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, 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

(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, 2007


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 333-107539

HLI Operating Company, Inc.

(Exact name of registrant as specified in its charter)

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

Registrant’s telephone number, including area code: (734) 737-5000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(~~734~~d) of the Securities Exchange Act of 1934 during the preceding 12 ~~737-5000~~months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant (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 o No þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

AsAPPLICABLE ofONLY ~~June 8,~~TO ~~2006,~~REGISTRANTS ~~the~~INVOLVED ~~number~~IN ~~of shares of common stock~~BANKRUPTCY ~~outstanding~~PROCEEDINGS ofDURING ~~HLI~~THE ~~Operating~~PRECEDING ~~Company,~~FIVE ~~Inc. was~~YEARS: ~~590,000 shares.~~

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes þ No o

As of June 11, 2007, 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

TABLE OF CONTENTS


		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations
Condensed Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Stockholders’ Equity
Notes to Consolidated Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits
Signature
Section 302 Certification of Curtis J. Clawson
Section 302 Certification of James A. Yost
Section 906 Certification of Curtis J. Clawson
Section 906 Certification of James A. Yost

		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		29
Item 4.	Controls and Procedures		30
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		31
Item 1A.	Risk Factors		31
Item 2.	Changes in Securities and Use of Proceeds		31
Item 3.	Defaults upon Senior Securities		31
Item 4.	Submission of Matters to a Vote of Security Holders		31
Item 5.	Other Information		31
Item 6.	Exhibits		32
Signatures			33
Certification of Curtis J. Clawson, Chairman of the Board, President, and Chief Executive Officer, pursuant to Section 302
Certification of James A. Yost, Vice President, Finance, and Chief Financial Officer, pursuant to Section 302
Certification of Curtis J. Clawson, Chairman of the Board, President, and Chief Executive Officer, pursuant to Section 906
Certification of James A. Yost, Vice President, Finance, and Chief Financial Officer, pursuant to Section 906

Unless otherwise indicated, references to “we,” “us,” or “our” mean HLI Operating Company, Inc., a Delaware corporation, and our subsidiaries. References to fiscal year means the 12-month period commencing on February 1^st of that year and ending January 31^st of the following year (e.g., fiscal 2007 means the period beginning February 1, 2007, and ending January 31, 2008). This report contains forward looking statements with respect to our financial condition, results of operations, and business. All statements other than statements of historical fact made in this Quarterly Report on Form 10-Q 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 our industry; (2) fluctuations in the price of steel, aluminum, and other raw materials; (3) changes in general economic conditions; (4) our dependence on the automotive industry (which has historically been cyclical) and on a small number of major customers for the majority of our sales; (5) pricing pressure from automotive industry customers and the potential for re-sourcing of business to lower-cost providers; (6) changes in the financial markets or our debt ratings affecting our financial structure and our cost of capital and borrowed money; (7) the uncertainties inherent in international operations and foreign currency fluctuations; and (8) our ability to divest non-core assets and businesses. 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 have no duty to update the forward looking statements in this Quarterly Report on Form 10-Q and we do not intend to provide such updates.

Unless otherwise indicated, references to “we,” “us,” or “our” mean HLI Operating Company, Inc., a Delaware corporation, and our subsidiaries. References to fiscal year means the 12-month period commencing on February 1 of that year and ending January 31 of the following year (e.g., fiscal 2006 means the period beginning February 1, 2006, and ending January 31, 2007). This report contains forward looking statements with respect to our financial condition, results of operations, and business. 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 our industry; (2~~) fluctuations in the price of steel,~~ aluminum and other raw materials; (3) changes in general economic conditions; (4) our dependence on the automotive industry (which has historically been cyclical) and on a small number of major customers for the majority of 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 or our debt ratings affecting our financial structure and our cost of capital and borrowed money; (7) the uncertainties inherent in international operations and foreign currency fluctuations; (8) our ability to divest non-core assets and businesses; and (9) the risks described in our most recent Annual Report on Form 10-K. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. We have no duty to update the forward looking statements in this Quarterly Report on Form 10-Q and we do not intend to provide such updates.

Item 1. Financial Statements

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

	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	)

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)


	Three Months			Three Months
	Ended April 30,			Ended April 30,
	2007			2006
	(Dollars in millions, except per share
	amounts)
Net sales	$	561.0		$	503.5
Cost of goods sold		499.5			456.6

Gross profit		61.5			46.9
Marketing, general, and administrative		38.6			34.6
Asset impairments and other restructuring charges		2.4			3.5
Other expense, net		0.4			1.4

Earnings from operations		20.1			7.4
Interest expense, net		18.3			16.9
Other non-operating expense		0.3			0.2

Income (loss) from continuing operations before taxes and minority interest		1.5			(9.7	)
Income tax expense		8.6			5.5

Loss from continuing operations before minority interest		(7.1	)		(15.2	)
Minority interest		3.7			1.9

Loss from continuing operations		(10.8	)		(17.1	)

Discontinued operations:
Loss from operations, net of tax of $0.0 for both April 30, 2007 and 2006		(0.9	)		(0.5	)
Loss on sale of business, net of tax of $0.0		(3.6	)		—

Loss from discontinued operations		(4.5	)		(0.5	)


Net loss	$	(15.3	)	$	(17.6	)

See accompanying notes to consolidated financial statements.

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

	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

See accompanying notes to consolidated financial statements.

HLI OPERATING COMPANY, INC. AND SUBSIDIARIES ~~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

CONDENSED CONSOLIDATED BALANCE SHEETS


	April 30,			January 31,
	2007			2007
	(Dollars in millions)
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	64.7		$	38.4
Receivables		321.1			258.5
Other receivables		34.3			43.2
Inventories		197.3			172.8
Assets held for sale		4.4			51.8
Prepaid expenses and other current assets		15.9			15.9

Total current assets		637.7			580.6
Property, plant, and equipment, net		695.4			680.7
Goodwill		221.3			210.0
Intangible assets, net		178.9			173.8
Other assets		35.3			46.1

Total assets	$	1,768.6		$	1,691.2


LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Bank borrowings and other notes	$	28.8		$	27.9
Current portion of long-term debt		6.4			6.7
Accounts payable and accrued liabilities		447.9			384.4
Liabilities held for sale		0.6			19.9

Total current liabilities		483.7			438.9
Long-term debt, net of current portion		663.3			659.4
Deferred tax liabilities		61.2			67.3
Pension and other long-term liabilities		374.7			366.5
Minority interest		44.7			44.8
Stockholders’ equity:
Preferred stock, par value $1.00 per share:
100,000 shares authorized; 81,118 and 97,034 issued and outstanding at April 30, 2007 and January 31, 2007, respectively		10.6			12.5
Common stock, par value $0.01 per share:
600,000 shares authorized; 590,000 issued and outstanding at both April 30, 2007 and January 31, 2007		—			—
Additional paid in capital		696.3			688.3
Accumulated deficit		(758.4	)		(742.9	)
Accumulated other comprehensive income		192.5			156.4

Total stockholders’ equity		141.0			114.3

Total liabilities and stockholders’ equity	$	1,768.6		$	1,691.2

See accompanying notes to consolidated financial statements.

HLI OPERATING COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ~~STOCKHOLDERS’~~CASH ~~EQUITY (DEFICIT)~~ FLOWS

(Unaudited)

									Retained			Accumulated
	Three Months Ended			Three Months Ended
									Earnings			Other
	April 30, 2007			April 30, 2006
				Par			Paid in		(Accumulated			Comprehensive
	(Dollars in millions)
	Shares			Value			Capital		Deficit)			Income			Total
Cash flows from operating activities:
	(Dollars in millions, except share amounts)
Net loss	$	(15.3	)	$	(17.6	)
Balance at January 31, 2006		590,000			—		$	685.6	$	(575.6	)	$	73.3		$	183.3
Adjustments to reconcile net loss from operations to net cash provided by (used for) operating activities:
Comprehensive income:
Net loss from discontinued operations		4.5			0.5
Net loss		—			—			—		(17.6	)		—			(17.6	)
Depreciation and amortization		30.0			31.2
Currency translation adjustment													30.7			30.7
Asset impairments		0.2			0.2
Unrealized loss on derivatives		—			—			—		—			(3.4	)		(3.4	)
Minority interest		3.7			2.1
Total comprehensive income		—			—			—		—			—			9.7
Equity compensation expense		0.6			(0.2	)
Balance at April 30, 2006		590,000			—		$	685.6	$	(593.2	)	$	100.6		$	193.0
Loss on sale of assets and businesses		0.2			1.2
Amortization of deferred financing fees		1.4			1.1
Changes in operating assets and liabilities that increase (decrease) cash flows:
Receivables		(47.7	)		(15.6	)
Other receivables		8.9			21.0
Inventories		(18.0	)		(13.8	)
Prepaid expenses and other		0.5			4.0
Accounts payable and accrued liabilities		45.9			22.7
Cash provided by operating activities		14.9			36.8
Cash flows from investing activities:
Purchase of property, plant, equipment, and tooling		(16.6	)		(10.9	)
Proceeds from sale of assets		—			0.2
Capital contributed by minority shareholders		—			0.4
Cash used for investing activities		(16.6	)		(10.3	)
Cash flows from financing activities:
Changes in bank borrowings and credit facilities		(0.6	)		(0.6	)
Bank finance fees paid		—			(2.9	)
Borrowing (repayment) of long-term debt		8.4			(0.2	)
Dividends paid to minority shareholders		(5.5	)		(1.0	)
Cash provided by (used for) financing activities		2.3			(4.7	)
Cash flows of discontinued operations:
Net cash provided by operating activities		2.9			(11.3	)
Net cash provided by (used for) investing activities		26.0			(1.2	)
Net cash used for financing activities		(5.2	)		(1.1	)
Net cash provided by (used for) discontinued operations		23.7			(13.6	)
Effect of exchange rate changes on cash and cash equivalents		2.0			1.9
Increase in cash and cash equivalents		26.3			10.1
Cash and cash equivalents at beginning of period		38.4			42.3
Cash and cash equivalents at end of period	$	64.7		$	52.4
Supplemental data:
Cash paid for interest	$	15.1		$	12.1
Cash paid for income taxes	$	3.3		$	3.4

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)~~

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)


													Accumulated
								Additional					Other
					Preferred			Paid in		Accumulated			Comprehensive
	Shares		Par Value		Stock			Capital		Deficit			Income			Total
	(Dollars in millions, except share amounts)
Balance at January 31, 2007		590,000	$	—	$	12.5		$	688.3	$	(742.9	)	$	156.4		$	114.3
Preferred stock dividends accrued		—		—		0.2			—		(0.2	)		—			—
Comprehensive income:
Net loss		—		—		—			—		(15.3	)		—			(15.3	)
Currency translation adjustment		—		—					—		—			38.9			38.9
Unrealized loss on derivatives		—		—					—		—			(2.8	)		(2.8	)

Total comprehensive income		—		—		—			—		—			—			20.8
HLI common stock issued to note holders		—		—		—			5.3		—			—			5.3
Shares of redeemable preferred stock converted into HLI common stock		—		—		(2.1	)		2.1		—			—			—
Equity compensation expense		—		—		—			0.6		—			—			0.6

Balance at April 30, 2007		590,000	$	—	$	10.6		$	696.3	$	(758.4	)	$	192.5		$	141.0


Balance at January 31, 2006		590,000	$	—	$	12.1		$	685.6	$	(575.6	)	$	73.3		$	195.4
Comprehensive income:						0.2
Net loss		—		—		—			—		(17.6	)		—			(17.6	)
Currency translation adjustment		—		—		—			—		—			30.7			30.7
Unrealized loss on derivatives		—		—		—			—		—			(3.4	)		(3.4	)

Total comprehensive income		—		—		—			—		—			—			9.7

Balance at April 30, 2006		590,000	$	—	$	12.3		$	685.6	$	(593.2	)	$	100.6		$	205.1

See accompanying notes to consolidated financial statements.

HLI OPERATING COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended April 30, 2007 and 2006

(Unaudited)

(Dollars in millions, unless otherwise stated)

Note 1. Description of Business

These financial statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended January 31, ~~2006~~2007 as filed with the Securities and Exchange Commission on ~~May~~ April 112, ~~2006~~2007.

Description of Business

Unless otherwise indicated, references to “us,” “we,” or “our” mean HLI Operating Company, Inc., a Delaware corporation, and its subsidiaries, and references to “fiscal year” mean our ~~fiscal~~ fiscal year commencing on February 1 of that year and ending on ~~January~~ January 31 of the following year (e.g., “fiscal ~~2006~~2007” refers to the period beginning February 1, ~~2006~~2007 and ending January 31, ~~2007~~2008, “fiscal ~~2005~~ 2006” refers to the period beginning February 1, ~~2005~~2006 and ending January 31, ~~2006~~2007).

Originally founded in 1908, HLI Operating Company, Inc. is a leading worldwide producer of aluminum and steel wheels for passenger cars and light trucks and of steel wheels for ~~commercial~~ commercial trucks and trailers. We are also a leading supplier of automotive ~~suspension,~~ brake, and powertrain components. We We have global operations with 3530 facilities, including business and sales offices, and manufacturing facilities, ~~and technical centers,~~ located in 14 countries around the world. We sell our products to every major North American, Japanese, and European manufacturer of passenger cars and light trucks and to commercial highway vehicle customers throughout the world.

Note 2. Basis of Presentation

Our unaudited interim consolidated financial statements do not include all of 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~~2007 interim period presented are not necessarily indicative of the results that may be expected for the full fiscal year ending January 31, ~~2007~~ 2008.

The preparation of consolidated financial statements in conformity with GAAP requires 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. We believe our assumptions and estimates are reasonable and appropriate; however, actual results could differ from those estimates.

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

Note 3. Stock-Based Compensation 6

The Hayes Lemmerz International, Inc. (HLI) Long-Term Incentive Plan provides for the grant of incentive stock options (ISOs), stock options that do not qualify as ISOs, restricted shares of common stock, and restricted stock units (collectively, the awards). Any officer, director, or key employee of HLI or any of its subsidiaries is eligible to be designated a participant in the Long-Term Incentive Plan.

