of $3.2 million and
$62.9 million on pre-tax income of $17.5 million for the six months ended July
31, 2004 and 2003, respectively. Income tax expense between the two periods is
not comparable due 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) The net income for the six months ended July 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 operations provided $79.6 million in
cash in the first six months of fiscal 2004 compared to $75.5 million in the
first six months of fiscal 2003. This improvement resulted primarily from
lower payments related to the Companys Chapter 11 filings, which were
partially offset by reductions in working capital related to higher inventory
builds required to meet customer requirements in North America, increased trade
receivables due to higher sales, timing of customer payments and payments made
under the Companys short term incentive program in fiscal 2004. Investing Activities:Cash used for investing activities decreased by
$2.3 million during the first six months of fiscal 2004 compared with the first
six months of fiscal 2003. Capital expenditures for the first six months of fiscal 2004 were $68.0
million. These expenditures were primarily for additional machinery and
equipment to improve productivity and reduce costs, to meet demand for new
vehicle platforms and to meet expected requirements for the Companys products.
The Company anticipates capital expenditures for fiscal 2004 will be
approximately $150 million primarily relating to meeting demand for new vehicle
platforms and supporting maintenance and cost reduction programs, including
approximately $12 million for renovation and expansion of its aluminum wheel
plant located in Chihuahua, Mexico. Financing Activities:Cash used for financing activities was $11.4
million for the first six months of fiscal 2004 compared to cash provided by
financing activities of $61.9 million in the first six 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 six 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 37




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##### Table of Contents



businesses, (iii) cash on hand, and (iv) borrowings under the $100 million
revolving credit facility under the New Credit Facility. While the Company
expects that such sources will meet these requirements, there can be no
assurances that such sources will prove to be sufficient, in part, due to
inherent uncertainties about applicable future capital market conditions. 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 In August 2004, one of the Companys OEM customers notified the Company of
the discontinuance of an accelerated payment program in which the Company
participated. The termination of this program is expected to occur during the
third and fourth quarters of fiscal 2004. While the Company is still analyzing
the impact of the discontinuance of this accelerated program, the Company
anticipates that its cash flow will be negatively impacted by approximately
$25 million during fiscal 2004. As more fully discussed above, on June 3, 2003, in connection with the
Companys emergence from Chapter 11, HLI entered into the $550.0 million New
Credit Facility, consisting of the $450.0 million New Term Loan and the $100.0
million Revolving Credit Facility. HLI also issued an aggregate of $250.0
million New Senior Notes. The Company and substantially all of its material
direct and indirect domestic subsidiaries have guaranteed HLIs obligations
under the New Credit Facility, and the Company and substantially all of its
domestic subsidiaries have guaranteed HLIs obligations under the New Senior
Notes. The proceeds from the initial $450.0 million of borrowings under the New
Credit Facility and the net proceeds from the New Senior Notes were used to
make payments required under the Plan of Reorganization. At July 31, 2004 and
September 7, 2004, there were no outstanding borrowings and $17.8 million in
letters of credit issued under the Revolving Credit Facility. The amount
available to borrow under the Revolving Credit Facility at July 31, 2004 and
September 7, 2004 was approximately $82.2 million. In
addition, upon the Companys emergence from bankruptcy, all of
Old Hayes existing securities, including the Old Common Stock, Old Senior Notes
and Old Subordinated Notes, were cancelled. All amounts outstanding under the
Prepetition Credit Agreement were satisfied in exchange for: (i) a cash payment
of $477.3 million; (ii) 15,930,000 shares of New Common Stock; and (iii) 53,100
shares of Preferred Stock. All amounts outstanding under the Old Senior Notes
were satisfied in exchange for: (i) a cash payment of approximately $13.0
million; (ii) 13,470,000 shares of New Common Stock; (iii) 44,900 shares of
Preferred Stock; and (iv) a portion of the distributions from the trust
established under the Plan of Reorganization for the benefit of the prepetition
creditors (the Creditors Trust). All amounts outstanding under the Old
Subordinated Notes were satisfied in exchange for a distribution of Series A
Warrants and a portion of the distributions under the Creditors Trust. In
addition, holders of unsecured claims will receive an aggregate amount of
600,000 shares of New Common Stock, 2,000 shares of Preferred Stock, the Series
B Warrants and a portion of the distributions under the Creditors Trust. Upon emergence from Chapter 11, the Company: (i) repaid the DIP Facility
in full; (ii) settled certain of the operating leases discussed below; and
(iii) paid certain other costs and expenses pursuant to the Plan of
Reorganization. Certain of the Companys operating leases covering leased assets with an
original cost of approximately $68.0 million contained provisions which, if
certain events occur or conditions were met, including termination of the
lease, could have required the Company to purchase or re-sell the leased assets
within a specified period of time, generally one year, based on amounts
specified in the lease agreements. In connection with the Companys emergence
from Chapter 11, the Company purchased these assets for $23.6 million. Credit Ratings S&P
    
