HAYES LEMMERZ INTERNATIONAL INC - 10-Q Quarterly Report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


(Mark One)
[X]		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended April 30, 2004
		Or
[ ]		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: 000-50303

Hayes Lemmerz International, Inc.

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of		32-0072578 (IRS Employer
incorporation or organization)		Identification No.)

15300 Centennial Drive		48167
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(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 126-2 of the Act). Yes [X] No [ ]

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

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

As of June 9, 2004, the number of shares of common stock outstanding of Hayes Lemmerz International, Inc., was 37,739,114 shares.

HAYES LEMMERZ INTERNATIONAL, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS


		Page
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Statements of Operations		3
	Consolidated Balance Sheets		4
	Consolidated Statements of Cash Flows		5
	Notes to Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		31
Item 4.	Controls and Procedures		32
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		33
Item 2.	Changes in Securities and Use of Proceeds		33
Item 3.	Defaults upon Senior Securities		33
Item 4.	Submission of Matters to a Vote of Security Holders		33
Item 5.	Other Information		33
Item 6.	Exhibits and Reports on Form 8-K		34
Signatures			35
Certifications
302 CERTIFICATION OF CURTIS J. CLAWSON
302 CERTIFICATION OF JAMES A. YOST
906 CERTIFICATION OF CURTIS J. CLAWSON
906 CERTIFICATION OF JAMES A. YOST

UNLESS OTHERWISE INDICATED, REFERENCES TO THE “COMPANY” MEAN HAYES LEMMERZ INTERNATIONAL, INC., AND ITS SUBSIDIARIES AND REFERENCE TO A FISCAL YEAR MEANS THE COMPANY’S YEAR COMMENCING ON FEBRUARY 1 OF THAT YEAR AND ENDING ON JANUARY 31 OF THE FOLLOWING YEAR (E.G., FISCAL 2004 MEANS THE PERIOD BEGINNING FEBRUARY 1, 2004, AND ENDING JANUARY 31, 2005). THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS, AND BUSINESS OF THE COMPANY. THESE FORWARD LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES. NO ASSURANCE CAN BE GIVEN THAT ANY OF SUCH MATTERS WILL BE REALIZED. FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS INCLUDE, AMONG OTHERS, THE FOLLOWING POSSIBILITIES: (1) COMPETITIVE PRESSURE IN THE COMPANY’S INDUSTRY INCREASES SIGNIFICANTLY; (2) GENERAL ECONOMIC CONDITIONS ARE LESS FAVORABLE THAN EXPECTED; (3) THE COMPANY’S DEPENDENCE ON THE AUTOMOTIVE INDUSTRY (WHICH HAS HISTORICALLY BEEN CYCLICAL); (4) PRICING PRESSURE FROM AUTOMOTIVE INDUSTRY CUSTOMERS; (5) CHANGES IN THE FINANCIAL MARKETS AFFECTING THE COMPANY’S FINANCIAL STRUCTURE AND THE COMPANY’S COST OF CAPITAL AND BORROWED MONEY; (6) THE UNCERTAINTIES INHERENT IN INTERNATIONAL OPERATIONS AND FOREIGN CURRENCY FLUCTUATIONS; AND (7) UNCERTAINTIES RELATING TO CONFLICT IN THE MIDDLE EAST. THE COMPANY HAS NO DUTY UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 TO UPDATE THE FORWARD LOOKING STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-Q AND THE COMPANY DOES NOT INTEND TO PROVIDE SUCH UPDATES.

HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	Successor
	April 30,			January 31,
	2004			2004
	(Unaudited)
	(Millions of dollars,
	except share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	85.3		$	48.5
Receivables		333.8			324.4
Inventories		200.3			189.3
Prepaid expenses and other		27.2			29.0

Total current assets		646.6			591.2
Property, plant and equipment, net		964.9			966.5
Goodwill		411.6			416.2
Intangible assets, net		229.9			237.2
Other assets		63.6			85.5

Total assets	$	2,316.6		$	2,296.6

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Bank borrowings and other notes	$	6.9		$	14.2
Current portion of long-term debt		10.7			11.3
Accounts payable and accrued liabilities		389.1			354.4

Total current liabilities		406.7			379.9
Long-term debt, net of current portion		646.3			752.4
Pension and other long-term liabilities		527.9			526.5
Series A Warrants and Series B Warrants		4.3			8.2
Redeemable preferred stock of subsidiary		10.7			10.5
Minority interest		28.8			23.2
Commitments and contingencies
Stockholders’ equity:
Preferred stock, 1,000,000 shares authorized, none issued or outstanding at April 30, 2004 or January 31, 2004		—			—
Common stock, par value $0.01 per share:
Voting — 100,000,000 shares authorized; 37,720,970 and 30,000,000 issued and outstanding at April 30, 2004 and January 31, 2004, respectively		0.4			0.3
Additional paid in capital		666.7			548.2
Accumulated deficit		(49.2	)		(46.5	)
Accumulated other comprehensive income		74.0			93.9

Total stockholders’ equity		691.9			595.9

Total liabilities and stock holders’ equity	$	2,316.6		$	2,296.6

See accompanying notes to consolidated financial statements.

HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Successor			Predecessor
	Three Months Ended
	April 30,
	2004			2003
	(Unaudited)
	(Millions of dollars)
Cash flows from operating activities:
Net loss	$	(2.7	)	$	(22.6	)
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:
Depreciation and amortization		42.8			34.8
Amortization of deferred financing fees		1.0			1.5
Interest income resulting from fair value adjustment of Series A Warrants and Series B Warrants		(3.9	)		—
Change in deferred income taxes		(3.0	)		0.8
Asset impairments and other restructuring charges		2.4			4.1
Minority interest		2.6			1.0
Subsidiary preferred stock dividends		0.2			—
Compensation expense related to restricted stock units		1.6			—
Loss on early extinguishment of debt		12.2			—
Gain on sale of assets		(0.1	)		(0.4	)
Changes in operating assets and liabilities that increase (decrease) cash flows:
Receivables		(10.1	)		(26.0	)
Inventories		(11.4	)		2.1
Prepaid expenses and other		1.4			3.9
Accounts payable and accrued liabilities		39.7			0.2
Chapter 11 items:
Reorganization items		—			13.1
Interest accrued on Credit Agreement		—			12.6
Payments related to Chapter 11 Filings		(0.8	)		(8.0	)

Cash provided by operating activities		71.9			17.1

Cash flows from investing activities:
Purchase of property, plant, equipment and tooling		(29.3	)		(20.0	)
Proceeds from sale of assets		0.1			0.7

Cash used for investing activities		(29.2	)		(19.3	)

Cash flows from financing activities:
Net proceeds from issuance of common stock		117.0			—
Redemption of New Senior Notes with proceeds from issuance of common stock		(96.7	)		—
Prepayment of New Term Loan with proceeds from issuance of common stock		(16.0	)		—
Repayment of long-term debt		(2.3	)		—
Changes in borrowings under DIP facility		—			11.5
Repayment of notes payable issued in connection with purchases of businesses		(7.1	)		(2.0	)
Changes in bank borrowings and revolving facility		—			(5.6	)

Cash provided by (used for) financing activities		(5.1	)		3.9

Effect of exchange rate changes on cash and cash equivalents		(0.8	)		2.0

Increase in cash and cash equivalents		36.8			3.7
Cash and cash equivalents at beginning of period		48.5			66.1

Cash and cash equivalents at end of period	$	85.3		$	69.8

Supplemental data:
Cash paid for interest	$	9.1		$	3.1
Cash paid for income taxes	$	3.9		$	0.5

See accompanying notes to consolidated financial statements.

HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended April 30, 2004 and 2003
(Unaudited)
(Millions of Dollars, Unless Otherwise Stated)

(1) Description of Business, Chapter 11 Filings and Emergence from Chapter 11

These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2004 as filed with the Securities and Exchange Commission on April 12, 2004.

Description of Business

Unless otherwise indicated, references to “Company” mean Hayes Lemmerz International, Inc. and its subsidiaries, and references to fiscal year means the Company’s year commencing on February 1 of that year and ending on January 31 of the following year (e.g., “fiscal 2004” refers to the period beginning February 1, 2004 and ending January 31, 2005, “fiscal 2003” refers to the period beginning February 1, 2003 and ending January 31, 2004).

The Company is a leading supplier of wheels, wheel-end attachments, aluminum structural components and automotive brake components. The Company is the world’s largest manufacturer of automotive wheels. In addition, the Company also designs and manufactures wheels and brake components for commercial highway vehicles, and powertrain components and aluminum non-structural components for the automotive, commercial highway, heating and general equipment industries.

Chapter 11 Filings

On December 5, 2001, Hayes Lemmerz International, Inc. (“Old Hayes”), 30 of its wholly-owned domestic subsidiaries and one wholly-owned Mexican subsidiary (collectively, the “Debtors”) filed voluntary petitions for reorganization relief (the “Chapter 11 Filings” or the “Filings”) under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”).

On December 16, 2002, certain of the Debtors filed a proposed joint plan of reorganization with the Bankruptcy Court. On April 9, 2003, the Debtors filed a modified first amended joint plan of reorganization (the “Plan of Reorganization”) which received the requisite support from creditors authorized to vote thereon. The following five Debtors were not proponents of the Plan of Reorganization and are not subject to the terms thereof: HLI Netherlands Holdings, Inc., CMI Quaker Alloy, Inc., Hayes Lemmerz Funding Company, LLC, Hayes Lemmerz Funding Corporation, and Hayes Lemmerz International Import, Inc. (collectively, the “Non-reorganizing Debtors”).

The Plan of Reorganization provided for the cancellation of the existing common stock of the Company and the issuance of cash, new common stock in the reorganized Company and other property to certain creditors of the Company in respect of certain classes of claims. The Plan of Reorganization was confirmed by an order of the Bankruptcy Court on May 12, 2003, which order has become final and non-appealable.

