UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)
þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ~~For the quarterly period ended April 30, 2005~~
		For the quarterly period ended April 30, 2006
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ~~For the transition period from to~~
		For the transition period from to

Commission file number: 333-107539

HLI Operating Company, Inc.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		30-0167742 (IRS Employer Identification No.)
Delaware		30-0167742
15300 Centennial Drive Northville, Michigan (Address of principal executive offices)		48167 (Zip Code)
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)
15300 Centennial Drive Northville, Michigan		48168
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code:

(734) 737-5000

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. ~~(as~~See ~~defined~~definition inof “accelerated filer and large accelerated filer” in Rule ~~126~~12b-2 of the Exchange Act). ~~Yes o No þ~~ (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer þ

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

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

As Indicate ofby ~~June 6,~~check ~~2005,~~mark whether the ~~number~~registrant ofis ~~shares~~a ofshell ~~common stock~~company ~~outstanding~~ (as defined in Rule 12b-2 of ~~HLI~~the ~~Operating Company, Inc., was~~Exchange ~~590,000 shares~~ Act). Yes o No þ

As of June 8, 2006, the number of shares of common stock outstanding of HLI Operating Company, Inc. was 590,000 shares.

HLI OPERATING COMPANY, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements		2
	Consolidated Statements of Operations		2
	Condensed Consolidated Balance Sheets		3
	Consolidated Statements of Cash Flows		4
	Consolidated Statements of Changes in Stockholders’ Equity (Deficit)		5
	Notes to Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		3229
Item 4.	Controls and Procedures		3230
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		3531
Item 2.	Changes in Securities and Use of Proceeds		35
Item 1A.	Risk Factors		31
Item 3.	Defaults upon Senior Securities		35
Item 2.	Changes in Securities and Use of Proceeds		31
Item 4.	Submission of Matters to a Vote of Security Holders		35
Item 3.	Defaults upon Senior Securities		31
Item 5.	Other Information		35
Item 4.	Submission of Matters to a Vote of Security Holders		31
Item 6.	Exhibits		35
Item 5.	Other Information		31
Signatures			36
Item 6.	Exhibits		32
Certifications			38
Signatures			33
Section 302 Certification of Chief Executive Officer
Certification of Curtis J. Clawson, Chairman of the Board, President, and Chief Executive Officer, pursuant to Section 302
Section 302 Certification of Chief Financial Officer
Certification of James A. Yost, Vice President, Finance, and Chief Financial Officer, pursuant to Section 302
Section 906 Certification of Chief Executive Officer
Certification of Curtis J. Clawson, Chairman of the Board, President, and Chief Executive Officer, pursuant to Section 906
Section 906 Certification of Chief Financial Officer
Certification of James A. Yost, Vice President, Finance, and Chief Financial Officer, pursuant to Section 906

Unless otherwise indicated, references to ~~the~~“we,” “~~Company~~us,” or “our” mean HLI Operating Company, Inc., ~~and~~a ~~its subsidiaries~~Delaware corporation, and ~~references~~our subsidiaries. References to a fiscal year means the ~~Company’s~~ 12-month period ~~year~~ commencing on February 1 of that year and ending January 31 of the following year (e.g., fiscal ~~2005~~2006 means the period beginning February 1, ~~2005~~2006, and ending January 31, ~~2006~~ 2007). This report contains forward looking statements ~~within the meaning of the Private Securities Litigation Reform Act of 1995~~ with respect to ~~the~~our financial condition, results of operations, and business ~~of the Company~~. All statements other than statements of historical fact made in this Quarterly Report are forward-looking. Such forward-looking statements include, among others, those statements including the words “expect”, “anticipate”, “intend”, “believe” and similar language. These forward looking statements involve certain risks and uncertainties. Our actual results may differ significantly from those projected in the forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by such forward looking statements include, among others: (1) competitive pressure in ~~the~~our ~~Company’s~~ industry; (2) fluctuations in the price of steel, ~~aluminum~~ aluminum and other raw materials; (3) changes in general ~~economic~~ economic conditions; (4) ~~the~~our ~~Company’s~~ dependence on the ~~automotive~~ automotive industry (which has historically been cyclical) and on a small number of major customers for the majority of ~~its~~ our sales; (5) pricing pressure from automotive industry customers and the potential for re-sourcing of business to lower-cost providers overseas; (6) changes in the financial markets ~~affecting~~or our ~~the~~debt ~~Company’s~~ratings affecting our financial structure and ~~the Company’s~~our cost of capital and borrowed money; (7) the ~~uncertainties~~ uncertainties inherent in international operations and foreign ~~currency~~ currency fluctuations; (8) our ability to divest non-core assets and businesses; and (89) the risks described in our most recent Annual Report on Form 10-K. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. We ~~The~~have ~~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~~we ~~Company~~do ~~does~~ not intend to provide such updates.


Item 1.	*Financial Statements*

HLI OPERATING COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

CONSOLIDATED STATEMENTS OF OPERATIONS


	Three Months Ended			Three Months Ended
	April 30, 2006			April 30, 2005
	(Dollars in millions)

Net sales	$	572.8		$	589.2
Cost of goods sold		520.4			531.3

Gross profit		52.4			57.9
Marketing, general, and administrative		39.9			41.1
Asset impairments and other restructuring charges		3.7			0.8
Other expense, net		1.4			2.8

Earnings from operations		7.4			13.2
Interest expense, net		17.3			15.1
Other non-operating expense		0.2			0.2

Loss from continuing operations before taxes and minority interest		(10.1	)		(2.1	)
Income tax expense		5.6			4.8

Loss from continuing operations before minority interest		(15.7	)		(6.9	)
Minority interest		1.9			2.6

Loss from continuing operations		(17.6	)		(9.5	)
Income from discontinued operations, net of tax of $0.0 and $0.2, respectively		—			1.4

Net loss	$	(17.6	)	$	(8.1	)

		Three Months Ended
		April 30,
		2005			2004
		(Unaudited)
		(Dollars in millions)
Net sales		$	618.0		$	594.0
Cost of goods sold			555.8			519.7
	Gross profit		62.2			74.3
Marketing, general, and administrative			43.8			43.1
Asset impairments and other restructuring charges			0.8			2.4
Other expense, net			2.8			0.6
	Earnings from operations		14.8			28.2
Interest expense, net			15.1			13.4
Other non-operating expense			0.2			—
Loss on early extinguishment of debt			—			12.2
	Earnings (loss) before taxes, minority interest, and cumulative effect of change in accounting principle		(0.5	)		2.6
Income tax expense			5.0			5.8
	Loss before minority interest and cumulative effect of change in accounting principle		(5.5	)		(3.2	)
Minority interest			2.6			2.2
	Loss before cumulative effect of change in accounting principle		(8.1	)		(5.4	)
Cumulative effect of change in accounting principle, net of tax of $0.8			—			(2.6	)
	Net loss	$	(8.1	)	$	(2.8	)

See accompanying notes to consolidated financial statements.

HLI OPERATING COMPANY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

CONDENSED CONSOLIDATED BALANCE SHEETS


	April 30,			January 31,
	2006			2006
	(Dollars in millions)

ASSETS
Current assets:
Cash and cash equivalents	$	52.5		$	42.5
Receivables		292.7			255.6
Other receivables		80.0			101.0
Inventories		199.7			179.9
Prepaid expenses and other current assets		18.0			23.5

Total current assets		642.9			602.5
Property, plant, and equipment, net		758.1			758.1
Goodwill		205.8			197.8
Intangible assets, net		185.7			187.7
Other assets		59.2			53.1

Total assets	$	1,851.7		$	1,799.2


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Bank borrowings and other notes	$	26.0		$	25.5
Current portion of long-term debt		20.8			19.2
Accounts payable and accrued liabilities		405.3			367.8

Total current liabilities		452.1			412.5
Long-term debt, net of current portion		682.2			684.3
Deferred tax liabilities		61.6			62.7
Pension and other long-term liabilities		412.4			409.2
Redeemable preferred stock		12.3			12.1
Minority interest		38.1			35.1
Commitments and contingencies		—			—
Stockholders’ equity:
Common stock, par value $0.01 per share:
600,000 shares authorized; 590,000 issued and outstanding at April 30, 2006 and January 31, 2006, respectively		—			—
Additional paid in capital		685.6			685.6
Accumulated deficit		(593.2	)		(575.6	)
Accumulated other comprehensive income		100.6			73.3

Total stockholders’ equity		193.0			183.3

Total liabilities and stockholders’ equity	$	1,851.7		$	1,799.2

				April 30,			January 31,
				2005			2005
				(Unaudited)
				(Dollars in millions)
ASSETS
Current assets:
	Cash and cash equivalents			$	42.2		$	35.2
	Receivables				272.8			241.4
	Other receivables				126.7			77.0
	Inventories				233.6			212.6
	Prepaid expenses and other current assets				28.2			29.3
			Total current assets		703.5			595.5
Property, plant, and equipment, net					989.9			1,000.3
Goodwill					410.6			417.9
Intangible assets, net					229.3			233.3
Other assets					62.1			55.0
			Total assets	$	2,395.4		$	2,302.0
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Bank borrowings and other notes			$	0.4		$	0.6
	Current portion of long-term debt				9.5			10.5
	Accounts payable and accrued liabilities				439.3			405.3
			Total current liabilities		449.2			416.4
Long-term debt, net of current portion					710.1			631.1
Pension and other long-term liabilities					510.5			507.7
Redeemable preferred stock					11.5			11.3
Minority interest					35.5			33.7
Stockholders’ equity:
	Common stock, par value $0.01 per share:
		600,000 shares authorized; 590,000 issued and outstanding at April 30, 2005 and January 31, 2005			—			—
	Additional paid in capital				681.6			680.3
	Accumulated deficit				(125.7	)		(117.6	)
	Accumulated other comprehensive income				122.7			139.1
			Total stockholders’ equity		678.6			701.8
			Total liabilities and stockholders’ equity	$	2,395.4		$	2,302.0

See accompanying notes to consolidated financial statements.

HLI OPERATING COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Three Months			Three Months
	Ended April 30,			Ended April 30,
	2006			2005
	(Dollars in millions)

Cash flows from operating activities:
Loss from continuing operations	$	(17.6	)	$	(9.5	)
Adjustments to reconcile net loss from operations to net cash provided by (used for) operating activities:
Depreciation and amortization		34.1			44.1
Change in deferred income taxes		—			(3.4	)
Asset impairments		0.2			0.1
Minority interest		1.9			2.6
Preferred stock dividends accrued		0.2			0.2
Equity compensation expense		—			1.3
Loss on sale of assets and businesses		1.1			0.1
Amortization of deferred financing fees		1.1			2.7
Changes in operating assets and liabilities that increase (decrease) cash flows:
Receivables		(27.5	)		(28.5	)
Other receivables		21.0			(49.7	)
Inventories		(15.0	)		(21.3	)
Prepaid expenses and other		4.8			(7.6	)
Accounts payable and accrued liabilities		21.2			37.6

Cash provided by (used for) operating activities		25.5			(31.3	)

Cash flows from investing activities:
Purchase of property, plant, equipment, and tooling		(12.3	)		(36.4	)
Proceeds from sale of assets		0.4			—
Capital contributed by minority shareholders		0.4

Cash used for investing activities		(11.5	)		(36.4	)

Cash flows from financing activities:
Changes in bank borrowings and credit facilities		(0.6	)		(0.2	)
Redemption of Term Loan B, net of related fees		—			(70.5	)
Proceeds from Term Loan C		—			150.0
Bank finance fees paid		(2.9	)		—
Repayment of long-term debt		(1.3	)		(0.2	)
Dividends paid to minority shareholders		(1.0	)		—

Cash (used for) provided by financing activities		(5.8	)		79.1

Net cash used for operating activities (discontinued operations)		—			(6.1	)
Net cash used for investing activities (discontinued operations)		—			(0.1	)
Net cash provided by financing activities (discontinued operations)		—			—
Effect of exchange rate changes on cash and cash equivalents		1.8			1.9

Increase in cash and cash equivalents		10.0			7.1
Cash and cash equivalents at beginning of period		42.5			34.9

Cash and cash equivalents at end of period	$	52.5		$	42.0

Supplemental data:
Cash paid for interest	$	12.5		$	7.5
Cash paid for income taxes	$	3.4		$	2.2

				Three Months Ended
				April 30,
				2005			2004
				(Unaudited)
				(Dollars in millions)
Cash flows from operating activities:
Net loss				$	(8.1	)	$	(2.8	)
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:
	Depreciation and amortization				45.8			42.7
	Amortization of deferred financing fees and accretion of discount				2.7			1.0
	Change in deferred income taxes				(5.8	)		2.0
	Asset impairments				0.1			—
	Minority interest				2.6			2.2
	Preferred stock dividends accrued				0.2			0.2
	Equity compensation expense				1.3			1.6
	Loss on early extinguishment of debt				—			12.2
	Gain (loss) on sale of assets				0.1			(0.2	)
	Changes in operating assets and liabilities that increase (decrease) cash flows:
		Receivables			(34.4	)		2.4
		Other receivables			(49.7	)		—
		Inventories			(22.9	)		(8.9	)
		Prepaid expenses and other			(7.6	)		(0.1	)
		Accounts payable and accrued liabilities			38.2			33.5
	Payments related to Chapter 11 Filings				—			(0.8	)
			Cash provided by (used for) operating activities		(37.5	)		85.0
Cash flows from investing activities:
	Purchase of property, plant, equipment, and tooling				(36.5	)		(33.4	)
	Proceeds from sale of assets				—			0.4
			Cash used for investing activities		(36.5	)		(33.0	)
Cash flows from financing activities:
	Changes in bank borrowings and credit facilities				(0.2	)		(0.1	)
	Net proceeds from issuance of common stock				—			117.0
	Redemption of Senior Notes, net of discount and related fees				—			(96.7	)
	Repayment of Term Loan B, net of related fees				(70.5	)		(16.0	)
	Borrowings from Term Loan C				150.0			—
	Repayment of long-term debt				(0.2	)		(2.2	)
	Repayment of notes payable issued in connection with purchases of businesses				—			(7.1	)
			Cash provided by (used for) financing activities		79.1			(5.1	)
Effect of exchange rate changes on cash and cash equivalents					1.9			(1.7	)
	Increase in cash and cash equivalents				7.0			45.2
	Adjustment for the elimination of the one month lag				—			1.4
Cash and cash equivalents at beginning of period					35.2			48.5
Cash and cash equivalents at end of period				$	42.2		$	95.1
Supplemental data:
	Cash paid for interest			$	7.5		$	9.1
	Cash paid for income taxes			$	2.2		$	3.9

See accompanying notes to consolidated financial statements.

HLI OPERATING COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

														Retained		~~Retained~~		Accumulated		~~Accumulated~~
														Earnings		~~Earnings~~		Other		~~Other~~
						Par		~~Par~~		Paid in		~~Paid in~~		(Accumulated		~~(Accumulated~~		Comprehensive		~~Comprehensive~~
		Shares		~~Shares~~		Value		~~Value~~		Capital		~~Capital~~		Deficit)		~~Deficit)~~		Income		~~Income~~		Total		~~Total~~
		(Dollars in millions, except share amounts)		~~(Dollars in millions, except share amounts)~~
Balance at January 31, 2005					590,000			$	—			$	680.3			$	(117.6	)		$	139.1			$	701.8
Balance at January 31, 2006			590,000				—			$	685.6			$	(575.6	)		$	73.3			$	183.3
Comprehensive income:
Net loss	~~Net loss~~		—		—		—		—		—		—		(17.6	)	~~(8.1~~	)	—		—		(17.6	)	~~(8.1~~	)
Currency translation adjustment	~~Currency translation adjustment~~				—				—				—				—		30.7		~~(16.4~~	)	30.7		~~(16.4~~	)
		Total comprehensive loss																							(24.5	)
Unrealized loss on derivatives			—				—				—				—				(3.4	)			(3.4	)
Equity compensation expense					—				—				1.3				—				—				1.3
Total comprehensive income			—				—				—				—				—				9.7
Balance at April 30, 2005					590,000			$	—			$	681.6			$	(125.7	)		$	122.7			$	678.6
Balance at April 30, 2006			590,000				—			$	685.6			$	(593.2	)		$	100.6			$	193.0

See accompanying notes to consolidated financial statements.

HLI OPERATING COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Three Months Ended April 30, 2006 and 2005 (Unaudited) (Dollars in millions, unless otherwise stated)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended April 30, 2005 and 2004

(Unaudited)

(Dollars in millions, unless otherwise stated)


Note 1.	Description of Business

These financial statements should be read in conjunction with ~~the~~ our ~~Company’s~~ Annual Report on Form 10-K for the fiscal year ended January 31, ~~2005~~2006 as filed with ~~the~~ the Securities and Exchange Commission on ~~April~~May 291, ~~2005~~2006.

Description of Business

Unless otherwise indicated, references to “~~Company~~us,” “we,” or “our” mean HLI Operating Company, Inc., a Delaware corporation, and its subsidiaries, and references to “fiscal year” ~~means~~mean ~~the~~our fiscal ~~Company’s~~ year commencing on February 1 of that year and ending on January 31 of the following year (e.g., “fiscal ~~2005~~2006” refers to the period beginning February 1, ~~2005~~2006 and ending January 31, ~~2006~~2007, “fiscal ~~2004~~2005” refers to the period beginning February 1, ~~2004~~2005 and ending January 31, ~~2005~~2006).

Originally founded in 1908, ~~the~~HLI Operating Company, isInc. is a leading worldwide producer of aluminum and steel wheels for ~~the light vehicle~~ ~~market.~~ passenger ~~The~~cars ~~Company~~and islight ~~also~~trucks aand ~~leading provider~~ of steel wheels ~~for~~ ~~the~~ for commercial ~~highway~~trucks ~~market~~and trailers. ~~The~~We ~~Company~~are isalso a leading supplier of inautomotive ~~the market for~~ suspension, brake, and powertrain components. ~~The~~We have ~~Company has a~~ global ~~footprint~~operations with 42 35 facilities, including business and ~~one~~sales ~~joint~~offices, ~~venture~~manufacturing facilities, and technical centers, located in 14 countries around the world. ~~The~~We ~~Company~~sell our ~~sells its~~ products to every major North American, Japanese, and European manufacturer of passenger cars and light trucks asand ~~well as~~ to commercial highway vehicle customers throughout the world. ~~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.~~


Note 2.	Basis of Presentation

~~Basis~~ Our unaudited interim consolidated financial statements do not include all of ~~Presentation~~the disclosures required by U.S. generally accepted accounting principles (GAAP) for annual financial statements. In our opinion, all adjustments considered necessary for a fair presentation of the interim period results have been included. Operating results for the fiscal 2006 interim period presented are not necessarily indicative of the results that may be expected for the full fiscal year ending January 31, 2007.