    Moody'sCorporate and Bank Debt rating
    
    BB 
    
    Ba3Senior Note rating
    
    
    B +
    
    
    
    B1
 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. 38




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Outlook Customers The Company derived approximately half of its fiscal 2003 net sales on a
worldwide basis from Ford, DaimlerChrysler and General Motors and their
subsidiaries. The Companys sales levels and margins could be adversely
affected as a result of pricing pressures caused by new competitors in low-cost
foreign markets, such as China. These factors led to selective resourcing of
future business to competitors in the second quarter of fiscal 2003.
Additionally, these customers have been experiencing decreasing market share in
North America which could result in lower sales volumes for the Company. The Companys net sales are continually affected by pressure from its
major customers to reduce prices. The Companys emphasis on reduction of
production costs, increased productivity and improvement of production
facilities has enabled the Company to respond to this pressure. Steel Supply Global spot market steel prices have significantly increased during 2003
and into mid2004. Factors leading to the higher prices include the increasing
demand for steel in China, industry consolidation and rising raw material
costs. In response to the increasing cost of raw materials, a number of steel
suppliers have implemented surcharges on existing fixed price contracts.
Without the surcharge some suppliers claim they will be unable to provide
adequate supplies of steel. In addition, some of the Companys suppliers have
sought, and others may seek in the future, bankruptcy relief which could affect
the availability or price of steel. These factors could negatively impact the
Companys results of operations as it may be unable to compel suppliers to
comply with existing contracts or to source adequate supplies of steel. The
Company believes it can partially offset the impact of cost increases through
higher scrap sales recoveries and or by passing some of these costs through to
certain of its customers. The full impact of steel prices is uncertain given
the volatility in the spot steel market. However, the Company anticipates the
net impact to approximate $20 million in fiscal 2004. Interest Rate and Foreign Exchange Rate Fluctuations A portion of the Companys debt, including its borrowings under the New
Credit Facility, bears interest at variable rates. Any increase in the interest
rates on the Companys debt will reduce funds available to it for its
operations and future business opportunities and will exacerbate the
consequences of its leveraged capital structure. Due to the increase in the Companys operations outside the United States,
the Company has experienced increased foreign currency exchange gains and
losses in the ordinary course of business. As a result, fluctuations in the
exchange rate between the U.S. dollar, the euro and the currencies of other
countries, in which the Company conducts its business, may have a material
impact on its financial condition as cash flows generated in other currencies
will be used, in part, to service its dollar-denominated debt. This could
result in an increase in the Companys overall leverage and could result in
less cash flow available for debt repayment should the dollar appreciate
significantly versus other currencies in which significant cash flows are
generated. In addition, fluctuations in foreign currency exchange rates may affect
the value of the Companys foreign assets as reported in U.S. dollars, which in
turn may adversely affect reported earnings and, accordingly, the comparability
of period-to-period results of operations. Changes in currency exchange rates
may affect the relative prices at which the Company and foreign competitors
sell products in the same market. In addition, changes in the value of the
relevant currencies may affect the cost of certain items required in its
operations. There can be no assurance that fluctuations in interest rates or
exchange rates will not have a material adverse effect on the Companys
financial condition or results of operations, or cause significant fluctuations
in quarterly and annual results of operations. Postretirement Benefits On December 8, 2003, President George W. Bush signed the Medicare
Prescription Drug, Improvement and Modernization Act (the Act) into law. This
law introduces a prescription drug benefit under Medicare as well as a federal
subsidy to sponsors of retiree health care benefit plans that provide a benefit
that is at least actuarially equivalent to the benefit established by the law. 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). 39