Emergence from Chapter 11

On June 3, 2003 (the “Effective Date”), Hayes Lemmerz International, Inc. and each of the 27 Debtors proposing the Plan of Reorganization emerged from Chapter 11 proceedings pursuant to the Plan of Reorganization, which was confirmed by an order of the Bankruptcy Court on May 12, 2003, which order has become final and non-appealable. The Non-reorganizing Debtors were not proponents of the Plan of Reorganization and are not subject to the terms thereof. On June 3, 2003, the Bankruptcy Court entered an order dismissing the Chapter 11 Filings of the Non-reorganizing Debtors.

contributed to ParentCo 30,000,000 shares of its common stock, par value $.01 per share (the “New Common Stock”), and 957,447 series A warrants and 957,447 series B warrants to acquire New Common Stock of New Hayes (the “Series A Warrants” and “Series B Warrants,” respectively), (iii) ParentCo in turn contributed such shares of New Common Stock and Series A Warrants and Series B Warrants to HLI and (iv) pursuant to an Agreement and Plan of Merger, dated as of June 3, 2003 (the “Merger Agreement”), between the Company and HLI, the Company was merged with and into HLI (the “Merger”), with HLI continuing as the surviving corporation.

Pursuant to the Plan of Reorganization and as a result of the Merger, all of the issued and outstanding shares of common stock, par value $.01 per share, of the Company (the “Old Common Stock”), and any other outstanding equity securities of the Company, including all options and warrants, were cancelled. The holders of the existing voting common stock of the Company immediately before confirmation did not receive any voting shares of the emerging entity or any other consideration under the Plan of Reorganization as a result of their ownership interests of the Predecessor. This represented a complete change of control in the ownership of the Company. Promptly following the Merger, HLI distributed to certain holders of allowed claims, under the terms of the Plan of Reorganization, an amount in cash, the New Common Stock, the Series A Warrants, the Series B Warrants and the Preferred Stock (as defined below). Prior to the Merger, the Old Common Stock was registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In reliance on Rule 12g-3(a) of the Exchange Act, by virtue of the status of New Hayes as a successor issuer to the Company, the New Common Stock is deemed registered under Section 12(g) of the Exchange Act. The Company filed a Form 15 with the SEC to terminate the registration of the Old Common Stock under the Exchange Act.

Pursuant to the terms of the Plan of Reorganization, HLI issued 100,000 shares of Preferred Stock, par value $1.00, of HLI (the “Preferred Stock”) to the holders of certain allowed claims. In accordance with the terms of the Preferred Stock, the shares of Preferred Stock are, at the holder’s option, exchangeable into a number of fully paid and nonassessable shares of New Common Stock equal to (i) the aggregate liquidation preference of the shares of Preferred Stock so exchanged ($100 per share plus all accrued and unpaid dividends thereon (whether or not declared) to the exchange date) divided by (ii) 125% of the “Emergence Share Price.” As determined pursuant to the terms of the Plan of Reorganization, the Emergence Share Price is $18.50.

In connection with the Debtors’ emergence from Chapter 11, on the Effective Date, HLI entered into a $550.0 million senior secured credit facility, as amended by Amendment No. 1 and Waiver to Credit Agreement, dated October 16, 2003 and Amendment No. 2 and Waiver to the Credit Agreement, dated February 6, 2004 (as amended, the “New Credit Facility”). The New Credit Facility consists of a $450.0 million six-year amortizing term loan (the “New Term Loan”) and a five-year $100.0 million revolving credit facility (the “Revolving Credit Facility”). In addition, HLI issued on the Effective Date an aggregate of $250.0 million principal amount of 10 1/2% senior notes due 2010 (the “New Senior Notes”). The proceeds from the initial $450.0 million of borrowings under the New Credit Facility and the net proceeds from the New Senior Notes were used to make payments required under the Plan of Reorganization, including the repayment of the Company’s DIP Facility and a payment of $477.3 million to certain prepetition lenders, to pay related transaction costs and to refinance certain debt.

Reorganization items for the three months ended April 30, 2003 as reported in the consolidated statement of operations included herein are comprised of income, expense and loss items that were realized or incurred by the Debtors as a direct result of the Company’s decision to reorganize under Chapter 11. During the three months ended April 30, 2003, reorganization items were as follows (millions of dollars):


	2003
Critical employee retention plan provision	$	1.3
Estimated accrued liability for rejected prepetition leases and contracts		—
Professional fees related to the Filing		11.5
Other		0.3

Total	$	13.1

Cash payments with respect to such reorganization items consisted primarily of professional fees and were approximately $8.0 million during the first quarter of fiscal 2003.

during and through the completion of the restructuring (the “Retention Bonus”) and (ii) provided additional incentives to a more limited group of the most senior critical employees if the enterprise value upon completing the restructuring exceeded an established baseline (the “Restructuring Performance Bonus”).

Thirty-five percent, or approximately $3.0 million, of the Retention Bonus was paid on October 1, 2002. The remaining portion of the Retention Bonus of approximately $5.9 million was paid on June 13, 2003. Further, the Restructuring Performance Bonus provided under the CERP was paid after the consummation of the restructuring as discussed below.

Based on the Company’s compromise total enterprise value of $1,250.0 million as confirmed by the Bankruptcy Court, the aggregate amount of the Restructuring Performance Bonus was $12.1 million. Of the aggregate $12.1 million, approximately $6.0 million was paid in cash on July 1, 2003, and approximately $2.0 million was paid on August 29, 2003, as determined by the Company’s Board of Directors. The remaining portion of the Restructuring Performance Bonus was paid in 215,935 shares of restricted units of New Hayes on July 28, 2003. Pursuant to provisions contained in the CERP, the restricted units will vest as follows, subject to the participant’s continued employment:

• one half of the restricted units will vest on the first anniversary of the Effective Date, and;

• one half of the restricted units will vest on the second anniversary of the Effective Date.

The Company recognized $1.6 million of compensation expense related to such restricted stock units during the three months ended April 30, 2004.

(2) Basis of Presentation and Stock Based Compensation

Basis of Presentation

As discussed in Note 1, the Company filed a voluntary petition for reorganization relief under Chapter 11 of the Bankruptcy Code in December 2001 and emerged from Chapter 11 on June 3, 2003. Upon emergence from Chapter 11, the Company implemented fresh start accounting principles pursuant to American Institute of Certified Public Accountants (“AICPA”) Statement of Position 90-7, “Financial Reporting by Entities in Reorganization under the Bankruptcy Code” (“SOP 90-7”). SOP 90-7 requires the segregation of liabilities subject to compromise by the Bankruptcy Court as of the bankruptcy filing date, and identification of all transactions and events that are directly associated with the reorganization of the Predecessor. As a result of the application of fresh start accounting on May 31, 2003, and in accordance with SOP 90-7, the post-emergence financial results of the Company for the period ending April 30, 2004 are presented as the “Successor” and the pre-emergence financial results of the Company for the period ending April 30, 2003 are presented as the “Predecessor.” Comparative financial statements do not straddle the emergence date because in effect the Successor Company represents a new entity. Per share and share information for the Predecessor Company for all periods presented on the consolidated statement of operations have been omitted as such information is deemed to be not meaningful.

The Company’s unaudited interim consolidated financial statements do not include all of the disclosures required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the interim period results have been included. Operating results for the interim periods presented in fiscal 2004 are not necessarily indicative of the results that may be expected for the full fiscal year ending January 31, 2005.

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

Stock-Based Compensation

The Company accounts for its stock-based compensation in accordance with the provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. As such, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. The Company follows the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” and discloses pro forma net income (loss) and pro forma earnings (loss) per share as if employee stock option grants were treated as compensation expense using the fair-value-based method defined in SFAS No. 123.

In December 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure, an amendment of FASB Statement No. 123.” This Statement amends SFAS No. 123 to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements.

If compensation expense had been determined based on the fair value at the grant date consistent with the method prescribed in SFAS No. 123, the Company’s net loss and loss per share amounts would have been adjusted to the pro forma amounts below:


	Successor
	Three Months
	Ended
	April 30,
	2004
Net loss (millions of dollars):
As reported	$	(2.7	)
Pro forma		(4.1	)
Basic and diluted loss per share:
As reported	$	(0.07	)
Pro forma		(0.11	)

As of the Effective Date, all options under the Predecessor Company’s stock option plans were cancelled and those plans were terminated. Accordingly, no pro forma net income (loss) or pro forma earnings (loss) per share have been presented for any of the stock options granted under those terminated plans.

(3) Inventories

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


	Successor
	April 30,		January 31,
	2004		2004
Raw materials	$	53.1	$	48.3
Work-in-process		41.7		42.2
Finished goods		64.9		61.8
Spare parts and supplies		40.6		37.0

Total	$	200.3	$	189.3

(4) Property, Plant and Equipment

The major classes of property, plant and equipment are as follows (millions of dollars):


	Successor
	April 30,			January 31,
	2004			2004
Land	$	44.8		$	42.4
Buildings		214.0			212.5
Machinery and equipment		814.9			793.7
Capital lease assets		8.4			8.4

		1,082.1			1,057.0
Accumulated depreciation		(117.2	)		(90.5	)

Property, plant and equipment, net	$	964.9		$	966.5

(5) Goodwill and Other Intangible Assets

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


	Successor
	April 30, 2004							January 31, 2004
	Gross					Net		Gross					Net
	Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
	Amount		Amortization			Amount		Amount		Amortization			Amount
Amortized intangible assets:
Customer base	$	166.1	$	(7.7	)	$	158.4	$	169.3	$	(5.8	)	$	163.5
Unpatented technology		36.0		(5.2	)		30.8		36.7		(4.6	)		32.1

	$	202.1	$	(12.9	)	$	189.2	$	206.0	$	(10.4	)	$	195.6

Non amortized intangible assets:
Tradenames	$	40.7						$	41.6

Goodwill	$	411.6						$	416.2

The Company expects that ongoing amortization expense will approximate between $13 million and $16 million in each of the next five fiscal years.