The ~~Company’s~~preparation ~~unaudited~~of ~~interim~~ consolidated financial statements doin conformity ~~not~~with ~~include~~GAAP ~~all~~requires ofus ~~the~~to ~~disclosures~~make ~~required~~estimates byand ~~U.S.~~ assumptions ~~generally~~that ~~accepted~~affect ~~accounting~~the ~~principles~~reported ~~(GAAP) for annual~~amounts ~~financial~~of ~~statements.~~assets Inand liabilities ~~the~~and ~~opinion~~disclosure of ~~management,~~contingent ~~all~~assets and liabilities ~~adjustments~~ at ~~considered~~the ~~necessary~~date ~~for~~of athe ~~fair~~consolidated ~~presentation~~financial ofstatements and the ~~interim~~ reported ~~period~~amounts ~~results~~of ~~have~~revenues ~~been~~and ~~included.~~expenses ~~Operating~~during ~~results~~the ~~for~~reporting ~~the~~ period. ~~2005~~Considerable ~~interim~~judgment ~~period~~is ~~presented~~often ~~are~~involved ~~not~~in ~~necessarily~~making ~~indicative~~these of determinations; the ~~results~~use ~~that~~of ~~may~~different beassumptions ~~expected~~could ~~for~~result ~~the~~in significantly ~~full~~different ~~fiscal~~results. ~~year~~We believe our assumptions and ~~ending~~ estimates ~~January 31~~are reasonable and appropriate; however, ~~2006~~actual results could differ from those estimates.

The preparation of consolidated financial statements in conformity with GAAP 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.

Historically, the Company consolidated its international subsidiaries using the twelve month period ended December 31st. Due to more efficient financial reporting procedures, the Company was able to eliminate this one month lag in fiscal 2004. This change is preferable since it aligns the year end reporting date of the Company’s international subsidiaries with the Company’s year end reporting. The Company recorded income of $2.6 million in the first quarter of 2004 as a cumulative effect of a change in accounting principle, which represents the financial information of its international subsidiaries for the month of January 2004.

Certain prior period amounts have been reclassified to conform to the current year presentation.

HLI OPERATING COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Note 3.	Inventories

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

		April 30,	~~April 30,~~		January 31,	~~January 31,~~
			2005			2005
		2006			2006
Raw materials		$	$47.0	~~57.9~~	$	$41.5	~~55.8~~
Work-in-process			44.7	~~44.5~~		38.8	~~47.4~~
Finished goods			69.2	~~86.4~~		61.5	~~73.1~~
Spare parts and supplies			38.8	~~44.8~~		38.1	~~36.3~~
Total	~~Total~~	$	$199.7	~~233.6~~	$	$179.9	~~212.6~~

Note 4. ~~Bank~~ ~~Borrowings, Other~~Assets ~~Notes,~~Held ~~and~~for ~~Long-Term Debt~~ Sale

~~Bank~~ As ~~borrowings~~of April 30 and ~~other~~January 31, ~~notes~~2006, ofwe $0were actively marketing for sale our idle building in Howell, Michigan.~~4 million~~ ~~and~~Also included in assets held for sale were nine lathes from our Homer, Michigan facility. Assets held for sale of $04.64 million atare ~~April 30,~~included ~~2005~~in ~~and~~prepaid ~~January 31,~~expenses and ~~2005,~~ other ~~respectively,~~current ~~consists~~assets ~~primarily~~at the end of ~~short-term~~first ~~credit~~quarter 2006, as well ~~facilities~~ as ofat the ~~Company’s~~prior ~~foreign~~year ~~subsidiaries~~end.

~~Long-term~~Note ~~debt~~5. ~~consists~~Discontinued ~~of the following (dollars in millions):~~ Operations

		April 30,		January 31,
		2005		2005
Various foreign bank and government loans maturing through 2006, weighted average interest rates of 5.64% and 6.37% at April 30, 2005 and January 31, 2005, respectively		$	18.7	$	18.6
Term loan B maturing 2009, weighted average interest rate of 6.07% and 6.24% at April 30, 2005 and January 31, 2005, respectively			356.7		427.3
Term loan C maturing 2010, weighted average interest rate of 8.72% at April 30, 2005			150.0		—
101/2% Senior Notes due 2010, net of discount of $0.8 million at April 30, 2005 and January 31, 2005			161.7		161.7
Mortgage note payable			22.2		22.2
Capital lease obligations			10.3		11.8
			719.6		641.6
Less current portion of long-term debt			9.5		10.5
	Long-term debt	$	710.1	$	631.1

In the third quarter of fiscal 2005, we announced that we had signed an agreement to sell our Commercial Highway Hub and Drum business. The business was sold in November of 2005 for cash proceeds of $53.2 million and we recorded a gain on the sale of $12.4 million. The Hub and Drum business was comprised of operations in Berea, Kentucky; Chattanooga, Tennessee; and Mexico City, Mexico and was included in our Other segment. Net proceeds from the sale were used to reduce the principal amount of our Term Loan B and provide us with additional liquidity. Corporate interest charges were not allocated to discontinued operations consistent with our corporate policy of holding interest expenses at the corporate level.

~~Credit~~ The ~~Facility~~Hub and Drum business was accounted for as discontinued operations in accordance with SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Accordingly, the operating results of the business were classified as discontinued operations and prior periods have been reclassified.

On Operating ~~June 3,~~results ~~2003,~~of the ~~Company~~discontinued ~~entered~~operations ~~into~~for ~~a $550 million~~the ~~senior~~Hub ~~secured credit facility (Credit~~and ~~Facility),~~ Drums ~~which~~business ~~initially~~in ~~consisted~~the ofprior ~~a $450 million six-~~year ~~amortizing~~first ~~term~~quarter ~~loan~~were ~~(Term~~as ~~Loan B) and a five-year~~follows ~~$100 million revolving credit facility~~ (~~Revolving~~dollars ~~Credit Facility). The Term Loan B was made available to the Company~~ in ~~a single drawing on June 3, 2003, payable in~~millions): quarterly installments equal to 0.25% of the principal amount outstanding with the remaining balance payable on June 3, 2009. The Revolving Credit Facility will be available until June 3, 2008, on which date all loans outstanding under the Revolving Credit Facility will become due and payable.

On April 11, 2005, the Company amended and restated the Credit Facility to establish a new second lien $150 million term loan (Term Loan C), from which 50% of the proceeds are to be used for general corporate purposes, with the remainder of the net proceeds used to repay a portion of the Term Loan B. Other amendments made at that time reduced the Company’s interest rate on the Term Loan B by 50 basis points,


	Three Months
	Ended April 30,
	2005

Net sales	$	28.8
Earnings before income tax expense	$	1.6
Income tax expense		0.2

Net income	$	1.4

HLI OPERATING COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

~~favorably~~Note ~~modified~~6. ~~the~~Goodwill ~~financial covenants,~~ and ~~allowed~~Other ~~the Company~~Intangible to retain 50% of the net proceeds from the proposed divestiture of its Commercial Highway Hub and Drum business for capital expenditures, among other things. The principal balance of $150 million is due on June 3, 2010. Assets

~~The~~ Goodwill ~~Credit Facility contains covenants restricting the Company’s ability~~ and ~~the~~other ~~ability~~intangible ~~of its subsidiaries to issue more debt, pay dividends, repurchase stock, make investments, merge or consolidate, transfer~~ assets ~~and~~consist ~~enter into~~of transactions with affiliates. These restrictive covenants are customary for such facilities and subject to certain exceptions. The Credit Facility also contains certain financial covenants regarding a maximum total leverage ratio, a minimum interest coverage ratio and a minimum fixed charge coverage ratio. The Company’s obligations under the ~~Credit Facility~~following ~~are guaranteed by the Company’s parent companies, Hayes Lemmerz International, Inc.~~ (~~HLI),~~dollars ~~and~~in ~~HLI Parent Company, Inc.,~~millions): ~~and all of the Company’s material direct and indirect domestic subsidiaries.~~

As of April 30, 2005 and January 31, 2005, there were no outstanding borrowings and approximately $18.3 million and $19.0 million, respectively, in letters of credit issued under the Revolving Credit Facility. The amount available to borrow under the Revolving Credit Facility at April 30, 2005 and January 31, 2005 was approximately $81.7 million and $81.0 million, respectively.


			April 30, 2006							January 31, 2006
	Weighted		Gross					Net		Gross					Net
	Average		Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
	Useful Life		Amount		Amortization			Amount		Amount		Amortization			Amount

Amortized intangible assets:
Customer relationships		30 years	$	126.8	$	(15.4	)	$	111.4	$	120.7	$	(10.2	)	$	110.5
Customer contracts		6 years		24.5		(11.9	)		12.6		24.5		(10.9	)		13.6
Unpatented technology		8 years		33.5		(13.6	)		19.9		36.3		(12.7	)		23.6

			$	184.8	$	(40.9	)	$	143.9	$	181.5	$	(33.8	)	$	147.7

Non amortized intangible assets:
Tradenames			$	41.8						$	40.0
Goodwill			$	205.8						$	197.8

~~Senior~~ We ~~Notes~~expect that ongoing amortization expense will approximate between $11 million and $13 million in each of the next five fiscal years.

The ~~Company~~changes issued $250.0 million aggregate principal amount of Senior Notes on June 3, 2003 (Senior Notes). The Senior Notes will mature on June 15, 2010. Interest on the Senior Notes accrues at a rate of 101/2% per annum and is payable semi-annually in ~~arrears on June 15 and December 15. On October 30, 2003,~~ the ~~Company commenced~~net ~~its~~carrying ~~offer to exchange up to $250.0 million aggregate principal~~ amount of ~~outstanding 101/2% Senior Notes~~goodwill ~~due~~by ~~2010 of the Company for a like principal amount of~~segment ~~101/2% Senior Notes~~ are ~~due 2010 of the Company. The exchange offer was registered under the Securities Act of 1933,~~ as ~~amended,~~follows to(dollars ~~satisfy~~in ~~the~~millions): Company’s obligations under the registration rights agreement entered into by the Company and the initial purchasers of the Senior Notes. On November 28, 2003, the Company completed its exchange offer. All of the $250.0 million aggregate principal amount of the outstanding Senior Notes were tendered and accepted for exchange.

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


	Automotive
	Wheels			Components		Other		Total

Balance as of January 31, 2006	$	197.8		$	—	$	—	$	197.8
Effects of currency translation		8.8			—		—		8.8
Reclassification		(0.8	)		—		—		(0.8	)

Balance as of April 30, 2006	$	205.8		$	—	$	—	$	205.8

~~Except~~Note ~~as set forth below, the Senior Notes will not be redeemable at the option of the Company prior to June 15, 2007~~7. ~~Starting~~Bank ~~on that date~~Borrowings, ~~the~~Other ~~Company may redeem all or any portion of the Senior~~ Notes, ~~at once or over time, upon the terms~~ and conditions set forth in the senior note indenture agreement (Indenture). At any time prior to June 15, 2007, the Company may redeem all or any portion of the Senior Notes, at once or over time, at a redemption price equal to 100% of the principal amount of the Senior Notes to be redeemed, plus a specified “makeLong-~~whole”~~Term premium. In addition, at any time and from time to time prior to June 15, 2006, the Company may redeem up to a maximum of 35% of the aggregate principal amount of the Senior Notes with the proceeds of one or more public equity offerings at a redemption price equal to 110.5% of the principal amount thereof, plus accrued and unpaid interest. (See Note 8, Common Stock Offering). Debt

~~The~~ Bank ~~Indenture~~borrowings ~~provides for certain restrictions regarding additional debt, dividends~~ and other ~~distributions,~~notes ~~additional stock~~ of ~~subsidiaries,~~$26.0 million ~~certain investments, liens, transactions~~and ~~with~~ $25.5 million ~~affiliates,~~at ~~mergers~~April 30, ~~consolidations,~~2006 and ~~the transfer and~~January 31, ~~sales of assets. The Indenture also provides that a holder of the Senior Notes may~~ 2006, ~~under certain circumstances~~respectively, ~~have~~consist ~~the right~~primarily toof ~~require~~short-term ~~that the Company repurchase such holder’s~~credit ~~Senior~~ facilities ~~Notes upon a change~~ of ~~control~~our offoreign ~~the Company~~subsidiaries. ~~The Senior~~ ~~Notes are unconditionally guaranteed as~~

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


	April 30,		January 31,
	2006		2006

Various foreign bank and government loans maturing through 2006, weighted average interest rates of 5.7% and 5.6% at April 30, 2006 and January 31, 2006, respectively	$	19.1	$	18.4
Term Loan B maturing 2009, weighted average interest rate of 8.4% and 7.7% at April 30, 2006 and January 31, 2006, respectively		332.3		332.4
Term Loan C maturing 2010, weighted average interest rate of 10.6% and 9.9% at April 30, 2006 and January 31, 2006, respectively		150.0		150.0
101/2% Senior Notes due 2010, net of discount of $0.5 and $0.8 million at April 30, 2006 and January 31, 2006, respectively		162.0		161.7
Mortgage note payable maturing June 3, 2008		22.0		22.0
Capital lease obligations		17.6		19.0

		703.0		703.5
Less current portion of long-term debt		20.8		19.2

Long-term debt	$	682.2	$	684.3

Credit Facility

On June 3, 2003, we entered into a $550 million senior secured credit facility (Credit Facility), which initially consisted of a $450 million six-year amortizing term loan (Term Loan B) and a five-year $100 million revolving credit facility (Revolving Credit Facility). The Term Loan B was made available to us in a single drawing on June 3, 2003, payable in quarterly installments equal to 0.25% of the principal amount outstanding with the remaining balance payable on June 3, 2009. The Revolving Credit Facility will be available until June 3, 2008, on which date all loans outstanding under the Revolving Credit Facility will become due and payable. On November 16, 2005, we used a portion of the proceeds from the Hub and Drum sale to prepay approximately $19.9 million of the Term Loan B.

On April 11, 2005, we amended and restated the Credit Facility to establish a new second lien $150 million term loan (Term Loan C), from which 50% of the net proceeds were to be used for general corporate purposes, with the remainder of the net proceeds used to repay a portion of the Term Loan B. The Term Loan C principal balance of $150 million is due on June 3, 2010. On March 31, 2006, we amended the Credit Facility to favorably modify certain financial covenants, among other changes.

HLI OPERATING COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

to The Credit Facility contains covenants restricting our ability and the ~~payment~~ability of ~~principal~~our subsidiaries to issue more debt, ~~premium~~pay dividends, ifrepurchase ~~any~~stock, ~~and~~make ~~interest~~investments, merge or ~~jointly~~ consolidate, transfer assets and ~~severally~~enter oninto transactions with affiliates. These restrictive covenants are customary for such facilities and subject to certain exceptions. The Credit Facility also contains certain financial covenants regarding a maximum ~~senior~~total leverage ratio, ~~unsecured~~a ~~basis~~minimum byinterest coverage ratio and a minimum fixed charge coverage ratio. Our obligations under the Credit ~~Company~~Facility are guaranteed by our parent companies, Hayes Lemmerz International, Inc. (HLI) and HLI Parent Company, Inc. (Parent) and substantially all of ~~its~~our ~~domestic~~material direct and indirect domestic subsidiaries.

As of April 30, 2006 there were no outstanding borrowings and approximately $19.0 million in letters of credit issued under the Revolving Credit Facility. As of January 31, 2006, there were no outstanding borrowings and approximately $17.9 million in letters of credit issued under the Revolving Credit Facility. The amount available to borrow under the Revolving Credit Facility at April 30, 2006 and January 31, 2006 was approximately $81.0 million and $63.7 million, respectively.

Senior Notes

We have $250.0 million aggregate principal amount of 101/2% Senior Notes that mature on June 15, 2010. Interest on the Senior Notes accrues at a rate of 101/2% per annum and is payable semi-annually in arrears on June 15 and December 15.

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

Except as set forth below, the Senior Notes will not be redeemable at our option prior to June 15, 2007. Starting on that date, we may redeem all or any portion of the Senior Notes, at once or over time, upon the terms and conditions set forth in the senior note indenture agreement (Indenture). At any time prior to June 15, 2007, we may redeem all or any portion of the Senior Notes, at once or over time, at a redemption price equal to 100% of the principal amount of the Senior Notes to be redeemed, plus a specified “make-whole” premium. In addition, at any time and from time to time prior to June 15, 2006, we may redeem up to a maximum of 35% of the aggregate principal amount of the Senior Notes with the proceeds of one or more public equity offerings at a redemption price equal to 110.5% of the principal amount thereof, plus accrued and unpaid interest.

The Indenture provides for certain restrictions regarding additional debt, dividends and other distributions, additional stock of subsidiaries, certain investments, liens, transactions with affiliates, mergers, consolidations, and the transfer and sales of assets. The Indenture also provides that a holder of the Senior Notes may, under certain circumstances, have the right to require that we repurchase such holder’s Senior Notes upon a change of control of the Company. The Senior Notes are unconditionally guaranteed as to the payment of principal, premium, if any, and interest, jointly and severally on a senior, unsecured basis by us and substantially all of our domestic subsidiaries.

Early Repayment of Long-Term Debt

On April 11, 2005, ~~the~~we ~~Company~~ used ~~approximately~~ $7072.7 million of the net proceeds from the Term Loan C to repay a portion of the Term Loan B. On November 16, 2005, we used a portion of the proceeds from the Hub and Drum sale to prepay approximately $19.9 million of the Term Loan B.

On March 12, 2004, HLI used a portion of the common stock offering net proceeds (See Note 8, Common Stock Offering) to redeem $87.5 million aggregate principal amount, plus accrued and unpaid interest thereon, of the Company’s outstanding 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 Senior Notes. HLI also used a portion of the primary stock offering proceeds to prepay $16.0 million, plus accrued and unpaid interest thereon, of the Company’s Term Loan B 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 Term Loan B. (See Note 8, Common Stock Offering).

Other Financing

In We ~~addition to the Credit Facility and Senior Notes as described above, the Company~~ had other debt financing of $5158.27 million and $5259.64 million as of April 30, ~~2005~~ ~~and~~2006 and January 31, ~~2005~~2006, respectively. These included ~~borrowings~~ borrowings under various foreign debt facilities in an aggregate amount of $1819.71 million and $18.64 million, and ~~capital lease obligations of $10.3 million and $11.8 million as of April 30, 2005 and January 31, 2005, respectively. The Company also had~~ a mortgage note payable of $22.20 million as of April 30, ~~2005~~2006 and January 31, ~~2005~~2006. We

Note 5. Pension Plans and Postretirement Benefits Other Than Pensions

The Company sponsors several defined benefit pension plans (Pension Benefits) and health care and life insurance benefits (Other Benefits) for certain employees around the world. The Company funds the Pension Benefits based upon the funding requirements of United States and international laws and regulations in advance of benefit payments and the Other Benefits as benefits are provided to the employees.

The 2005 and 2004 amounts shown below present the Pension Benefits and Other Benefits expense for the three months ended April 30 for each year:

												International
												Plans
	North American Plans
												Pension
	Pension Benefits						Other Benefits					Benefits
	2005			2004			2005		2004			2005		2004
Service cost	$	0.3		$	0.1		$	—	$	—		$	0.2	$	0.2
Interest cost		2.7			2.8			2.7		2.7			2.0		2.0
Expected return on plan assets		(2.4	)		(2.4	)		—		—			—		—
Amortization of prior service cost		—			—			—		—			—		0.1
Amortization of net (gain)/loss		—			—			—		(0.2	)		0.1		—
Net periodic benefit cost	$	0.6		$	0.5		$	2.7	$	2.5		$	2.3	$	2.3

The Company contributed $9.0 million to its pension plans and health care and life insurance benefit plans during the first quarter of fiscal 2005, and expects to contribute an additional $29.1 million during the remainder of fiscal 2005.