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##### Table of Contents



The Company is unable to estimate the impact the Act will have on its
financial statements or the amount of cash it may be entitled to receive from
any federal subsidy, but believes that its plan is at least actuarially
equivalent. As such, the Act is expected to favorably impact the Company by
reducing the postretirement benefit obligation and expense in future periods
when compared to fiscal 2003. In accordance with the provisions of FSP 106-2,
the Company will apply the accounting guidance of the pronouncement in the
fiscal quarter ending October 31, 2004. As such, the accumulated postretirement
benefit obligation (APBO) and the net periodic postretirement benefit cost do
not reflect the effects of the Act as of and for the periods ended July 31,
2004. 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
    
    $
    6.2
    
    
    $
    14.8
    
    
    $
    29.8
    
    
    $
    586.7
    
    
    $
    637.5Redeemable preferred
stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10.9
    
    
    
    10.9Short-term borrowings
    
    
    4.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.0Capital lease obligations
    
    
    3.9
    
    
    
    7.8
    
    
    
    2.1
    
    
    
    
    
    
    
    13.8Operating leases
    
    
    16.7
    
    
    
    24.5
    
    
    
    4.8
    
    
    
    3.3
    
    
    
    49.3Capital expenditures
    
    
    37.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37.9Total obligations
    
    $
    68.7
    
    
    $
    47.1
    
    
    $
    36.7
    
    
    $
    600.9
    
    
    $
    753.4
 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
    
    $
    25.1Taxes
    
    
    18.5Pension and other post-retirement benefits funding
    
    
    11.5Various customer satisfaction issues
    
    
    7.0Restructuring costs(1)
    
    
    4.0
   (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 40




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##### Table of Contents



determined through third party appraisals or discounted cash flow
calculations. The related charges are recorded as an asset impairment or, in
the case of certain exit costs in connection with a plant closure or
restructuring, a restructuring or other charge in the consolidated statements
of operations. As discussed above and in the notes to the Companys consolidated
financial statements included herein, a number of decisions have occurred or
other factors have indicated that these types of charges are required to be
currently recognized. There can be no assurance that there will not be
additional charges based on future events and that the additional charges would
not have a materially adverse impact on the Companys financial position and
results of operations. Pension and Postretirement Benefits Other Than Pensions Annual net periodic expense and benefit liabilities under the Companys
defined benefit plans are determined on an actuarial basis. Assumptions used in
the actuarial calculations have a significant impact on plan obligations and
expense. Each October, the Company reviews the actual experience compared to
the more significant assumptions used and makes adjustments to the assumptions,
if warranted. The healthcare trend rates are reviewed with the actuaries based
upon the results of their review of claims experience. Discount rates are based
upon an expected benefit payments duration analysis and the equivalent average
yield rate for high-quality fixed-income investments. Pension benefits are funded through deposits with trustees and the
expected long-term rate of return on fund assets is based upon actual
historical returns modified for known changes in the market and any expected
change in investment policy. Postretirement benefits are not funded and Company
policy is to pay these benefits as they become due. Certain accounting guidance, including the guidance applicable to
pensions, does not require immediate recognition of the effects of a deviation
between actual and assumed experience or the revision of an estimate. This
approach allows the favorable and unfavorable effects that fall within an
acceptable range to be netted. Although this netting occurs outside the basic
financial statements, the net amount is disclosed as an unrecognized gain or
loss in the footnotes to the Companys financial statements. In accordance with
the fresh start accounting provisions of SOP 90-7, all previously unrecognized
gains or losses were immediately recognized at the emergence date. The
Company expects to incur approximately $11.0 million of pension expense
and $11.0 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 will test goodwill for impairment as of November 1st of each
fiscal year, or more frequently should circumstances change or events occur
that would more likely than not reduce the fair value of a reporting unit below
its carrying amount, as provided for in SFAS No. 142. Allowance for Uncollectible Accounts The allowance for uncollectible accounts provides for losses believed to
be inherent within the Companys Receivables, (primarily trade receivables).
Management evaluates both the creditworthiness of specific customers and the
overall probability of losses based upon an analysis of the overall aging of
receivables, past collection trends and general economic conditions. Management
believes, based on its review, that the allowance for uncollectibles is
adequate to cover potential losses. Actual results may vary as a result of
unforeseen economic events and the impact those events could have on the
Companys customers. 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 41