The changes in the net carrying amount of goodwill by segment during the first quarter of fiscal 2004 were as follows (millions of dollars):


	Automotive
	Wheels			Components		Other		Total
Balance as of January 31, 2004	$	416.2		$	—	$	—	$	416.2
Effects of currency translation		(10.3	)		—		—		(10.3	)
Acquisitions and purchase accounting adjustments		5.7			—		—		5.7

Balance as of April 30, 2004	$	411.6		$	—	$	—	$	411.6

(6) Bank Borrowings, Other Notes and Long-Term Debt

Bank borrowings and other notes of $6.9 million as of April 30, 2004 consists primarily of the remaining note payable issued in conjunction with the Company’s acquisition of its Chihuahua, Mexico facility, and short-term credit facilities of the Company’s foreign subsidiaries. Bank borrowings and other notes of $14.2 million at January 31, 2004 consists primarily of short-term credit facilities of the Company’s foreign subsidiaries, as well as notes payable of $1.1 million and $10.5 million issued in conjunction with the Company’s acquisition of an additional 35% ownership interest in its Turkish joint venture and acquisition of an aluminum wheel plant formerly operated as part of the Company’s Mexican joint venture, respectively.

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


	Successor
	April 30,		January 31,
	2004		2004
Various foreign bank and government loans maturing through 2006, weighted average interest rates of 5.8 % and 5.7% at April 30, 2004 and January 31, 2004, respectively	$	27.7	$	28.6
New Term Loan maturing 2009, weighted average interest rate of 5.0% at April 30, 2004 and January 31, 2004		430.5		447.8
10½% New Senior Notes, net of discount of $0.9 million and $1.4 million at April 30, 2004 and January 31, 2004, respectively, due 2010		161.6		248.6
Mortgage note payable		22.4		22.5
Capital lease obligations		14.8		16.2

		657.0		763.7
Less current portion of long-term debt		10.7		11.3

Long-term debt	$	646.3	$	752.4

As discussed in Note (1), the Debtors emerged from Chapter 11 on June 3, 2003. In connection with the Debtors’ emergence on the Effective Date, HLI entered into a $550.0 million senior secured credit facility, which was subsequently amended on October 16, 2003 by Amendment No. 1 and Waiver to Credit Agreement and on February 6, 2004 by Amendment No. 2 and Waiver to the Credit Agreement to, among other things, reduce the interest rate on the term loan portion of the senior secured credit facility by 100 basis points, (as amended, the “New Credit Facility”). The New Credit Facility consists of a $450.0 million six-year amortizing term loan (the “New Term Loan”) and a five-year $100.0 million revolving credit facility (the “Revolving Credit Facility”). In addition, HLI issued on the Effective Date an aggregate of $250.0 million principal amount of 10½% senior notes due 2010 (the “New Senior Notes”). The proceeds from the initial $450.0 million of borrowings under the New Credit Facility and the net proceeds from the New

Senior Notes were used to make payments required under the Plan of Reorganization, including the repayment of the Company’s DIP Facility and a payment of $477.3 million to certain prepetition lenders, to pay related transaction costs and to refinance certain debt.

Early Repayment of Long-Term Debt

On February 11, 2004, the Company closed on a primary offering of 7,720,970 shares of its common stock for net proceeds of $117.0 million. On March 12, 2004, the Company used a portion of the net proceeds to redeem $87.5 million aggregate principal amount, plus accrued and unpaid interest thereon, of its outstanding New Senior Notes at a redemption price of 110.5%. This redemption resulted in a loss on early extinguishment of $11.8 million during the first quarter of fiscal 2004, including $2.6 million related to original issue discount and debt issuance costs on the redeemed portion of the New Senior Notes.

The Company also used a portion of the primary stock offering proceeds to prepay $16.0 million, plus accrued and unpaid interest thereon, of its New Term Loan on February 12, 2004. Upon prepayment, the Company recognized a loss on early extinguishment of $0.4 million related to debt issuance costs on the prepaid portion of the New Term Loan.

(7) Employee Benefit Plans

The 2004 and 2003 amounts shown below reflect the defined benefit pension and other postretirement benefit expense for the three months ended April 30 for each year:


	North American Plans											International Plans
	Pension						Other					Pension
	Benefits						Benefits					Benefits
	2004			2003			2004			2003		2004		2003
Service cost	$	0.1		$	0.1		$	—		$	—	$	0.2	$	0.2
Interest cost		2.8			2.9			2.9			3.0		2.0		1.7
Expected return on plan assets		(2.4	)		(2.3	)		—			—		—		—
Amortization of prior service cost		—			0.1			—			0.1		0.1		0.1
Amortization of net (gain)/loss		—			0.7			(0.2	)		1.4		—		0.1

Net periodic benefit cost	$	0.5		$	1.5		$	2.7		$	4.5	$	2.3	$	2.1

The Company expects to contribute $5.0 million to its North American pension plans in 2004.

(8) Asset Impairments and Other Restructuring Charges

The Company recorded asset impairment losses and other restructuring charges of $2.4 million in the first quarter of fiscal 2004 and $4.1 million in the first quarter of fiscal 2003.

Asset impairments and other restructuring charges by segment are as follows:


	Successor
	Three Months Ended April 30, 2004
	Automotive
	Wheels		Components			Other		Total
Facility closure costs	$	—	$	(0.2	)	$	—	$	(0.2	)
Severance and other restructuring costs		2.6		—			—		2.6

Total	$	2.6	$	(0.2	)	$	—	$	2.4


	Predecessor
	Three Months Ended April 30, 2003
	Automotive
	Wheels		Components		Other		Total
Impairment of manufacturing facilities	$	0.5	$	0.1	$	—	$	0.6
Impairment of machinery, equipment and tooling		1.5		1.7		—		3.2
Facility closure costs		0.3		—		—		0.3

Total	$	2.3	$	1.8	$	—	$	4.1

Impairment of Manufacturing Facilities

During the first quarter of fiscal 2003, the Company recorded asset impairment losses of $0.6 million to write down the fair value of its Petersburg, Michigan facility and its Thailand greenfield site based on current real estate market conditions. The Petersburg, Michigan facility was sold during the first quarter of fiscal 2004. The Thailand greenfield site was sold during the second quarter of fiscal 2003.

Impairment of Machinery, Equipment and Tooling

During the first quarter of fiscal 2003, the Company recorded asset impairment losses of $3.2 million on certain machinery and equipment in its Automotive Wheels and Components segments due primarily to a change in management’s plan for the future use of idled machinery and equipment. Such investments in fixed assets were written down to fair value based on the expected scrap value, if any, of such machinery, equipment and tooling.

Facility Closures

On April 1, 2004, the Company announced the closure of its Howell, Michigan manufacturing facility. As part of management’s on-going rationalization initiatives, the decision to close the Howell facility was based on improving capacity utilization and overall efficiency of the Company. Production of the aluminum wheels manufactured at the facility will be transferred to other manufacturing facilities in the United States. During the three months ended April 30, 2004, the Company recorded severance and other restructuring charges related to 152 hourly employees of the Howell facility of $2.6 million which are expected to be paid during the second quarter of fiscal 2004. The Company anticipates that it will incur and recognize additional restructuring and other closure costs of approximately $5 million to $7 million during fiscal 2004 and 2005, primarily related to lease termination, plant closing costs and maintenance subsequent to the shutdown date.

In conjunction with the sale of its Petersburg, Michigan facility in the first quarter of fiscal 2004, the Company reversed $0.2 million in facility closure costs that had previously been accrued.

In connection with the closure of its Bowling Green, Kentucky facility which the Company announced during the fourth quarter of fiscal 2001, the Company recorded a restructuring charge of $0.3 million in the first quarter of fiscal 2003. This charge relates to additional plant closure costs subsequent to the shutdown date and is expected to be paid during fiscal 2004.

Facility Exit Cost 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, 2004 (millions of dollars):


						Cash
			Severance			Payments
	January 31,		and Other			and Effects			April 30,
	2004		Restructuring			of Foreign			2004
	Accrual		Charges			Currency			Accrual
Facility exit costs	$	1.7	$	(0.2	)	$	(0.5	)	$	1.0
Severance		1.0		2.6			(0.8	)		2.8

	$	2.7	$	2.4		$	(1.3	)	$	3.8

(9) Loss per Share

Basic loss per share is calculated by dividing net income by the weighted average number of common shares outstanding. Weighted average shares outstanding include vested restricted stock units granted under the Company’s long-term incentive plan. Diluted loss per share is computed by dividing net income by the diluted weighted average shares outstanding. Diluted weighted average shares assume the exercise of stock options and warrants, so long as they are not anti-dilutive.

Shares outstanding for the three months ended April 30, 2004 were as follows (thousands of shares):


Weighted average shares outstanding			36,900
Dilutive effect of options and warrants			—

Diluted shares outstanding			36,900

For the three months ending April 30, 2004, respectively, all options and warrants were excluded from the calculation of diluted loss per share as the effect was anti-dilutive due to the net loss reflected for such period.

(10) Comprehensive Income (Loss)

The components of comprehensive income (loss) for the three months ended April 30, 2004 and 2003 are as follows:


	2004			2003
Net loss	$	(2.7	)	$	(22.6	)
Cumulative translation adjustments		(19.9	)		12.0

Total comprehensive loss	$	(22.6	)	$	(10.6	)

(11) Common Stock Offering

On February 11, 2004, the Company closed on a primary offering of 7,720,970 shares of common stock, and a secondary offering of 2 million shares of its common stock. The Company used the net proceeds of $117.0 million that it received from the primary offering to redeem $87.5 million aggregate principal amount, plus accrued and unpaid interest thereon, of its outstanding New Senior Notes on March 12, 2004, to prepay $16.0 million, plus accrued and unpaid interest thereon, of its New Term Loan on February 12, 2004, and for general corporate purposes. (See Note (6).)