HLI OPERATING COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

~~Note~~ also had capital lease obligations of $17.6 million and $19. ~~Asset~~0 million ~~Impairments~~as of April 30, 2006 and ~~Other~~ January 31, ~~Restructuring~~2006, ~~Charges~~respectively.

~~The~~Note ~~Company recorded asset impairment losses and other restructuring charges of $0.~~8 ~~million and $2~~.~~4 million in~~ ~~the~~Pension ~~first~~Plans ~~quarter~~and ofPostretirement ~~fiscal~~Benefits ~~2005~~Other ~~and~~Than ~~2004, respectively.~~ Pensions

~~Asset~~ We ~~impairments~~sponsor several defined benefit pension plans (Pension Benefits) and ~~other~~health ~~restructuring~~care ~~charges~~and bylife ~~segment~~insurance benefits (Other ~~were~~ Benefits) for certain employees around the world. We fund the Pension Benefits based upon the funding requirements of United States and international laws and regulations in advance of benefit payments and the Other Benefits as ~~follows:~~benefits are provided to the employees.

		Three Months Ended April 30, 2005
		Automotive
		Wheels		Components		Other		Total
Facility closure costs		$	0.3	$	—	$	—	$	0.3
Impairment of machinery, equipment, and tooling			0.1		—		—		0.1
Severance and other restructuring costs			0.4		—		—		0.4
	Total	$	0.8	$	—	$	—	$	0.8

The fiscal 2006 and fiscal 2005 amounts shown below present the Pension Benefits and Other Benefits expense for the three months ended April 30 for each year (dollars in millions):

			Three Months Ended April 30, 2004
		US Plans														International Plans
			Automotive
		Pension Benefits							Other Benefits							Pension Benefits
			Wheels			Components				Other			Total
		Three Months			Three Months				Three Months			Three Months				Three Months			Three Months
Facility closure costs			$	—		$	(0.2	)		$	—		$	(0.2	)
		Ended			Ended				Ended			Ended				Ended			Ended
Severance and other restructuring costs				2.6			—				—			2.6
		April 30,			April 30,				April 30,			April 30,				April 30,			April 30,
	Total		$	2.6		$	(0.2	)		$	—		$	2.4
		2006			2005				2006			2005				2006			2005
Service cost		$	0.2		$	0.3			$	—		$	—			$	0.3		$	0.2
Interest cost			2.8			2.7				2.6			2.7				1.5			2.0
Expected return on plan assets			(2.7	)		(2.4	)			—			—				(0.2	)		—
Amortization of net loss			—			—				—			—				—			0.1
Net periodic benefit cost		$	0.3		$	0.6			$	2.6		$	2.7			$	1.6		$	2.3

~~Automotive~~ We ~~Wheels~~contributed $4.2 million to our pension plans and health care and life insurance benefit plans during the first three months of fiscal 2006 and expect to contribute an additional $11.6 million during the remainder of fiscal 2006.

~~Facility~~Note ~~Closures~~9. Asset Impairments and Other Restructuring Charges

~~Closure~~ Asset ofimpairment ~~Howell,~~losses ~~Michigan~~and ~~Facility:~~other Onrestructuring ~~April 1, 2004,~~charges ~~the~~for ~~Company announced~~ the ~~closure of its Howell, Michigan~~ ~~manufacturing~~ three ~~facility.~~months Asended ~~part of management’s on-going rationalization initiatives~~April 30, ~~the~~2006 ~~decision to close the Howell facility was based on improving capacity utilization~~ and ~~overall efficiency~~2005 ofwere ~~the~~as ~~Company. Production of the aluminum wheels~~follows ~~manufactured~~ (dollars ~~at the facility has been transferred to other manufacturing facilities~~ in ~~the United States. The Company has~~millions): ~~recorded $0.1 million of costs associated with the closure of this facility during the first quarter of fiscal 2005.~~

Closure of Bowling Green, Kentucky Facility: During the first quarter of fiscal 2005, the Company recognized additional closure costs of $0.2 million related to the closure of its Bowling Green, Kentucky manufacturing facility.


	Three Months Ended April 30, 2006
	Automotive
	Wheels		Components		Other		Total

Facility closure costs	$	0.4	$	—	$	—	$	0.4
Impairment of land, building, machinery, equipment, and tooling		0.2		—		—		0.2
Severance and other restructuring costs		1.4		1.1		0.6		3.1

Total	$	2.0	$	1.1	$	0.6	$	3.7

Impairment of Machinery, Equipment, and Tooling

Impairment of Howell, Michigan Facility: During the first quarter of fiscal 2005, the Company recorded asset impairment losses of $0.1 million on certain machinery and equipment related to the closure of its Howell, Michigan manufacturing facility. 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.

Severance and Other Restructuring Charges

Restructuring of La Mirada, California Facility: On March 3, 2005, the Company announced plans to close its aluminum wheel manufacturing facility in La Mirada, California and transfer the production at this facility to the Company’s Huntington, Indiana facility. In the first quarter of fiscal 2005, the Company recorded $0.2 million of severance costs related to the closure of this facility.

HLI OPERATING COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Restructuring of Manresa, Spain Facility: The Company recorded $0.2 million of severance costs for the Manresa, Spain facility during the first quarter of fiscal 2005 in order to reduce headcount due to a decrease in production volumes.


	Three Months Ended April 30, 2005
	Automotive
	Wheels		Components		Other		Total

Facility closure costs	$	0.3	$	—	$	—	$	0.3
Impairment of machinery, equipment, and tooling		0.1		—		—		0.1
Severance and other restructuring costs		0.4		—		—		0.4

Total	$	0.8	$	—	$	—	$	0.8

~~Restructuring of Howell, Michigan Facility: In the first~~ ~~quarter of fiscal 2004, the Company recorded $2.6 million~~ Asset of Impairment ~~severance~~Losses and ~~other~~Other ~~restructuring~~Restructuring ~~costs~~Charges ~~related~~for to the Three ~~closure~~ Months ofEnded ~~the Howell~~April 30, ~~Michigan facility.~~2006

We recorded total asset impairment losses and other restructuring charges of $3.7 million for the three months ended April 30, 2006. The expense for the Automotive Wheels segment was $2.0 million, which consisted primarily of costs related to severance to our international wheel locations in Spain, Italy, and South Africa in addition to the Huntington, Indiana facility. There were also continuing facility closure costs related to the Howell, Michigan; La Mirada, California; Somerset, Kentucky; and Bowling Green, Kentucky facilities. The expense for the Components segment was $1.1 million, which consisted of severance expense. The Other segment expense of $0.6 million is related to severance at the corporate offices.

~~Facility~~ Asset Impairment ~~Closures~~Losses and Other Restructuring Charges for the Three Months Ended April 30, 2005

~~Closure~~ We ofrecorded ~~Petersburg,~~total ~~Michigan~~asset ~~Facility:~~impairment Inlosses ~~conjunction~~and other ~~with~~ restructuring charges of $0.8 million for the ~~sale~~three ofmonths ended ~~its~~April 30, ~~Petersburg~~2005, ~~Michigan~~which ~~facility~~was inall ~~February of~~related ~~2004,~~to the Automotive ~~Company~~Wheels ~~reversed $0~~segment.~~2 million~~ inThe ~~facility~~expense consisted primarily of continuing facility closure costs inrelated to the ~~first~~Howell, Michigan; ~~quarter~~La Mirada, ofCalifornia; ~~fiscal~~and ~~2004~~Bowling ~~that~~Green, Kentucky ~~had~~facilities. In addition, we recorded severance charges ~~previously~~ for ~~been~~our ~~accrued~~La Mirada, California and Manresa, Spain facilities.

Facility Exit ~~Cost~~Costs and Severance Accruals

The following table describes the activity in the balance sheet accounts affected by severance and other facility exit costs during the three months ended April 30, ~~2005~~2006 (dollars in millions):

					Cash
			Accrual of		Cash
			Severance		Payments and
	January 31,		and Other		~~and~~ Effects of			April 30,
	2005		Restructuring		of Foreign			2005
	2006		Restructuring		Foreign			2006
	Accrual		Charges		Currency			Accrual
Facility exit costs	$	—	$	—0.4	$	—		$	—0.4
Severance		02.9		03.71		(01.94	)		04.76
	$	0.9	$	0.7	$	(0.9	)	$	0.7
Total	$	2.9	$	3.5	$	(1.4	)	$	5.0

Note 7. Taxes on Income

Income tax expense for the three months ended April 30, 2005 and 2004 were as follows (dollars in millions):

	Three Months Ended April 30,
	2005					2004
	US			Foreign		US			Foreign
Pre-tax income	$	(17.0	)	$	16.5	$	(14.7	)	$	17.3
Income tax expense	$	0.5			4.5		0.6			5.2

Income tax expense related to the three months ended April 30, 2005 was primarily the result of tax expense in foreign jurisdictions and various states.

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

The American Jobs Creation Act of 2004 (the Act) introduced legislation allowing companies the opportunity to receive a one-time deduction from taxable income for dividends paid to the United States (the repatriation provisions). The Company has not yet completed its evaluation of the impact of the repatriation provisions for purposes of applying Financial Accounting Standards Board Staff Position 109-2, “Accounting and Disclosure Guidance for the Foreign Repatriation Provision within the American Jobs Creation Act of 2004” for each period for which financial statements covering periods affected by the Act are presented. The evaluation should be completed by January 31, 2006. Although no final decision has been reached, it is

HLI OPERATING COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

~~unlikely~~Note ~~that the Company will remit any earnings pursuant to these provisions~~10. ~~Accordingly,~~Taxes ~~the~~on ~~Company has not recognized any income tax expense.~~ Income

~~Note~~ Income 8.tax ~~Common~~expense ~~Stock~~allocated ~~Offering~~to continuing operations for the three months ended April 30, 2006 and 2005 was as follows (dollars in millions):

On February 11, 2004, HLI 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. HLI used the net proceeds of the $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 the Company’s outstanding Senior Notes on March 12, 2004, to prepay $16.0 million, plus accrued and unpaid interest thereon, of the Company’s Term Loan B on February 12, 2004, and for general corporate purposes. (See Note 4, Bank Borrowings, Other Notes, and Long-Term Debt).


	Three Months Ended April 30,
	2006					2005
	US			Foreign		US			Foreign

Pre-tax income (loss)	$	(24.5	)	$	14.4	$	(18.0	)	$	15.9
Income tax expense		0.4			5.2		0.4			4.4

~~Note~~ Income 9.tax ~~Segment~~expense ~~Reporting~~for the three months ended April 30, 2006 was primarily the result of tax expense in foreign jurisdictions and various states.

~~The~~ We ~~Company is organized based primarily on markets served and products produced. Under this organizational structure, the Company’s operating segments~~ have ~~been~~determined ~~aggregated~~that ~~into three~~a ~~reportable~~valuation ~~segments:~~allowance ~~Automotive~~is ~~Wheels, Components, and~~required ~~Other.~~ against ~~The~~all ~~Automotive~~net ~~Wheels~~deferred ~~segment~~tax ~~includes~~assets ~~results~~in ~~from~~ the ~~Company’s~~ ~~operations that primarily design and manufacture~~United States ~~fabricated steel~~ and ~~cast~~certain ~~aluminum~~deferred ~~wheels~~tax ~~for~~assets ~~original equipment manufacturers~~ in ~~the~~foreign ~~global passenger car, light vehicle, and heavy duty truck markets~~jurisdictions. ~~The Components segment includes~~As ~~results from the Company’s operations that primarily design and manufacture suspension~~ such, ~~brake,~~there ~~and~~is ~~powertrain~~no ~~components~~federal ~~for original~~income ~~equipment~~tax ~~manufacturers~~benefit inrecorded ~~the global passenger car and~~against ~~light~~ current ~~vehicle~~losses ~~markets.~~incurred ~~The Other segment includes results from the Company’s operations that primarily design and manufacture brake products for commercial highway and aftermarket customers~~ in ~~North America. The Other segment also includes financial results related to~~ the ~~corporate~~United ~~office and the elimination of certain intercompany activities~~States.

~~The~~Note Company’s Akron facility, which was previously reported in the Other segment, is now reported in the Company’s Automotive Wheels segment consistent with management’s change in segment review based on product classifications11. Prior ~~year~~ ~~amounts~~Period ~~have~~Accounting ~~been realigned due to this reclassification.~~ Errors

In August 2005, we discovered several accounting errors that would have impacted our reported results for prior periods. The two most significant of these errors related to the amount of amortization of definite lived intangible assets following ~~tables~~the application ~~present~~of ~~revenues~~fresh start accounting and ~~other~~to the amount of foreign withholding taxes recorded with respect to certain expatriate employees beginning in fiscal 2003. Since the impact to the annual financial statements for fiscal 2003 and 2004 was ~~information~~ not bymaterial, ~~business~~we ~~segment~~recorded ~~(dollars~~additional expense of approximately $3.1 million in ~~millions):~~the second quarter of fiscal 2005 to reflect the cumulative effect of the errors. The accounting errors, if properly recorded in the respective periods, would have increased net loss during the three months ended April 30, 2005 by approximately $0.7 million. We conducted an internal investigation into these errors and found no evidence of any intentional misstatements of these amounts.

	As of and for the Three Months Ended April 30, 2005
	Automotive
	Wheels		Components		Other			Total
Net sales	$	406.7	$	191.4	$	19.9		$	618.0
Asset impairments and other restructuring charges		0.8		—		—			0.8
Earnings (loss) from operations		19.3		0.9		(5.4	)		14.8
Total assets		1,803.9		556.0		35.5			2,395.4


Note 12.	Segment Reporting

	As of and for the Three Months Ended April 30, 2004
	Automotive
	Wheels		Components			Other			Total
Net sales	$	370.3	$	201.4		$	22.3		$	594.0
Asset impairments and other restructuring charges		2.6		(0.2	)		—			2.4
Earnings (loss) from operations		20.4		9.5			(1.7	)		28.2
Total assets		1,645.5		542.4			128.7			2,316.6

We are organized based primarily on markets served and products produced. Under this organizational structure, our operating segments have been aggregated into three reportable segments: Automotive Wheels, Components, and Other. The Automotive Wheels segment includes results from our operations that primarily design and manufacture fabricated steel and cast aluminum wheels for original equipment manufacturers in the global passenger car, light vehicle, and heavy duty truck markets. The Components segment includes results from our 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 financial results related to the corporate office and the elimination of certain intercompany activities.

HLI OPERATING COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	As of January 31, 2005
	Automotive
	Wheels		Components		Other		Total
Total assets	$	1,726.9	$	541.4	$	33.7	$	2,302.0

In the third quarter of fiscal 2005, our Commercial Highway Hub and Drum operations, which were previously reported in the Other segment, were reclassified to discontinued operations and assets held for sale. Prior year amounts have been realigned due to this reclassification.

~~Note~~ The ~~10.~~following ~~Condensed~~tables ~~Consolidating~~present ~~Financial~~revenues ~~Statements~~and other financial information by business segment (dollars in millions):

The following condensed consolidating financial statements present the financial information required with respect to those entities that guarantee certain of the Company’s debt.


	Three Months Ended April 30, 2006
	Automotive
	Wheels		Components			Other			Total

Net sales	$	403.8	$	169.0		$	—		$	572.8
Asset impairments and other restructuring charges		2.0		1.1			0.6			3.7
Earnings (loss) from operations		13.5		(1.2	)		(4.9	)		7.4

The condensed consolidating financial statements are presented based on the equity method of accounting. 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.


	Three Months Ended April 30, 2005
	Automotive
	Wheels		Components		Other			Total

Net sales	$	397.8	$	191.4	$	—		$	589.2
Asset impairments and other restructuring charges		0.8		—		—			0.8
Earnings (loss) from operations		19.2		0.9		(6.9	)		13.2


	As of April 30, 2006
	Automotive
	Wheels		Components		Other		Total

Total assets	$	1,312.9	$	333.7	$	205.1	$	1,851.7


	As of January 31, 2006
	Automotive
	Wheels		Components		Other		Total

Total assets	$	1,247.7	$	321.5	$	230.0	$	1,799.2


Note 13.	Condensed Consolidating Financial Statements

The following condensed consolidating financial statements present the financial information required with respect to those entities that guarantee certain of our debt.

The condensed consolidating financial statements are presented based on the equity method of accounting. Under this method, the investments in subsidiaries are recorded at cost and adjusted for our 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

HLI, ~~HLI~~ Parent ~~Company~~, ~~Inc. (Parent),~~ and substantially all of ~~the~~ ~~Company’s~~our domestic subsidiaries (collectively, the Guarantor Subsidiaries) have fully and unconditionally guaranteed, on a joint and several basis, the Senior Notes, Term Loan B, and Term Loan C. None of ~~the~~our ~~Company’s~~ foreign subsidiaries have guaranteed the Senior Notes, Term Loan B, or Term Loan C, nor have two of ~~the~~ ~~Company’s~~ our domestic subsidiaries owned by our foreign subsidiaries ~~of the Company~~ or ~~two of the Company’s~~ subsidiaries that are special purpose entities formed for ~~the~~ domestic accounts receivable securitization ~~program~~programs (collectively, ~~excluding HLI and Parent,~~ the Nonguarantor Subsidiaries). In lieu of providing separate unaudited financial statements for each of the Guarantors, ~~the~~we ~~Company~~have ~~has~~ included the unaudited supplemental guarantor condensed consolidating financial statements. ~~Management~~We ~~does~~ do not believe that separate financial statements for each of the Guarantors are material to investors. Therefore, separate financial statements and other disclosures concerning the Guarantors are not presented.