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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 July 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 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 process of upgrading its North American
general ledger and financial computer systems, the first phase of which is
expected to be completed in October 2004. This implementation is expected to
further improve or otherwise enhance the Companys Disclosure Controls and
Procedures and Internal Controls. Due to the inherent complexities in any
financial system implementation, the Company may be unable to successfully
complete this implementation on a timely basis, or fail to recognize the
benefits currently anticipated from such upgrade. If the implementation is not
successful, the Company may be unable to file its periodic reports with the SEC
on a timely basis. If so, the Companys future ability to access applicable
capital markets may be impaired or otherwise limited. 42




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Evaluation of Disclosure Controls and Procedures The Company maintains a disclosure committee reporting to the Chief
Executive Officer of the Company to assist the Chief Executive Officer and
Chief Financial Officer in fulfilling their responsibility in designing,
establishing, maintaining and reviewing the Companys Disclosure Controls and
Procedures (the Disclosure Committee). The Disclosure Committee is currently
chaired by the Companys Chief Financial Officer and includes the Companys
General Counsel, Vice President of Human Resources and Administration,
Corporate Controller, Treasurer, Director of Corporate Accounting, 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 None. 
 Item 4.Submission of Matters to a Vote of Security Holders None. 
 Item 5.Other Information None. 
 Item 6.Exhibits and Reports on Form 8-K (a) Exhibits 4.9
    
    Registration Rights Agreement, dated as of July 1, 2004, by and between Hayes Lemmerz International, Inc., and AP
Wheels, LLC.*10.10
    
    Amendment No. 3 dated as of May 6, 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*10.11
    
    Waiver of Certain Post Closing Covenants dated as of June 1, 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 301 of the
Sarbanes-Oxley Act of 2002.*
 43




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32.1
    
    Certification of Curtis J. Clawson, President and Chief Executive Officer, Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*32.2
    
    Certification of James A. Yost, Vice President, Finance, and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
   *
    
    Filed electronically herewith. (b) Reports on Form 8-K During the fiscal quarter ended July 31, 2004, the Company filed or
furnished Current Reports on Form 8-K with the SEC as follows: June 8, 2004
    
    Items 5 and 7
    
    Other Events and Regulation FD
Disclosure, and Financial Statements
and ExhibitsJune 9, 2004
    
    Items 12, 7 and 9
    
    Results of Operations and Financial
Condition, Regulation FD Disclosure,
and Financial Statements and ExhibitsJuly 16, 2004
    
    Items 5 and 7
    
    Other Events and Regulation FD
Disclosure, and Financial Statements
and ExhibitsAugust 11, 2004
    
    Items 5 and 7
    
    Other Events and Regulation FD
Disclosure, and Financial Statements
and Exhibits
 44




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. HLI OPERATING COMPANY, INC./s/ JAMES A. YOSTJames A. YostVice President, Finance, and Chief Financial Officer September 8, 2004 45




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HLI OPERATING COMPANY, INC. 10-Q EXHIBIT INDEX 4.9
    
    Registration Rights Agreement, dated as of July 1, 2004, by and between Hayes Lemmerz International, Inc., and AP
Wheels, LLC.*10.10
    
    Amendment No. 3 dated as of May 6, 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*10.11
    
    Waiver of Certain Post Closing Covenants dated as of June 1, 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 301 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