(12) Segment Reporting

The Company is organized based primarily on markets served and products produced. Under this organization structure, the Company’s operating segments have been aggregated into three reportable segments: Automotive Wheels, Components, and Other. The Other category includes Commercial Highway products, the corporate office and elimination of intercompany activities, none of which meet the requirements of being classified as an operating segment. Earnings (loss) from operations excluding fresh start accounting adjustments and reorganization items is used as a non-GAAP measure of the Company’s primary profitability measure because it excludes fresh start accounting adjustments and reorganization items which do not represent normal operating performance of the Company as these items relate only to the Company’s Chapter 11 Filings and emergence.

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


	Successor
	As of and for the Three Months Ended April 30, 2004
	Automotive
	Wheels			Components		Other		Total
Net sales	$	352.2		$	200.6	$	41.3	$	594.1
Earnings from operations		16.5			9.3		0.4		26.2
Asset impairments and other restructuring charges		(2.6	)		0.2		—		(2.4	)
Goodwill		411.6			—		—		411.6
Total assets		1,618.1			542.4		156.1		2,316.6


	Predecessor
	Three Months Ended April 30, 2003
	Automotive
	Wheels			Components			Other			Total
Net sales	$	303.0		$	184.1		$	28.2		$	515.3

Earnings (loss) from operations	$	17.3		$	3.4		$	(19.4	)	$	1.3
Reorganization items		—			0.2			(13.3	)		(13.1	)
Fresh start accounting adjustments		—			—			—			—

Earnings (loss) from operations excluding fresh start accounting adjustments and reorganization items	$	17.3		$	3.2		$	(6.1	)	$	14.4

Asset impairments and other restructuring charges	$	(2.3	)	$	(1.8	)	$	—		$	(4.1	)


	Successor
	As of January 31, 2004
	Automotive
	Wheels		Components		Other		Total
Goodwill	$	416.2	$	—	$	—	$	416.2
Total assets	$	1,490.6	$	541.3	$	264.7	$	2,296.6

(13) Condensed Consolidating Financial Statements

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

The condensed consolidating financial statements are presented on the equity method. Under this method, the investments in subsidiaries are recorded at cost and adjusted for the Company’s share of the subsidiaries’ cumulative results of operations, capital contributions, distributions and other equity changes. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions.

Guarantor and Nonguarantor Financial Statements

As further discussed in Notes (1) and (6), in connection with the Plan of Reorganization, HLI issued $250.0 million aggregate principal amount of the New Senior Notes. The New Senior Notes are guaranteed by New Hayes and ParentCo (collectively, the “Parent”) and substantially all of New Hayes’ domestic subsidiaries (other than HLI as the issuer of the New Senior Notes) (collectively, the “Guarantor Subsidiaries”). None of New Hayes’ foreign subsidiaries have guaranteed the New Senior Notes, nor have two of New Hayes’ domestic subsidiaries owned by foreign subsidiaries of New Hayes (collectively, the “Nonguarantor Subsidiaries”).

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

SUCCESSOR
For the Three Months Ended April 30, 2004


							Guarantor		Nonguarantor
	Parent			Issuer			Subsidiaries		Subsidiaries			Eliminations			Total
							(Millions of dollars)
							(Unaudited)
Net sales	$	—		$	1.0		$	302.8	$	296.3		$	(6.0	)	$	594.1
Cost of goods sold		—			10.1			264.1		251.8			(6.0	)		520.0

Gross profit (loss)		—			(9.1	)		38.7		44.5			—			74.1
Marketing, general and administration		—			0.3			22.5		21.1			—			43.9
Equity in (earnings) losses of subsidiaries and joint ventures		6.6			(21.6	)		1.9		—			13.1			—
Asset impairments and other restructuring charges		—			(0.2	)		2.6		—			—			2.4
Other expense (income), net		—			0.2			—		1.4			—			1.6

Earnings (loss) from operations		(6.6	)		12.2			11.7		22.0			(13.1	)		26.2
Interest expense, net		(3.9	)		6.4			0.1		6.6			—			9.2
Other non-operating (income) expense		—			0.2			—		(0.3	)		—			(0.1	)
Loss on early extinguishment of debt		—			12.2			—		—			—			12.2

Earnings (loss) before taxes on income and minority interest		(2.7	)		(6.6	)		11.6		15.7			(13.1	)		4.9
Income tax provision		—			—			0.6		4.4			—			5.0

Earnings (loss) before minority interest		(2.7	)		(6.6	)		11.0		11.3			(13.1	)		(0.1	)
Minority interest		—			—			—		2.6			—			2.6

Net income (loss)	$	(2.7	)	$	(6.6	)	$	11.0	$	8.7		$	(13.1	)	$	(2.7	)

CONDENSED CONSOLIDATING BALANCE SHEETS
SUCCESSOR
As of April 30, 2004


							Guarantor			Nonguarantor
	Parent			Issuer			Subsidiaries			Subsidiaries		Eliminations			Total
	(Millions of dollars)
	(Unaudited)
Cash and cash equivalents	$	—		$	16.3		$	—		$	69.0	$	—		$	85.3
Receivables		—			0.8			125.1			207.9		—			333.8
Inventories		—			5.6			85.4			109.3		—			200.3
Prepaid expenses and other		—			5.4			8.5			13.3		—			27.2

Total current assets		—			28.1			219.0			399.5		—			646.6
Net property, plant and equipment		—			36.7			354.3			573.9		—			964.9
Goodwill and other assets		696.4			1,310.3			51.1			620.3		(1,973.0	)		705.1

Total assets	$	696.4		$	1,375.1		$	624.4		$	1,593.7	$	(1,973.0	)	$	2,316.6

Bank borrowings and other notes	$	—		$	—		$	—		$	6.9	$	—		$	6.9
Current portion of long-term debt		—			4.5			0.2			6.0		—			10.7
Accounts payable and accrued liabilities		—			70.3			94.1			224.7		—			389.1

Total current liabilities		—			74.8			94.3			237.6					406.7
Long-term debt, net of current portion		—			610.0			8.2			28.1		—			646.3
Pension and other long-term liabilities		—			270.5			0.4			257.0		—			527.9
Series A Warrants and Series B Warrants		4.3			—			—			—		—			4.3
Redeemable preferred Stock of Subsidiary		—			10.7			—			—		—			10.7
Minority interest		—			—			—			28.8		—			28.8
Parent loans		0.2			(261.9	)		(53.3	)		314.8		0.2			—
Common stock		0.4			—			—			—		—			0.4
Additional paid-in capital		666.7			676.6			617.4			641.0		(1,935.0	)		666.7
Retained earnings (accumulated deficit)		(49.2	)		(24.1	)		(41.8	)		31.5		34.4			(49.2	)
Accumulated other comprehensive income loss)		74.0			18.5			(0.8	)		54.9		(72.6	)		74.0

Total stockholders’ equity		691.9			671.0			574.8			727.4		(1,973.2	)		691.9

Total liabilities and stockholder’s equity	$	696.4		$	1,375.1		$	624.4		$	1,593.7	$	(1,973.0	)	$	2,316.6

CONDENSED CONSOLIDATING BALANCE SHEETS
SUCCESSOR
As of January 31, 2004


							Guarantor			Nonguarantor
	Parent			Issuer			Subsidiaries			Subsidiaries		Eliminations			Total
	(Millions of dollars)
Cash and cash equivalents	$	—		$	(3.2	)	$	(0.6	)	$	52.3	$	—		$	48.5
Receivables		—			1.2			132.0			191.2		—			324.4
Inventories		—			5.7			86.5			97.1		—			189.3
Prepaid expenses and other		—			6.8			8.9			13.3		—			29.0

Total current assets		—			10.5			226.8			353.9		—			591.2
Net property, plant and equipment		—			36.6			355.5			574.4		—			966.5
Goodwill and other assets		604.1			1,290.7			83.3			618.9		(1,858.1	)		738.9

Total assets	$	604.1		$	1,337.8		$	665.6		$	1,547.2	$	(1,858.1	)	$	2,296.6

Bank borrowings and other notes	$	—		$	—		$	—		$	14.2	$	—		$	14.2
Current portion of long-term debt		—			4.5			—			6.8		—			11.3
Accounts payable and accrued liabilities		—			83.3			82.7			188.4		—			354.4

Total current liabilities		—			87.8			82.7			209.4					379.9
Long-term debt, net of current portion		—			714.3			8.4			29.7		—			752.4
Pension and other long-term liabilities		—			263.1			0.4			263.0		—			526.5
Series A Warrants and Series B Warrants		8.2			—			—			—		—			8.2
Redeemable preferred Stock of Subsidiary		—			10.5			—			—		—			10.5
Minority interest		—			—			—			23.2		—			23.2
Parent loans		—			(293.3	)		(24.5	)		315.4		2.4			—
Liabilities subject to compromise		—			—			—			—		—			—
Common stock		0.3			—			—			—		—			0.3
Additional paid-in capital		548.2			540.9			652.3			626.6		(1,819.8	)		548.2
Retained earnings (accumulated deficit)		(46.5	)		(16.8	)		(53.5	)		21.6		48.7			(46.5	)
Accumulated other comprehensive income loss)		93.9			31.3			(0.2	)		58.3		(89.4	)		93.9

Total stockholders’ equity		595.9			555.4			598.6			706.5		(1,860.5	)		595.9

Total liabilities and stockholder’s equity	$	604.1		$	1,337.8		$	665.6		$	1,547.2	$	(1,858.1	)	$	2,296.6

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
SUCCESSOR
For the Three Months Ended April 30, 2004


							Guarantor			Nonguarantor
	Parent			Issuer			Subsidiaries			Subsidiaries			Eliminations		Total
	(Millions of dollars)
	(Unaudited)
Cash flows provided by (used for) operating activities	$	—		$	(16.2	)	$	47.9		$	40.2		$	—	$	71.9

Cash flows from investing activities:
Acquisition of property, plant, equipment, and tooling		—			(1.0	)		(14.7	)		(13.6	)		—		(29.3	)
Proceeds from sale of assets		—			—			(0.1	)		0.2			—		0.1