HLI OPERATING COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS For the Three Months Ended April 30, 2006

For the Three Months Ended April 30, 2005


					Guarantor			Nonguarantor
		Issuer			Subsidiaries			Subsidiaries		Eliminations			Total
	(Dollars in millions)
	(Unaudited)

Net sales		$	—		$	227.2		$	354.8	$	(9.2	)	$	572.8
Cost of goods sold			4.2			213.6			311.8		(9.2	)		520.4

Gross profit (loss)			(4.2	)		13.6			43.0		—			52.4
Marketing, general, and administrative			1.3			18.3			20.3		—			39.9
Equity in (earnings) losses of subsidiaries and joint ventures			(0.3	)		(1.5	)		—		1.8			—
Asset impairments and other restructuring charges			1.4			1.8			0.5		—			3.7
Other (income) expense, net			(0.1	)		0.1			1.4		—			1.4

Earnings (loss) from operations			(6.5	)		(5.1	)		20.8		(1.8	)		7.4
Interest expense, net			10.9			0.4			6.0		—			17.3
Other non-operating expense			0.1			—			0.1		—			0.2

Earnings (loss) from continuing operations before taxes on income and minority interest			(17.5	)		(5.5	)		14.7		(1.8	)		(10.1	)
Income tax expense			0.1			0.3			5.2		—			5.6

Earnings (loss) from continuing operations before minority interest			(17.6	)		(5.8	)		9.5		(1.8	)		(15.7	)
Minority interest			—			—			1.9		—			1.9

Net income (loss)		$	(17.6	)	$	(5.8	)	$	7.6	$	(1.8	)	$	(17.6	)

					Guarantor			Nonguarantor
		Issuer			Subsidiaries			Subsidiaries		Eliminations			Total
		(Dollars in millions)
		(Unaudited)
Net sales		$	1.0		$	273.7		$	350.6	$	(7.3	)	$	618.0
Cost of goods sold			5.4			250.9			306.8		(7.3	)		555.8
	Gross profit (loss)		(4.4	)		22.8			43.8		—			62.2
Marketing, general, and administrative			2.0			22.9			18.9		—			43.8
Equity in (earnings) losses of subsidiaries and joint ventures			(6.2	)		(0.8	)		—		7.0			—
Asset impairments and other restructuring charges			0.2			0.5			0.1		—			0.8
Other expense (income), net			(1.3	)		0.2			3.9		—			2.8
	Earnings (loss) from operations		0.9			—			20.9		(7.0	)		14.8
Interest expense, net			8.7			0.1			6.3		—			15.1
Other non-operating expense			0.2			—			—					0.2
	Earnings (loss) before taxes on income and minority interest		(8.0	)		(0.1	)		14.6		(7.0	)		(0.5	)
Income tax expense			0.1			0.4			4.5		—			5.0
	Earnings (loss) before minority interest		(8.1	)		(0.5	)		10.1		(7.0	)		(5.5	)
Minority interest			—			—			2.6		—			2.6
	Net income (loss)	$	(8.1	)	$	(0.5	)	$	7.5	$	(7.0	)	$	(8.1	)

HLI OPERATING COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS For the Three Months Ended April 30, 2005

For the Three Months Ended April 30, 2004


					Guarantor			Nonguarantor
		Issuer			Subsidiaries			Subsidiaries		Eliminations			Total
	(Dollars in millions)
	(Unaudited)

Net sales		$	1.0		$	251.2		$	344.3	$	(7.3	)	$	589.2
Cost of goods sold			5.4			231.4			301.8		(7.3	)		531.3

Gross profit (loss)			(4.4	)		19.8			42.5		—			57.9
Marketing, general, and administrative			2.0			20.8			18.3		—			41.1
Equity in (earnings) losses of subsidiaries and joint ventures			(6.2	)		(0.8	)		—		7.0			—
Asset impairments and other restructuring charges			0.2			0.5			0.1		—			0.8
Other (income) expense, net			(1.3	)		0.2			3.9		—			2.8

Earnings (loss) from operations			0.9			(0.9	)		20.2		(7.0	)		13.2
Interest (income) expense, net			8.7			0.2			6.2		—			15.1
Other non-operating expense			0.2			—			—		—			0.2

Earnings (loss) from continuing operations before taxes on income and minority interest			(8.0	)		(1.1	)		14.0		(7.0	)		(2.1	)
Income tax expense			0.1			0.3			4.4		—			4.8

Earnings (loss) from continuing operations before minority interest			(8.1	)		(1.4	)		9.6		(7.0	)		(6.9	)
Minority interest			—			—			2.6		—			2.6

Income (loss) from continuing operations before cumulative effect of change in accounting			(8.1	)		(1.4	)		7.0		(7.0	)		(9.5	)
Income from discontinued operations, net of tax			—			0.9			0.5		—			1.4

Net income (loss)		$	(8.1	)	$	(0.5	)	$	7.5	$	(7.0	)	$	(8.1	)

					Guarantor		Nonguarantor
		Issuer			Subsidiaries		Subsidiaries			Eliminations			Total
		(Dollars in millions)
		(Unaudited)
Net sales		$	1.0		$	302.8	$	296.2		$	(6.0	)	$	594.0
Cost of goods sold			10.1			264.1		251.5			(6.0	)		519.7
	Gross profit (loss)		(9.1	)		38.7		44.7			—			74.3
Marketing, general, and administrative			0.3			22.5		20.3			—			43.1
Equity in (earnings) losses of subsidiaries and joint ventures			(25.4	)		1.9		—			23.5			—
Asset impairments and other restructuring charges			(0.2	)		2.6		—			—			2.4
Other expense, net			0.2			—		0.4			—			0.6
	Earnings (loss) from operations		16.0			11.7		24.0			(23.5	)		28.2
Interest expense, net			6.4			0.1		6.9			—			13.4
Other non-operating (income) expense			0.2			—		(0.2	)		—			—
Loss on early extinguishment of debt			12.2			—		—			—			12.2
	Earnings (loss) before taxes on income and minority interest		(2.8	)		11.6		17.3			(23.5	)		2.6
Income tax expense			—			0.6		5.2			—			5.8
	Earnings (loss) before minority interest		(2.8	)		11.0		12.1			(23.5	)		(3.2	)
Minority interest			—			—		2.2			—			2.2
Cumulative effect of change in accounting principle			—			—		(2.6	)		—			(2.6	)
	Net income (loss)	$	(2.8	)	$	11.0	$	12.5		$	(23.5	)	$	(2.8	)

HLI OPERATING COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATING BALANCE SHEETS

As of April 30, ~~2005~~2006

						Guarantor			Nonguarantor
			Issuer			Subsidiaries			Subsidiaries			Eliminations			Total
		(Dollars in millions)	~~(Dollars in millions)~~
		(Unaudited)	~~(Unaudited)~~
Cash and cash equivalents			$	~~(11~~0.59	)	$	~~(0.~~1.2	)	$	5350.84		$	—		$	4252.25
Receivables				(~~147~~105.59	)		~~162~~126.6			~~257~~272.70			—			~~272~~292.87
Related Party Receivables				126.7			—			—			—			126.7
Other receivables				160.0			—			—			(80.0	)		80.0
Inventories				20.3			9168.46			~~139~~131.92			—(0.4	)		~~233~~199.67
Prepaid expenses and other				113.20			118.01			6.09			—			2818.20
Total current assets	~~Total current assets~~			~~(18~~58.83	)		~~264~~204.95			~~457~~460.45			—(80.4	)		~~703~~642.59
Property, plant, and equipment, net				3732.69			~~346~~169.12			~~606~~556.20			—			~~989~~758.91
Goodwill and other assets				~~1,286~~904.96			52(103.27	)		~~635~~394.27			(~~1,272~~744.39	)		~~702~~450.07
Total assets	~~Total assets~~		$	~~1,305~~995.78		$	~~663~~270.20		$	1,~~698~~411.82		$	(~~1,272~~825.3	)	$	21,~~395~~851.47
Bank borrowings and other notes			$	—		$	—0.6		$	025.4		$	—		$	026.40
Current portion of long-term debt				4.65			13.28			312.75			—			920.58
Accounts payable and accrued liabilities				69152.19			9671.96			~~273~~261.30			—(80.3	)		~~439~~405.3
Total current liabilities	~~Total current liabilities~~			73157.74			9876.10			~~277~~298.49			—(80.3	)		~~449~~452.21
Long-term debt, net of current portion				~~686~~661.27			613.86			176.19			—			~~710~~682.12
Pension and other long-term liabilities				~~250~~231.09			0.46			~~260~~241.15			—			~~510~~474.50
Redeemable preferred stock				1112.53			—			—			—			1112.53
Minority interest				—			—			3538.51			—			3538.51
Parent loans				(~~394~~260.39	)		36(29.21	)		~~356~~285.56			14.61			—
Common stock				—			—			—			—			—
Additional paid-in capital				~~681~~685.6			~~617~~517.48			~~588~~569.01			(1,~~205~~086.49	)		~~681~~685.6
Retained earnings (accumulated deficit)				(~~125~~593.72	)		(95311.73	)		69(114.75	)		26425.08			(~~125~~593.72	)
Accumulated other comprehensive income (loss)				~~122~~100.76			—2.4			9485.56			(9488.50	)		~~122~~100.76
Total stockholders’ equity	~~Total stockholders’ equity~~			~~678~~193.60			~~521~~208.79			~~752~~540.2			(~~1,273~~749.91	)		~~678~~193.60
Total liabilities and stockholder’s equity	~~Total liabilities and stockholder’s equity~~		$	~~1,305~~995.78		$	~~663~~270.20		$	1,~~698~~411.82		$	(~~1,272~~825.3	)	$	21,~~395~~851.47

HLI OPERATING COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATING BALANCE SHEETS As of January 31, 2006

As of January 31, 2005


					Guarantor			Nonguarantor
		Issuer			Subsidiaries			Subsidiaries			Eliminations			Total
	(Dollars in millions)
	(Unaudited)

Cash and cash equivalents		$	(4.1	)	$	0.6		$	46.0		$	—		$	42.5
Receivables			(112.1	)		126.6			241.1			—			255.6
Other receivables			101.0			—			—			—			101.0
Inventories			1.3			66.0			112.6			—			179.9
Prepaid expenses and other			4.7			9.3			9.5			—			23.5

Total current assets			(9.2	)		202.5			409.2			—			602.5
Property, plant, and equipment, net			34.1			173.1			550.9			—			758.1
Goodwill and other assets			876.8			(102.4	)		384.5			(720.3	)		438.6

Total assets		$	901.7		$	273.2		$	1,344.6		$	(720.3	)	$	1,799.2

Bank borrowings and other notes		$	—		$	1.0		$	24.5		$	—		$	25.5
Current portion of long-term debt			4.6			3.0			11.6			—			19.2
Accounts payable and accrued liabilities			68.7			70.0			229.1			—			367.8

Total current liabilities			73.3			74.0			265.2			—			412.5
Long-term debt, net of current portion			661.7			15.5			7.1			—			684.3
Pension and other long-term liabilities			236.6			0.6			234.7			—			471.9
Redeemable preferred stock			12.1			—			—			—			12.1
Minority interest			—			—			35.1			—			35.1
Parent loans			(265.3	)		(30.4	)		292.3			3.4			—
Common stock			—			—			—			—			—
Additional paid-in capital			685.6			519.0			570.6			(1,089.6	)		685.6
Retained earnings (accumulated deficit)			(575.6	)		(305.5	)		(122.1	)		427.6			(575.6	)
Accumulated other comprehensive income (loss)			73.3			—			61.7			(61.7	)		73.3

Total stockholders’ equity			183.3			213.5			510.2			(723.7	)		183.3

Total liabilities and stockholder’s equity		$	901.7		$	273.2		$	1,344.6		$	(720.3	)	$	1,799.2

					Guarantor			Nonguarantor
		Issuer			Subsidiaries			Subsidiaries		Eliminations			Total
		(Dollars in millions)
Cash and cash equivalents		$	(9.3	)	$	(0.2	)	$	44.7	$	—		$	35.2
Receivables			(135.0	)		151.2			225.2		—			241.4
Other receivables			77.0			—			—		—			77.0
Inventories			4.6			89.0			119.0		—			212.6
Prepaid expenses and other			11.4			12.2			5.7		—			29.3
Total current assets			(51.3	)		252.2			394.6		—			595.5
Property, plant, and equipment, net			38.9			342.1			619.3		—			1,000.3
Goodwill and other assets			1,291.7			52.5			640.2		(1,278.2	)		706.2
	Total assets	$	1,279.3		$	646.8		$	1,654.1	$	(1,278.2	)	$	2,302.0
Bank borrowings and other notes		$	—		$	—		$	0.6	$	—		$	0.6
Current portion of long-term debt			4.6			1.3			4.6		—			10.5
Accounts payable and accrued liabilities			76.1			88.6			240.6		—			405.3
	Total current liabilities		80.7			89.9			245.8		—			416.4
Long-term debt, net of current portion			606.6			7.1			17.4		—			631.1
Pension and other long-term liabilities			251.9			0.4			255.4		—			507.7
Redeemable preferred stock			11.3			—			—		—			11.3
Minority interest						—			33.7		—			33.7
Parent loans			(373.0	)		27.0			345.5		0.5			—
Common stock			—			—			—		—			—
Additional paid-in capital			680.3			617.4			588.0		(1,205.4	)		680.3
Retained earnings (accumulated deficit)			(117.6	)		(95.2	)		62.2		33.0			(117.6	)
Accumulated other comprehensive income (loss)			139.1			0.2			106.1		(106.3	)		139.1
	Total stockholders’ equity		701.8			522.4			756.3		(1,278.7	)		701.8
	Total liabilities and stockholders’ equity	$	1,279.3		$	646.8		$	1,654.1	$	(1,278.2	)	$	2,302.0

HLI OPERATING COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS For the Three Months Ended April 30, 2006

For the Three Months Ended April 30, 2005


					Guarantor			Nonguarantor
		Issuer			Subsidiaries			Subsidiaries			Eliminations		Total
	(Dollars in millions)
	(Unaudited)
Cash flows provided by (used for) operating activities		$	(1.3	)	$	2.8		$	24.0		$	—	$	25.5

Cash flows from investing activities:
Purchase of property, plant, equipment and tooling			(0.2	)		(4.5	)		(7.6	)		—		(12.3	)
Proceeds from disposal of assets and businesses			—			—			0.4			—		0.4
Capital contributed by minority shareholders									0.4					0.4

Cash used for investing activities			(0.2	)		(4.5	)		(6.8	)		—		(11.5	)

Cash flows from financing activities:
Changes in bank borrowings and credit facility			—			(0.4	)		(0.2	)		—		(0.6	)
Borrowings (repayment) of long term debt			—			(1.1	)		(0.2	)		—		(1.3	)
Bank finance fees paid			(2.9	)		—			—			—		(2.9	)
Dividends paid to minority shareholders			—			—			(1.0	)		—		(1.0	)

Cash used for financing activities			(2.9	)		(1.5	)		(1.4	)		—		(5.8	)

Increase (decrease) in parent loans and advances			9.4			3.8			(13.2	)		—		—
Effect of exchange rates on cash and cash equivalents			—			—			1.8			—		1.8

Increase in cash and cash equivalents			5.0			0.6			4.4			—		10.0
Cash and cash equivalents at beginning of period			(4.1	)		0.6			46.0					42.5

Cash and cash equivalents at end of period		$	0.9		$	1.2		$	50.4		$	—	$	52.5

						Guarantor			Nonguarantor
			Issuer			Subsidiaries			Subsidiaries			Eliminations		Total
			(Dollars in millions)
			(Unaudited)
Cash flows provided by (used for) operating activities			$	(57.3	)	$	7.5		$	12.3		$	—	$	(37.5	)
Cash flows from investing activities:
	Purchase of property, plant, equipment and tooling			(0.1	)		(20.4	)		(16.0	)		—		(36.5	)
	Proceeds from disposal of assets and businesses			—			0.1			(0.1	)		—		—
		Cash used for investing activities		(0.1	)		(20.3	)		(16.1	)		—		(36.5	)
Cash flows from financing activities:
	Changes in bank borrowings and credit facility			—			—			(0.2	)		—		(0.2	)
	Repayment of Term Loan B, net of related fees			(70.5	)		—			—			—		(70.5	)
	Borrowings from Term Loan C			150.0			—			—			—		150.0
	Repayment of long term debt			—			(0.2	)		—			—		(0.2	)
		Cash provided by (used for) financing activities		79.5			(0.2	)		(0.2	)		—		79.1
Increase (decrease) in parent loans and advances				(24.3	)		13.1			11.2			—		—
Effect of exchange rates of cash and cash equivalents				—			—			1.9			—		1.9
	Increase (decrease) in cash and cash Equivalents			(2.2	)		0.1			9.1			—		7.0
Cash and cash equivalents at beginning of period				(9.3	)		(0.2	)		44.7			—		35.2
Cash and cash equivalents at end of period			$	(11.5	)	$	(0.1	)	$	53.8		$	—	$	42.2

HLI OPERATING COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS For the Three Months Ended April 30, 2005

For the Three Months Ended April 30, 2004


					Guarantor			Nonguarantor
		Issuer			Subsidiaries			Subsidiaries			Eliminations		Total
	(Dollars in millions)
	(Unaudited)
Cash flows provided by (used for) operating activities		$	(57.3	)	$	10.9		$	15.1		$	—	$	(31.3	)

Cash flows from investing activities:
Purchase of property, plant, equipment and tooling			(0.1	)		(20.3	)		(16.0	)		—		(36.4	)
Proceeds from disposal of assets and businesses			—			0.1			(0.1	)		—		—

Cash used for investing activities			(0.1	)		(20.2	)		(16.1	)		—		(36.4	)

Cash flows from financing activities:
Changes in bank borrowings and credit facility			—			—			(0.2	)		—		(0.2	)
Repayment of Term Loan B, net of related fees			(70.5	)		—			—			—		(70.5	)
Borrowings from Term Loan C			150.0			—			—			—		150.0
Borrowings (repayment) of long term debt			—			(0.2	)		—			—		(0.2	)

Cash provided by (used for) financing activities			79.5			(0.2	)		(0.2	)		—		79.1

Increase (decrease) in parent loans and advances			(24.3	)		13.1			11.2			—		—
Net cash used for operating activities from discontinued operations			—			(3.4	)		(2.7	)		—		(6.1	)
Net cash used for investing activities from discontinued operations			—			(0.1	)		—			—		(0.1	)
Net cash provided by financing activities from discontinued operations			—			—			—			—		—
Effect of exchange rates on cash and cash equivalents			—			—			1.9			—		1.9

Increase (decrease) in cash and cash equivalents			(2.2	)		0.1			9.2			—		7.1
Cash and cash equivalents at beginning of period			(9.3	)		(0.2	)		44.4			—		34.9

Cash and cash equivalents at end of period		$	(11.5	)	$	(0.1	)	$	53.6		$	—	$	42.0

						Guarantor			Nonguarantor
			Issuer			Subsidiaries			Subsidiaries			Eliminations		Total
			(Dollars in millions)
			(Unaudited)
Cash provided by (used for) operating activities			$	(16.2	)	$	47.9		$	53.3		$	—	$	85.0
Cash flows from investing activities:
	Purchase of property, plant, equipment, and tooling			(1.0	)		(14.7	)		(17.7	)		—		(33.4	)
	Proceeds from sale of assets			—			(0.1	)		0.5			—		0.4
		Cash used for investing activities		(1.0	)		(14.8	)		(17.2	)		—		(33.0	)
Cash flows from financing activities:
Changes in bank borrowings and credit facilities				—			—			(0.1	)		—		(0.1	)
Capital contribution				117.0			—			—			—		117.0
Proceeds from (redemption of) Senior Notes, net of discount and related fees				(96.7	)		—			—			—		(96.7	)
Proceeds from (redemption of) Term Loan, net of related fees				(16.0	)		—			—			—		(16.0	)
Repayment of long-term debt				(1.1	)		—			(1.1	)		—		(2.2	)
Repayment of notes payable issued in connection with purchases of businesses				—			—			(7.1	)		—		(7.1	)
		Cash provided by (used for) financing activities		3.2			—			(8.3	)		—		(5.1	)
Increase (decrease) in parent loans and advances				33.5			(32.5	)		(1.0	)		—		—
Effect of exchange rates on cash and cash equivalents				—			—			(1.7	)		—		(1.7	)
		Increase in cash and cash equivalents		19.5			0.6			25.1			—		45.2
Adjustment for the elimination of the one month lag				—			—			1.4			—		1.4
Cash and cash equivalents at beginning of period				(3.2	)		(0.6	)		52.3			—		48.5
Cash and cash equivalents at end of period			$	16.3		$	—		$	78.8		$	—	$	95.1


Note 16.	Subsequent Events

On May 31, 2006, we established a new $65 million accounts receivable securitization facility in the U.S. that replaced the program established on December 9, 2004. The new program’s structure is similar to the program being replaced, but availability under the program is projected to be greater due to increased ability to finance Ford and GM receivables. The new facility has an expiration date of June 3, 2008 and funding under the facility bears interest based on LIBOR plus 2.5%.