On July 28, 2003 HLI granted 1,887,162 stock options and 1,258,107 restricted stock units to certain employees and officers, and 65,455 options and 43,637 restricted stock units to non-employee members of HLI’s Board of Directors. The weighted average exercise price of the stock options was $13.93 per share, which was equal to the fair value on the date of grant. One third of the restricted stock units granted to certain of HLI’s employees and officers vested on July 28, 2006 and the remaining two thirds are scheduled to vest on July 28, 2007. HLI also granted options and restricted stock units with similar vesting terms to certain new employees at the time of hire. The stock options and restricted stock units granted to the non-employee directors vested one-third on the date of the grant and one-third on each of the first and second anniversaries of the grant.

On March 14, 2005 HLI ~~OPERATING~~granted ~~COMPANY~~additional restricted stock units to certain employees, ~~INC.~~349,500 of ~~AND~~which ~~SUBSIDIARIES~~vested 50% in January 2006 and will vest with respect to the remaining 50% in January 2008, and 105,350 of which vested 100% in July 2006.

~~NOTES~~ On September TO17, ~~CONSOLIDATED~~2006 ~~FINANCIAL~~HLI issued 611,000 restricted shares to their Board of Directors ~~STATEMENTS~~and Executive Leadership Team. The shares vest 50% on September —17, 2007 and 50% on September ~~(Continued)~~17, 2008.

~~Note~~ Prior 3to February 1, 2006 HLI accounted for stock-based compensation in accordance with the provisions of Accounting Principles Board (APB) Opinion 25, “Accounting for Stock Issued to Employees,” and related interpretations. ~~Inventories~~As such, compensation expense was recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. HLI followed the provisions of the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) 123, “Accounting for Stock-Based Compensation,” (SFAS 123) and disclosed pro forma net income (loss) and pro forma earnings (loss) per share as if employee stock option grants were treated as compensation expense using the fair-value-based method defined in SFAS 123.

In January 2006 HLI accelerated the vesting of all unvested stock options granted to their executive officers, directors, and other employees under our Long Term Incentive Plan, primarily to avoid recognizing compensation expense associated with these options in future financial statements upon their adoption of SFAS 123R, “Share-Based Payment.” Virtually all of the accelerated options had strike prices that were significantly above the current trading price for HLI’s common stock and may not have offered the affected employees sufficient potential value when compared to the potential future compensation expense that would have been attributable to these options. HLI no longer has any outstanding unvested stock options under the Long-Term Incentive Plan. Therefore the adoption of SFAS 123R, as it relates to accounting for stock options, did not have an impact on HLI’s results of operations or financial position. The aggregate pre-tax compensation expense that was avoided by the accelerated vesting was approximately $1.8 million, of which approximately $1.3 million would have been recognized in fiscal 2006.

Stock option activity for the three months ended April 30, 2007 under the Long-Term Incentive Plan is as follows:


				Weighted
	Number of			Average Exercise
	Shares			Price
Outstanding at January 31, 2006		1,722,235		$	13.54
Granted		—			—
Exercised		—			—
Canceled		(32,888	)		13.87

Outstanding and exercisable at April 30, 2006		1,689,347		$	13.53

Outstanding at January 31, 2007		1,334,639		$	13.47
Granted		—			—
Exercised		(7,790	)		4.52
Canceled		(6,710	)		16.07

Outstanding and exercisable at April 30, 2007		1,320,139		$	13.51

A summary of our restricted stock activity for the three months ended April 30, 2007 and April 30, 2006 is as follows:


				Weighted
				Average Grant
	Number of Shares			Date Fair Value
Nonvested at January 31, 2006		1,357,705		$	12.14
Granted		—			—
Exercised		(1,782	)		14.90
Forfeited		(130,919	)		11.86

Outstanding at April 30, 2006		1,225,004		$	12.16


Nonvested at January 31, 2007		1,676,999		$	7.03
Granted		—			—
Exercised		(28,506	)		14.09
Forfeited		(26,521	)		8.92

Outstanding at April 30, 2007		1,621,972		$	6.88

As of April 30, 2007 there was $2.8 million of total unrecognized compensation cost related to restricted nonvested shares. That cost is expected to be recognized over a weighted-average period of 1.0 years.

We follow the provisions of the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) 123R, which we adopted on February 1, 2006. There was no material adjustment to our Consolidated Statements of Operations upon adoption.

Note 4. Inventories

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

	April 30,		January 31,
	2006		2006
	2007		2007
Raw materials	$	47.06	$	4139.59
Work-in-process		4452.78		38.85
Finished goods		6963.23		6164.50
Spare parts and supplies		3833.86		3830.14
Total	$	~~199~~197.73	$	~~179~~172.98

Note 45. Assets Held for Sale

As of April 30 and January 31, 2006, we were actively marketing for sale our idle building in Howell, Michigan. Also included in assets held for sale were nine lathes from our Homer, Michigan facility. Assets held for sale consist of ~~$4.4 million~~the ~~are~~following ~~included~~(dollars in ~~prepaid expenses and~~millions): ~~other current assets at the end of first quarter 2006, as well as at the prior year end.~~

Note 5. Discontinued Operations


	April 30,		January 31,
	2007		2007
Suspension business	$	1.6	$	49.0
Howell, Michigan building		2.8		2.8

Total	$	4.4	$	51.8

The Inbalance ~~the~~as ~~third quarter~~ of ~~fiscal~~April ~~2005~~30, we2007 ~~announced~~includes ~~that~~the weremaining ~~had signed~~balance anof ~~agreement to sell~~ our ~~Commercial Highway Hub and Drum~~Suspension business. ~~The~~(see ~~business~~Note ~~was~~6, ~~sold~~Discontinued inOperations ~~November of 2005~~ for ~~cash proceeds~~additional ofdetail) ~~$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~~Howell, ~~Kentucky; Chattanooga,~~Michigan ~~Tennessee; and Mexico City~~building, ~~Mexico~~which ~~and~~ was ~~included~~written indown ~~our~~to ~~Other segment.~~fair ~~Net~~value ~~proceeds~~during ~~from~~fiscal ~~the~~2006 ~~sale~~due ~~were used~~ to ~~reduce~~declining ~~the principal~~real ~~amount of our Term Loan B and provide us with~~estate ~~additional~~market ~~liquidity.~~conditions ~~Corporate~~in ~~interest~~the ~~charges~~area; ~~were~~we ~~not allocated~~continue to ~~discontinued~~actively ~~operations~~market ~~consistent with our corporate policy of holding interest expenses at~~ the ~~corporate level~~Howell building.

~~The~~Note ~~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~~6.~~” Accordingly,~~ ~~the~~Discontinued ~~operating results of the business were~~Operations ~~classified as discontinued operations and prior periods have been reclassified.~~

~~Operating~~ In ~~results~~the beginning of ~~the~~fiscal ~~discontinued~~2007 ~~operations~~we ~~for~~divested ~~the~~our ~~Hub~~suspension ~~and Drums~~ business operations in ~~the~~Bristol, Indiana ~~prior~~and ~~year~~Montague, ~~first~~Michigan. ~~quarter~~We ~~were~~received asconsideration ~~follows~~for the sale of approximately $26.2 ~~(dollars~~million, which consisted of approximately $21.1 million in ~~millions):~~cash plus the

	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

assumption of ~~HLI~~approximately ~~OPERATING~~$5.1 million ~~COMPANY~~of debt under capital leases for equipment at the facilities. We recorded a loss on the sale of $3.6 million. In October 2006 we sold the outstanding shares of stock of our Southfield, ~~INC~~Michigan iron suspension components machining plant. ~~AND~~We ~~SUBSIDIARIES~~received net cash proceeds of $16.6 million and recorded a loss on the sale of $2.4 million. These facilities made up most of our suspension components business (Suspension business) and was part of our Components segment. We divested these operations in order to streamline our business in North America, provide us with greater financial flexibility, and focus our global resources on core businesses.

The Suspension business was accounted for as a discontinued operation in accordance with FASB ~~NOTES TO~~SFAS ~~CONSOLIDATED~~144, ~~FINANCIAL~~“Accounting for the Impairment or Disposal of Long-Lived Assets”. Accordingly, the ~~STATEMENTS — (Continued)~~operating results were classified as discontinued operations and prior periods have been reclassified.

~~Note~~ The 6.balances ~~Goodwill~~of ~~and~~the ~~Other~~Suspension ~~Intangible~~business ~~Assets~~consisted of the following (dollars in millions):

Goodwill and other intangible assets consist of the following (dollars in millions):


	April 30,		January 31,
	2007		2007
Cash and cash equivalents	$	0.1	$	0.1
Receivables		1.4		30.0
Inventories		—		17.5
Prepaid expenses and other assets		—		1.4
Property, plant, and equipment, net		0.1		—

Total assets held for sale	$	1.6	$	49.0


Accounts payable and accrued liabilities	$	0.6	$	15.7
Other long term liabilities		—		4.2

Total liabilities held for sale	$	0.6	$	19.9

			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

Operating results for the Suspension business are as follows (dollars in millions):

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


	April 30,			April 30,
	2007			2006
Net sales	$	6.8		$	69.3

Loss before income tax expense	$	(4.5	)	$	(0.4	)
Income tax expense		—			0.1

Net loss	$	(4.5	)	$	(0.5	)

The changes in the net carrying amount of goodwill by segment are as follows (dollars in millions):

	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

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

Bank borrowings and other notes of $2628.08 million and $2527.59 million at April 30, ~~2006~~2007 and January 31, ~~2006~~ 2007, respectively, consist primarily of short-term credit facilities of our foreign subsidiaries.

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


	April 30,		January 31,
	2007		2007
Various foreign bank and government loans, weighted average interest rates of 5.4% and 5.4% at April 30, 2007 and January 31, 2007, respectively	$	3.4	$	3.4
Term Loan B maturing 2009, weighted average interest rate of 8.8% and 8.9% at April 30, 2007 and January 31, 2007, respectively		326.7		327.8
Term Loan C maturing 2010, weighted average interest rate of 11.4% at both April 30, 2007 and January 31, 2007		150.0		150.0
10¹/2% Senior Notes due 2010, net of discount of $0.3 million and $0.4 million at April 30, 2007 and January 31, 2007, respectively		157.2		162.1
Revolving Credit Facility, weighted average interest rate of 11.0% at April 30, 2007		10.0		—
Mortgage note payable maturing June 3, 2008		21.7		21.8
Capital lease obligations		0.7		1.0

		669.7		666.1
Less current portion of long-term debt		6.4		6.7

Long-term debt	$	663.3	$	659.4

~~NOTES~~ TOCredit ~~CONSOLIDATED FINANCIAL~~Facility ~~STATEMENTS — (Continued)~~

~~The~~ On ~~Credit Facility contains covenants restricting our ability and the ability of our subsidiaries to issue more debt~~June 3, ~~pay dividends,~~2003 ~~repurchase~~we ~~stock,~~entered ~~make investments, merge or consolidate, transfer assets and enter~~ into ~~transactions~~a ~~with affiliates.~~$550 million ~~These~~senior ~~restrictive~~secured ~~covenants~~credit ~~are~~facility ~~customary for such facilities and subject to certain exceptions. The~~ (Credit Facility), ~~also~~which ~~contains~~initially ~~certain~~consisted ~~financial~~of ~~covenants regarding~~ a ~~maximum~~ ~~total~~$450 million ~~leverage~~six-year ~~ratio,~~amortizing aterm ~~minimum~~loan ~~interest~~(Term ~~coverage~~Loan ~~ratio~~B) and a ~~minimum~~five-year ~~fixed~~$100 million ~~charge~~revolving ~~coverage~~credit ~~ratio.~~facility ~~Our~~(Revolving ~~obligations under the~~ Credit ~~Facility~~ ~~are guaranteed by our parent companies, Hayes Lemmerz International, Inc. (HLI~~Facility) ~~and HLI Parent Company, Inc~~. ~~(Parent) and~~ ~~substantially all of our material direct and indirect domestic subsidiaries.~~

As On of April 3011, ~~2006~~2005 ~~there~~we ~~were~~amended noand ~~outstanding~~restated ~~borrowings and~~the ~~approximately~~Credit ~~$19.0 million~~Facility into ~~letters~~establish ofa ~~credit~~new ~~issued~~second lien ~~under~~$150 million ~~the~~term ~~Revolving~~loan ~~Credit~~(Term ~~Facility.~~Loan AsC), from which 50% of ~~January 31, 2006,~~the ~~there~~net proceeds were noto ~~outstanding~~be ~~borrowings~~used ~~and approximately~~for ~~$17.9 million~~general incorporate ~~letters~~purposes, ofwith ~~credit~~the ~~issued~~remainder ~~under~~of the ~~Revolving~~ ~~Credit~~net ~~Facility.~~proceeds ~~The~~used ~~amount~~to ~~available~~repay toa ~~borrow~~portion ~~under~~ of the Term ~~Revolving~~Loan ~~Credit~~B. ~~Facility~~The atTerm ~~April 30,~~Loan ~~2006~~C ~~and January 31,~~principal ~~2006~~balance ~~was~~of ~~approximately~~ $~~81.0~~150 million ~~and $63.7~~was due on June ~~million~~3, ~~respectively~~2010.

The Credit Facility contained covenants restricting our ability and the ability of our subsidiaries to issue more debt, pay dividends, repurchase stock, make investments, merge or consolidate, transfer assets and enter into transactions with affiliates. These restrictive covenants are customary for such facilities and subject to certain exceptions. The Credit Facility also contained certain financial covenants regarding a maximum total leverage ratio and a minimum interest coverage ratio. Our obligations under the Credit Facility were guaranteed by our parent companies, HLI and HLI Parent Company, Inc. (Parent), and substantially all of our material direct and indirect domestic subsidiaries.