Cash used for investing activities		—			(1.0	)		(14.8	)		(13.4	)		—		(29.2	)
Cash flows from financing activities:
Net proceeds from issuance of Common stock		117.0						—			—			—		117.0
Capital contribution		(117.0	)		117.0			—			—			—		—
Repayment of notes payable		—			—			—			(7.1	)		—		(7.1	)
Prepayment of New Term Loan with proceeds from issuance of Common stock		—			(16.0	)		—			—			—		(16.0	)
Redemption of New Senior Notes with proceeds from issuance of Common stock		—			(96.7	)		—			—			—		(96.7	)
Repayment of long-term debt		—			(1.1	)		—			(1.2	)		—		(2.3	)

Cash provided by (used for) financing activities		—			3.2			—			(8.3	)		—		(5.1	)
Increase (decrease) in parent loans and advances		—			33.5			(32.5	)		(1.0	)		—		—
Effect of exchange rates of cash and cash equivalents		—			—			—			(0.8	)		—		(0.8	)

Net increase in cash and cash equivalents		—			19.5			0.6			16.7			—		36.8
Cash and cash equivalents at beginning of period		—			(3.2	)		(0.6	)		52.3			—		48.5

Cash and cash equivalents at end of period	$	—		$	16.3		$	—		$	69.0		$	—	$	85.3

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
PREDECESSOR
For the Three Months Ended April 30, 2003


				Guarantor			Nonguarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations		Total
	(Millions of dollars)
	(Unaudited)
Cash flows provided by (used for) operating activities	$	(8.7	)	$	7.3		$	18.5		$	—	$	17.1

Cash flows from investing activities:
Acquisition of property, plant, equipment, and tooling		(1.8	)		(9.0	)		(9.2	)		—		(20.0	)
Proceeds from sale of assets and non-core businesses		—			0.5			0.2			—		0.7

Cash provided by (used for) investing activities		(1.8	)		(8.5	)		(9.0	)		—		(19.3	)

Cash flows from financing activities:
Increase in bank borrowings, revolving facility, DIP facility and other notes		11.5			—			—			—		11.5

Repayment of bank borrowings, revolving facility, and long term debt from financing		—			(0.8	)		(6.8	)		—		(7.6	)

Cash provided by (used for) financing activities		11.5			(0.8	)		(6.8	)		—		3.9
Increase (decrease) in parent loans and advances		(1.9	)		2.2			(0.3	)		—		—
Effect of exchange rates of cash and cash equivalents		—			—			2.0			—		2.0

Net increase (decrease) in cash and cash equivalents		(0.9	)		0.2			4.4			—		3.7
Cash and cash equivalents at beginning of period		13.3			—			52.8			—		66.1

Cash and cash equivalents at end of period	$	12.4		$	0.2		$	57.2		$	—	$	69.8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Summary

This discussion should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2004 as filed with the Securities and Exchange Commission on April 12, 2004, and the other information included herein.

Company Overview

Unless otherwise indicated, references to “Company” mean Hayes Lemmerz International, Inc. and its subsidiaries, and references to fiscal year mean the Company’s year commencing on February 1 of that year and ending on January 31 of the following year (e.g., “fiscal 2004” refers to the period beginning February 1, 2004 and ending January 31, 2005, “fiscal 2003” refers to the period beginning February 1, 2003 and ending January 31, 2004).

Originally founded in 1908, the Company is a leading worldwide producer of aluminum and steel wheels for the light vehicle market. The Company is a leading provider of steel wheels for the commercial highway market and is also a leading supplier in the high growth market for lightweight aluminum products, including suspension, brake and powertrain components. The Company is a leading supplier of the automotive wheels used by OEMs in North America and Europe. The Company has a global footprint with 44 facilities located in 14 countries around the world. The Company sells products to every major North American, Japanese and European manufacturer of passenger cars and light trucks as well as more than 300 commercial highway vehicle customers throughout the world. The Company’s products are presently on 16 of the top 20 selling platforms for passenger cars in the United States.

The Company has a sales and marketing organization of dedicated customer teams located in all major vehicle producing regions. The Company’s ability to support its customers globally is further enhanced by the Company’s broad global presence in terms of sales offices, manufacturing facilities and engineering/technical centers.

On December 5, 2001, the Company’s wholly owned domestic subsidiaries and one wholly owned Mexican subsidiary filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code. The Company emerged from bankruptcy on June 3, 2003. In connection with the emergence from Chapter 11, the Company entered into a $550.0 million senior secured credit facility, as amended. The New Credit Facility consists of a $450.0 million six-year amortizing term loan (the “New Term Loan”) and a five-year $100.0 million revolving credit facility. In addition, HLI issued an aggregate of $250.0 million principal amount of 10 1/2% senior notes due 2010 (the “New Senior Notes”). On February 11, 2004, the Company closed on a primary offering of 7.7 million shares of common stock, and a secondary offering of 2.0 million shares of its common stock. The Company used the net proceeds that it received from the primary offering to redeem $87.5 million aggregate principal amount, plus accrued and unpaid interest thereon, of its outstanding New Senior Notes on March 12, 2004, to prepay $16.0 million, plus accrued and unpaid interest thereon, of its New Term Loan on February 12, 2004, and for general corporate purposes.

In fiscal 2003, the Company had net sales of $2.1 billion, with approximately 48% of the Company’s net sales for that period derived from international markets, and the Company had earnings from operations in fiscal 2003 of $62.0 million (which includes the impact of certain gains and expenses related to its emergence from Chapter 11 proceedings).

Chapter 11 Filings

Emergence from Chapter 11

Pursuant to the Plan of Reorganization, the Company caused the formation of (i) a new holding company, HLI Holding Company, Inc., a Delaware corporation (“HoldCo”), (ii) HLI Parent Company, Inc., a Delaware corporation and a wholly owned subsidiary of HoldCo (“ParentCo”), and (iii) HLI Operating Company, Inc, a Delaware corporation and a wholly owned subsidiary of ParentCo (“HLI”). On the Effective Date, (i) HoldCo was renamed Hayes Lemmerz International, Inc. (“New Hayes”), (ii) New Hayes contributed to ParentCo 30,000,000 shares of its common stock, par value $.01 per share (the “New Common Stock”), and 957,447 series A warrants and 957,447 series B warrants to acquire New Common Stock of New Hayes (the “Series A Warrants” and “Series B Warrants,” respectively), (iii) ParentCo in turn contributed such shares of New Common Stock and Series A Warrants and Series B Warrants to HLI and (iv) pursuant to an Agreement and Plan of Merger, dated as of June 3, 2003 (the “Merger Agreement”), between the Company and HLI, the Company was merged with and into HLI (the “Merger”), with HLI continuing as the surviving corporation.

In connection with the Debtors’ emergence from Chapter 11, on the Effective Date, HLI entered into a $550.0 million senior secured credit facility, as amended by Amendment No. 1 and Waiver to Credit Agreement, dated October 16, 2003 (as amended, the “New Credit Facility”). The New Credit Facility consists of a $450.0 million six-year amortizing term loan (the “New Term Loan”) and a five-year $100.0 million revolving credit facility (the “Revolving Credit Facility”). In addition, HLI issued on the Effective Date an aggregate of $250.0 million principal amount of 10 1/2% senior notes due 2010 (the “New Senior Notes”). The proceeds from the initial $450.0 million of borrowings under the New Credit Facility and the net proceeds from the New Senior Notes were used to make payments required under the Plan of Reorganization, including the repayment of the Company’s DIP Facility and a payment of $477.3 million to certain prepetition lenders, to pay related transaction costs and to refinance certain debt.

Reorganization items for the three months ended April 30, 2003 as reported in the consolidated statements of operations included herein are comprised of income, expense and loss items that were realized or incurred by the Debtors as a direct result of the Company’s decision to reorganize under Chapter 11. During the three months ended April 30, 2003, reorganization items were as follows (millions of dollars):


	2003
Critical employee retention plan provision	$	1.3
Estimated accrued liability for rejected prepetition leases and contracts		—
Professional fees related to the Filing		11.5
Other		0.3

Total	$	13.1

Cash payments with respect to such reorganization items consisted primarily of professional fees and were approximately $8.0 million during the first quarter of fiscal 2003.

On May 30, 2002, the Bankruptcy Court entered an order approving, among other things, the critical employee retention plan (the “CERP”) filed with the Bankruptcy Court in February 2002 which was designed to compensate certain critical employees in order to assure their retention and availability during the Company’s restructuring. The plan has two components which (i) rewarded critical employees who remained with the Company (and certain affiliates of the Company who are not directly involved in the restructuring) during and through the completion of the restructuring (the “Retention Bonus”) and (ii) provided additional incentives to a more limited group of the most senior critical employees if the enterprise value upon completing the restructuring exceeded an established baseline (the “Restructuring Performance Bonus”).

Based on the Company’s compromise total enterprise value of $1,250.0 million as confirmed by the Bankruptcy Court, the aggregate amount of the Restructuring Performance Bonus is $12.1 million. Of the aggregate $12.1 million, approximately $6.0 million was paid in cash on July 1, 2003, and approximately $2.0 million was paid on August 29, 2003 as determined by the Company’s Board of Directors. The remaining portion of the Restructuring Performance Bonus was paid in 215,935 shares of restricted units of New Hayes on July 28, 2003. Pursuant to provisions contained in the CERP, the restricted units will vest as follows, subject to the participant’s continued employment:

• one half of the restricted units will vest on the first anniversary of the Effective Date, and;

• one half of the restricted units will vest on the second anniversary of the Effective Date.

Results of Operations

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

The Company is organized based primarily on markets served and products produced. Under this organization structure, the Company’s operating segments have been aggregated into three reportable segments: Automotive Wheels, Components and Other. The Automotive Wheels segment includes results from the Company’s operations that primarily design and manufacture fabricated steel and cast aluminum wheels for original equipment manufacturers in the global passenger car and light vehicle markets. The Components segment includes results from the Company’s operations that primarily design and manufacture suspension, brake and powertrain components for original equipment manufacturers in the global passenger car and light vehicle markets. The Other segment includes results from the Company’s operations that primarily design and manufacture wheel and brake products for commercial highway and aftermarket customers in North America. The Other segment also includes financial results related to the Company’s corporate office and elimination of certain intercompany activities.