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~~ our Annual Report on Form 10-K for the fiscal year ended January 31, ~~2005~~2006 as filed with the Securities and Exchange Commission on ~~April~~May 291, ~~2005~~2006, and the other information included herein.

Company Overview

Unless otherwise indicated, references to “~~Company~~we,” “us,” or “our” mean HLI Operating Company, Inc., ~~and~~a ~~its~~Delaware ~~subsidiaries~~corporation, and our ~~references~~ subsidiaries. References to a fiscal year means the ~~Company’s year~~ 12-month period commencing on February 1 of that year and ending on January 31 of the following year (i.e.g., “fiscal ~~2005~~2006” refers to the period beginning February 1, ~~2005~~2006 and ending January 31, ~~2006~~2007, “fiscal ~~2004~~2005” refers to the period beginning February 1, ~~2004~~2005 and ending January 31, ~~2005~~2006).

Originally founded in 1908, ~~the~~we ~~Company~~are is a leading worldwide ~~producer~~ producer of aluminum and steel wheels for ~~the~~passenger cars and light ~~vehicle~~trucks ~~market.~~ and ~~The Company is also a leading provider~~ of steel wheels for ~~the~~ commercial ~~highway~~trucks ~~market~~and trailers. ~~The~~We ~~Company~~are also is a leading supplier inof ~~the~~automotive ~~market for~~ suspension, brake, and ~~powertrain~~ powertrain components. ~~The~~We ~~Company~~have ~~has a~~ global ~~footprint~~operations with 4235 facilities, including business and ~~one~~sales ~~joint~~offices, ~~venture~~manufacturing facilities, and technical centers, located in 14 countries around the world. ~~The~~We ~~Company~~sell ~~sells~~our ~~its~~ products to every major ~~North~~ North American, Japanese, and European manufacturer of passenger ~~cars~~ cars and light trucks asand ~~well~~to as commercial highway vehicle ~~customers~~ customers throughout the world. ~~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.~~

In Sales ~~the first quarter~~ of ~~fiscal~~our ~~2005~~wheels, ~~the~~wheel-end ~~Company~~attachments, ~~had~~aluminum ~~net sales~~structural of components, ~~$618.0 million~~and ~~with~~brake ~~approximately~~components ~~53%~~produced ~~derived~~in ~~from~~North America are ~~international~~ directly ~~markets.~~affected ~~For~~by the ~~full~~overall ~~year~~level of ~~fiscal~~passenger ~~2004~~car, ~~the~~light ~~Company~~ truck, ~~had~~and ~~sales~~commercial ofhighway ~~$2.2 billion~~vehicle ~~with~~production ~~approximately~~of ~~51%~~North ~~derived~~ American ~~from~~OEMs, ~~international~~while ~~markets.~~sales ~~The~~of ~~Company~~our ~~had~~wheels ~~earnings from~~and ~~operations~~automotive castings in ~~the~~Europe ~~first~~are ~~quarter~~directly ofaffected ~~fiscal~~by ~~2005~~the ofoverall vehicle ~~$14~~ production in Europe.~~8 million~~ The North American and ~~$21.7 million~~European ~~for~~automotive industries are sensitive to the ~~full~~overall ~~year~~strength of their ~~fiscal~~ respective ~~2004~~economies.

~~Results~~ We are organized based primarily on markets served and products produced. Under this organizational structure, our operating segments have been aggregated into three reportable segments: Automotive Wheels, Components, and Other. The Automotive Wheels segment includes results from our operations that primarily design and manufacture fabricated steel and cast aluminum wheels for original equipment manufacturers in the global passenger car, light vehicle, and heavy duty truck markets. The Components segment includes results from our 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 financial results related to the corporate office and the elimination of ~~Operations~~certain intercompany activities.

~~Sales~~ The ofOther ~~the~~segment ~~Company’s~~previously ~~wheels,~~included ~~wheel-end~~our ~~attachments, aluminum~~hub ~~structural components~~ and brake ~~components~~drum facilities ~~produced~~ in ~~North~~ ~~America~~Berea, ~~are~~Kentucky; ~~directly~~Chattanooga, ~~affected~~Tennessee; ~~by the overall level of~~and ~~passenger~~ Mexico ~~car~~City, ~~light~~Mexico ~~truck~~(Hub and ~~commercial~~Drum ~~highway~~business). ~~vehicle~~In the third ~~production~~ quarter of ~~North~~fiscal ~~American~~2005 ~~OEMs,~~our ~~while~~Hub ~~sales~~and ofDrum ~~its~~business ~~wheels and~~was ~~automotive~~ reclassified ~~castings~~to indiscontinued ~~Europe~~operations ~~are~~and ~~directly~~was ~~affected~~recorded byas ~~the~~an ~~overall~~ asset ~~vehicle~~held ~~production~~for ~~in Europe~~sale. ~~The~~These ~~North~~facilities ~~American~~were ~~and~~sold in the fourth ~~European~~ quarter ~~automotive~~of ~~industries~~fiscal ~~are~~2005. ~~sensitive~~Prior toyear amounts for the ~~overall~~Other segment ~~strength~~ have ofbeen ~~their~~modified ~~respective~~to ~~economies~~reflect these reclassifications.

In the first three months of fiscal 2006, we had net sales of $572.8 million with approximately 56% derived from international markets. For the full year of fiscal 2005, we had sales of $2.3 billion with approximately 57% derived from international markets. We had earnings from operations in the first three months of fiscal 2006 of $7.4 million and a loss from operations of $395.4 million for the full year of fiscal 2005.

~~The following table presents selected information about the~~ ~~Company’s consolidated results~~ Results of ~~operations for the~~Operations ~~periods indicated (dollars in millions):~~

			Three Months Ended April 30,
			2005			2004			$ Change			% Change
Net sales
	Automotive Wheels		$	406.7		$	370.3		$	36.4			9.8	%
	Components			191.4			201.4			(10.0	)		(5.0	)
	Other			19.9			22.3			(2.4	)		(10.8	)
		Total	$	618.0		$	594.0		$	24.0			4.0	%
Gross profit			$	62.2		$	74.3		$	(12.1	)		(16.3	)%
Marketing, general, and administrative				43.8			43.1			0.7			1.6
Asset impairments and other restructuring charges				0.8			2.4			(1.6	)		(66.7	)
Other expense, net				2.8			0.6			2.2
	Earnings from operations		$	14.8		$	28.2		$	(13.4	)		(47.5	)%
Interest expense, net				15.1			13.4			1.7			12.7
Other non-operating expense				0.2			—			0.2
Loss on early extinguishment of debt				—			12.2			(12.2	)
Income tax expense				5.0			5.8			(0.8	)		(13.8	)
Minority interest				2.6			2.2			0.4			18.2
Cumulative effect of a change in accounting principle				—			(2.6	)		2.6
	Net loss		$	(8.1	)	$	(2.8	)	$	(5.3	)

Consolidated Results — Comparison of the Three Months Ended April 30, 2006 to the Three Months Ended April 30, 2005

~~Consolidated~~ The ~~Results~~following —table ~~Comparison~~presents ofselected ~~the~~information ~~Three~~about ~~Months~~our consolidated ~~Ended~~results ~~April~~of ~~30,~~operations ~~2005~~for to the ~~Three~~periods ~~Months~~indicated (dollars ~~Ended~~in ~~April 30, 2004~~millions):


	Three Months			Three Months
	Ended April 30,			Ended April 30,
	2006			2005			$ Change			% Change

Net sales:
Automotive Wheels	$	403.8		$	397.8		$	6.0			1.5	%
Components		169.0			191.4			(22.4	)		(11.7	)%

Total	$	572.8		$	589.2		$	(16.4	)		(2.8	)%

Gross profit	$	52.4		$	57.9		$	(5.5	)		(9.5	)%
Marketing, general, and administrative		39.9			41.1			(1.2	)		(2.9	)%
Asset impairments and other restructuring charges		3.7			0.8			2.9			362.5	%
Other expense, net		1.4			2.8			(1.4	)		(50.0	)%

Earnings from operations		7.4			13.2			(5.8	)		(43.9	)%
Interest expense, net		17.3			15.1			2.2			14.6	%
Other non-operating expense		0.2			0.2			—			0.0	%
Income tax expense		5.6			4.8			0.8			16.7	%
Minority interest		1.9			2.6			(0.7	)		(26.9	)%

Loss from continuing operations		(17.6	)		(9.5	)		(8.1	)		85.3	%
Income from discontinued operations, net of tax $1.5		—			1.4			(1.4	)		(100.0	)%

Net loss	$	(17.6	)	$	(8.1	)	$	(9.5	)		117.3	%

Sales

~~The~~ Our ~~Company’s~~ net sales ~~increased~~decreased 42.08%, or $2416.04 million, to $~~618~~572.08 million in the first quarter of fiscal ~~2005~~2006 from $~~594~~589.02 million in the first quarter of ~~2004~~ fiscal 2005. ~~Foreign~~The decline ~~exchange~~in ~~rate~~sales ~~fluctuations~~is ~~relative~~partially attributed to the sale of our ~~U.S.~~ Cadillac, Michigan iron foundry and our Equipment ~~dollar~~& Engineering ~~were~~business ~~favorable~~in ~~during~~Au ~~the~~Gres, ~~first~~Michigan ~~quarter~~during of fiscal 2005, which ~~increased~~caused sales to decline by approximately $2310 million. ~~Also~~ Fluctuations ~~favorably~~in ~~impacting~~foreign ~~sales~~exchange ~~was~~rates relative to the U.S. dollar ~~Company’s~~decreased ~~success~~sales inapproximately $11 million, ~~offsetting~~ but were partially offset by the ~~rising~~impact ~~steel~~of ~~costs~~higher ~~with~~metal pass-though ~~cost~~pricing, ~~recovery~~which ~~programs~~increased sales $9 million. Also contributing to the decline in sales were global pricing pressures and ~~pass~~an ~~through~~unfavorable ~~increases~~product tomix, ~~customers~~which ofcaused ~~approximately~~a $427 million ~~and~~decline anin ~~increase~~sales. inOur ~~international~~sales volumes ofoverall ~~approximately~~ increased $62 million. ~~These~~during ~~increases~~the tofirst ~~net~~quarter ~~sales~~of ~~were~~2006; stronger volumes internationally were partially offset by declines ~~decreased~~in ~~North~~the ~~American~~U.S. market ~~volumes~~resulting ~~due~~from tothe lower OEM ~~production~~ demand ~~requirements~~and the closure of ~~approximately~~several ~~$54 million~~of our aluminum wheel facilities.

Gross profit

~~The~~ Our ~~Company’s~~ gross profit decreased 169.35%, or $125.15 million, in the first quarter of fiscal ~~2005~~2006 to $6252.24 million from $7457.39 million in the first quarter of fiscal ~~2004~~2005. Fluctuations ~~This~~in ~~was~~foreign ~~primarily~~exchange rates relative to the U.S. dollar ~~result~~negatively impacted gross profit during the first quarter of ~~decreased~~fiscal 2006 by approximately $1.7 million. ~~volumes~~ The lag in ~~North~~timing ~~America~~of ~~due~~metal toprice ~~lower~~recovery ~~OEM~~from ~~production~~our customers ~~requirements~~ decreased gross profit by approximately $4 million. Lower depreciation, asprimarily ~~well~~resulting asfrom anthe ~~unfavorable~~impairment ~~product~~of ~~mix~~fixed assets in the ~~components~~ Components business ~~and~~during the fourth quarter of fiscal 2005, was offset by the impact of lower ~~unit~~volumes in North America, increased global pricing ~~globally~~pressures ofand an unfavorable ~~approximately~~ product ~~$19 million~~mix. ~~These~~While ~~decreases~~productivity ~~were~~was ~~partially~~stronger than the first ~~offset~~ quarter byof ~~improved~~2005, ~~productivity~~causing ~~and~~an ~~favorable~~increase ~~foreign~~in ~~currency~~profitability, this was ~~translation~~ partially ~~fluctuations~~offset ofby ~~approximately~~higher ~~$7 million~~utility costs and other economic factors.

Marketing, general, and administrative

The Company’s marketing, general, and administrative expense increased 1.6%, or $0.7 million in the first quarter of fiscal 2005 to $43.8 million from $43.1 million in the first quarter of fiscal 2004. This increase was the result of increased employee expenses, and foreign currency translation. These increases were partially offset by a reduction in property taxes and insurance costs.

~~Asset~~ Marketing, general, ~~Impairments~~ and ~~Other Restructuring Charges~~administrative

~~During~~ Our ~~the~~marketing, ~~first~~general, ~~quarter~~and ofadministrative ~~fiscal~~expense ~~2005,~~decreased $1.2 million in the ~~Company~~first ~~recorded additional~~quarter ~~facility~~of ~~closure~~fiscal ~~and~~2006 ~~severance~~to $39.9 million ~~costs~~from ~~of approximately~~ $041.61 million. The decline is primarily ~~associated~~attributed ~~with~~to ~~the~~lower ~~closure~~employee ofcosts and a reduction in ~~Company’s~~ outside ~~Bowling~~services. ~~Green~~Also, ~~Kentucky;~~contributing ~~LaMirada,~~to ~~California;~~the decline were ~~and~~ fluctuations ~~Howell,~~in ~~Michigan~~foreign ~~facilities.~~exchange ~~The~~rates, ~~Company~~which ~~also~~lowered ~~recorded~~expense by $0.25 million induring ~~severance related to~~ the ~~rationalization~~first quarter of ~~its~~ ~~Manresa,~~fiscal ~~Spain facility’s work force~~2006.

~~In the first quarter of fiscal 2004, the Company announced the~~ ~~closure of its Howell, Michigan manufacturing facility and~~ Asset ~~recorded~~ impairments ~~$2.6 million of severance~~ and other restructuring ~~costs.~~ ~~As part of management’s on-going rationalization~~Charges 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. 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.

We recorded total asset impairment losses and other restructuring charges of $3.7 million for the three months ended April 30, 2006. The expense for the Automotive Wheels segment was $2.0 million, which consisted primarily of costs related to severance for our international wheel locations in Spain, Italy, and South Africa in addition to the Huntington, Indiana facility. There were also continuing facility closure costs related to the Howell, Michigan; La Mirada, California; Somerset, Kentucky; and Bowling Green, Kentucky facilities. The expense for the Components segment was $1.1 million, which consisted of severance expense associated with the consolidation of our staff in the suspension, powertrain and brake businesses. The Other segment expense of $0.6 million is related to severance at the Corporate offices.

We recorded total asset impairment losses and other restructuring charges of $0.8 million for the three months ended April 30, 2005, which was all related to the Automotive Wheels segment. The expense consisted primarily of continuing facility closure costs related to the Howell, Michigan; La Mirada, California; and Bowling Green, Kentucky facilities. In addition, we recorded severance charges for our La Mirada, California and Manresa, Spain facilities.

Interest expense, net

Interest expense increased ~~12.7% or~~ $12.72 million to $1517.13 million for the first quarter of fiscal ~~2005~~2006 from $1315.41 million for the first quarter of fiscal ~~2004~~2005. The ~~increased~~ increase ~~interest expense in the first quarter of 2005~~ was primarily ~~due~~driven toby ~~increased~~higher ~~interest~~short-term ~~rates and, to a lesser~~interest ~~extent, an overall increase in debt levels~~ rates. ~~See Note 4,~~ ~~“Bank Borrowings, Other Notes, and Long Term Debt” to the consolidated financial statements included herein regarding the Company’s new debt structure.~~

Income taxes

Income tax expense was $5.06 million for the first quarter of fiscal ~~2005~~2006 compared to expense of $54.8 million for the ~~first~~ first quarter of fiscal ~~2004~~2005. The income tax rate varies from ~~the~~ the United States statutory income tax rate of 35% due primarily to to losses in the United States without recognition of a corresponding income tax benefit, as well as effective income tax rates in certain foreign jurisdictions that are lower than the United States statutory rates. Accordingly, ~~the Company’s~~our worldwide tax expense may not bear a normal relationship to earnings before taxes on income.

Discontinued operations

In the third quarter of fiscal 2005, we announced that we had signed an agreement to sell our Hub and Drum business and it was classified as discontinued operations and as an asset group held for sale as of October 31, 2005. The Hub and Drum business was subsequently sold in November of 2005. The Hub and Drum business was comprised of operations in Berea, Kentucky; Chattanooga, Tennessee; and Mexico City, Mexico and was included in our Other segment. The Hub and Drum business is accounted for as discontinued operations in accordance with SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Accordingly, the operating results of the business in the prior year were reclassified as discontinued operations.

Net loss

Due to factors mentioned above, net loss during the first quarter of fiscal ~~2005~~2006 was $817.16 million as compared to ~~net~~a ~~income~~ net loss of $2.8.1 million in ~~fiscal~~the ~~2004~~first quarter of fiscal 2005.

Segment Results — Comparison of the Three Months Ended April 30, 2005 to the Three Months Ended April 30, 2004

The Company is organized based primarily on markets served and products produced. Under this organizational 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, light vehicle, and heavy duty truck 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 brake products for commercial highway and aftermarket customers in North America. The Other segment also includes financial results related to the corporate office and the elimination of certain intercompany activities.

The Company’s Akron facility, which was previously reported in the Other segment, is now reported in the Company’s Automotive Wheels segment consistent with management’s change in segment review based on product classifications. Prior year amounts have been realigned due to this reclassification.

Segment Results — Comparison of the Three Months Ended April 30, 2006 to the Three Months Ended April 30, 2005

Automotive Wheels

The following table presents net sales, earnings from operations, and other information for the Automotive Wheels segment for the periods indicated (dollars in millions):

				Three Months Ended April 30,
		Three Months				Three Months
				2005				2004				$ Change
		Ended April 30,				Ended April 30,
Net sales				$	406.7			$	370.3			$	36.4
		2006				2005				$ Change
Asset impairments and other restructuring charges
Net sales		$	403.8			$	397.8			$	6.0
	Facility closure costs			$	0.3			$	—			$	0.3
Asset impairments and other restructuring charges:
	Impairment of machinery, equipment, and tooling				0.1				—				0.1
Facility closure costs		$	0.4			$	0.3			$	0.1
	Severance and other restructuring costs				0.4				2.6				(2.2	)
Impairment of machinery, equipment, and tooling			0.2				0.1				0.1
		Total asset impairments and other restructuring charges		$	0.8			$	2.6			$	(1.8	)
Severance and other restructuring costs			1.4				0.4				1.0
Earnings from operations				$	19.3			$	20.4			$	(1.1	)
Total asset impairments and other restructuring charges		$	2.0			$	0.8			$	1.2
Earnings from operations		$	13.5			$	19.2			$	(5.7	)

Net sales

Net sales from ~~the~~our ~~Company’s~~ Automotive Wheels segment ~~increased~~ 9rose 1.85% or $366.40 million to $~~406~~403.78 million in the first quarter of fiscal ~~2005~~2006 from $~~370~~397.38 million in the first quarter of fiscal ~~2004~~2005. ~~Foreign~~Fluctuations in foreign exchange ~~rate~~rates ~~fluctuations~~ relative to the U.S. dollar ~~were~~decreased ~~favorable~~sales ~~during the first~~approximately ~~quarter~~ $8 million. ofHigher ~~2005,~~wheel ~~which~~volumes increased sales by ~~approximately~~ $218 million.; ~~Sales~~higher ~~also~~volumes ~~increased~~on ~~due~~international tosteel ~~the~~and ~~Company’s~~truck ~~success~~ wheels, inas ~~offsetting~~well ~~rising~~as ~~steel~~increased ~~costs~~volume ~~with~~in ~~cost~~our ~~recovery~~Mexican aluminum ~~programs~~ wheel ~~and~~facility, ~~pass-through~~were ~~increases~~partially tooffset ~~customers~~by ~~along~~lower ~~with~~volumes ain the ~~favorable~~ U.S., ~~product~~primarily ~~mix~~due into ~~both~~ the ~~North~~closure ~~American~~of ~~and~~our La Mirada, ~~International~~ California ~~operations.~~facility ~~Partially~~in ~~offsetting~~fiscal ~~these~~2005 ~~increases was~~and the ~~combination~~impending closure of our ~~pricing~~Huntington, ~~pressures~~Indiana ~~and~~facility. ~~lower~~Recovery ~~production~~of higher metal ~~requirements~~ prices onand ~~existing~~a ~~OEM~~favorable ~~programs~~product inmix ~~North~~increased ~~America~~sales, but were partially offset by global pricing pressure.