As of April 30, 2007 there was $10 million in outstanding borrowings and approximately $20.9 million in letters of credit issued under the Revolving Credit Facility. As of January 31, 2007 there were no outstanding borrowings and approximately $20.3 million in letters of credit issued under the Revolving Credit Facility. The amount available to borrow under the Revolving Credit Facility at April 30, 2007 and January 31, 2007 was approximately $69.1 million and $79.7 million, respectively.

Senior Notes

We As ~~have~~of April 30, 2007 we had $~~250~~157.05 million aggregate principal amount of 101/2% Senior ~~Notes~~ Notes that mature on June 15, 2010. Interest on the Senior Notes ~~accrues~~accrued at a rate of 101/2% per annum and was is payable semi-annually in arrears on June 15 and December 15.

The Senior Notes ~~are~~were 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~~ 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~~were not be redeemable at our option prior to June 15, 2007. Starting on that date, we ~~may~~could 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~~ could 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.

11 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, we used $72.7 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.

Other Financing

We had other debt financing of $58.7 million and $59.4 million as of April 30, 2006 and January 31, 2006, respectively. These included borrowings under various foreign debt facilities in an aggregate amount of $19.1 million and $18.4 million and a mortgage note payable of $22.0 million as of April 30, 2006 and January 31, 2006. We

or over time, at a redemption price equal to 100% of the principal amount of the ~~HLI~~Senior ~~OPERATING~~Notes ~~COMPANY~~to be redeemed, ~~INC.~~plus ~~AND~~a ~~SUBSIDIARIES~~specified “make-whole” premium.

The Indenture provided for certain restrictions regarding additional debt, dividends and other ~~NOTES TO~~distributions, ~~CONSOLIDATED~~additional ~~FINANCIAL~~stock of subsidiaries, certain investments, liens, transactions with ~~STATEMENTS — (Continued)~~affiliates, mergers, consolidations, and the transfer and sales of assets. The Indenture also provided that a holder of the Senior Notes could, 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 were 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.

~~also~~ During ~~had~~the ~~capital~~first ~~lease~~quarter ~~obligations~~ of ~~$17.6 million~~fiscal ~~and~~ 2007 HLI common stock was issued in exchange for $195.0 million as of ~~April 30,~~the ~~2006~~Senior ~~and January 31, 2006, respectively~~Notes.

NewFinancing

On May 30, 2007 we paid off both the existing Credit Facility and Senior Notes with the proceeds of an equity rights offering and new debt financing. The new financing significantly reduces our total debt, lowers the interest rate, and extends debt maturities (see Note 14, Subsequent Events, for additional detail).

Note 8. Pension Plans and Postretirement Benefits Other Than Pensions

We sponsor several defined benefit pension plans (Pension Benefits) and health care and life insurance benefits (Other 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 benefits are provided to the employees.

The fiscal ~~2006~~2007 and fiscal ~~2005~~2006 amounts shown below present the Pension Benefits and Other Benefits expense for the three months ended April 30, ~~for~~2007 ~~each~~and ~~year~~2006 (dollars in millions):

	US Plans												International Plans
	Pension Benefits						Other Benefits						Pension Benefits
	Three Months			Three Months			Three Months			Three Months			Three Months			Three Months
	Three Months Ended April 30,
	Ended			Ended			Ended			Ended			Ended			Ended
	2007			2006			2007			2006			2007			2006
	April 30,			April 30,			April 30,			April 30,			April 30,			April 30,
Service cost	$	0.3		$	0.2		$	—		$	—		$	0.2		$	0.3
	2006			2005			2006			2005			2006			2005
Interest cost		2.6			2.7			2.4			2.7			1.6			1.4
Service cost	$	0.2		$	0.3		$	—		$	—		$	0.3		$	0.2
Expected return on plan assets		(3.1	)		(2.6	)		0.1			—			(0.2	)		(0.1	)
Interest cost		2.8			2.7			2.6			2.7			1.5			2.0
Amortization of net loss		—			—			(0.1	)		(0.1	)		—			—
Expected return on plan assets		(2.7	)		(2.4	)		—			—			(0.2	)		—
Special termination benefit recognized		—			0.1			—			—			—			—
Amortization of net loss		—			—			—			—			—			0.1
Net periodic benefit cost	$	(0.2	)	$	0.4		$	2.4		$	2.6		$	1.6		$	1.6
Net periodic benefit cost	$	0.3		$	0.6		$	2.6		$	2.7		$	1.6		$	2.3

We contributed $43.21 million to our United States pension plans ~~and~~during ~~health~~the first three months ~~care~~of fiscal 2007 and ~~life~~expect ~~insurance~~to contribute an additional $9.5 million during the remainder of fiscal 2007. We contributed $3.8 million to our United States postretirement benefit ~~plans~~plan during the first three months of fiscal 2007 and expect to contribute an additional $11.1 million during the remainder of fiscal 2007. We contributed $1.7 million to our international pension plan during the first three months of fiscal ~~2006~~2007 and expect to contribute an additional $117.62 million during the remainder of fiscal ~~2006~~2007.

On August 17, 2006 the Pension Protection Act of 2006 was signed into law. We have not yet incorporated this legislation into the calculation of benefit obligations. This legislation will be effective for our fiscal year beginning February 1, 2008.

Note 9. Asset Impairments and Other Restructuring Charges

Asset impairment losses and other restructuring charges for the three months ended April 30, 2007 ~~2006~~ and ~~2005~~2006 were as follows (dollars in millions):

	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

HLI OPERATING COMPANY, INC. AND SUBSIDIARIES


	Three Months Ended April 30, 2007
	Automotive
	Wheels		Components		Other		Total
Facility closure costs	$	2.1	$	—	$	—	$	2.1
Impairment of facility, machinery, and equipment		0.2		—		—		0.2
Severance and other restructuring costs		—		—		0.1		0.1

Total	$	2.3	$	—	$	0.1	$	2.4

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	Three Months Ended April 30, 2006
	Automotive
	Wheels		Components		Other		Total
Facility closure costs	$	0.4	$	—	$	—	$	0.4
Impairment of facility, machinery, and equipment		0.2		—		—		0.2
Severance and other restructuring costs		1.5		0.8		0.6		2.9

Total	$	2.1	$	0.8	$	0.6	$	3.5

	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

Asset Impairment Losses and Other Restructuring Charges for the Three Months Ended April 30, 2007

During the first quarter of fiscal 2007, we recorded facility closure, employee restructuring charges, and asset impairments of $2.4 million. In the Automotive Wheels segment we recorded expense of $2.3 million, principally related to the closure of our Huntington, Indiana aluminum wheel facility as well as machinery and equipment impairments recorded at our at our Brazil aluminum wheel facility. The Other segment expense of $0.1 million is primarily related to severance expense at our corporate offices.

Asset Impairment Losses and Other Restructuring Charges for the Three Months Ended April 30, 2006

We During ~~recorded~~the ~~total~~first ~~asset~~quarter ~~impairment~~of ~~losses~~fiscal ~~and~~2006 ~~other~~ we recorded facility closure, employee restructuring, and ~~charges~~asset impairment expenses of $3.75 million ~~for the three months ended April 30, 2006~~. ~~The~~In ~~expense for~~ the Automotive Wheels segment ~~was~~we recorded expenses of $2.01 million, ~~which consisted~~ primarily ~~of costs~~ related to ~~severance~~the toclosure of our ~~international~~Huntington, ~~wheel~~Indiana ~~locations~~aluminum inwheel ~~Spain,~~facility ~~Italy,~~as ~~and~~well ~~South~~as ~~Africa~~employee inrestructuring ~~addition~~expenses toat ~~the~~our ~~Huntington, Indiana~~facilities ~~facility.~~in ~~There~~Spain, ~~were~~Italy, ~~also continuing facility closure~~and ~~costs~~South ~~related~~Africa. toThe ~~the~~Components ~~Howell,~~segment ~~Michigan;~~recorded Laa $0.8 ~~Mirada, California;~~million ~~Somerset,~~charge ~~Kentucky;~~mainly ~~and~~due ~~Bowling~~to ~~Green,~~severance ~~Kentucky facilities. The~~ expense for the ~~Components~~Ferndale, ~~segment~~Michigan ~~was $1.1 million~~technical center, which ~~consisted~~was ofclosed ~~severance~~in ~~expense~~fiscal 2006. The Other segment expense of $0.6 million is primarily related to severance expense at ~~the~~our corporate offices.

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

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.

Facility Exit 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, ~~2006~~2007 (dollars in millions):

			Accrual of		Cash
			Severance		Payments and
			Severance and		Payments and
	January 31,		and Other		Effects of			April 30,
			Other		Effects of
	2006		Restructuring		Foreign			2006
	January 31,		Restructuring		Foreign			April 30, 2007
	Accrual		Charges		Currency			Accrual
	2007 Accrual		Charges		Currency			Accrual
Facility exit costs	$	—0.2	$	02.41	$	—(2.2	)	$	0.41
Severance		20.98		30.1		(10.46	)		40.63
Total	$	21.90	$	32.52	$	(12.48	)	$	5.0.4

HLI OPERATING COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 10. Taxes on Income

Income tax expense allocated to continuing operations for the three months ended April 30, 2007 ~~2006~~ and ~~2005~~2006 ~~was~~were as follows (dollars in millions):

	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

IncomeTable tax expense for the three months ended April 30, 2006 was primarily the result of tax expense in foreign jurisdictions and various states. Contents


	Three Months Ended April 30,
	2007					2006
	US			Foreign		US			Foreign
Pre-tax income (loss)	$	(24.1	)	$	25.6	$	(24.1	)	$	14.4
Income tax expense		0.2			8.4		0.3			5.2

Income tax expense for the three months ended April 30, 2007 was primarily the result of tax expense in foreign jurisdictions and various states.

We have 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.

~~Note~~ Effective ~~11.~~February 1, ~~Prior~~2007, ~~Period~~we adopted FASB Interpretation No. 48, “Accounting ~~Errors~~for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (FIN 48). FIN 48 provides guidance on financial statement recognition and measurement of tax positions taken, or expected to be taken, in tax returns. The initial adoption of FIN 48 did not have a material impact on our financial statements. As of February 1, 2007, the amount of unrecognized tax benefits was $19.4 million, including $0.4 million of related accrued interest.

In The ~~August~~amount ~~2005,~~of weunrecognized ~~discovered~~tax ~~several~~benefits ~~accounting~~may ~~errors~~increase ~~that would~~or ~~have~~decrease ~~impacted~~in ~~our~~the ~~reported~~future ~~results~~ for ~~prior periods. The~~various ~~two~~reasons ~~most~~including ~~significant~~adding ofamounts ~~these~~for ~~errors~~current ~~related~~tax toyear ~~the~~positions, ~~amount~~expiration of ~~amortization~~ ofopen ~~definite~~income ~~lived intangible assets following the~~tax ~~application~~returns ofdue ~~fresh start accounting and~~ to the ~~amount~~statutes of ~~foreign~~ ~~withholding~~limitation, ~~taxes~~changes ~~recorded with respect to certain expatriate employees beginning~~ in ~~fiscal~~management’s ~~2003.~~judgment ~~Since~~about the ~~impact~~level of touncertainty, ~~the~~status ~~annual~~of ~~financial~~examinations, ~~statements~~litigation ~~for fiscal 2003~~ and ~~2004~~legislative ~~was not material~~activity, weand ~~recorded~~the ~~additional~~addition ~~expense~~or elimination of ~~approximately $3~~uncertain tax positions.~~1 million~~ inOur ~~the~~policy ~~second~~is ~~quarter~~to ofreport ~~fiscal~~interest ~~2005~~related to unrecognized ~~reflect~~tax ~~the~~benefits ~~cumulative~~in ~~effect~~interest ofexpense ~~the~~and ~~errors. The accounting errors~~penalties, if ~~properly recorded in the respective periods~~any, ~~would have~~related ~~increased~~to ~~net~~unrecognized ~~loss~~tax ~~during~~benefits ~~the three months ended~~in ~~April 30,~~income ~~2005~~tax byexpense ~~approximately~~in ~~$0.7 million.~~our ~~We conducted~~Consolidated anStatements ~~internal investigation into these errors and found no evidence~~ of ~~any intentional misstatements of these amounts~~Operations.

~~Note~~ We 12have open tax years from primarily 2000 to 2006 with various significant taxing jurisdictions including the United States, Germany, Italy, Brazil, and Czech Republic. ~~Segment~~These ~~Reporting~~open years contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, timing or inclusion of revenue and expenses or the sustainability of income tax credits for a given audit cycle. We have recorded a tax benefit only for those positions that meet the more-likely-than-not standard.

There are currently no US federal or state income tax audits in process. The last US federal income tax audit closed was for the fiscal year ended January 31, 2004. A German income tax audit was initiated on July 6, 2006 for fiscal years 2000 through 2004 .

Note 11. Segment Reporting

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)

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.

The following tables present revenues and other financial information by business segment (dollars in millions):

	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

	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
	Three Months Ended April 30, 2007
	Automotive
	Wheels		Components		Other			Total
Total assets	$	1,312.9	$	333.7	$	205.1		$	1,851.7
Net sales	$	466.8	$	94.2	$	—		$	561.0
Asset impairments and other restructuring charges		2.3		—		0.1			2.4
Earnings (loss) from operations		24.5		0.4		(4.8	)		20.1

	As of January 31, 2006
	Three Months Ended April 30, 2006
	Automotive
	Wheels		Components			Other			Total
Total assets	$	1,247.7	$	321.5		$	230.0		$	1,799.2
Net sales	$	403.8	$	99.7		$	—		$	503.5
Asset impairments and other restructuring charges		2.1		0.8			0.6			3.5
Earnings (loss) from operations		13.5		(1.2	)		(4.9	)		7.4


	As of April 30, 2007
	Automotive
	Wheels		Components		Other		Total
Total assets	$	1,462.5	$	151.9	$	154.2	$	1,768.6


	As of January 31, 2007
	Automotive
	Wheels		Components		Other		Total
Total assets	$	1,336.6	$	192.0	$	162.6	$	1,691.2

Note 12. Accounting Errors

In May 2007 we discovered accounting errors that would have impacted our reported results for prior periods. The two most significant of these errors related to the amount of depreciation we recognized for US GAAP purposes in several of our foreign subsidiaries and to recognition of an employee liability for supplemental retirement payments in Belgium under FASB SFAS 87, “Employers’ Accounting for Pensions.” Since the impact to financial statements for fiscal years 2003, 2004, 2005, and 2006 was not material, we recorded additional expense of approximately $0.4 million in the first quarter of fiscal 2007. The depreciation expense, if properly recorded, would have decreased net income by $0.3 million in fiscal 2003 and $1.1 million in fiscal 2004, and increased net income by $1.4 million in fiscal 2005 and $1.1 million in fiscal 2006. The pension expense would have decreased net income by $1.5 million in fiscal 2006.