Three Months Ended April 30, 2004 Compared to Three Months Ended April 30, 2003

Net Sales


	Three Months Ended April 30,
	2004		2003		$ Change
	(Millions of dollars)
Automotive Wheels	$	352.2	$	303.0	$	49.2
Components		200.6		184.1		16.5
Other		41.3		28.2		13.1

Total	$	594.1	$	515.3	$	78.8

The Company’s net sales for the first quarter of 2004 increased $78.8 million to $594.1 million from $515.3 million in the first quarter of 2003. After adjusting for the net impact of favorable exchange rate fluctuations relative to the U.S. dollar, net sales for the first quarter of 2004 increased 8.5% or approximately $43.8 million as compared to the same period in 2003.

Net sales from the Company’s Automotive Wheels segment increased $49.2 million to $352.2 million in the first quarter of fiscal 2004 from $303.0 million in the first quarter of 2003. Automotive Wheels net sales were favorably impacted by foreign exchange rate fluctuations relative to the U.S. dollar, which increased sales by approximately $31 million. The remaining increase in sales is primarily due to increased volumes abroad and the impact of consolidating sales from the Company’s facility in Turkey, after having acquired a controlling interest in the facility during the fourth quarter of fiscal 2003. These increases were partially offset by decreased unit pricing globally and lower customer production requirements in North America.

Net sales from Components increased $16.5 million to $200.6 million in first quarter 2004 from $184.1 million in first quarter 2003. The increase in Components net sales was primarily due to increased customer production requirements and a favorable product mix which increased sales by approximately $16 million. The impact of favorable foreign exchange rate fluctuations increased net sales by approximately $4 million, but was partially offset by decreased unit pricing.

Other net sales increased $13.1 million to $41.3 million during first quarter 2004 from $28.2 million during first quarter 2003. This increase was primarily due to higher volumes in the Company’s commercial highway and aftermarket operations.

Earnings (loss) from operations excluding fresh start accounting adjustments and reorganization items

Earnings (loss) from operations excluding fresh start accounting adjustments and reorganization items is used as a non-GAAP measure of the Company’s primary profitability measure because it excludes fresh start accounting adjustments and reorganization items which do not represent normal operating performance of the Company as these items relate only to the Company’s Chapter 11 Filings and emergence. Earnings from operations excluding fresh start accounting adjustments and reorganization items is calculated as follows (millions of dollars):


	Three Months Ended April 30,
	2004		2003
Earnings from operations	$	26.2	$	1.3
Excluding:
Reorganization items		—		13.1

Earnings from operations excluding fresh start accounting adjustments and reorganization items	$	26.2	$	14.4

The following tables present earnings (loss) from operations excluding fresh start accounting adjustments and reorganization items, as well as other information by segment (millions of dollars):


	Three Months Ended April 30, 2004
	Automotive
	Wheels			Components		Other		Total
Earnings from operations	$	16.5		$	9.3	$	0.4	$	26.2
Asset impairments and other restructuring charges:
Facility closure costs	$	—		$	0.2	$	—	$	0.2
Severance and other restructuring costs		(2.6	)		—		—		(2.6	)

Total asset impairments and other restructuring charges:	$	(2.6	)	$	0.2	$	—	$	(2.4	)


	Three Months Ended April 30, 2003
	Automotive
	Wheels			Components			Other			Total
Earnings (loss) from operations excluding fresh start accounting adjustment and reorganization items	$	17.3		$	3.2		$	(6.1	)	$	14.4
Reorganization items		—			0.2			(13.3	)		(13.1	)
Asset impairments and other restructuring charges:
Impairment of manufacturing facilities	$	(0.5	)	$	(0.1	)	$	—		$	(0.6	)
Impairment of machinery, equipment and tooling		(1.5	)		(1.7	)		—			(3.2	)
Facility closure costs		(0.3	)		—			—			(0.3	)

Total asset impairments and other restructuring charges:	$	(2.3	)	$	(1.8	)	$	—		$	(4.1	)

The Company’s earnings from operations excluding fresh start accounting adjustments and reorganization items increased by $11.8 million in the first quarter of fiscal 2004 to $26.2 million, from earnings of $14.4 million in the first quarter of fiscal 2003. Adjusted for the net impact of foreign exchange rate fluctuations relative to the U.S. dollar, the Company’s earnings from operations excluding fresh start accounting adjustments and reorganization items increased by approximately $9.1 million from fiscal 2003. Improved operating performance, increased OEM production requirements, and a favorable product mix improved earnings from operations. These increases were partially offset by decreased unit pricing, and higher depreciation and amortization expense due primarily to the adoption of fresh start accounting upon the Company’s emergence from Chapter 11.

Earnings from operations excluding fresh start accounting adjustments and reorganization items at the Company’s Automotive Wheels operations decreased by $0.8 million in the first quarter of fiscal 2004 compared to the same period in 2003. Increased volumes abroad, favorable product mix, and the impact of consolidating earnings from the Company's Manisa, Turkey facility acquired during the fourth quarter of fiscal 2003, increased earnings by approximately $12 million. Favorable fluctuations in foreign exchange rates relative to the U.S. dollar improved earnings from operations by approximately $2 million. This was partially offset by lower OEM production requirements in North America, lower unit pricing globally and various customer satisfaction issues, which decreased earnings from operations by approximately $11 million. Higher depreciation and amortization expense, primarily related to the Company’s adoption of fresh start accounting upon emergence from Chapter 11, decreased earnings by approximately $4 million. During the first quarter of fiscal 2004, the Company’s Automotive Wheels segment recorded facility closure costs of $2.6 million associated with the Company’s Howell, Michigan facility. In the first quarter of fiscal 2003 the Company recorded asset impairment losses of $1.5 million at various facilities due to a change in management’s plan for the future use of idled machinery and equipment. During the first quarter of fiscal 2003, Automotive Wheels recorded facility closure costs of $0.3 million related to the Company’s Bowling Green Kentucky facility and asset impairment losses of $0.5 million to write down the fair value of its Thailand greenfield site based on the current real estate market conditions.

Components earnings from operations excluding fresh start accounting adjustments and reorganization items increased by $6.1 million in the first quarter of fiscal 2004 compared to the same period in fiscal 2003. Improved operating performance and higher volumes increased earnings by approximately $6 million. An improved product mix was offset by decreased unit pricing. An increase in corporate costs allocated to the Components segment decreased earnings approximately $2 million during the first quarter of fiscal 2004. During the first quarter of fiscal 2003, Components recorded asset impairment losses of approximately $1.7 million at various facilities due to a change in management’s plan for the future use of idled machinery and equipment.

Earnings from operations excluding fresh start accounting adjustments and reorganization items in the Company’s Other segment increased by $6.5 million in the first quarter of fiscal 2004. Improved operating performance, increased volumes and a favorable product mix in the Company’s commercial highway and aftermarket operations, increased earnings approximately $6 million. During the first quarter of fiscal 2004 the Company’s North American pension and retiree medical costs declined approximately $2 million relative to the same period in fiscal 2003, due to the fair value adjustment for those liabilities that occurred during the implementation of fresh start accounting. Subsequent to the Company’s emergence from Chapter 11, it continued to incur post-emergence bankruptcy-related professional fees which decreased earnings from operations by approximately $2 million during the first quarter of fiscal 2004.

Interest Expense, net

Interest expense was $9.2 million for the first quarter of fiscal year 2004 compared to $17.0 million for the first quarter of fiscal 2003. Interest expense, net, between the two periods is not comparable because of the Company’s new capital structure established upon emergence from Chapter 11. Further, interest expense, net, for the first quarter of fiscal 2004 includes a $3.9 million increase to interest income as a result of adjusting to fair value the Company’s outstanding Series A Warrants and Series B Warrants, which are recorded as liabilities on the consolidated balance sheet as of April 30, 2004.

Income Taxes

Income tax expense was $5.0 million for the first quarter of fiscal 2004 compared to $5.9 million for the first quarter of fiscal 2003. The income tax provision for the quarter is primarily the result of tax expense in foreign jurisdictions and various states. The Company has determined that a valuation allowance is required against all net deferred tax assets in the United States and certain deferred tax assets in foreign jurisdictions. As such, there is no federal income tax benefit recorded against current losses incurred in the United States.

Liquidity and Capital Resources

Cash Flows

Operating Activities: The Company’s operations provided $71.9 million in cash in the first quarter of fiscal 2004 compared to $17.1 million in the first quarter of fiscal 2003. This increase resulted primarily from an early domestic customer payment received at the end of the first quarter of fiscal 2004, lower payments related to the Company’s Chapter 11 filings and higher operating profits, offset partially by payments made under the Company’s short term incentive program.

Investing Activities: Cash used for investing activities increased by $9.9 million during the first quarter of fiscal 2004 compared with the first quarter of fiscal 2003. This increase is due primarily to higher capital expenditures.

Capital expenditures for the first quarter of fiscal 2004 were $29.3 million. These expenditures were primarily for additional machinery and equipment to improve productivity and reduce costs, to meet demand for new vehicle platforms and to meet expected requirements for the Company’s products. The Company anticipates capital expenditures for fiscal 2004 will be approximately $150 million relating primarily to meeting demand for new vehicle platforms and supporting maintenance and cost reduction programs, including approximately $12 million for renovation and expansion of its aluminum wheel plant located in Chihuahua, Mexico.

Financing Activities: Cash used for financing activities was $5.1 million for the first quarter of fiscal 2004 compared to cash provided by financing activities of $3.9 million in the first quarter of fiscal 2003.