Asset impairments and other restructuring charges

~~During~~ The asset impairments and other restructuring expense for the Automotive ~~first~~Wheels ~~quarter~~segment was $2.0 million, which consisted primarily of ~~fiscal~~costs ~~2005,~~related ~~the~~to ~~Company~~severance ~~recorded~~at our international ~~additional~~ wheel ~~facility~~locations ~~closure~~in Spain, Italy and ~~severance~~South ~~costs~~Africa ofin ~~approximately~~addition to $0 the Huntington, Indiana facility.~~6 million~~ ~~primarily~~There ~~associated~~were ~~with~~also ~~the~~continuing facility closure ~~of Company’s~~costs ~~Bowling~~related ~~Green~~to the Howell, ~~Kentucky~~Michigan; ~~LaMirada~~ La Mirada, California; Somerset, Kentucky; and ~~Howell~~Bowling Green, ~~Michigan~~Kentucky facilities. ~~The~~Asset ~~Company~~impairment ~~also~~and ~~recorded~~other restructuring expense for the first three months of fiscal 2005 was $0.28 million, inwhich ~~severance~~consisted primarily of continuing facility closure costs related to the ~~rationalization~~Howell, ofMichigan; ~~its~~ La Mirada, ~~Manresa~~California; and Bowling Green, ~~Spain~~Kentucky facilities. ~~facility’s~~In ~~work~~addition, ~~force~~we recorded severance charges for our La Mirada, California and Manresa, Spain facilities.

In the first quarter of fiscal 2004, the Company announced the closure of its Howell, Michigan manufacturing facility and recorded $2.6 million of severance and other restructuring costs. 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.

Earnings from operations

Earnings from operations at ~~the~~our ~~Company’s~~ Automotive Wheels operations declined ~~decreased~~ $15.17 million in the first quarter of fiscal ~~2005~~ 2006 to $1913.35 million compared to $2019.42 million in the first quarter of fiscal ~~2004~~2005. ~~Lower~~The ~~OEM~~impact ~~production~~of higher volume and ~~requirements~~ productivity inimprovements ~~North~~was ~~America~~more than offset by global pricing pressures, ~~increased~~an ~~steel~~unfavorable ~~costs~~product mix, and ~~lower~~the lag in timing of ~~unit~~ aluminum ~~pricing~~price ~~globally~~recovery ~~were~~from ~~some~~our ofcustomers. Depreciation was lower than in the ~~factors~~first ~~which~~quarter ~~negatively~~of fiscal 2005. However, this ~~impacted~~ increase in profitability was offset by higher utility costs globally. Also impacting earnings from operations was a $1.2 million ~~Partially~~increase ~~offsetting~~in ~~these~~facility closure, impairment, ~~decreases~~ severance ~~were~~and ~~favorable~~other ~~fluctuations~~restructuring incosts ~~foreign~~over ~~exchange~~the ~~rates~~first quarter ~~relative~~ of fiscal 2005. This increase is primarily related to the closures ~~U.S. dollar~~of ~~increased~~our ~~earnings~~Huntington, Indiana and aCampiglione, Italy ~~favorable~~ aluminum ~~product~~wheel ~~mix~~facilities, as well as the consolidation of North American and International wheel staffs into one group.

Components

The following table presents net sales, (loss) earnings from operations, and other information for the Components segment for periods indicated (dollars in millions):

				Three Months Ended April 30,
		Three Months				Three Months
				2005				2004				$ Change
		Ended April 30,				Ended April 30,
Net sales				$	191.4			$	201.4			$	(10.0	)
		2006				2005				$ Change
Asset impairments and other restructuring charges
Net sales		$	169.0			$	191.4			$	(22.4	)
	Facility closure costs			$	—			$	(0.2	)		$	0.2
Asset impairments and other restructuring charges:
	Impairment of machinery, equipment, and tooling				—				—				—
Facility closure costs		$	—			$	—			$	—
	Severance and other restructuring costs				—				—				—
Impairment of land, building, machinery, equipment, and tooling			—				—				—
		Total asset impairments and other restructuring charges		$	—			$	(0.2	)		$	0.2
Severance and other restructuring costs			1.1				—				1.1
Earnings from operations				$	0.9			$	9.5			$	(8.6	)
Total asset impairments and other restructuring charges		$	1.1			$	—			$	1.1
(Loss) earnings from operations		$	(1.2	)		$	0.9			$	(2.1	)

Net sales

Net sales from Components decreased 511.07% or $1022.4 million to to $~~191~~169.40 million in the first quarter ~~2005~~of fiscal 2006 from $~~201~~191.4 million in the first quarter ~~2004~~of fiscal 2005. Fluctuations ~~Components~~in ~~net~~foreign ~~sales~~exchange rates relative to the U.S. dollar decreased ~~due~~sales toby ~~lower~~approximately $3 million. ~~customer~~Stronger ~~production~~volumes ~~requirements~~in our powertrain and brake businesses were more than offset by lower volumes and an unfavorable product mix., ~~Partially~~particularly ~~offsetting~~in ~~these~~our ~~decreases~~suspension ~~were~~ business, ~~favorable~~and ~~foreign~~global ~~exchange~~pricing ~~rate~~pressures ~~fluctuations,~~which ~~good~~reduced ~~success~~sales by approximately $13 million. Also contributing to the decline in ~~steel~~sales ~~recovery~~was ~~programs~~the sale of our Cadillac, Michigan iron foundry and our Equipment & Engineering business in fiscal 2005, which caused a ~~slight~~$10 million ~~increase~~decline in ~~aluminum~~sales. These declines were partially offset by higher pass-through pricing on metal, which increased sales by approximately $4 million.

Asset impairments and other restructuring charges

In The ~~conjunction~~asset ~~with~~impairments ~~the~~and ~~sale~~other ofrestructuring ~~its~~expense ~~Petersburg,~~during ~~Michigan~~the ~~facility~~ first inquarter ~~February~~ of ~~2004,~~fiscal 2006 for the ~~Company~~Components ~~reversed~~segment was $01.21 million, inwhich ~~facility~~consisted ~~closure~~of ~~costs~~severance inexpense associated with the ~~first~~consolidation ~~quarter~~ of ~~fiscal~~our ~~2004~~staff ~~that~~in ~~had~~the suspension, ~~previously~~powertrain ~~been~~and ~~accrued~~brake businesses.

Earnings from operations

Components ~~earnings~~loss from operations ~~decreased~~was $81.62 million in ~~the~~during the first quarter of fiscal ~~2005~~2006 compared to earnings from operations of $0.9 million ~~compared~~ toin ~~earnings~~the first quarter of $9fiscal 2005.~~5 million~~ ~~during~~Lower ~~the~~depreciation ~~same~~and ~~period~~a lower allocation of corporate overhead costs increased earnings in ~~fiscal~~the ~~2004~~first quarter of fiscal 2006. ~~Lower~~However, ~~OEM~~these ~~production~~increases ~~requirements~~were ~~and~~offset anprimarily by lower ~~unfavorable~~ volumes, ~~product~~an unfavorable mix, ~~decreased~~global ~~earnings~~pricing ~~from~~pressures, ~~operations~~the lag in timing of metal price recovery from our customers and higher utility costs. Additionally, the Components segment recorded $1.1 million of employee restructuring costs during the first quarter of fiscal ~~2005.~~2006 ~~Partially~~associated ~~offsetting~~with ~~these~~the consolidation ~~decreases~~ of ~~were~~our ~~favorable~~staff ~~international~~in ~~volumes~~the powertrain, brake, and suspension businesses.

Other

The following table presents ~~net sales and~~ loss from operations for the Other segment for the periods indicated (dollars in millions):

	Three Months Ended April 30,
	Three Months		Three Months
	2005		2004		$ Change
	Ended April 30,		Ended April 30,
Net sales	$	19.9	$	22.3	$	(2.4	)
	2006		2005		$ Change
Loss from operations	$	5.4.9	$	16.79	$	3(2.70	)

Net sales

Net sales from the Company’s Other segment decreased 10.8% or $2.4 million to $19.9 million during first quarter 2005 from $22.3 million during first quarter 2004. This decrease was primarily due to lower production volumes which were partially offset by the Company’s success in offsetting rising steel costs with cost recovery programs and flow-through increases in unit prices.

Loss from operations

Loss from operations in the ~~Company’s~~ Other segment ~~increased~~ bywas $34.79 million in the first quarter of fiscal ~~2005~~ to2006 compared to $56.49 million ~~from~~in athe ~~loss~~first quarter of $1fiscal 2005.~~7 million~~ inThe ~~the~~ primary ~~first~~reasons ~~quarter~~for ofthe ~~2004.~~reduction ~~This~~in ~~increase~~loss ~~was~~from ~~primarily~~operations ~~the~~are ~~result~~ lower ofemployee ~~increased~~expenses ~~legal~~at ~~fees~~our ~~and~~corporate ~~increased~~headquarters ~~fees~~and ~~associated~~a ~~with~~ reduction ~~its~~in ~~external~~use ~~audit~~of outside consultants.

Liquidity and Capital Resources

Cash Flows

Operating Activities: Cash ~~used~~provided inby ~~the Company’s~~our operations was $3725.5 million in the first ~~quarter~~three ofmonths ~~fiscal~~of ~~2005~~ fiscal 2006 compared to cash ~~provided~~used of $8531.03 million in the first ~~quarter~~three months of fiscal ~~2004~~2005. ~~This~~The ~~increase in cash used~~$56.8 million improvement resulted primarily from ~~higher~~improved ~~steel~~working capital ~~prices, lower~~requirements. ~~securitization~~ The ~~utilization,~~first three months of fiscal 2005 were negatively impacted by the termination of early customer payment programs, ~~increased~~and ~~inventory~~lower utilization ~~balances,~~of ~~and~~the ~~plant closures~~account receivable securitization facility.

Investing Activities: Cash used for investing ~~activities~~ activities was $3611.5 million during the first ~~quarter~~three months of fiscal ~~2005~~ 2006 compared ~~with~~to $3336.04 million in the first ~~quarter~~three months of fiscal ~~2004~~ 2005. This ~~increase~~decrease iswas primarily due to ~~higher~~ lower capital expenditures as many of our expansion projects were completed during fiscal 2005. These expenditures were primarily for additional machinery and equipment to improve productivity, reduce costs, meet demand for new vehicle platforms, and meet expected requirements for ~~the Company’s~~our products. ~~The Company anticipates capital~~ ~~expenditures for fiscal 2005 will be approximately $145.0 million.~~

Financing Activities: Cash ~~provided~~used byfor financing activities was $795.18 million in the first ~~quarter~~three ofmonths ~~fiscal~~of ~~2005~~ fiscal 2006 compared to cash ~~used~~provided by financing activities of $579.1 million in the first ~~quarter~~three months of fiscal ~~2004~~2005. ~~This~~ ~~increase~~ This decrease in cash isflow ~~due~~from tofinancing ~~the~~activities ~~Company’s amended and~~is ~~restated~~ primarily ~~senior~~due ~~secured~~to ~~credit~~the ~~facility, which established a new second lien $150 million~~ Term Loan C. ~~The~~proceeds ~~Company~~received ~~used $70.5 million~~in of the previous ~~$150 million~~year innot ~~net proceeds~~ received ~~from~~in the ~~Term~~current ~~Loan C to repay a portion of the Company’s Term Loan B~~year.

On February 11, 2004, Hayes Lemmerz International, Inc. (HLI) 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, HLI used a portion of the net proceeds to redeem $87.5 million aggregate principal amount, plus accrued and unpaid interest thereon, of the Company’s outstanding 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 Senior Notes. HLI also used a portion of the primary stock offering proceeds to prepay $16.0 million, plus accrued and unpaid interest thereon, of the Company’s Term Loan B 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 Term Loan B.

Sources of Liquidity

The principal sources of liquidity for ~~the~~our ~~Company’s~~ future operating, capital expenditure, facility closure, restructuring ~~and~~, and reorganization requirements are expected to be (i) cash flows from continuing operations, (ii) proceeds from the sale of non-core assets and businesses, (iii) cash and cash equivalents on hand, ~~including proceeds from the Term Loan C,~~ (iv) proceeds related to ~~the~~our ~~Company’s $75.0 million~~ trade receivable securitization ~~program~~and financing programs, and (v) borrowings ~~under~~from the ~~$100.0 million~~Revolving ~~revolving credit facility under the~~ Credit Facility. While ~~the Company~~we ~~expects~~ expect that such sources will meet these requirements, there ~~can~~ can be no assurances that such sources will prove to be sufficient, in part, due to inherent uncertainties about applicable future business and capital market conditions.

~~The~~ We ~~Company~~also ~~continues~~continually toevaluate ~~implement~~our ~~operational~~product ~~improvements, which consist of a number of cost-cutting~~ and ~~profit-enhancing initiatives.~~business ~~If the implementation of the operational~~portfolio ~~improvements~~ for isopportunities ~~not successful, the Company may be unable~~ to ~~offer~~ ~~products~~optimize atshareholder ~~competitive prices to generate sufficient operating funds to pay the interest on the Senior Notes and make payments due under its Credit Facility~~value. ~~In such event, there can~~ ~~be no assurance that alternative sources of financing would be available to the Company or, if available, that such financing would be on commercially reasonable terms.~~

Other Liquidity Matters

During the third quarter of fiscal 2004, two of our OEM customers in the U.S. notified us of the discontinuance of accelerated payment programs in which we participated. The termination of these programs had no impact during the first three months of fiscal 2006 and negatively impacted cash flow during fiscal 2005 by $12 million. Our domestic accounts receivable securitization program was intended to offset the negative impact associated with the loss of these programs.

During fiscal 2005, the credit ratings of Ford and GM, two of our largest customers, were downgraded by S&P and Moody’s. The impact of the ratings downgrade reduced the amount of Ford and GM receivables that are eligible to be securitized under our domestic accounts receivable securitization agreement. On January 17, 2006 we reduced this accounts receivable securitization agreement from $75 million to $50 million to reflect the impact of the ratings downgrade of Ford and GM. On May 31, 2006, this facility was replaced by a new $65 million accounts receivable securitization facility that will allow us to finance additional Ford and GM receivables.

During fiscal 2005, we established an accounts receivable financing program in Germany with a local financial institution. Borrowings under this program of $25.3 million and $24.2 million at April 30, 2006 and January 31, 2006, respectively, are included in short term bank borrowings.

Other Liquidity Matters

During the third quarter of fiscal 2004, two of the Company’s OEM customers in the U.S. notified the Company of the discontinuance of accelerated payment programs in which the Company participated. The termination of these programs negatively impacted cash flow during fiscal 2004 by approximately $16 million and negatively impacted cash flow through April 2005 by an additional $12 million. The Company’s securitization program is intended to offset the negative impact associated with the loss of these programs.

Credit Ratings

	S&P		Moody’s
Corporate and Bank Debt rating		BB -		B1
Senior Note rating		B		B3

As of April 30, 2006 our credit ratings were as follows:

Significant Financial Covenants


	S&P		Moody’s

Corporate and Bank Debt rating		B−		B3
Senior Note rating		CCC		Caa3

The Indenture, Credit Facility, and other debt agreements contain a number of significant covenants that, among other things, restrict its ability, and the ability of its subsidiaries, to:

• declare dividends or redeem or repurchase capital stock • prepay, redeem or purchase debt, including the Senior Notes • incur liens and engage in sale-leaseback transactions • make loans and investments • incur additional debt, including borrowings under the Company’s revolving credit facility • amend or otherwise alter certain debt documents • make capital expenditures • engage in mergers, acquisitions and asset sales • enter into transactions with affiliates • alter the business the Company conducts

In addition, under the Credit Facility the Company is required to satisfy certain financial covenants, including covenants regarding a maximum total leverage ratio, a minimum interest coverage ratio, and a minimum fixed charge coverage ratio, and the Company may become subject to additional or more restrictive covenants in connection with any future borrowing. The Company’s ability to comply with these covenants may be affected by events beyond its control. If the Company is unable to comply with the covenants under the Indenture, the Credit Facility, or any of its other debt instruments, there would be a default which, if not waived, could result in acceleration of the Company’s debt and its bankruptcy if the Company were unable to repay the amounts owed. Additionally, a default resulting from the Company’s failure to comply with such covenants or the applicable borrowing conditions would preclude it from borrowing additional funds. Compliance with the covenants could cause the Company to conduct its business, or to forgo opportunities, in such a manner as to materially harm the business.

Although the Credit Facility and the Indenture impose limits on the Company’s ability to incur additional debt, the Company may incur significant additional debt in the future. The degree to which the Company will be leveraged could have important consequences, including:

• requiring a substantial portion of the Company’s cash flow from operations to be dedicated to debt service and therefore not available to the Company for operations, capital expenditures, and future business opportunities • increasing the Company’s vulnerability to a downturn in general economic conditions or in its business

• limiting the Company’s ability to adjust to changing market conditions, placing the Company at a competitive disadvantage compared to its competitors that have relatively less debt • limiting the Company’s ability to obtain additional financing or access its revolving credit facility in the future for capital expenditures, working capital or general corporate purposes

Off Balance Sheet Arrangements

On December 9, 2004 ~~the~~we ~~Company~~ established an accounts ~~receivable~~ receivable securitization facility in the U.S., which provides up to $~~75.0~~50 million in funding from commercial paper ~~conduits~~ conduits sponsored by commercial lenders. The actual amount of ~~funding~~ funding available at any given time is based on availability of ~~eligible~~ eligible receivables and other customary factors. Pursuant to ~~the~~ the securitization facility, certain of ~~the~~our ~~Company’s~~ subsidiaries ~~sell~~sold trade accounts receivable to a non-consolidated special purpose entity, which ~~resells~~resold the receivables to a qualifying special purpose entity, which then ~~pledges~~ pledged the receivables to secure borrowings from commercial paper conduits. The securitization transactions ~~are~~were accounted for as sales of the receivables under the provisions of ~~Statement~~ ~~of Financial Accounting Standards (~~SFAS~~) No.~~ 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” and were removed from the consolidated balance sheets. The proceeds received are included in cash flows from operating activities in the consolidated statements of cash flows. Costs associated with the receivables facility are recorded as other expense in the consolidated statements of operations. ~~The~~We ~~Company~~ began selling receivables pursuant to the securitization program during the fourth quarter of fiscal 2004.