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

As of April 30, 2007 HLI, Parent, and substantially all of our domestic ~~subsidiaries~~ subsidiaries (collectively, the Guarantor Subsidiaries) ~~have~~ fully and unconditionally guaranteed, on a joint and ~~several~~ several basis, the Senior Notes, Term Loan B, and Term Loan C. ~~None~~ At April 30, 2007 none of our foreign subsidiaries have guaranteed the Senior Notes, Term Loan B, or Term Loan C, nor have two of our domestic subsidiaries owned by our foreign subsidiaries or subsidiaries that are special purpose entities formed for domestic accounts receivable securitization programs (collectively, the Nonguarantor Subsidiaries). In lieu of providing separate unaudited financial statements for each of of the ~~Guarantors~~Guarantor Subsidiaries, we have included the unaudited supplemental guarantor condensed consolidating financial ~~statements. We 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

					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	)

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

					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	)

statements. We do not believe that separate financial statements for each of the ~~HLI~~Guarantor ~~OPERATING~~Subsidiaries ~~COMPANY,~~are ~~INC~~material to investors. ~~AND~~Therefore, ~~SUBSIDIARIES~~separate financial statements and other disclosures concerning the Guarantor Subsidiaries are not presented.

~~NOTES TO~~CONDENSED ~~CONSOLIDATED~~CONSOLIDATING ~~FINANCIAL~~ STATEMENTS ~~— (Continued)~~ OF OPERATIONS

~~CONDENSED CONSOLIDATING~~For ~~BALANCE~~the ~~SHEETS~~ Three months Ended April 30, 2007

~~As of April 30, 2006~~ (Unaudited)

					Guarantor	~~Guarantor~~			Nonguarantor	~~Nonguarantor~~
	Issuer	~~Issuer~~			Subsidiaries	~~Subsidiaries~~			Subsidiaries	~~Subsidiaries~~			Eliminations	~~Eliminations~~			Total	~~Total~~
	(Dollars in millions)
Net sales	$	—			$	145.5			$	421.0			$	(5.5	)		$	561.0
	(Unaudited)
Cost of goods sold		2.9				136.2				365.9				(5.5	)			499.5
Cash and cash equivalents		$	0.9			$	1.2			$	50.4			$	—			$	52.5
Gross profit (loss)		(2.9	)			9.3				55.1				—				61.5
Receivables			(105.9	)			126.6				272.0				—				292.7
Marketing, general, and administrative		0.4				14.7				23.5				—				38.6
Other receivables			160.0				—				—				(80.0	)			80.0
Equity in (earnings) losses of subsidiaries and joint ventures		(1.1	)			0.6				—				0.5				—
Inventories			0.3				68.6				131.2				(0.4	)			199.7
Asset impairments and other restructuring charges		—				2.2				0.2				—				2.4
Prepaid expenses and other			3.0				8.1				6.9				—				18.0
Other (income) expense, net		(0.4	)			(1.5	)			2.3				—				0.4
Total current assets			58.3				204.5				460.5				(80.4	)			642.9
Earnings (loss) from operations		(1.8	)			(6.7	)			29.1				(0.5	)			20.1
Property, plant, and equipment, net			32.9				169.2				556.0				—				758.1
Interest expense, net		13.3				—				5.0				—				18.3
Goodwill and other assets			904.6				(103.7	)			394.7				(744.9	)			450.7
Other non-operating expense		0.3				—				—				—				0.3
Total assets		$	995.8			$	270.0			$	1,411.2			$	(825.3	)		$	1,851.7
Earnings (loss) from continuing operations before taxes on income and minority interest		(15.4	)			(6.7	)			24.1				(0.5	)			1.5
Bank borrowings and other notes		$	—			$	0.6			$	25.4			$	—			$	26.0
Income tax expense		(0.1	)			0.9				7.8				—				8.6
Current portion of long-term debt			4.5				3.8				12.5				—				20.8
Earnings (loss) from continuing operations before minority interest		(15.3	)			(7.6	)			16.3				(0.5	)			(7.1	)
Accounts payable and accrued liabilities			152.9				71.6				261.0				(80.3	)			405.3
Minority interest		—				—				3.7				—				3.7
Total current liabilities			157.4				76.0				298.9				(80.3	)			452.1
Earnings (loss) from continuing operations		(15.3	)			(7.6	)			12.6				(0.5	)			(10.8	)
Long-term debt, net of current portion			661.7				13.6				6.9				—				682.2
Income (loss) from discontinued operations		—				(5.8	)			1.3				—				(4.5	)
Pension and other long-term liabilities			231.9				0.6				241.5				—				474.0
Net income (loss)	$	(15.3	)		$	(13.4	)		$	13.9			$	(0.5	)		$	(15.3	)
Redeemable preferred stock			12.3				—				—				—				12.3
Minority interest			—				—				38.1				—				38.1
Parent loans			(260.9	)			(29.1	)			285.6				4.1				—
Common stock			—				—				—				—				—
Additional paid-in capital			685.6				517.8				569.1				(1,086.9	)			685.6
Retained earnings (accumulated deficit)			(593.2	)			(311.3	)			(114.5	)			425.8				(593.2	)
Accumulated other comprehensive income (loss)			100.6				2.4				85.6				(88.0	)			100.6
Total stockholders’ equity			193.0				208.9				540.2				(749.1	)			193.0
Total liabilities and stockholder’s equity		$	995.8			$	270.0			$	1,411.2			$	(825.3	)		$	1,851.7

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS ~~HLI~~For ~~OPERATING~~the ~~COMPANY,~~Three ~~INC.~~months ~~AND~~Ended ~~SUBSIDIARIES~~April 30, 2006 (Unaudited)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


				Guarantor			Nonguarantor
	Issuer			Subsidiaries			Subsidiaries		Eliminations			Total
Net sales	$	—		$	157.9		$	354.8	$	(9.2	)	$	503.5
Cost of goods sold		4.2			149.8			311.8		(9.2	)		456.6

Gross profit (loss)		(4.2	)		8.1			43.0		—			46.9
Marketing, general, and administrative		1.3			13.1			20.2					34.6
Equity in (earnings) losses of subsidiaries and joint ventures		(0.3	)		(1.5	)		—		1.8			—
Asset impairments and other restructuring charges		1.4			1.6			0.5		—			3.5
Other (income) expense, net		(0.1	)		—			1.5		—			1.4

Earnings (loss) from operations		(6.5	)		(5.1	)		20.8		(1.8	)		7.4
Interest (income) expense, net		10.9			—			6.0		—			16.9
Other non-operating expense		0.1			—			0.1		—			0.2

Earnings (loss) from continuing operations before taxes on income and minority interest		(17.5	)		(5.1	)		14.7		(1.8	)		(9.7	)
Income tax expense		0.1			0.2			5.2		—			5.5

Earnings (loss) from continuing operations before minority interest		(17.6	)		(5.3	)		9.5		(1.8	)		(15.2	)
Minority interest		—			—			1.9		—			1.9

Income (loss) from continuing operations		(17.6	)		(5.3	)		7.6		(1.8	)		(17.1	)
Income from discontinued operations, net of tax		—			(0.5	)		—		—			(0.5	)

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

CONDENSED CONSOLIDATING BALANCE SHEETS As of January 31, 2006

					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

~~HLI~~CONDENSED ~~OPERATING~~CONSOLIDATING ~~COMPANY,~~BALANCE ~~INC.~~SHEETS As ~~AND~~of ~~SUBSIDIARIES~~April 30, 2007 (Unaudited)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


				Guarantor			Nonguarantor
	Issuer			Subsidiaries			Subsidiaries			Eliminations			Total
Cash and cash equivalents	$	4.4		$	1.0		$	59.3		$	—		$	64.7
Receivables		(71.3	)		77.0			315.4			—			321.1
Other receivables		34.3			—			—			—			34.3
Inventories		1.2			51.2			144.9			—			197.3
Prepaid expenses and other		6.5			4.4			9.4			—			20.3

Total current assets		(24.9	)		133.6			529.0			—			637.7
Property, plant, and equipment, net		29.2			121.2			545.0			—			695.4
Goodwill and other assets		869.0			(240.4	)		391.2			(584.3	)		435.5

Total assets	$	873.3		$	14.4		$	1,465.2		$	(584.3	)	$	1,768.6


Bank borrowings and other notes	$	—		$	—		$	28.8		$	—		$	28.8
Current portion of long-term debt		4.6			0.7			1.1			—			6.4
Accounts payable and accrued liabilities		52.4			54.8			341.3			—			448.5

Total current liabilities		57.0			55.5			371.2			—			483.7
Long-term debt, net of current portion		660.9			—			2.4			—			663.3
Pension and other long-term liabilities		197.4			0.8			237.7			—			435.9
Minority interest		—			—			44.7			—			44.7
Parent loans		(183.0	)		(16.7	)		204.8			(5.1	)		—
Common stock		—			—			—			—			—
Preferred stock		10.6			—			—			—			10.6
Additional paid-in capital		696.3			389.0			569.1			(958.1	)		696.3
Retained earnings (accumulated deficit)		(758.4	)		(419.4	)		(101.9	)		521.3			(758.4	)
Accumulated other comprehensive income (loss)		192.5			5.2			137.2			(142.4	)		192.5

Total stockholders’ equity		141.0			(25.2	)		604.5			(579.2	)		141.0

Total liabilities and stockholders’ equity	$	873.3		$	14.4		$	1,465.2		$	(584.3	)	$	1,768.6

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

					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

~~HLI~~CONDENSED ~~OPERATING~~CONSOLIDATING ~~COMPANY,~~BALANCE ~~INC.~~SHEETS As ~~AND~~of ~~SUBSIDIARIES~~January 31, 2007

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


				Guarantor			Nonguarantor
	Issuer			Subsidiaries			Subsidiaries			Eliminations			Total
Cash and cash equivalents	$	(0.7	)	$	0.5		$	38.6		$	—		$	38.4
Receivables		(80.6	)		60.6			278.5			—			258.5
Other receivables		43.2			—			—			—			43.2
Inventories		0.4			48.5			123.9			—			172.8
Prepaid expenses and other		3.1			52.2			12.4			—			67.7

Total current assets		(34.6	)		161.8			453.4			—			580.6
Property, plant, and equipment, net		30.0			123.8			526.9			—			680.7
Goodwill and other assets		852.3			(115.6	)		381.6			(688.4	)		429.9

Total assets	$	847.7		$	170.0		$	1,361.9		$	(688.4	)	$	1,691.2


Bank borrowings and other notes	$	—		$	—		$	27.9		$	—		$	27.9
Current portion of long-term debt		4.6			1.1			1.0			—			6.7
Accounts payable and accrued liabilities		48.3			59.8			296.2			—			404.3

Total current liabilities		52.9			60.9			325.1			—			438.9
Long-term debt, net of current portion		657.1			—			2.3			—			659.4
Pension and other long-term liabilities		199.5			0.8			233.5			—			433.8
Minority interest		—			—			44.8			—			44.8
Parent loans		(176.1	)		(20.5	)		199.1			(2.5	)		—
Preferred stock		12.5			—			—			—			12.5
Common stock		—			—			—			—			—
Additional paid-in capital		688.3			525.8			569.1			(1,094.9	)		688.3
Retained earnings (accumulated deficit)		(742.9	)		(406.0	)		(115.8	)		521.8			(742.9	)
Accumulated other comprehensive income (loss)		156.4			9.0			103.8			(112.8	)		156.4

Total stockholders’ equity		114.3			128.8			557.1			(685.9	)		114.3

Total liabilities and stockholder’s equity	$	847.7		$	170.0		$	1,361.9		$	(688.4	)	$	1,691.2

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS 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		$	(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

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%.

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Three months Ended April 30, 2007
(Unaudited)


				Guarantor			Nonguarantor
	Issuer			Subsidiaries			Subsidiaries			Eliminations		Total
Cash flows provided by (used for) operating activities	$	(20.2	)	$	(3.4	)	$	38.5		$	—	$	14.9

Cash flows from investing activities:
Purchase of property, plant, equipment and tooling		(0.6	)		(3.2	)		(12.8	)		—		(16.6	)

Cash used for investing activities		(0.6	)		(3.2	)		(12.8	)		—		(16.6	)

Cash flows from financing activities:
Changes in bank borrowings and credit facility		—			—			(0.6	)		—		(0.6	)
Borrowing/ repayment of long term debt		8.9			(0.4	)		(0.1	)		—		8.4
Dividends paid to minority shareholders		—			—			(5.5	)		—		(5.5	)

Cash provided by (used for) financing activities		8.9			(0.4	)		(6.2	)		—		2.3

Increase (decrease) in parent loans and advances		17.0			(14.9	)		(2.1	)		—		(0.0	)
Cash flow from discontinued operations		—			22.4			1.3			—		23.7
Effect of exchange rates on cash and cash equivalents		—			—			2.0			—		2.0

Increase in cash and cash equivalents		5.1			0.5			20.7			—		26.3
Cash and cash equivalents at beginning of period		(0.7	)		0.5			38.6			—		38.4

Cash and cash equivalents at end of period	$	4.4		$	1.0		$	59.3		$	—	$	64.7

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Three months Ended April 30, 2006
(Unaudited)


				Guarantor			Nonguarantor
	Issuer			Subsidiaries			Subsidiaries			Eliminations		Total
Cash flows provided by (used for) operating activities	$	(1.3	)	$	14.0		$	24.1		$	—	$	36.8

Cash flows from investing activities:
Purchase of property, plant, equipment and tooling		(0.2	)		(3.1	)		(7.6	)		—		(10.9	)
Capital contributed by minority shareholders		—			—			0.4			—		0.4
Proceeds from disposal of assets and businesses		—			—			0.2			—		0.2

Cash used for investing activities		(0.2	)		(3.1	)		(7.0	)		—		(10.3	)

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

Cash used for financing activities		(2.9	)		(0.4	)		(1.4	)		—		(4.7	)

Increase (decrease) in parent loans and advances		9.4			3.8			(13.2	)		—		—
Cash flow from discontinued operations		—			(13.7	)		0.1			—		(13.6	)
Effect of exchange rates on cash and cash equivalents		—			—			1.9			—		1.9

Increase in cash and cash equivalents		5.0			0.6			4.5			—		10.1
Cash and cash equivalents at beginning of period		(4.1	)		0.6			45.8			—		42.3

Cash and cash equivalents at end of period	$	0.9		$	1.2		$	50.3		$	—	$	52.4

Note 14. Subsequent Events

Since April 30, 2007, HLI has completed a number of related financing transactions, which are described below.