Sources of Liquidity

The principal sources of liquidity for the Company’s future operating, capital expenditure, facility closure, restructuring and reorganization requirements are expected to be (i) cash flows from operations, (ii) proceeds from the sale of non-core assets and businesses, (iii) cash on hand, and (iv) borrowings under the $100 million revolving credit facility under the New Credit Facility. While the Company expects that such sources will meet these requirements, there can be no assurances that such sources will prove to be sufficient, in part, due to inherent uncertainties about applicable future capital market conditions.

The Company is currently in the process of implementing operational improvements, which consist of a number of cost-cutting and profit-enhancing initiatives. If the implementation of the operational improvements is not successful, the Company may be unable to offer products at competitive prices to generate sufficient operating funds to pay the interest on the New Senior Notes and make payments due under its New Credit Facility. In such event, there can be no assurance that alternative sources of financing would be available to the Company or, if available, that such financing would be on commercially reasonable terms.

Other Liquidity Matters

On November 13, 2003, the Company acquired an additional 35% ownership interest in its Turkish joint venture for $13.9 million in cash and paid $1.1 million in the first quarter of fiscal 2004. As a result of this acquisition, the Company owns 60% of the subsidiary, Hayes Lemmerz Jantas Jant Sanayi ve Ticaret A.S., which is now a consolidated subsidiary of the Company beginning in the fourth quarter of fiscal 2003. As part of this transaction, the Company sold an approximate 7.8% interest in another Turkish subsidiary, Hayes Lemmerz — Inci Jant Sanayi A.S., for $2.4 million. This sale reduced the Company’s holdings in Hayes Lemmerz — Inci Jant Sanayi A.S. to 60%.

On January 15, 2004, the Company acquired a cast aluminum wheel plant located in Chihuahua, Mexico for $15.7 million, of which $5.2 million was paid at closing, $5.2 million was paid during the first quarter of fiscal 2004 and the remainder will be paid in the first half of fiscal 2004. The Chihuahua plant was formerly operated as part of a joint venture in which the Company owned a minority interest. Following planned refurbishment and expansion of the plant, it will serve the North American wheel market utilizing low pressure casting technology.

As more fully discussed above, on June 3, 2003, in connection with the Company’s emergence from Chapter 11, HLI entered into the $550.0 million New Credit Facility, consisting of the $450.0 million New Term Loan and the $100.0 million Revolving Credit Facility. HLI also issued an aggregate of $250.0 million New Senior Notes. The Company and substantially all of its material direct and indirect domestic subsidiaries have guaranteed HLI’s obligations under the New Credit Facility, and the Company and substantially all of its domestic subsidiaries have guaranteed HLI’s obligations under the New Senior Notes. The proceeds from the initial $450.0 million of borrowings under the New Credit Facility and the net proceeds from the New Senior Notes were used to make payments required under the Plan of Reorganization. As of June 7, 2004, there were no outstanding borrowings and $21.0 million in letters of credit issued under the Revolving Credit Facility. The amount available to borrow under the revolving credit facility at June 7, 2004 was approximately $79.0 million.

In addition, upon the Company’s emergence from bankruptcy, all of the Company’s existing securities, including the Old Common Stock, Old Senior Notes and Old Subordinated Notes, were cancelled. All amounts outstanding under the Prepetition Credit Agreement were satisfied in exchange for: (i) a cash payment of $477.3 million; (ii) 15,930,000 shares of New Common Stock; and (iii) 53,100 shares of Preferred Stock. All amounts outstanding under the Old Senior Notes were satisfied in exchange for: (i) a cash payment of approximately $13.0 million; (ii) 13,470,000 shares of New Common Stock; (iii) 44,900 shares of Preferred Stock; and (iv) a portion of the distributions from the trust established under the Plan of Reorganization for the benefit of the prepetition creditors (the “Creditors’ Trust”). All amounts outstanding under the Old Subordinated Notes were satisfied in exchange for a distribution of Series A Warrants and a portion of the distributions under the Creditors’ Trust. In addition, holders of unsecured claims will receive an aggregate amount of 600,000 shares of New Common Stock, 2,000 shares of Preferred Stock, the Series B Warrants and a portion of the distributions under the Creditors’ Trust.

Upon emergence from Chapter 11, the Company: (i) repaid the DIP Facility in full; (ii) settled certain of the operating leases discussed below; and (iii) paid certain other costs and expenses pursuant to the Plan of Reorganization.

Certain of the Company’s operating leases covering leased assets with an original cost of approximately $68.0 million contained provisions which, if certain events occur or conditions were met, including termination of the lease, could have required the Company to purchase or re-sell the leased assets within a specified period of time, generally one year, based on amounts specified in the lease agreements. In connection with the Company’s emergence from Chapter 11, the Company purchased these assets for $23.6 million.

Credit Ratings


	S&P	Moody’s
Corporate and Bank Debt rating	BB –		Ba3
Senior Note rating	B +		B1

In the event of a down grading, the Company believes it would continue to have access to sufficient liquidity, however, the cost of borrowing would increase and the Company’s ability to access certain financial markets could be limited.

Outlook

Customers

The Company derived approximately half of its fiscal 2003 net sales on a worldwide basis from Ford, DaimlerChrysler and General Motors and their subsidiaries. The Company’s sales levels and margins could be adversely affected as a result of pricing pressures caused by new competitors in low-cost foreign markets, such as China. These factors led to selective resourcing of future business to competitors in the second quarter of fiscal 2003. Additionally, these customers have been experiencing decreasing market share in North America which could result in lower sales volumes for the Company.

The Company’s net sales are continually affected by pressure from its major customers to reduce prices. The Company’s emphasis on reduction of production costs, increased productivity and improvement of production facilities has enabled the Company to respond to this pressure.

Steel Supply

Global spot market steel prices have significantly increased during 2003 and into early 2004. Factors leading to the higher prices include the increasing demand for steel in China, industry consolidation and rising raw material costs. In response to the increasing cost of raw materials, a number of steel suppliers have implemented surcharges on existing fixed price contracts. Without the surcharge some suppliers claim they will be unable to provide adequate supplies of steel. In addition, some of the Company’s suppliers have sought, and others may seek in the future, bankruptcy relief which could affect the availability or price of steel. These factors could negatively impact the Company’s results of operations as it may be unable to compel suppliers to comply with existing contracts or to source adequate supplies of steel. The Company believes it can partially offset the impact of cost increases through higher scrap sales recoveries and or by passing some of these costs through to certain of its customers. The full impact of steel prices is uncertain given the volatility in the spot steel market. However, the Company anticipates the net impact to approximate $10 million to $15 million in fiscal 2004.

Interest Rate and Foreign Exchange Rate Fluctuations

A portion of the Company’s debt, including its borrowings under the New Credit Facility, bears interest at variable rates. Any increase in the interest rates on the Company’s debt will reduce funds available to it for its operations and future business opportunities and will exacerbate the consequences of its leveraged capital structure.

Due to the increase in the Company’s operations outside the United States, the Company has experienced increased foreign currency exchange gains and losses in the ordinary course of business. As a result, fluctuations in the exchange rate between the U.S. dollar, the euro and the currencies of other countries in which the Company conducts its business may have a material impact on its financial condition as cash flows generated in other currencies will be used, in part, to service its dollar-denominated debt. This could result in an increase in the Company’s overall leverage and could result in less cash flow available for debt repayment should the dollar appreciate significantly versus other currencies in which significant cash flows are generated.

In addition, fluctuations in foreign currency exchange rates may affect the value of the Company’s foreign assets as reported in U.S. dollars, which in turn may adversely affect reported earnings and, accordingly, the comparability of period-to-period results of operations. Changes in currency exchange rates may affect the relative prices at which the Company and foreign competitors sell products in the same market. In addition, changes in the value of the relevant currencies may affect the cost of certain items required in its operations. There can be no assurance that fluctuations in interest rates or exchange rates will not have a material adverse effect on the Company’s financial condition or results of operations, or cause significant fluctuations in quarterly and annual results of operations.

Postretirement Benefits

On December 8, 2003, President George W. Bush signed the Medicare Prescription Drug, Improvement and Modernization Act (the Act) into law. This law introduces a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to the benefit established by the law.

In January 2004, the Financial Accounting Standards Board (FASB) issued FASB Staff Position No. FAS 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (“FSP 106-1”). FSP 106-1 permits companies that are a sponsor of a postretirement heath care plan that provides a prescription drug benefit to either include the effects of the Act in its financial statements or defer accounting for the Act until the FASB issues guidance on how to account for the federal subsidy. Such guidance was released by the FASB in May 2004 in Staff Position No. FAS 106-2 (“FSP 106-2”).

As such, the accumulated postretirement benefit obligation (APBO) and the net periodic postretirement benefit cost do not reflect the effects of the Act. The Company is unable to estimate the impact the Act will have on its financial statements or the amount of cash it may be entitled to receive from any federal subsidy, but believes that its plan is at least actuarially equivalent. As such, the Act is expected to favorably impact the Company by reducing the postretirement benefit obligation and expense in future periods when compared to fiscal 2003. In accordance with the provisions of FSP 106-2, the Company will apply the accounting guidance of the pronouncement in the fiscal quarter ended July 31, 2004.

Contractual Obligations

The following table identifies the Company’s significant contractual obligations (millions of dollars):


	Payment due by Period
	Less than						After
	1 year		1-3 years		4-5 years		5 years		Total
Long-term debt	$	6.6	$	25.3	$	26.2	$	584.1	$	642.2
Redeemable preferred stock of subsidiary		—		—		—		10.7		10.7
Short-term borrowings		6.9		—		—		—		6.9
Capital lease obligations		4.1		6.2		4.5		—		14.8
Operating leases		8.9		13.0		2.1		0.1		24.1
Capital expenditures		16.4		—		—		—		16.4

Total obligations	$	42.9	$	44.5	$	32.8	$	594.9	$	715.1

Other Cash Requirements

The Company anticipates the following approximate significant cash requirements to be paid during the remainder of fiscal 2004 (millions of dollars):


Interest	$	36.0
Taxes		22.0
Pension and other post-retirement benefits funding		20.0
Restructuring costs⁽¹⁾		5.0 – 7.0

⁽¹⁾ See Note (8) to the consolidated financial statements included herein for a discussion of restructuring and other closure costs.