At April 30, ~~2005~~2006 and January 31, ~~2005~~2006, the outstanding balance of receivables sold to special purpose entities was $~~147~~105 million and $~~134~~112 million, respectively. ~~The~~Our net retained interest ~~by the Company~~ at April 30, ~~2005~~ 2006 and January 31, ~~2005~~2006 was $~~127~~80 million and $77101 million, respectively, which is disclosed as other receivables on the condensed consolidated balance sheets and in cash flows from operating activities in the condensed consolidated statements of cash flows. Advances from conduits at April 30, ~~2005~~2006 and January 31, ~~2005 were~~2006 were $2025 million and $5711 million, respectively.

In On May 31, ~~2005~~2006, ~~the~~we ~~credit~~established ~~ratings~~a ofnew ~~Ford~~$65 million accounts ~~and~~receivable ~~GM,~~securitization ~~two~~facility ofin the ~~Company’s~~ U.S. that ~~largest~~replaced ~~customers,~~the ~~were~~program ~~downgraded~~established ~~by S&P and~~on ~~Moody’s~~ December 9, 2004. The ~~impact~~new ofprogram’s ~~the~~structure ~~ratings downgrade on the Company~~is ~~was~~ similar to ~~reduce~~ the ~~amount~~program ofbeing ~~Ford~~replaced, ~~and~~but GMavailability ~~receivables~~under the ~~that~~program ~~are eligible~~is projected to be ~~securitized~~greater ~~under~~due ~~the~~to ~~Company’s~~increased ability ~~$75 million~~ to ~~accounts~~finance ~~receivable~~Ford ~~securitization~~and ~~agreement~~GM receivables. On ~~May 27,~~The ~~2005,~~new ~~the~~facility ~~Company~~has ~~amended the securitization~~an ~~agreement~~ expiration todate ~~mitigate the impact~~ of ~~the ratings downgrade. After the amendment~~June 3, ~~the~~2008 ~~Company~~and ~~estimates~~funding ~~that~~under the ~~average loss of~~ ~~liquidity~~ facility ~~associated~~bears ~~with~~interest ~~the~~based ~~downgrade~~on toLIBOR beplus ~~approximately $15 million~~2.5%.

Contractual Obligations

The following table identifies ~~the~~our ~~Company’s~~ significant ~~contractual~~ contractual obligations as of April 30, ~~2005~~2006 (dollars in millions):

		Payment Due by Period	~~Payment Due by Period~~
		Less than	~~Less than~~		1-3	~~1-3~~		4-5	~~4-5~~		After 5	~~After 5~~
		1 Year	~~1 Year~~		Years	~~Years~~		Years	~~Years~~		Years	~~Years~~		Total	~~Total~~
Short-term borrowings		$	$26.0	~~0.4~~	$	$—	—	$	$—	—	$	$—	—	$	$26.0	~~0.4~~
Long-term debt			16.7	~~6.2~~		14.4	~~25.8~~		632.3	~~342.6~~		—	~~312.5~~		663.4	~~687.1~~
Mortgage note payable			0.2	~~0.2~~		21.8	—		—	~~22.0~~		—	—		22.0	~~22.2~~
Capital lease obligations			3.9	~~3.1~~		7.6	~~2.6~~		6.1	~~4.6~~		—	—		17.6	~~10.3~~
Operating leases			14.3	~~20.1~~		15.9	~~23.9~~		5.8	~~4.7~~		1.1	~~0.9~~		37.1	~~49.6~~
Redeemable preferred stock			—	—		—	—		—	—		12.3	~~11.5~~		12.3	~~11.5~~
Capital expenditures			11.4	~~48.0~~		—	—		—	—		—	—		11.4	~~48.0~~
	Total obligations		$	78.0		$	52.3		$	373.9		$	324.9		$	829.1
United States pension contributions			16.8			15.0			0.7			—			32.5
Total obligations		$	89.3		$	74.7		$	644.9		$	13.4		$	822.3

27 26

Other Cash Requirements

~~The~~ We ~~Company~~anticipate ~~anticipates~~ the following approximate significant ~~cash~~ cash requirements to be paid during the remainder of fiscal ~~2005~~2006 (dollars in millions):

Interest	$	5059.2
Taxes		3014.23
Pension and other post-retirement benefits funding		29.1
United States pension and other post-retirement benefits funding		11.6
Restructuring costs(1)		7.6
Restructuring costs		5.5
Various Automotive Wheels and Components customer satisfaction issues		4.9

(1) See Note 6, Asset Impairments and Other Restructuring Charges, included herein for a discussion of restructuring and other closure costs.

Market Risks

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

Foreign Exchange

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

The value of the Company’s consolidated assets and liabilities located outside the United States (translated at period end exchange rates) and income and expenses (translated using average rates prevailing during the period), generally denominated in the Euro, Czech Crown, and the Brazilian Real, are affected by the translation into the Company’s reporting currency (the U.S. Dollar). Such translation adjustments are reported as a separate component of stockholders’ equity. In future periods, foreign exchange rate fluctuations could have an increased impact on the Company’s reported results of operations. However, due to the self-sustaining nature of the Company’s foreign operations (which maintain their own credit facilities, enter into borrowings, and incur costs in their respective local currencies), the Company believes it can effectively manage the effect of these currency fluctuations. In addition, in order to further hedge against such currency rate fluctuations, the Company has, from time to time, entered into certain foreign currency swap arrangements. Additionally, foreign exchange rate fluctuations affect the comparability of year over year operating results.

Interest Rates

The Company generally manages its risk associated with interest rate movements through the use of a combination of variable and fixed rate debt. At April 30, 2005, approximately $537 million of the Company’s debt was variable rate debt.

Commodities

The Company relies upon the supply of certain raw materials and other inputs in its production process and has entered into firm purchase commitments for substantially all of its aluminum and steel requirements

for fiscal 2005. The Company manages the exposure associated with these commitments primarily through the terms of its supply and procurement contracts. Additionally, the Company occasionally uses forward-fixed contracts to protect against changes in certain specific commodity prices of the purchase commitments outstanding. The Company had no significant forward contracts during the three months ended April 30, 2005 or for fiscal 2004.

Outlook

Customers

The Company derived approximately 44% of fiscal 2004 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 from low-cost foreign markets such as China. These factors led to selective resourcing of business to foreign competitors in fiscal 2004 and could continue to do so in fiscal 2005. Additionally, these customers have been experiencing decreasing market share in North America, which could result in lower sales volumes.

The Company’s net sales are continually affected by pressure from its major customers to reduce prices. The Company’s emphasis on reduction of production costs, increased productivity, and improvement of production facilities has enabled the Company to respond to this pressure. However, there is no guarantee that the Company will be as successful at this in the future.

Steel Supply

In recent periods there have been significant increases in the global prices of steel and iron, which have had and may continue to have an impact on the Company’s business. 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, some metal 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. Although the Company has been able to 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 Company cannot guarantee that it will be able to continue to do so in the future. The full impact of steel prices is uncertain given the volatility in the global steel market.

Critical Accounting Policies

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting ~~principles~~ principles requires ~~management~~us 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~~We ~~believes~~believe ~~its~~ our assumptions and estimates are reasonable and appropriate; however, actual results could differ from those estimates.

Asset impairment losses and other restructuring charges

~~The~~ Our ~~Company’s~~ consolidated statements of operations included herein reflect an element of operating expenses described as asset impairments and other restructuring charges. ~~The~~ ~~Company~~We periodically evaluate ~~evaluates~~ whether events and circumstances have occurred that indicate that the remaining useful life of any of ~~its~~our 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~~we ~~Company~~use ~~uses~~ an estimate of the future undiscounted cash flows generated by the ~~underlying~~ underlying assets to determine if a write-down is required. If the future undiscounted cash flows generated by the underlying assets is are less than the book value of the assets, a write-down is required and we adjust the book value of the impaired long-lived assets to their estimated fair values. Fair value is determined through third party appraisals or discounted cash flow calculations. The related charges are recorded as asset impairment or, in the case of certain exit costs in connection with a plant closure or restructuring, a restructuring or other charge in the consolidated statements of operations.

29 As discussed above and in the notes to our 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. We cannot assure that there will not be additional charges based on future events and that the additional charges would not have a materially adverse impact on our financial position and results of operations.

of the assets, a write-down is required and the Company adjusts the book value of the impaired long-lived assets to their estimated fair values. Fair value is determined through third party appraisals or discounted cash flow calculations. The related charges are recorded as asset impairment or, in the case of certain exit costs in connection with a plant closure or restructuring, a restructuring or other charge in the consolidated statements of operations.

As discussed above and in the notes to the Company’s consolidated financial statements included herein, a number of decisions have occurred or other factors have indicated that these types of charges are required to be currently recognized. There can be no assurance that there will not be additional charges based on future events and that the additional charges would not have a materially adverse impact on the Company’s financial position and results of operations.

Pension and postretirement benefits other than pensions

Annual net periodic expense and benefit liabilities under ~~the~~our ~~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~~we ~~Company~~review ~~reviews~~ the actual experience compared to the more significant assumptions used and ~~makes~~make adjustments to ~~the~~ 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~~our policy is to ~~pay~~ 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~~our ~~Company’s~~ financial statements. ~~In accordance with the fresh start~~ accounting provisions of Statement of Position 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code,” all previously unrecognized gains or losses were immediately recognized on June 3, 2003, the date on which the Company emerged from bankruptcy.

Goodwill impairment testing

~~On February 1, 2002, the Company adopted Financial Accounting Standards Board (FASB) SFAS No. 142, “~~ Goodwill and ~~Other Intangible Assets,” (SFAS 142). Under SFAS 142, goodwill and~~ other indefinite-lived intangible assets are no longer amortized; rather those assets must be tested for impairment annually. ~~The Company~~We ~~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 142, “Goodwill and Other Intangible Assets.” Other definite-lived intangible assets continue to be amortized over their estimated lives.

Allowance for uncollectible accounts

The allowance for uncollectible accounts provides for losses believed to be inherent within ~~the~~our ~~Company’s~~ receivables (primarily trade receivables). ~~Management~~We ~~evaluates~~evaluate 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~~We ~~believes,~~believe ~~based on its review,~~ that the allowance for ~~uncollectibles~~uncollectible accounts is adequate to cover potential losses. Actual results may vary as a result of unforeseen economic events and the impact those events could have on ~~the~~our ~~Company’s~~ customers.

Income Taxes

In accordance with the provisions of SFAS ~~No.~~ 109, “Accounting for Income Taxes,” ~~the~~we ~~Company~~account ~~accounts~~ for income taxes using the asset and liability method. The asset ~~and~~ and liability method requires the recognition of deferred tax ~~assets~~ assets and liabilities for expected future tax consequences of temporary differences that currently exist between the tax bases and financial reporting bases of ~~the~~our ~~Company’s~~ assets and liabilities. In assessing the realizability of deferred tax assets, ~~the~~we ~~Company considers~~ consider whether it is more likely than not that some or a portion of the deferred tax assets will not be realized. A valuation allowance is provided for deferred income tax assets when, in ~~the Company’s~~ our judgment, based upon currently available information and other factors, it is more likely than not that a portion of such deferred income tax assets will not be realized. The determination of the need for a valuation allowance is based on an on-going evaluation of current information including, among other things, estimates of future earnings in different tax jurisdictions and the expected timing of deferred income tax asset reversals. ~~The~~We ~~Company believes~~believe that the determination to record a valuation allowance to reduce deferred income tax assets is a critical accounting estimate because it is based on an estimate of future taxable income in the United States and certain other jurisdictions, which is susceptible to change and may or may not occur, and because the impact of adjusting a valuation allowance may be material.

~~The~~ We ~~Company~~have ~~has~~ not recorded a deferred tax liability for ~~temporary~~ temporary differences related to investments in foreign subsidiaries that ~~management has determined~~ 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.

~~The~~ We ~~Company~~have ~~has~~ a liability for taxes that may become payable as a a result of future audits of past years by tax authorities. The tax amounts are analyzed periodically, and adjustments are made as events occur to warrant adjustment.

New Accounting Pronouncements

In March ~~2005~~2006, the FASB issued ~~interpretation No.~~SFAS 47156, “Accounting for ~~Conditional~~Servicing ~~Asset~~of ~~Retirement Obligations~~Financial Assets — an Anamendment to ~~Interpretation of~~ FASB Statement No. ~~143~~140,” ~~(FIN~~which: 1) 47provides revised guidance on when a servicing asset and servicing liability should be recognized; 2). requires ~~This~~all ~~interpretation~~separately recognized ~~provides~~servicing assets and servicing liabilities to be ~~additional~~ initially ~~guidance~~measured asat fair value, if practicable; 3) permits an entity to ~~when~~elect ~~companies~~to ~~should~~measure ~~record~~servicing ~~the~~assets and servicing liabilities at fair value each reporting date and report changes in fair value ofin earnings in the period in which the changes occur; 4) upon initial adoption, permits a one-time ~~liability~~reclassification of available-for-sale securities ato ~~conditional~~trading ~~asset~~securities ~~retirement~~for securities that are ~~obligation~~ identified ~~when~~as ~~there~~offsetting isthe ~~uncertainty~~entity’s ~~about~~exposure to changes in the ~~timing~~fair ~~and/~~value of servicing assets or liabilities that a ~~method~~ servicer ofelects ~~settlement~~to subsequently measure at fair value; and 5) requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement ~~obligation~~of financial position and additional footnote disclosures. ~~FIN~~SFAS 47156 is effective as of the beginning of ~~for~~ an entity’s first fiscal ~~years~~year ~~ending~~that ~~after~~begins ~~December~~after September 15, ~~2005.~~2006 ~~The Company~~with isthe ~~currently~~effects ~~evaluating~~of ~~the~~initial ~~potential~~adoption being ~~impact~~reported ofas ~~this issue~~a oncumulative-effect ~~its~~adjustment ~~financial~~to ~~position~~beginning retained ~~and~~earnings. ~~results~~Adoption of ~~operations,~~SFAS 156 ~~but does~~is not ~~believe~~expected ~~the~~to have an impact ofon ~~any~~our ~~change,~~financial ifcondition ~~necessary,~~or ~~will~~results beof ~~material~~ operations.

~~In December 2004, the FASB issued SFAS No. 123~~ ~~(revised 2004), “Share-Based Payment,”~~ 28 (SFAS 123-R). SFAS 123-R establishes standards of accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those securities. SFAS 123-R also requires an entity to recognize the cost of employee services received in share-based payment transactions, thereby reflecting the economic consequences of those transactions in the financial statements. SFAS 123-R applies to all awards granted on or after July 1, 2005, and to awards modified, vested, repurchased, or canceled after that date. On April 14, 2005, the SEC issued a rule delaying the effective date of SFAS 123-R to annual periods beginning after June 15, 2005. As a result of implementation, the Company currently expects to record approximately $1.5 million and $0.5 million of compensation expense in fiscal 2006 and 2007, respectively, related to stock options granted prior to July 1, 2005.

In December 2004, the FASB issued Staff Position (FSP) FAS 109-1, “Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004,” (FSP FAS 109-1). The American Jobs Creation Act of 2004 (the Act) provides tax relief to U.S. domestic manufacturers under certain circumstances. The FSP states that the manufacturers’ deduction under the Act should be accounted for as a special deduction in accordance with

In February 2006, the FASB issued SFAS ~~No. 109~~155, “Accounting for ~~Income~~Certain ~~Taxes~~Hybrid Financial Instruments — an amendment of FASB Statements No. 133 and 140.” This standard permits fair value ( remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. SFAS ~~109),~~155 allows an entity to make an irrevocable election to measure such a hybrid financial instrument at fair value on an instrument-by-instrument basis. SFAS 155 also defines which interest-only and principal-only strips are not assubject ato ~~tax~~the ~~rate~~requirements ~~deduction~~of SFAS 133 and clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives. The standard ~~adoption~~requires that interests in securitized financial assets be evaluated to identify whether they are freestanding derivatives or hybrid financial instruments containing an embedded derivative that requires bifurcation. SFAS 155 also eliminates the prohibition on a qualifying special purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS 155 is effective for all financial instruments acquired or issued after the beginning of the ~~FSP~~fiscal ~~FAS~~year that begins after September ~~109~~15, 2006. Upon adoption, an entity may elect fair value measurement for existing financial instruments with embedded derivatives that had previously been bifurcated pursuant to SFAS 133, with any difference between the total carrying amount of the individual components of the existing bifurcated hybrid financial instrument and the fair value of the combined hybrid financial instrument recognized as a cumulative-1effect adjustment ~~did~~to beginning retained earnings. Adoption of SFAS 155 is not expected to have an impact on ~~the~~our financial ~~Company’s~~ condition or results of operations ~~or financial position~~.

In December 2004, the FASB issued FSP FAS 109-2, “Accounting and Disclosure Guidance for the Foreign Repatriation Provision within the American Jobs Creation Act of 2004,” (FSP FAS 109-2). The Act introduced a special limited-time dividends received deduction on the repatriation of certain foreign earnings to a U.S. taxpayer. FSP FAS 109-2 addresses whether a company should be allowed additional time beyond the financial reporting period in which the Act was enacted to evaluate the effects of the Act on the company’s plan for reinvestment or repatriation of foreign earnings for purposes of applying SFAS 109. The adoption of FSP FAS 109-2 did not have an impact on the Company’s results of operations or financial position.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs — an amendment of ARB No. 43, Chapter 4” (SFAS 151), which clarifies that abnormal amounts of idle facility expenses, freight, handling costs and wasted materials (spoilage) should be recognized as current period charges. In addition, SFAS 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of SFAS 151 are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of SFAS 151 is not expected to have a material impact on the financial statements of the Company.


Item 3.	*Quantitative and Qualitative Disclosures About Market Risk*

~~The~~ In ~~response~~the tonormal ~~this~~course ~~Item~~of isbusiness ~~set~~we ~~forth~~are ~~above~~exposed to market risks arising from changes in ~~Item 2~~foreign exchange rates, interest rates, ~~Management’s~~ raw ~~Discussion~~material, and ~~Analysis~~utility ofprices. ~~Financial~~We ~~Condition~~selectively use derivative ~~and~~ financial ~~Results~~instruments ofto ~~Operations~~manage these risks, ~~under~~but ~~the~~do ~~heading~~not ~~“Market~~enter ~~Risks~~ into any derivative financial instruments for trading purposes.”