Rights Offering

On March 16, 2007 HLI announced that its Board of Directors approved a Rights Offering (Rights Offering) of up to $180 million of common stock to its stockholders at a subscription price of $3.25 per share. The HLI Board of Directors set the record date of April 10, 2007 for determining the stockholders entitled to participate in the Rights Offering. On April 16, 2007, the HLI Board of Directors approved a direct investment option in favor of Deutsche Bank Securities, Inc. pursuant to which it was entitled to invest approximately $13.1 million to purchase HLI’s common stock at a price of $3.25 per share in addition to the shares being offered in the Rights Offering. The Rights Offering and the direct investment option were approved at a special meeting of HLI’s stockholders held on May 4, 2007.

In May 2007, HLI distributed to stockholders of record as of April 10, 2007 non-transferable subscription rights to purchase shares of its common stock in connection with the Rights Offering. Stockholders on the record date received 1.3970 rights for each share of our common stock held on the record date. The Rights Offering included an oversubscription privilege entitling holders of the rights to subscribe for additional shares not purchased upon exercise of rights. The Rights Offering was fully subscribed and Deutsche Bank Securities, Inc. exercised its direct investment option. On May 30, 2007 HLI closed on the Rights Offering and direct investment option and issued 59,423,077 new shares of common stock. Net proceeds, after fees and expenses, were used to repurchase our outstanding 10¹/2% Senior Notes due 2010 (Old Notes) pursuant to the tender offer described below, with the excess being used to provide working capital and for other general corporate purposes.

Tender Offer for Senior Notes

On May 8, 2007 we commenced a cash tender offer to repurchase all of our outstanding Old Notes, which had an aggregate principal amount outstanding of $157.5 million. Concurrently with the tender offer, we solicited consents to amend the indenture governing the Old Notes. The tender offer expired at 11:59 p.m., New York City time, on Tuesday, June 5, 2007. The purchase price for the tendered Old Notes was based on a fixed spread of 50 basis points over the yield on the 3.625% U.S. Treasury Note due June 30, 2007. Holders who validly tendered their Old Notes and delivered their consents to the proposed amendments to the indenture on or prior to 5:00 p.m., New York City time, on May 21, 2007, were paid, in addition to the purchase price for the Old Notes, a consent payment equal to $30.00 per $1,000 in principal amount of Old Notes. Holders of approximately $154.2 million principle amount tendered their Old Notes and consented to the amendments to the Indenture.

On May 25, 2007 we executed the Supplemental Indenture, which effects amendments to the Indenture with respect to the Old Notes that result in the permanent elimination of certain restrictive covenants, certain conditions on defeasance, certain conditions on mergers, consolidations and sales of asset transactions and certain events of default in the Indenture and the Old Notes, including, among other things, covenants that limit our ability to incur indebtedness, make restricted payments, create or incur liens and engage in mergers or consolidations or transfers of all or substantially all of our property and assets. The Supplemental Indenture became operative on May 30, 2007, upon our repurchase of the Old Notes validly tendered on or before May 21, 2007.

New Senior Notes

On May 30, 2007 we closed on a new offering of #eu#130 million 8¹/4% senior unsecured notes (New Notes) issued by Hayes Lemmerz Finance LLC – Luxembourg S.C.A., a newly formed European subsidiary (Hayes Luxembourg). The New Notes mature in 2015 and contain customary covenants and restrictions. The New Notes and the related Indenture restrict our ability to, among other things, make certain restricted payments, incur debt and issue preferred stock, incur liens, permit dividends and other distributions by our subsidiaries, merge, consolidate, or sell assets, and engage in transactions with affiliates. The New Notes and the Indenture also contain customary events of default, including failure to pay principal or interest on the Notes or the guarantees when due, among others. The New Notes are fully and unconditionally guaranteed on a senior unsecured basis by us, HLI, and substantially all of our direct and indirect domestic subsidiaries and, subject to certain exceptions, by certain of our indirect foreign subsidiaries. Proceeds from the issuance of the New Notes, together with the proceeds from the New Credit Facilities (as described below), were used to refinance obligations under our Amended and Restated Credit Agreement, dated as of April 11, 2005, to repay in full the

approximately $21.7 million mortgage note on our headquarters building in Northville, Michigan, to pay related fees and expenses, and for working capital and other general corporate purposes.

New Credit Facilities

On May 30, 2007 we closed on three new senior secured credit facilities in an amount of approximately $495 million (New Credit Facilities). The New Credit Facilities consist of a term loan facility of €260 million maturing in 2014 borrowed by Hayes Luxembourg, a revolving credit facility of $125 million maturing in 2013 available to us and Hayes Luxembourg, and a synthetic letter of credit facility of €15 million available to both borrowers. The interest rate for the term loan is generally the EURIBO rate plus 2.75% per annum until the first date after October 31, 2007 that our leverage ratio is equal to or less than 2.50 to 1.0 and, thereafter, the EURIBO rate plus 2.50% per annum. The interest rate for the revolving credit facility is generally either the LIBOR rate plus 2.75% per annum (for borrowings by us) or the EURIBO rate (for borrowings by Hayes Luxembourg).

Our obligations and those of Hayes Luxembourg under the New Credit Facility are guaranteed by us, HLI, and substantially all of our direct and indirect domestic subsidiaries. In addition, the obligations of Hayes Luxembourg under the New Credit Facility are guaranteed, subject to certain exceptions, by certain of its foreign subsidiaries. Our obligations and those of Hayes Luxembourg under the New Credit Facility and the guarantors’ obligations under their respective guarantees of the New Credit Facility are, subject to certain exceptions, secured by a first priority perfected pledge of substantially all intercompany notes and capital stock owned by the borrowers and the guarantors (but not more than 65% of the capital stock of Hayes Luxembourg or any foreign subsidiary can secure our obligations) and substantially all of the other assets owned by the borrowers and the guarantors. All foreign guarantees and collateral are subject to applicable restrictions on cross-stream and upstream guarantees and other legal restrictions, including financial assistance rules, thin capitalization rules, and corporate benefit rules.

The New Credit Facilities contain negative covenants restricting our ability and the ability of HLI and our subsidiaries to, among other actions, declare dividends or repay or repurchase capital stock, cancel, prepay, redeem or repurchase debt, incur liens and engage in sale-leaseback transactions, make loans and investments, incur indebtedness, amend or otherwise alter certain debt documents, engage in mergers, acquisitions and asset sales, engage in transactions with affiliates, and alter their respective businesses. The financial covenants under the New Credit Facilities include covenants regarding a maximum total leverage ratio, a minimum interest coverage ratio and a maximum capital expenditures amount. There is no financial covenant regarding minimum fixed charged coverage ratio under the New Credit Facilities. The New Credit Facilities contain customary events of default including, without limitation, failure to pay principal and interest when due, material inaccuracy of any representation or warranty, failure to comply with any covenant, cross-defaults, failure to satisfy or stay execution of judgments in excess of specified amounts, bankruptcy or insolvency, the existence of certain materially adverse employee benefit liabilities in excess of a certain specified amount, the invalidity or impairment of any loan documents and a change of control.

The proceeds from the New Credit Facilities, together with the proceeds of other financing activities, were used to refinance our obligations under our Amended and Restated Credit Agreement dated April 11, 2005. Additional proceeds will be used to replace existing letters of credit and to provide for working capital and other general corporate purposes, and to pay the fees and expenses associated with the New Credit Facilities.

Pro Forma Capitalization

The following table represents our pro forma capitalization as of April 30, 2007 reflecting the impact of our Rights Offering and new debt financing (dollars in millions):


	Actual		Adjustments			As Adjusted
			(Unaudited)
Total cash and cash equivalents	$	64.7	$	26.4		$	91.1


Debt
Bank borrowings and other notes		28.8		—			28.8
Debt of foreign subsidiaries		3.4		—			3.4
Revolving credit facility		10.0		(10.0	)		—
Term Loan B		326.7		(326.7	)		—
New Term Loan		—		350.5			350.5
Term Loan C		150.0		(150.0	)		—
10.5% Senior notes		157.2		(157.2	)		—
New 8.25% Senior notes		—		175.2			175.2
Mortgage note payable		21.7		(21.7	)		—
Capital lease obligations		0.7		—			0.7


Total Debt		698.5		(139.9	)		558.6
Minority interest		44.7		—			44.7
Total stockholders’ equity		141.0		166.5	(a)		307.5

Total Capitalization	$	884.2	$	26.6		$	910.8


(a)		Net proceeds from Rights Offering of $189.6 million less call premium on 10.5% Senior Notes of $9.0 million less $11.9 million of unamortized banks fees on old term debt, less $2.2 million in legal expenses

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 our Annual Report on Form 10-K for the fiscal year ended January 31, ~~2006~~2007 as filed with the Securities and Exchange Commission on ~~May 1~~April 12, ~~2006~~2007, and the other information included herein.

Company Overview

Unless otherwise indicated, references to “we,” “us,” or “our” mean HLI Operating Company, Inc., a Delaware corporation, and our subsidiaries. References to a fiscal year means the 12-month period commencing on February 1 of that year and ending on ~~January~~ January 31 of the following year (i.e., “fiscal ~~2006~~2007” refers to the period beginning February 1, ~~2006~~2007 and ending January 31, ~~2007~~2008, “fiscal ~~2005~~ 2006” refers to the period beginning February 1, ~~2005~~2006 and ending January 31, ~~2006~~2007).

Originally founded in 1908, we are a leading worldwide producer of aluminum and steel wheels for passenger cars and light trucks and of steel wheels for commercial trucks and trailers. We are also a leading supplier of automotive suspension, brake, and powertrain components. We have global operations with 35 30 facilities, including business and sales offices, manufacturing facilities, and technical centers, located in 14 countries around the world. We sell our products to every major ~~North~~ North American, Japanese, and European manufacturer of passenger cars and light trucks and to commercial highway vehicle customers throughout the world.

Sales of our wheels, wheel-end attachments, aluminum structural components, and brake components produced in North America are directly affected by the overall level of passenger car, light truck, and commercial highway vehicle production of North American OEMs, while sales of our wheels and automotive castings in Europe are directly affected by the overall vehicle production in Europe. The North American and European automotive industries are sensitive to the overall strength of their respective economies.

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~~ 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.~~

24 The Other segment previously included our hub and brake drum facilities in Berea, Kentucky; Chattanooga, Tennessee; and Mexico City, Mexico (Hub and Drum business). In the third quarter of fiscal 2005 our Hub and Drum business was reclassified to discontinued operations and was recorded as an asset held for sale. These facilities were sold in the fourth quarter of fiscal 2005. Prior year amounts for the Other segment have been modified to 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.

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.

In the first three months of fiscal 2007 we had net sales of $561 million with approximately 74% derived from international markets. For the full year of fiscal 2006, we had sales of $2.1 billion with approximately 73% derived from international markets. We had earnings from operations of $20.1 million for the first three months of fiscal 2007 and $6.6 million for the full year of fiscal 2006.

Results of Operations

Consolidated Results — Comparison of the Three Months Ended April 30, ~~2006~~2007 to the Three Months Ended April 30, 2006 ~~2005~~

The following table presents selected information about our consolidated results of operations for the periods indicated (dollars in millions):

	Three Months			Three Months
	Ended April 30,			Ended April 30,
	2006			2005			$ Change			% Change
	2007			2006			$ Change			% Change
Net sales:
Automotive Wheels	$	~~403~~466.8		$	~~397~~403.8		$	663.0			115.56	%
Components		~~169~~94.02			~~191~~99.47			(225.45	)		~~(11~~-5.75	)%
Total	$	~~572~~561.80		$	~~589~~503.25		$	~~(16~~57.45	)		(211.84	)%
Gross profit	$	5261.45		$	5746.9		$	(514.56	)		(931.51	)%
Marketing, general, and administrative		3938.96			4134.16			(14.20	)		(211.96	)%
Asset impairments and other restructuring charges		32.74			03.85			2(1.91	)		~~362~~-31.54	%
Other expense, net		10.4			21.84			(1.40	)		~~(50~~-71.04	)%
Earnings from operations		720.41			137.24			(512.87	)		~~(43~~171.96	)%
Interest expense, net		1718.3			1516.19			21.24			148.63	%
Other non-operating expense		0.23			0.2			—0.1			050.0	%
Income tax expense		58.6			45.85			03.81			1656.74	%
Minority interest		13.97			21.69			(01.78	)		~~(26~~94.97	)%
Loss from continuing operations		(1710.68	)		(917.51	)		(86.14	)		8537.34	%
Income from discontinued operations, net of tax $1.5		—			1.4			(1.4	)		(100.0	)%
Loss from discontinued operations, net of tax of $0.0		(4.5	)		(0.5	)		(4.0	)		-800.0	%
Net loss	$	(1715.63	)	$	(817.16	)	$	(92.53	)		~~117~~13.31	%

Sales

Our net sales ~~decreased~~increased 211.84% or $1657.45 million to $~~572~~561.80 million in the first quarter of fiscal ~~2006~~2007 from $~~589~~503.25 million in the first quarter of fiscal ~~2005~~2006. ~~The decline~~Higher inmetal ~~sales is partially attributed to the sale of our~~pass-through ~~Cadillac,~~pricing ~~Michigan iron foundry~~ and ~~our~~favorable ~~Equipment & Engineering~~fluctuations ~~business~~ in ~~Au Gres, Michigan during fiscal 2005, which caused sales to decline by approximately $10 million. Fluctuations in~~ foreign exchange rates relative to the U.S. dollar ~~decreased~~ increased sales ~~approximately~~by $1124.5 million~~, but~~ ~~were~~and ~~partially offset by the impact of higher metal pass-though pricing, which increased sales~~ $926.5 million, respectively. ~~Also contributing~~Higher tovolume ~~the decline in sales were global pricing pressures~~ and anfavorable ~~unfavorable~~ product mix, increased ~~which~~sales ~~caused~~by a $7.8 million, ~~decline~~while inlower ~~sales.~~pricing ~~Our~~decreased sales ~~volumes~~by ~~overall increased~~ $21.3 million ~~during the first quarter of 2006; stronger volumes internationally were partially offset by declines in the U~~.~~S. market resulting from the lower OEM~~ ~~demand and the closure of several of our aluminum wheel facilities.~~

Gross profit

Our gross profit ~~decreased~~increased 931.51% or $514.56 million in the first quarter of fiscal ~~2006~~2007 to $5261.4 5 million from $5746.9 million in the first quarter of fiscal ~~2005~~2006. ~~Fluctuations~~ inHigher ~~foreign~~metal ~~exchange~~pass-through ~~rates relative to the~~pricing ~~U.S. dollar~~increased ~~negatively impacted~~ gross profit ~~during the first quarter of fiscal 2006~~ by ~~approximately~~ $15.75 million. ~~The~~ ~~lag~~Lower inpricing ~~timing~~and ofunfavorable ~~metal~~product ~~price~~mix ~~recovery from our customers~~ decreased gross profit by ~~approximately~~ $41.8 million~~. Lower depreciation~~, ~~primarily~~partially ~~resulting~~offset ~~from~~by ~~the~~higher ~~impairment~~volume. ofThe ~~fixed assets~~remaining ingross ~~the~~profit ~~Components~~increase ~~business during the fourth quarter of~~was ~~fiscal~~primarily ~~2005,~~due ~~was~~to ~~offset by the impact of~~ lower ~~volumes~~depreciation ~~in North America~~expense, ~~increased~~improved ~~global~~operational ~~pricing~~efficiencies, ~~pressures~~ and ~~an unfavorable~~favorable ~~product~~fluctuations ~~mix. While productivity was stronger than the first quarter of 2005, causing an increase~~ in ~~profitability,~~foreign ~~this~~exchange ~~was partially offset by higher utility costs and other economic factors~~rates.

Marketing, general, and administrative

Our marketing, general, and administrative expense ~~decreased~~ increased $14.20 million into $38.6 million during the first quarter of fiscal ~~2006~~2007 ~~to $39.9 million~~ from $4134.16 million. ~~The~~in ~~decline~~the ~~is primarily~~first ~~attributed~~quarter toof ~~lower~~fiscal ~~employee~~2006. This ~~costs~~increase ~~and~~is aprimarily ~~reduction~~due ~~in outside~~to ~~services.~~increased ~~Also,~~incentive ~~contributing~~plan topayouts ~~the~~and ~~decline~~foreign ~~were~~exchange rate fluctuations, inpartially ~~foreign~~offset ~~exchange~~by ~~rates,~~the ~~which~~wage ~~lowered~~base ~~expense~~decrease ~~by $0.5 million~~in ~~during~~ the first quarter of fiscal 2006.

25 ~~Asset impairments and other restructuring Charges~~

WeTable 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. Contents

WeAsset ~~recorded~~impairments ~~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.

During the first quarter of fiscal 2007, we recorded facility closure and restructuring charges of $2.4 million. In the Automotive Wheels segment we recorded expense of $2.3 million, principally related to facility closure costs at our Huntington, Indiana aluminum wheel facility as well as machinery and equipment impairments at our Brazil aluminum wheel facility. The Other segment expense of $0.1 million is primarily related to severance expense at our corporate offices.

During the first quarter of fiscal 2006 we recorded facility closure, employee restructuring, and asset impairment expenses of $3.5 million. In the Automotive Wheels segment we recorded expenses of $2.1 million, which consisted primarily of costs related to severance at our international wheel locations in Spain, Italy, and South Africa in addition to expenses related to the closure of our Huntington, Indiana facility. The Components segment recorded a $0.8 million charge primarily related to severance expense at the technical center in Ferndale, Michigan. The Other segment expense of $0.6 million represents severance at our corporate office.

Interest expense, net

Interest expense increased $21.24 million to $1718.3 million for the first quarter of fiscal ~~2006 from~~2007 from $1516.19 million for the first quarter of fiscal ~~2005~~2006. The increase was ~~primarily~~ driven byprimarily by higher short-term interest rates.

Income taxes

Income tax expense was $58.6 million for the first quarter of fiscal ~~2006~~2007 compared to expense of $45.85 million for the first quarter of fiscal ~~2005~~2006. The income tax rate varies from the United States statutory income tax rate of 35% due primarily to losses in the United States without recognition of a corresponding income tax benefit, as well as effective income tax rates in certain foreign jurisdictions that are lower than the United States statutory rates. Accordingly, our ~~worldwide~~ worldwide tax expense may not bear a normal relationship to earnings before taxes on income.

Discontinued operations

In the ~~third~~first quarter of fiscal ~~2005,~~2007 we ~~announced~~sold ~~that we had signed an agreement to sell~~ our ~~Hub~~suspension ~~and~~facilities ~~Drum~~in ~~business~~Bristol, ~~and~~Indiana ~~it was~~and ~~classified~~Montague, asMichigan. ~~discontinued~~In ~~operations~~fiscal ~~and~~2006 aswe ansold ~~asset~~our ~~group~~suspension ~~held for~~facility ~~sale~~in ~~as of October 31~~Southfield, ~~2005~~Michigan. ~~The Hub and Drum business~~These ~~was~~facilities ~~subsequently~~made ~~sold~~up inmost ~~November~~ of ~~2005.~~our ~~The~~suspension ~~Hub~~components ~~and Drum~~ business ~~was~~(Suspension ~~comprised~~business) ~~of operations in Berea, Kentucky; Chattanooga, Tennessee;~~ and ~~Mexico City, Mexico and~~ was ~~included in~~part of our ~~Other~~Components segment. The ~~Hub~~Suspension ~~and Drum~~ business is accounted for as discontinued operations in accordance with Statement of Financial Accounting Standard (SFAS) 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Accordingly, the operating results of the business in in the prior ~~year~~periods were reclassified as discontinued operations.

Net loss

Due to factors mentioned above, net loss during the first quarter of fiscal ~~2006~~2007 was $1715.6 3 million as compared to a net loss of $817.16 million in the first quarter of fiscal ~~2005~~ 2006.

Segment Results — Comparison of the Three Months Ended April 30, 2007 to the Three Months Ended April 30, 2006 22

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


	Three Months		Three Months
	Ended April 30,		Ended April 30,
	2007		2006		$ Change
Net sales	$	466.8	$	403.8	$	63.0
Asset impairments and other restructuring charges:
Facility closure costs	$	2.1	$	0.4	$	1.7
Impairment of facility, machinery, and equipment		0.2		0.2		—
Severance and other restructuring costs		—		1.5		(1.5	)

Total asset impairments and other restructuring charges	$	2.3	$	2.1	$	0.2
Earnings from operations	$	24.5	$	13.5	$	11.0

Net sales

Net sales from our Automotive Wheels segment rose ~~1.5% or~~ $663.0 million or 15.6% to $~~403~~466.8 million in the first quarter of fiscal ~~2006~~2007 from $~~397~~403.8 million induring the first quarter of fiscal ~~2005~~2006. ~~Fluctuations in foreign exchange rates relative to~~ ~~the~~Increased ~~U.S. dollar~~volume ~~decreased~~and ~~sales~~favorable ~~approximately $8 million.~~product ~~Higher~~mix ~~wheel volumes~~ increased sales by $821.3 million~~; higher volumes on international steel and truck wheels~~, aswhich ~~well~~was ~~as increased volume in our Mexican aluminum wheel facility, were~~ partially offset by ~~lower~~decreased ~~volumes in the U~~pricing.~~S.,~~ ~~primarily~~Increased ~~due~~metal topass-through ~~the~~pricing ~~closure of our La Mirada, California facility in fiscal 2005~~ and ~~the~~favorable ~~impending~~foreign ~~closure of~~exchange ~~our~~rate ~~Huntington,~~fluctuations ~~Indiana facility. Recovery of higher metal prices and a favorable product mix~~ increased sales, ~~but were partially offset~~ by ~~global~~$21.4 million ~~pricing~~and ~~pressure~~$23.7 million, respectively.

Asset impairments and other restructuring charges

~~The~~ During ~~asset~~the ~~impairments~~first ~~and~~quarter ~~other~~of ~~restructuring~~fiscal ~~expense~~2007, ~~for~~we ~~the Automotive~~recorded ~~Wheels~~facility ~~segment~~closure ~~was~~and restructuring charges of $2.03 million,. ~~which~~These ~~consisted primarily~~principally ~~of costs~~ related to ~~severance~~facility closure costs at our ~~international~~Huntington, Indiana aluminum wheel ~~locations~~facility inas ~~Spain,~~well ~~Italy~~as machinery and ~~South~~equipment ~~Africa~~impairments inrecorded ~~addition~~at toour ~~the~~Brazil ~~Huntington,~~aluminum ~~Indiana~~wheel facility. ~~There~~During ~~were~~the ~~also~~first ~~continuing facility~~quarter ~~closure~~of ~~costs~~fiscal ~~related~~2006 towe ~~the~~recorded ~~Howell, Michigan;~~facility ~~La Mirada~~closure, ~~California;~~employee ~~Somerset~~restructuring, ~~Kentucky;~~ and ~~Bowling Green,~~asset ~~Kentucky facilities. Asset~~ impairment ~~and~~expenses ~~other restructuring expense for the first three months~~ of ~~fiscal 2005 was~~ $02.81 million,. ~~which~~These consisted primarily of ~~continuing facility closure~~ costs related to ~~the~~severance ~~Howell,~~to ~~Michigan; La Mirada,~~our ~~California;~~international ~~and~~wheel ~~Bowling~~locations ~~Green~~in Spain, ~~Kentucky~~Italy, and ~~facilities.~~South InAfrica in addition, weto ~~recorded~~expenses ~~severance~~related ~~charges~~to ~~for~~the ~~our La Mirada,~~closure ~~California~~of ~~and~~our ~~Manresa~~Huntington, ~~Spain~~Indiana ~~facilities~~facility.

Earnings from operations

Earnings from ~~operations at~~ our Automotive Wheels ~~operations declined~~segment increased $511.70 million ~~in the first quarter of fiscal 2006~~ to $1324.5 million ~~compared to $19.2 million~~ in the first quarter of fiscal ~~2005.~~2007 ~~The impact of higher volume and productivity improvements was more than offset by global pricing pressures, an unfavorable product mix, and the lag in timing of aluminum price recovery~~ from ~~our customers~~$13.5 million ~~Depreciation was lower than~~ in the first quarter of fiscal ~~2005~~2006. ~~However,~~The ~~this~~ increase in profitability was ~~offset~~driven by higher ~~utility~~volumes ~~costs globally.~~and ~~Also~~favorable ~~impacting~~product ~~earnings from operations was a $1.2 million increase in facility closure~~mix, ~~impairment, severance~~higher ~~and~~metal ~~other restructuring costs over the first quarter~~pass-through ~~of fiscal 2005. This increase is primarily related to the closures of our Huntington~~pricing, ~~Indiana~~improved ~~and~~operational ~~Campiglione~~efficiencies, ~~Italy aluminum wheel facilities, as well as the consolidation of North American~~ and ~~International~~lower ~~wheel~~depreciation ~~staffs into one group~~costs.

Components

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

	Three Months			Three Months
	Ended April 30,			Ended April 30,
	2006			2005			$ Change
	2007			2006			$ Change
Net sales	$	~~169~~94.02		$	~~191~~99.47		$	(225.45	)
Asset impairments and other restructuring charges:
Facility closure costs	$	—		$	—		$	—
Impairment of facility, machinery, equipment, and intangibles	$	—		$	—		$	—
Impairment of land, building, machinery, equipment, and tooling		—			—			—
Severance and other restructuring costs		—			0.8			(0.8	)
Severance and other restructuring costs		1.1			—			1.1
Total asset impairments and other restructuring charges	$	—		$	0.8		$	(0.8	)
Total asset impairments and other restructuring charges	$	1.1		$	—		$	1.1
Earnings (loss) from operations	$	0.4		$	(1.2	)	$	1.6
(Loss) earnings from operations	$	(1.2	)	$	0.9		$	(2.1	)

Net sales

Net sales from our Components ~~decreased~~segment 11fell $5.7%5 million or ~~$22~~5.4 ~~million~~ % to $~~169~~94.02 million in the first quarter of fiscal ~~2006~~2007 from $~~191~~99.47 million induring the first quarter of fiscal ~~2005~~2006. ~~Fluctuations~~ inLower ~~foreign exchange rates relative to the~~volume ~~U.S. dollar~~ decreased sales ~~by approximately~~ $314 million. ~~Stronger~~Higher ~~volumes~~metal in our powertrain and brake businesses were more than offset by lower volumes and an unfavorable product mix, particularly in our suspension business, and global pricing pressures which reduced sales by approximately $13 million. Also contributing to the decline in sales was the sale of our Cadillac, Michigan iron foundry and our Equipment & Engineering business in fiscal 2005, which caused a $10 million decline in sales. These declines were partially offset by higher pass-through pricing ~~on metal,~~and ~~which increased sales by approximately $4 million.~~

favorable product mix increased sales $4 million. Favorable foreign exchange rate fluctuations and higher pricing increased sales $5 million.