Foreign Exchange

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

The value of our consolidated assets and liabilities located outside the United States (translated at period end exchange rates) and income and expenses (translated using average rates prevailing during the period), generally denominated in the Euro, Czech Crown, and the Brazilian Real, are affected by the translation into our reporting currency (the U.S. Dollar). Such translation adjustments are reported as a separate component of stockholders’ equity. In future periods, foreign exchange rate fluctuations could have an increased impact on our reported results of operations. However, due to the self-sustaining nature of our foreign operations (which maintain their own credit facilities, enter into borrowings, and incur costs in their respective local currencies), we believe we can effectively manage the effect of these currency fluctuations. In addition, in order to further hedge against such currency rate fluctuations, we have, from time to time, entered into certain foreign currency swap arrangements. In January 2006, we entered into a foreign currency swap agreement in Euros with a total notional value of $50 million to hedge our net investment in certain of our foreign subsidiaries. The swap agreement is expected to settle in January 2009.

Interest Rates

We generally manage our risk associated with interest rate movements through the use of a combination of variable and fixed rate debt. We have from time to time entered into interest rate swap arrangements to further hedge against interest rate fluctuations. In January 2006, we entered into an interest rate swap agreement with a total notional value of $50 million to hedge the variability of interest payments associated with our variable-rate term debt. The swap agreement is expected to settle in January 2009. Since the interest rate swap hedges the variability of

interest payments on variable rate debt with the same terms, it qualifies for cash flow hedge accounting treatment. At April 30, 2006 and January 31, 2006, approximately $454 million of our debt was variable rate debt after considering the impact of the swap.

Commodities

We rely on the supply of certain raw materials and other inputs in our production process, including aluminum, steel, and natural gas. We have entered into firm purchase commitments or other arrangements for substantially all of our aluminum and steel requirements for fiscal 2006. We manage the exposure associated with these commitments primarily through the terms of our supply and procurement contracts. Additionally, in accordance with industry practice, we generally pass through fluctuations in the price of aluminum to our customers. We have also been successful in negotiating with some of our customers to pass through a portion of fluctuations in the price of steel. We typically use forward-fixed contracts to hedge against changes in commodity prices for a majority of our outstanding purchase commitments. We also enter into forward purchase commitments for natural gas to mitigate market fluctuations in natural gas prices.


Item 4.	*Controls and Procedures*

Evaluation of Disclosure Controls and Procedures

~~The~~ We ~~Company~~maintain ~~maintains~~ disclosure controls and procedures designed to ensure that the information ~~the~~we ~~Company~~ must disclose in ~~its~~our filings with the Securities and Exchange Commission (SEC) is recorded, processed, summarized, and reported on a timely basis. ~~The~~We maintain ~~Company maintains~~ a disclosure committee (Disclosure Committee) reporting to ~~the~~our 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~~our ~~Company’s~~ disclosure controls and procedures. The Disclosure Committee is currently chaired by ~~the Company’s~~our Chief Financial Officer and includes ~~the Company’s~~our General Counsel, Vice President of ~~Human~~Global ~~Resources~~ Materials and ~~Administration~~Logistics, Corporate Controller ~~— Operations~~, Treasurer, Assistant General Counsel, ~~Manager~~Director of ~~Financial~~ ~~Reporting~~Internal ~~and~~Audit, ~~Governance~~Director of Tax, Director of ~~Internal~~Compensation ~~Audit~~and Benefits, and Director of Financial ~~Tax~~Reporting and Governance as its other members.

As of the end of the period covered by this report, ~~the Company’s~~our Chief Executive Officer and Chief Financial Officer, along with the Disclosure Committee, evaluated the effectiveness of the design and operation of ~~the~~our ~~Company’s~~ disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. Based upon that evaluation, ~~the Company’s~~ our Chief Executive Officer and Chief Financial Officer ~~concluded~~ concluded that ~~the~~our ~~Company’s~~ disclosure controls and procedures were ~~not~~ not effective as of April 30, ~~2005,~~2006 due to a continuing material weakness in ~~the~~our ~~Company’s~~ internal controls over accounting for income taxes previously reported in our Annual Report on Form 10-K for the year ended January 31, ~~2005~~2006.

Changes in Internal Control over Financial Reporting

In ~~the~~our ~~Company’s~~ Annual Report on Form 10-K for the year ended January 31, ~~2005~~2006, ~~the~~our ~~Company’s~~ internal ~~control~~ control over financial reporting was not effective based on the ~~criteria~~ criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework. ~~The Company’s management~~Our management identified a material weakness in ~~its~~our internal control over financial reporting related to ~~the lack of adequate expertise, a lack of documentation, and~~ ineffective reconciliation procedures associated with income tax accounting matters. A material weakness is defined as a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

32 During fiscal 2006, with respect to the material weakness in our internal control over accounting for income taxes, we will:


	•	increase formality and rigor of controls and procedures over accounting for income taxes

	•	develop a plan and implement additional actions to fully remediate the material weakness, including increasing the use of third party tax service providers for the more complex areas of our income tax accounting

As a consequence of ~~significant~~the ~~deficiencies~~income tax weakness noted above, ~~that~~we ~~results~~are applying inother ~~more~~procedures ~~than~~designed ato ~~remote~~improve the reliability of ~~likelihood~~ our ~~that~~accounting afor income taxes. While our efforts to remediate this material ~~misstatement~~weakness ofare ~~the~~ongoing, ~~annual~~management orbelieves ~~interim~~that the consolidated financial statements ~~will~~included ~~not~~in bethis ~~prevented~~report orare fairly ~~detected~~stated in all material respects.

~~During~~ We ~~the~~will ~~first~~continue ~~quarter~~to ~~ended~~monitor ~~April 30,~~the ~~2005,~~effectiveness ~~with~~of ~~respect~~our internal to control ~~the~~over ~~material~~financial ~~weakness~~reporting, inparticularly ~~its~~as ~~internal~~it ~~control~~relates ~~over accounting~~to accounting for income taxes, ~~the~~and ~~Company~~will ~~has:~~take further actions as deemed appropriate.

• Except ~~hired~~as aset ~~Director~~forth ofabove, ~~Tax~~there inhave ~~April~~been ~~2005~~no •changes ~~increased~~in ~~formality~~our internal ~~and~~control ~~rigor~~over offinancial ~~controls~~reporting ~~and~~that ~~procedures~~occurred ~~over~~during the ~~accounting~~first ~~for~~three ~~income~~months ~~taxes~~of •fiscal ~~developed~~2006 athat ~~plan~~have ~~and~~materially affected ~~began~~or toare ~~implement~~reasonably ~~additional~~likely ~~actions~~ to ~~fully~~materially ~~remediate~~affect ~~the~~our internal ~~material~~control ~~weakness,~~over ~~including:~~financial reporting.

	•	hiring a Manager of International Tax in the second quarter of 2005
	•	increasing the use of third party tax service providers for the more complex areas of the Company’s income tax accounting

As a consequence of the income tax weakness noted above, the Company applied other procedures designed to improve the reliability of its accounting for income taxes. Based on these other procedures, management believes that the consolidated financial statements included in this report are fairly stated in all material respects.

The Company will continue to monitor the effectiveness of its internal control over financial reporting, particularly as it relates to accounting for income taxes, and will take further actions as deemed appropriate.

Except as set forth above, there have been no changes in the Company’s internal control over financial reporting that occurred during the first quarter of fiscal 2005 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION


Item 1.	*Legal Proceedings*

On February 19, 2002, ~~the~~we ~~Company~~ issued restated ~~consolidated~~ consolidated financial statements as of and for the fiscal years ~~ended~~ ended January 31, 2001 and 2000, and related quarterly periods, and for the fiscal quarter ended April 30, 2001. ~~The~~ The restatement was the result of ~~the~~our ~~Company’s~~ failure to properly apply certain accounting standards generally accepted in the United States, and because certain accounting errors and ~~irregularities~~ irregularities in ~~the~~our ~~Company’s~~ financial statements were identified. As previously disclosed, the SEC has been conducting an investigation into the facts and circumstances giving rise to the restatements. ~~The~~We ~~Company has~~ have been cooperating with the SEC in connection with such investigation. On ~~June~~April 825, ~~2005~~2006, the ~~Company~~ ~~received~~SEC brought a ~~“Wells~~civil enforcement ~~Notice”~~action ~~from~~against ~~the~~us ~~staff~~and certain of our former ~~the~~ executives ~~Securities~~alleging ~~and~~violations ~~Exchange~~of ~~Commission~~the ~~(“SEC”)~~securities inlaws and regulations in connection with these accounting errors and irregularities. We have consented to the entry of a judgment to resolve these allegations. Pursuant to the judgment, we will be enjoined from violating certain provisions of the securities laws and regulations but will not be subject to any monetary penalties or fines. We neither admitted nor denied the SEC’s ~~investigation~~allegations.

~~Under~~ In ~~the~~October ~~SEC’s procedures~~2003, aGeneral ~~Wells~~Electric ~~Notice~~Credit ~~indicates~~Corporation ~~that~~(GECC) ~~the~~ filed ~~SEC~~an ~~staff~~amended ~~has~~administrative ~~made~~claim ain ~~preliminary~~the ~~decision~~Bankruptcy ~~to recommend that~~Court ~~the~~ for ~~SEC~~$7.5 million ~~bring~~relating ato ~~civil~~certain ~~enforcement~~leased ~~action against the recipient of the notice~~equipment. The leases ~~Wells~~were ~~Notice~~rejected ~~received~~during byour ~~the~~Chapter 11 ~~Company~~cases. GECC ~~indicates~~alleged that ~~the~~its ~~staff~~damages ~~intends~~were toincurred ~~recommend~~post-petition ~~that the~~because ~~Commission bring an enforcement action against~~ the ~~Company alleging~~equipment ~~certain~~was ~~violations,~~returned ~~including~~post-petition. ~~violations~~We ofdisputed ~~Section 17(a) of~~ the ~~Securities~~amount ~~Act of 1933~~ and ~~Sections 10(b), 13(a) and 13(b)(2)(A) and (B) of~~ the ~~Securities Exchange~~ ~~Act~~ merits of ~~1934~~GECC’s ~~and related rules thereunder~~claim. ~~Section 10(b)~~On ~~and Rule~~February ~~10b-5~~1, ~~contain~~2005, the ~~basic antifraud provisions of the~~ ~~federal~~ parties ~~securities~~concluded ~~laws. Sections 13(~~a) ~~and~~bench ~~13(b)(2)(A)~~trial ~~and (B) and~~on ~~Rules 12b-20 contain certain of~~ the ~~obligations~~ ofmatter. ~~public~~In ~~companies~~March to2006 ~~file periodic and other~~the ~~reports~~ court ~~with~~entered ~~the~~a ~~SEC~~judgment ~~and,~~ in ~~connection~~favor ~~therewith,~~of toGECC ~~maintain accurate~~of ~~financial books and records and appropriate internal~~approximately ~~accounting controls~~ $1.2 million, ~~The~~plus ~~staff~~interest. ofNeither ~~the~~we ~~SEC~~nor ~~advised~~GECC appealed the ~~Company that~~judgment, itand ~~currently~~on ~~does~~March 31, ~~not~~2006, ~~intend~~we topaid ~~recommend that~~ the ~~SEC seek~~judgment to ~~impose~~resolve ~~any monetary penalties or fines in connection with any civil enforcement action related to~~ the ~~restatements~~case.

33 Item 1A. Risk Factors

~~Table~~ There ofhave ~~Contents~~been no material changes from the risk factors as previously disclosed in our most recent Annual Report on Form 10-K.

The Company has the opportunity to respond to the SEC staff before the staff makes its formal recommendation on whether any action should be brought by the SEC. The Company has held discussions with the SEC staff regarding the Wells Notice and is continuing to cooperate fully with the staff in an effort to bring the matter to an appropriate and timely resolution. Notwithstanding that the staff of the SEC has advised the Company that it currently does not intend to recommend that the SEC seek to impose any monetary penalties or fines, there can be no assurance that the Commission will not ultimately seek to impose monetary penalties or fines or take other corrective actions against the Company that could have a significant negative impact on the Company’s financial condition.

On May 3, 2002, a group of purported purchasers of certain Senior Notes and Senior Subordinated Notes issued by the Company commenced a putative class action lawsuit against thirteen of the Company’s former directors and officers (but not the Company) and KPMG LLP, the Company’s independent registered public accounting firm, in the U.S. District Court for the Eastern District of Michigan. The complaint seeks damages for an alleged class of persons who purchased the Company’s bonds between June 3, 1999 and September 5, 2001 and claim to have been injured because they relied on its allegedly materially false and misleading financial statements. On June 27, 2002, the plaintiffs filed an amended class action complaint adding CIBC World Markets Corp. and Credit Suisse First Boston Corporation, underwriters for certain bonds issued by the Company, as defendants, but these parties were subsequently dismissed from the action. The claims in this action were not discharged upon the effectiveness of the Plan of Reorganization because they were not against the Company.

Additionally, before the date the Company commenced its Chapter 11 Bankruptcy case, four other putative class actions were filed in the U.S. District Court for the Eastern District of Michigan against the Company and certain of its directors and officers, on behalf of an alleged class of purchasers of the Company’s common stock from June 3, 1999 to December 13, 2001, based on similar allegations of securities fraud. On May 10, 2002, the plaintiffs filed a consolidated and amended class action complaint seeking damages against the officers and directors (but not the Company) and KPMG.

Pursuant to its Plan of Reorganization, the Company purchased directors’ and officers’ liability insurance to cover then-current and former directors and officers and agreed to indemnify certain of its former directors against certain liabilities, including those matters described above, up to an aggregate of $10 million in excess of the directors’ and officers’ liability insurance coverage to or for the benefit of these indemnitees. The Company has been informed that the parties to these actions have agreed to a settlement which includes payment by certain defendants, including the former directors, of $7.2 million and that on May 10, 2005, the court issued an order preliminarily approving this settlement. The court has scheduled a fairness hearing on the proposed settlement for July 20, 2005. On June 3, 2005, the former directors filed a lawsuit against the Company in the Delaware Court of Chancery seeking to recover from the Company the full $7.2 million settlement amount and reasonable costs and attorney fees.

In October 2003, Nissan North America filed suit against the Company in Tennessee state court asserting breach of contract and breach of warranty claims that the Company believes arose prior to the confirmation date and was discharged by the Plan of Reorganization. In May 2005, the Company reached a settlement with Nissan resolving all of the issues in this lawsuit. The Company has established a reserve with respect to this settlement and it will not have a material impact on the Company’s financial position or results of operations.

Except as set forth above, 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, 2005.


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*

10	.1021	Amendment No. 2 to Amended and Restated Credit Agreement dated as of ~~April~~March 1131, ~~2005,~~2006 among HLI Operating Company, Inc., Hayes Lemmerz International, Inc., ~~the lenders~~ and ~~issuers from time to time party thereto,~~ Citicorp North America, Inc., as Administrative Agent ~~and~~on ~~Collateral~~behalf ~~Agent,~~of ~~Lehman~~each ~~Commercial~~lender ~~Paper~~executing ~~Inc.,~~a asLender ~~Syndication~~Consent ~~Agent and General Electric Capital Corporation, as Documentation Agent~~ (incorporated by reference to Exhibit 10.1 to ~~the~~our ~~Company’s~~Current ~~current~~ Report on Form 8-K filed on April 143, ~~2005~~2006).
10	.11	Amended and Restated Guaranty dated as of April 11, 2005, by and among Hayes Lemmerz International, Inc., HLI Parent Company, Inc., the other Guarantors party thereto, and Citicorp North America, Inc., as Collateral Agent (incorporated by reference to Exhibit 10.2 to the Company’s current Report on Form 8-K filed April 14, 2005).
10	.12	Amended and Restated Pledge and Security Agreement dated as of April 11, 2005, among the Hayes Lemmerz International, Inc., HLI Operating Company, Inc., each other grantor from time to time party thereto, and Citicorp North America, Inc., as Collateral Agent (incorporated by reference to Exhibit 10.3 to the Company’s current Report on Form 8-K filed April 14, 2005).
10	.13	Intercreditor and Collateral Agency Agreement dated as of April 11, 2005, among Citicorp North America, Inc., as Administrative Agent for the first lien lenders, as Administrative Agent for the Term C lenders and as Collateral Agent, HLI Operating Company, Inc., Hayes Lemmerz International, Inc., and each other grantor party thereto (incorporated by reference to Exhibit 10.4 to the Company’s current Report on Form 8-K filed April 14, 2005).
31	.1	Certification of Curtis J. Clawson, Chairman of the Board, President, and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31	.2	Certification of James A. Yost, Vice President, Finance, and Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32	.1	Certification of Curtis J. Clawson, Chairman of the Board, President, and Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32	.2	Certification of James A. Yost, Vice President, Finance, and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*


*		Filed electronically herewith.

35 32

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~~OPERATING ~~Company~~COMPANY, ~~Inc~~INC. ~~/s/ James A. Yost James A. Yost Vice President, Finance, and Chief Financial Officer~~

/s/ James ~~June 9,~~ A. ~~2005~~ Yost

36 James A. Yost

Vice President, Finance, and Chief Financial Officer

June 13, 2006

~~HLI~~ HAYES LEMMERZ ~~Operating Company~~INTERNATIONAL, ~~Inc~~INC.

10-Q EXHIBIT INDEX

10	.1021	Amendment No. 2 to Amended and Restated Credit Agreement dated as of ~~April~~March 1131, ~~2005,~~2006 among HLI Operating Company, Inc., Hayes Lemmerz International, Inc., ~~the lenders~~ and ~~issuers from time to time party thereto,~~ Citicorp North America, Inc., as Administrative Agent ~~and~~on ~~Collateral~~behalf ~~Agent,~~of ~~Lehman~~each ~~Commercial~~lender ~~Paper~~executing ~~Inc.,~~a asLender ~~Syndication~~Consent ~~Agent and General Electric Capital Corporation, as Documentation Agent~~ (incorporated by reference to Exhibit 10.1 to ~~the~~our ~~Company’s~~Current ~~current~~ Report on Form 8-K filed on April 143, ~~2005~~2006).
10	.11	Amended and Restated Guaranty dated as of April 11, 2005, by and among Hayes Lemmerz International, Inc., HLI Parent Company, Inc., the other Guarantors party thereto, and Citicorp North America, Inc., as Collateral Agent (incorporated by reference to Exhibit 10.2 to the Company’s current Report on Form 8-K filed April 14, 2005).
31	.1	Certification of Curtis J. Clawson, Chairman of the Board, President, and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
10	.12	Amended and Restated Pledge and Security Agreement dated as of April 11, 2005, among the Hayes Lemmerz International, Inc., HLI Operating Company, Inc., each other grantor from time to time party thereto, and Citicorp North America, Inc., as Collateral Agent (incorporated by reference to Exhibit 10.3 to the Company’s current Report on Form 8-K filed April 14, 2005).
10	.13	Intercreditor and Collateral Agency Agreement dated as of April 11, 2005, among Citicorp North America, Inc., as Administrative Agent for the first lien lenders, as Administrative Agent for the Term C lenders and as Collateral Agent, HLI Operating Company, Inc., Hayes Lemmerz International, Inc., and each other grantor party thereto (incorporated by reference to Exhibit 10.4 to the Company’s current Report on Form 8-K filed April 14, 2005).
31	.2	Certification of James A. Yost, Vice President, Finance, and Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32	.1	Certification of Curtis J. Clawson, Chairman of the Board, President, and Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32	.2	Certification of James A. Yost, Vice President, Finance, and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*


*		Filed electronically herewith.

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