Asset impairments and other restructuring charges

~~The~~ During ~~asset impairments and other restructuring expense during~~ the first quarter of fiscal 2006 ~~for~~our ~~the~~ Components segment ~~was~~ reported a $10.18 million, ~~which~~charge primarily ~~consisted~~related ofto severance expense ~~associated~~ ~~with~~at the ~~consolidation~~technical ofcenter ~~our staff~~ in ~~the suspension~~Ferndale, ~~powertrain~~Michigan, ~~and~~which ~~brake~~was closed ~~businesses~~during fiscal 2006.

~~Earnings~~ Loss from operations

Our Components ~~loss~~segment had income from operations ~~was~~of $10.24 million ~~during~~for the first quarter of fiscal ~~2006~~2007 compared to ~~earnings~~a loss from operations of $01.92 million in the first quarter of fiscal ~~2005.~~ ~~Lower depreciation and a lower allocation of corporate overhead costs increased earnings in the first quarter of fiscal~~ 2006. ~~However, these increases were offset primarily by lower~~ ~~volumes,~~This ~~an unfavorable mix, global pricing pressures, the lag in timing of metal price recovery from our customers and higher utility costs. Additionally, the Components segment recorded~~ $1.16 million ofimprovement ~~employee~~was ~~restructuring~~primarily ~~costs~~due ~~during~~to ~~the first~~higher ~~quarter~~pricing, oflower ~~fiscal~~depreciation, ~~2006~~and ~~associated with the consolidation~~lower ofwages ~~our~~and ~~staff~~benefits, inpartially ~~the~~offset ~~powertrain,~~by ~~brake,~~lower volume and ~~suspension~~unfavorable ~~businesses~~product mix.

Other

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

	Three Months			Three Months
	Ended April 30,			Ended April 30,
	2006			2005			$ Change
	2007			2006			$ Change
Loss from operations	$	(4.98	)	$	6(4.9	)	$	~~(2.~~0.1	)

Loss from operations

Loss from operations in the ~~Other~~first ~~segment~~quarter of fiscal 2007 was $4.98 million in ~~the~~compared ~~first~~to ~~quarter~~a loss of ~~fiscal 2006 compared to~~ $64.9 million induring the first quarter of fiscal ~~2005~~2006. ~~The primary~~This ~~reasons~~improvement ~~for~~was ~~the~~primarily ~~reduction~~due ~~in loss from operations are~~to ~~lower~~decreases ~~employee~~in ~~expenses~~wage atand ~~our~~benefit ~~corporate~~costs ~~headquarters~~ and a reduction in the use of outside ~~consultants~~services.

Liquidity and Capital Resources

Cash Flows

Operating Activities: Cash provided by ~~our~~ operations was $2514.59 million in the first three months of of fiscal ~~2006~~2007 compared to ~~cash used of~~ $3136.38 million in the first three months of fiscal ~~2005~~2006. The $5621.~~8 million~~9 ~~improvement~~million ~~resulted~~decrease was primarily ~~from~~due ~~improved~~to ~~working capital~~a ~~requirements. The~~one ~~first~~time ~~three~~change ~~months~~in ofcustomer ~~fiscal~~terms ~~2005~~in ~~were negatively impacted by~~ the ~~termination~~first ofquarter ~~early customer payment programs and lower~~of ~~utilization~~fiscal ~~of the account receivable securitization facility~~2006.

Investing Activities: Cash used for investing activities was $1116.56 million during the first three months of fiscal ~~2006~~2007 compared to $3610.43 million in the first three months of fiscal ~~2005~~2006. This ~~decrease~~increase was primarily due to ~~lower~~ higher capital expenditures, asmostly ~~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 our products.

Financing Activities: Cash ~~used~~provided ~~for~~by financing activities was $52.83 million in the first three months of fiscal ~~2006~~2007 compared to cash ~~provided~~used byfor financing activities of $794.17 million in the first three months of fiscal ~~2005~~2006. This ~~decrease~~increase inis ~~cash~~primarily ~~flow~~due ~~from~~to ~~financing~~the ~~activities~~conversion isof some of our ~~primarily~~Senior ~~due~~Notes to our common stock in the ~~Term~~first ~~Loan C~~quarter ~~proceeds~~of ~~received~~2007 inand ~~the previous~~payment ~~year~~of ~~not~~bank ~~received~~finance infees in the ~~current~~first ~~year~~quarter of 2006.

Sources of Liquidity

The principal sources of liquidity for our future operating, capital expenditure, facility closure, restructuring, 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, (iv) proceeds related to our trade receivable securitization and financing programs, ~~and~~ (v) ~~borrowings~~proceeds from the ~~Revolving~~sale ~~Credit~~of ~~Facility.~~common ~~While~~stock ~~we expect~~in ~~that~~our ~~such~~rights ~~sources will meet these requirements~~offering, ~~there can~~(vi) beproceeds nofrom ~~assurances~~sale ~~that~~of ~~such~~euro ~~sources~~denominated ~~will~~senior ~~prove~~unsecured ~~to be sufficient~~notes, in ~~part,~~and ~~due~~(vii) borrowings tofrom ~~inherent~~our ~~uncertainties about applicable future~~new ~~business~~credit ~~and capital market conditions~~facilities.

28 ~~We also continually evaluate our product and business portfolio for opportunities to optimize shareholder value.~~

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.

Rights Offering

New Senior Notes

On May 30, 2007 we closed on a new offering of €130 million 8¹/4% senior unsecured notes (New Notes) issued by Hayes Lemmerz Finance LLC – Luxembourg S.C.A., a newly formed European subsidiary (Hayes Luxembourg). The New Notes mature in 2015 and contain customary covenants and restrictions. The New Notes and the related Indenture restrict our ability to, among other things, make certain restricted payments, incur debt and issue preferred stock, incur liens, permit dividends and other distributions by our subsidiaries, merge, consolidate, or sell assets, and engage in transactions with affiliates. The New Notes and the Indenture also contain customary events of default, including failure to pay principal or interest on the Notes or the guarantees when due, among others. The New Notes are fully and unconditionally guaranteed on a senior unsecured basis by us, HLI, and substantially all of our direct and indirect domestic subsidiaries and, subject to certain exceptions, by certain of our indirect foreign subsidiaries. Proceeds from the issuance of the New Notes, together with the proceeds from the New Credit Facilities (as described below), were used to refinance obligations under our Amended and Restated Credit Agreement, dated as of April 11, 2005, to repay in full the approximately $21.7 million mortgage note on our headquarters building in Northville, Michigan, to pay related fees and expenses, and for working capital and other general corporate purposes.

New Credit Facilities

Other Liquidity Matters

We have a $45 million domestic accounts receivable securitization facility. As of April 30, 2007 and January 31, 2007, a total of $38 and $37 million was financed under this program, respectively.

During fiscal 2005 we established an accounts receivable financing program in Germany with a local financial institution. Borrowings under this program of $27 million and $25 million at April 30, 2007 and January 31, 2007, respectively, are included in short term bank borrowings.

In fiscal 2006 we established an accounts receivable factoring program in the Czech Republic with a local financial institution. The program limit is approximately $19 million. As of April 30, 2007 and January 31, 2007, a total of $15.7 million and $13 million, respectively, was factored under this program. The transactions are accounted for as sales of receivables under the provisions of Financial Accounting Standards Board (FASB) SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (SFAS 140) and the receivables are removed from the Consolidated Balance Sheets.

Credit Ratings

As of April 30, ~~2006~~2007 our credit ratings were as follows:

	S&P		Moody’s
Corporate and Bank Debt rating		B−		B3
Corporate rating		B-	Caa1
Senior Note rating		CCC		Caa3
Bank debt rating		B-		B1
Senior Note rating	CCC		Caa2

The credit ratings on our new credit facilities and senior notes were as follows as of June 7, 2007:

S&P

Moody’s

Fitch

Corporate rating

Bank debt rating

BB-

BB/RR1

New Senior Note rating

CCC+

Caa2

B-/RR5

Off Balance Sheet Arrangements

On December 9, 2004 we established an accounts receivable securitization facility in the U.S., which ~~provides~~provided up to $5075 million in funding from commercial paper conduits sponsored by commercial lenders. ~~The~~On ~~actual~~May 30, ~~amount of funding available at any given time is based on availability of eligible receivables and other customary factors. Pursuant to the securitization facility~~2006, ~~certain~~we ofestablished ~~our~~a ~~subsidiaries~~new ~~sold~~$65 million ~~trade~~ accounts receivable ~~to a non-consolidated special purpose~~securitization ~~entity,~~facility ~~which~~with ~~resold~~commercial ~~the~~lenders ~~receivables~~in ~~to a qualifying special purpose entity, which then pledged~~ the ~~receivables to secure borrowings from commercial paper conduits~~U.S. ~~The~~that ~~securitization transactions~~replaced ~~were accounted for as sales of~~ the ~~receivables under~~program ~~the~~established ~~provisions~~on ~~of SFAS~~December ~~140 “Accounting for~~9, ~~Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” and were removed from the consolidated balance sheets~~2004. The ~~proceeds~~new ~~received~~program’s ~~are~~structure ~~included~~is insimilar ~~cash~~to ~~flows from operating activities in~~ the ~~consolidated~~program ~~statements~~that ofwas ~~cash flows~~replaced. ~~Costs~~The ~~associated~~new ~~with~~program ~~the receivables facility are~~was ~~recorded~~amended ason ~~other~~February 23, ~~expense in the consolidated statements of~~2007 ~~operations. We began selling receivables pursuant to the securitization program during the fourth quarter of fiscal 2004.~~

~~At April~~ 30~~, 2006 and January 31, 2006, the~~ outstanding balance of receivables sold to special purpose entities was $105 million and $112 million, respectively. Our net retained interest at April 30, 2006 and January 31, 2006 was $80 million and $101 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, 2006 and January 31, 2006 were $25 million and $11 million, respectively.

Contractual Obligations

The following table identifies our significant contractual obligations as of April 30, 2006 (dollars in millions):

	Payment Due by Period
	Less than		1-3		4-5		After 5
	1 Year		Years		Years		Years		Total
Short-term borrowings	$	26.0	$	—	$	—	$	—	$	26.0
Long-term debt		16.7		14.4		632.3		—		663.4
Mortgage note payable		0.2		21.8		—		—		22.0
Capital lease obligations		3.9		7.6		6.1		—		17.6
Operating leases		14.3		15.9		5.8		1.1		37.1
Redeemable preferred stock		—		—		—		12.3		12.3
Capital expenditures		11.4		—		—		—		11.4
United States pension contributions		16.8		15.0		0.7		—		32.5
Total obligations	$	89.3	$	74.7	$	644.9	$	13.4	$	822.3

to reduce the facility to $45 million. We have agreed with the lenders under the securitization facility to extend the term of the facility and decrease the effective borrowing rate. The facility will have an expiration date of May 30, 2013 and an interest rate based on LIBOR plus 2.25%. The actual amount of funding available at any given time is based on availability of eligible receivables and other customary factors.

Pursuant to the securitization facility, certain of our consolidated subsidiaries sell substantially all U.S. short term receivables to a non-consolidated special purpose entity (SPE I) at face value and no gains or losses are recognized in connection with the sales. The purchase price for the receivables sold to SPE I is paid in a combination of cash and short term notes. The short term notes appear in Other Receivables on our Consolidated Balance Sheets and represent the difference between the face amount of accounts receivables sold and the cash received for the sales. SPE I resells the receivables to a non-consolidated qualifying special purpose entity (SPE II) at an annualized discount of 2.4% to 4.4%. SPE II pays the purchase price for the receivables with cash received from borrowings and a short term note to SPE I for the excess of the purchase price of the receivables over the cash payment. SPE II pledges the receivables to secure borrowings from commercial lenders. This debt is not included in our consolidated financial statements.

Collections for the receivables are serviced by us and deposited into an account controlled by the program agent. The servicing fees payable to us are set off against interest and other fees payable to the program agent and lenders. The program agent uses the proceeds to pay off the short term borrowings from commercial lenders and returns the excess collections to SPE II, which in turn pays down the short term note issued to SPE I. SPE I then pays down the short term notes issued to the consolidated subsidiaries.

The securitization transactions are accounted for as sales of the receivables under the provisions of SFAS 140 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.

At April 30, 2007 and January 31, 2006 the outstanding balances of receivables sold to special purpose entities were $72 million and $80 million, respectively. Our net retained interests at April 30, 2007 and January 31, 2006 were $34 million and $43 million, respectively, which are disclosed as Other Receivables on the Consolidated Balance Sheets and in cash flows from operating activities in the Consolidated Statements of Cash Flows. Advances from lenders at April 30, 2007 and commercial paper conduits at January 31, 2006 were $38 million and $37 million, respectively.

Contractual Obligations

The following table identifies our significant contractual obligations as of April 30, 2007 (dollars in millions):


	Payment Due by Period
	Less than 1
	Year		2-3 Years		4-5 Years		After 5 Years		Total
Short-term borrowings	$	28.8	$	—	$	—	$	—	$	28.8
Long-term debt		4.5		334.8		308.0		—		647.3
Mortgage note payable		0.2		21.5		—		—		21.7
Capital lease obligation		0.7		—		—		—		0.7
Operating leases		6.2		6.9		0.7		0.2		14.0
Capital expenditures		22.8		—		—		—		22.8
United States pension contribution		11.5		16.5		14.7		—		42.7

Total obligations	$	74.7	$	379.7	$	323.4	$	0.2	$	778.0

Other Cash Requirements

We anticipate the following approximate significant cash requirements to be paid during the remainder of fiscal ~~2006~~ 2007 (dollars in millions):

Interest	$	59.2
Taxes		14.3
United States pension and other post-retirement benefits funding		11.6
Restructuring costs		5.5

Critical Accounting Policies

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

Asset impairment losses and other restructuring charges

Our consolidated statements of operations included herein reflect an element of operating expenses described as asset impairments and other restructuring charges. We periodically evaluate whether events and circumstances have occurred that indicate that the remaining useful life of any of 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, we use an estimate of the future undiscounted cash flows generated by the underlying assets to determine if a write-down is required. If the future undiscounted cash flows generated by the underlying assets 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.

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.

Pension and postretirement benefits other than pensions

Annual net periodic expense and benefit liabilities under our 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, we review the actual experience compared to the more significant assumptions used and make adjustments to the assumptions, if warranted. The healthcare trend rates are reviewed with the actuaries based upon the results of their review of claims experience. Discount rates are based upon an expected benefit payments duration analysis and the equivalent average yield rate for high-quality fixed-income investments.

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

Certain accounting guidance, including the guidance applicable to pensions, does not require immediate recognition of the effects of a deviation between actual and assumed experience or the revision of an estimate. This approach allows the favorable and unfavorable effects that fall within an acceptable range to be netted. Although this netting occurs outside the basic financial statements, the net amount is disclosed as an unrecognized gain or loss in the footnotes to our financial statements.

Goodwill impairment testing


Interest	$	42.2
Taxes		20.3
International pension and other post-retirement benefits funding		18.3
Restructuring costs		1.2

Goodwill and other indefinite-lived intangible assets are no longer amortized; rather those assets must be tested for impairment annually. We 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 our receivables (primarily trade receivables). We 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. We believe that the allowance for uncollectible accounts is adequate to cover potential losses. Actual results may vary as a result of unforeseen economic events and the impact those events could have on our customers.

Income Taxes

In accordance with the provisions of SFAS 109, “Accounting for Income Taxes,” we account for income taxes using the asset and liability method. The asset and liability method requires the recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between the tax bases and financial reporting bases of our assets and liabilities. In assessing the realizability of deferred tax assets, we 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 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. We 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.

We have not recorded a deferred tax liability for temporary differences related to investments in foreign subsidiaries that are essentially permanent in duration. These temporary differences may become taxable upon a repatriation of assets from the subsidiaries or a sale or liquidation of the subsidiaries.

We have a liability for taxes that may become payable as 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 On ~~March~~September 8, 2006, the FASB issued ~~SFAS 156,~~FSP ~~“Accounting for~~AUG ~~Servicing of Financial Assets — an amendment to FASB Statement No. 140,” which:~~ AIR-1~~) provides revised~~ ~~guidance~~Accounting onfor ~~when~~Planned aMajor ~~servicing asset and servicing~~Maintenance ~~liability~~Activities. ~~should~~The beFASB ~~recognized;~~staff ~~2) requires~~position ~~all~~defines ~~separately recognized~~three ~~servicing~~acceptable ~~assets~~methods ~~and~~for ~~servicing~~major ~~liabilities to be~~maintenance ~~initially~~accounting, ~~measured~~the atdirect ~~fair value~~expensing, ifbuilt-in ~~practicable; 3) permits~~overhaul, ~~an entity to elect to measure servicing assets~~ and ~~servicing~~deferral ~~liabilities~~methods, ~~at fair value each reporting date~~ and ~~report~~ ~~changes~~prohibits ~~in fair value in earnings in~~ the ~~period~~use ~~in which~~of the ~~changes~~accrual ~~occur;~~method. ~~4) upon~~It ~~initial~~also ~~adoption,~~requires ~~permits~~disclosure ~~a one-time reclassification~~ of ~~available-for-sale securities~~ ~~to trading securities for securities that are identified as offsetting~~ the ~~entity’s~~method ~~exposure~~used ~~to changes~~ in ~~the~~addition ~~fair value of servicing assets or liabilities that a servicer elects~~ to ~~subsequently~~details ~~measure~~on ~~at fair value; and~~the ~~5) requires~~impact ~~separate~~on ~~presentation~~financials of ~~servicing~~any ~~assets~~retrospective ~~and servicing~~adjustments ~~liabilities~~required. ~~subsequently~~FSP ~~measured~~AUG atAIR-1 ~~fair~~is ~~value~~effective ~~in the~~for ~~statement of~~ financial ~~position~~statements ~~and~~issues ~~additional~~for ~~footnote disclosures.~~fiscal ~~SFAS 156~~years ~~is effective as of the~~ beginning ~~of an entity’s first fiscal year that begins~~ after ~~September~~ December 15, 2006. ~~with~~We ~~the~~have ~~effects of initial adoption~~continued ~~being~~to ~~reported~~use asthe adirect ~~cumulative-effect~~expensing ~~adjustment~~method toof ~~beginning retained~~accounting ~~earnings.~~for ~~Adoption~~major ofmaintenance, ~~SFAS 156~~and isno ~~not~~adjustments ~~expected to~~for ~~have~~prior anperiods ~~impact~~were ~~on our financial condition or results of operations~~required.

In February 2007 the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115” (SFAS 159). This standard 28permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. A business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS 159 is effective for us as of February 1, 2008. Management is assessing the potential impact on our financial condition or results of operations in the event we elect the fair value option.

~~Table~~ In September 2006 the FASB issued SFAS 157, “Fair Value Measurements” (SFAS 157). This standard defines fair value, establishes a framework for measuring fair value in conformity with U.S. generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 does not introduce new requirements for when fair value measures must be used, but focuses on how to measure fair value by establishing a fair value hierarchy to classify the sources of ~~Contents~~information used to measure fair value. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. Management is assessing the potential impact on present fair value measurement techniques, disclosures, and our financial position.

In February 2006, the FASB issued SFAS 155, “Accounting for Certain 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 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 subject to the requirements of SFAS 133 and clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives. The standard 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 fiscal year that begins after September 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-effect adjustment to beginning retained earnings. Adoption of SFAS 155 is not expected to have an impact on our financial condition or results of operations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

In the normal course of business we are exposed to market risks arising from changes in foreign exchange rates, interest rates, raw material, and utility prices. We selectively use derivative financial instruments to manage these risks, but do not enter 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~~ 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~~ 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~~ January 2006, we entered into a foreign currency swap ~~agreement~~ 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.~~

32 ~~Interest Rates~~

~~interest~~foreign ~~payments~~subsidiaries. onDuring ~~variable~~the ~~rate~~first ~~debt~~quarter ~~with~~of ~~the~~fiscal ~~same terms~~2007, ~~it qualifies~~the ~~for~~foreign ~~cash flow hedge accounting treatment. At~~currency ~~April 30,~~swap ~~2006~~agreement ~~and~~was ~~January 31,~~effective; ~~2006~~prospectively, ~~approximately $454 million~~we ofexpect ~~our~~the ~~debt~~hedge ~~was~~to ~~variable~~be ~~rate~~ineffective ~~debt~~due ~~after considering~~to the significant ~~impact~~restructuring of ~~the~~our ~~swap~~debt.

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, 2007 and January 31, 2007 approximately $458 million and $450 million, respectively, of our debt was variable rate debt after considering the impact of the swap. During the first quarter of fiscal 2007, the interest rate swap agreement was effective; prospectively, we expect the hedge to be ineffective due to the significant restructuring of our debt.

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~~ other arrangements for substantially all of our aluminum and steel requirements for fiscal ~~2006~~2007. 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~~ 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~~ commitments for natural gas to mitigate market fluctuations in natural gas prices.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that the information we must disclose in our filings with the Securities and Exchange Commission (SEC) is recorded, processed, summarized, and reported on a ~~timely basis. We maintain a~~ disclosure committee (the Disclosure Committee) reporting to our Chief Executive Officer to assist the Chief Executive Officer and Chief Financial Officer in fulfilling their responsibility in designing, establishing, maintaining, and reviewing our ~~disclosure~~Disclosure ~~controls~~Controls and ~~procedures~~ Procedures. The Disclosure Committee is currently chaired by our Chief Financial Officer ~~and~~ and includes our General Counsel,; ~~Vice~~Director of Compensation and Benefits; Controller; Treasurer; Vice President of Global Materials and Logistics,; ~~Corporate Controller, Treasurer,~~ Assistant General Counsel,; Director of Internal Audit,; ~~Director of~~and ~~Tax~~Vice President, ~~Director~~Chief ~~of Compensation and Benefits~~Operating Officer, and ~~Director~~President of ~~Financial~~ ~~Reporting~~the ~~and~~Global ~~Governance~~Wheel Group as its other members.

As of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer, along with the Disclosure Committee, evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) of of the Securities Exchange Act of 1934. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were ~~not~~ effective as of April 30, ~~2006~~2007 ~~due~~to ensure that information required to abe ~~continuing~~disclosed ~~material weakness~~by the Company in ~~our~~the ~~internal~~reports that ~~controls~~it ~~over~~files ~~accounting~~and ~~for~~submits ~~income taxes~~under ~~previously~~the ~~reported~~Securities inExchange ~~our~~Act ~~Annual~~of ~~Report~~1934 ~~on Form 10-K for~~is accumulated and submitted to the ~~year~~Company’s ~~ended~~management ~~January 31,~~as ~~2006~~appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

In There ~~our~~have ~~Annual~~been ~~Report~~no ~~on Form 10-K for~~changes ~~the~~in ~~year ended January 31, 2006,~~ our internal control over financial reporting ~~was~~that ~~not~~occurred during ~~effective based on~~ the ~~criteria set~~first ~~forth~~three bymonths ~~the Committee~~ of ~~Sponsoring~~fiscal ~~Organizations~~2007 ofthat ~~the Treadway~~have ~~Commission~~materially inaffected, ~~Internal Control — Integrated~~or ~~Framework.~~are ~~Our~~reasonably ~~management~~likely ~~identified~~to amaterially ~~material~~affect, ~~weakness in~~ our internal control over financial reporting ~~related to 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.

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 the income tax weakness noted above, we are applying other procedures designed to improve the reliability of our accounting for income taxes. While our efforts to remediate this material weakness are ongoing, management believes that the consolidated financial statements included in this report are fairly stated in all material respects.

We will continue to monitor the effectiveness of our 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 our internal control over financial reporting that occurred during the first three months of fiscal 2006 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

On There ~~February 19,~~have ~~2002,~~been weno ~~issued~~material ~~restated~~developments ~~consolidated financial~~to ~~statements~~our aslegal ofproceedings ~~and~~since ~~for~~our ~~the~~Annual ~~fiscal~~Report ~~years ended~~on ~~January 31,~~Form ~~2001~~10-K ~~and~~filed ~~2000,~~on ~~and related quarterly periods, and for the fiscal quarter ended~~ April 309, ~~2001. The restatement was the result of our failure to properly apply certain accounting standards generally accepted in the United States~~2007, ~~and~~except ~~because~~as ~~certain accounting errors and irregularities in our financial statements were identified. As previously~~ disclosed, ~~the~~on ~~SEC~~Form ~~has~~8-K ~~been~~filed ~~conducting an investigation into the facts and circumstances giving rise to the restatements. We have been cooperating with the SEC in connection with such investigation. On April~~May 25, 2006, the SEC brought a civil enforcement action against us and certain of our former executives alleging violations of the securities laws and regulations in connection with these accounting errors and irregularities2007. ~~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 allegations.

33 In October 2003, General Electric Credit Corporation (GECC) filed an amended administrative claim in the Bankruptcy Court for $7.5 million relating to certain leased equipment. The leases were rejected during our Chapter 11 cases. GECC alleged that its damages were incurred post-petition because the equipment was returned post-petition. We disputed the amount and the merits of GECC’s claim. On February 1, 2005, the parties concluded a bench trial on the matter. In March 2006 the court entered a judgment in favor of GECC of approximately $1.2 million, plus interest. Neither we nor GECC appealed the judgment, and on March 31, 2006, we paid the judgment to resolve the case.

Item 1A. Risk Factors

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

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	.21	Amendment No. 2 to Amended and Restated Credit Agreement dated as of March 31, 2006 among HLI Operating Company, Inc., Hayes Lemmerz International Inc., and Citicorp North America, Inc. as Administrative Agent on behalf of each lender executing a Lender Consent (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on April 3, 2006).
10.23		Stock Purchase Agreement among HLI Operating Company, Inc., HLI Suspension Holding Company, Inc. and Diversified Machine, Inc. dated February 1, 2007 (incorporated by reference to Exhibit 10.23 to the Hayes Lemmerz International, Inc. Quarterly Report on Form 10-Q filed on June 8, 2007).
	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.*
31.1		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.*
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.*
32.1		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.*
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.

34 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 COMPANY, INC. /s/ James A. Yost James A. Yost Vice President, Finance, and Chief Financial Officer

~~/s/ James A.~~June 12, ~~Yost~~2007

35 ~~James A. Yost~~

Vice President, Finance, and Chief Financial Officer

June 13, 2006

~~HAYES LEMMERZ~~HLI ~~INTERNATIONAL~~OPERATING COMPANY, INC.

10-Q EXHIBIT INDEX

	10	.21	Amendment No. 2 to Amended and Restated Credit Agreement dated as of March 31, 2006 among HLI Operating Company, Inc., Hayes Lemmerz International Inc., and Citicorp North America, Inc. as Administrative Agent on behalf of each lender executing a Lender Consent (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on April 3, 2006).
10.23		Stock Purchase Agreement among HLI Operating Company, Inc., HLI Suspension Holding Company, Inc. and Diversified Machine, Inc. dated February 1, 2007 (incorporated by reference to Exhibit 10.23 to the Hayes Lemmerz International, Inc. Quarterly Report on Form 10-Q filed on June 8, 2007).
	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.*
31.1		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.*
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.*
32.1		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.*
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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IncomeTable tax expense for the three months ended April 30, 2006 was primarily the result of tax expense in foreign jurisdictions and various states. Contents

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Filing Compare · HLI OPERATING CO INC