Critical Accounting Policies

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Considerable judgment is often involved in making these determinations; the use of different assumptions could result in significantly different results. Management believes its assumptions and estimates are reasonable and appropriate; however, actual results could differ from those estimates.

Asset impairment losses and other restructuring charges

The Company’s consolidated statements of operations included herein reflect an element of operating expenses described as asset impairments and other restructuring charges. The Company periodically evaluates whether events and circumstances have occurred that indicate that the remaining useful life of any of its long lived assets may warrant revision or that the remaining balance might not be recoverable. When factors indicate that the long lived assets should be evaluated for possible impairment, the Company uses an estimate of the future undiscounted cash flows generated by the underlying assets to determine if a write-down is required. If a write-down is required, the Company adjusts the book value of the impaired long-lived assets to their estimated fair values. Fair value is determined through third party appraisals or discounted cash flow calculations. The related charges are recorded as an asset impairment or, in the case of certain exit costs in connection with a plant closure or restructuring, a restructuring or other charge in the consolidated statements of operations.

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

Pension and Postretirement Benefits Other than Pensions

Annual net periodic expense and benefit liabilities under the Company’s defined benefit plans are determined on an actuarial basis. Assumptions used in the actuarial calculations have a significant impact on plan obligations and expense. Each October, the Company reviews the actual experience compared to the more significant assumptions used and makes adjustments to the assumptions, if warranted. The healthcare trend rates are reviewed with the actuaries based upon the results of their review of claims experience. Discount rates are based upon an expected benefit payments duration analysis and the equivalent average yield rate for high-quality fixed-income investments.

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

Certain accounting guidance, including the guidance applicable to pensions, does not require immediate recognition of the effects of a deviation between actual and assumed experience or the revision of an estimate. This approach allows the favorable and unfavorable effects that fall within an acceptable range to be netted. Although this netting occurs outside the basic financial statements, the net amount is disclosed as an unrecognized gain or loss in the footnotes to the Company’s financial statements. In accordance with the fresh start accounting provisions of SOP 90-7, all previously unrecognized gains or losses were immediately recognized at the emergence date.

The Company expects to incur approximately $9.0 million of pension expense and $10.9 million of retiree benefit expense in fiscal 2004.

Goodwill Impairment Testing

On February 1, 2002, the Company adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” Under SFAS No. 142, goodwill and other indefinite-lived intangible assets are no longer amortized; rather those assets must be tested for impairment annually. Other definite-lived intangible assets continue to be amortized over their estimated lives. (See Note (5) to the consolidated financial statements included herein.)

The Company will test goodwill for impairment as of November 1^st of each fiscal year, or more frequently should circumstances change or events occur that would more likely than not reduce the fair value of a reporting unit below its carrying amount, as provided for in SFAS No. 142.

Allowance for uncollectible accounts

The allowance for uncollectible accounts provides for losses believed to be inherent within the Company’s “Receivables,” (primarily trade receivables). Management evaluates both the creditworthiness of specific customers and the overall probability of losses based upon an analysis of the overall aging of receivables, past collection trends and general economic conditions. Management believes, based on its review, that the allowance for uncollectibles is adequate to cover potential losses. Actual results may vary as a result of unforeseen economic events and the impact those events could have on the Company’s customers.

Valuation allowances on deferred income tax assets

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. The Company determined that it could not conclude that it was more likely than not that the benefits of certain deferred income tax assets would be realized. As a result of management’s assessment, a valuation allowance was recognized. The valuation allowance recorded by the Company reduces to zero the net carrying value of all United States and certain foreign net deferred tax assets. The Company expects the deferred tax assets, net of the valuation allowance, to be realized as a result of the reversal of existing taxable temporary differences in the United States and as a result of projected future taxable income and the reversal of existing taxable temporary differences in certain foreign locations.

Valuation of Series A Warrants and Series B Warrants

The Company’s Series A Warrants and Series B Warrants are classified as liabilities that were initially measured at fair value and will subsequently be measured at fair value with changes in fair value recognized in interest expense. The fair value of the Series A Warrants and Series B Warrants at emergence was approximately $9.3 million. As of April 30, 2004, the fair value of the Series A Warrants and Series B Warrants was approximately $4.3 million. The Series A Warrants and Series B Warrants were valued utilizing the Black-Scholes model that requires the estimation of several variables in the formula.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

For the period ended April 30, 2004, the Company did not experience any material change in market risk exposures affecting the quantitative and qualitative disclosures as presented in the Company’s Annual Report on Form 10-K for the year ended January 31, 2004.

Item 4. Controls and Procedures

Definition of Controls

Management of the Company, including the Company’s Chief Executive Officer and Chief Financial Officer, has designed, or caused to be designed, and maintained disclosure controls and procedures, as defined in Exchange Act Rules 13a-15 and 15d-15 (the “Disclosure Controls and Procedures”), to reasonably assure that material information is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms and to reasonably assure that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, in a timely manner to allow for appropriate decisions regarding required disclosures. Management has also designed internal controls, including internal controls over financial reporting (the “Internal Controls”), to provide reasonable assurance regarding the reliability of the Company’s financial reporting and the preparation of the Company’s financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”).

Limitations on the Effectiveness of Controls

As more fully discussed in the American Institute of Certified Public Accountants (“AICPA”) auditing standards pronouncement “Consideration Of Internal Control in a Financial Statement Audit,” AU Section 319, paragraphs .21 to .24, an internal control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control objectives will be met. Limitations inherent in any system of internal controls might include, among other things, (i) faulty human judgment and simple errors or mistakes, (ii) collusion of two or more people or inappropriate management override of procedures, (iii) imprecision in estimating and judging cost-benefit relationships in designing controls and (iv) reductions in the effectiveness of one deterring component (such as a strong cultural and governance environment) by a conflicting component (such as may be found in certain management incentive plans). Because of such inherent limitations in any system of internal controls, no evaluation of controls can provide absolute assurance that all weaknesses or instances of fraud, if any, have been detected.

The Company, including its Chief Executive Officer and Chief Financial Officer, believes that the aforementioned limitations apply to any applicable system of internal controls, including the Disclosure Controls and Procedures and Internal Controls. The Company will continue the process of identifying and implementing corrective actions where required to improve the effectiveness of its Disclosure Controls and Procedures and Internal Controls. Significant supplemental resources may continue to be required to prepare the required financial and other information during this ongoing process.

Evaluation of Disclosure Controls and Procedures

The Company maintains a disclosure committee reporting to the Chief Executive Officer of the Company to assist the Chief Executive Officer and Chief Financial Officer in fulfilling their responsibility in designing, establishing, maintaining and reviewing the Company’s Disclosure Controls and Procedures (the “Disclosure Committee”). The Disclosure Committee is currently chaired by the Company’s Chief Financial Officer and includes the Company’s General Counsel, Vice President of Human Resources and Administration, Corporate Controller, Treasurer, Director of Corporate Accounting, and Director of Internal Audit as its other members. As of the end of the period covered by this report, the Company’s Chief Executive Officer and Chief Financial Officer, along with the Disclosure Committee, evaluated the Company’s Disclosure Controls and Procedures. The Company’s Chief Executive Officer and Chief Financial Officer have concluded, subject to the limitations noted above, that the Disclosure Controls and Procedures are effective based on such evaluation.

Changes in Internal Controls

There were no significant changes in the Company’s Internal Controls or in other factors that have materially affected, or are reasonably likely to affect, Internal Controls over financial reporting during the most recent fiscal quarter.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

There have been no material developments in legal proceedings involving the Company since those reported in the Company’s Annual Report on Form 10-K for the year ended January 31, 2004.

Item 2. Changes in Securities and Use of Proceeds

On February 11, 2004, the Company closed on a primary offering of 7,720,970 shares of common stock. The Company used the net proceeds of $117.0 million that it received from the primary offering to redeem $87.5 million aggregate principal amount, plus accrued and unpaid interest thereon, of its outstanding New Senior Notes on March 12, 2004, to prepay $16.0 million, plus accrued and unpaid interest thereon, of its New Term Loan on February 12, 2004, and for general corporate purposes.

Item 3. Defaults upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

Membership of Board of Directors

On April 23, 2004, the Company announced the appointment of Ms. Laurie Siegel to its Board of Directors. Ms. Siegel is currently Senior Vice President, Human Resources, of Tyco International, Inc.

On June 7, 2004, the Company announced the appointment of Mr. Mohsen Sohi to its Board of Directors. Mr. Sohi is currently President and Chief Executive Officer of Freudenberg-NOK.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

31.1 Certification of Curtis J. Clawson, Chairman of the Board, President and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

31.2 Certification of James A. Yost, Vice President, Finance, and Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

32.1 Certification of Curtis J. Clawson, Chairman of the Board, President and Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

32.2 Certification of James A. Yost, Vice President, Finance, and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

Filed electronically herewith.

(b) Reports on Form 8-K

During the fiscal quarter ended April 30, 2004, the Company filed or furnished Current Reports on Form 8-K with the SEC as follows:


February 6, 2004	Items 5 and 7,	Other Events and Regulation FD Disclosure, and Financial Statements and Exhibits

February 12, 2004	Items 5 and 7,	Other Events and Regulation FD Disclosure, and Financial Statements and Exhibits

April 1, 2004	Items 5 and 7,	Other Events and Regulation FD Disclosure, and Financial Statements and Exhibits

April 6, 2004	Items 12, 7 and 9	Results of Operations and Financial Condition, Regulation FD Disclosure, and Financial Statements and Exhibits

April 23, 2004	Items 5 and 7	Other Events and Regulation FD Disclosure, and Financial Statements and Exhibits

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31.1		Certification of Curtis J. Clawson, Chairman of the Board, President and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

31.2		Certification of James A. Yost, Vice President, Finance, and Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

32.1		Certification of Curtis J. Clawson, Chairman of the Board, President and Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

32.2		Certification of James A. Yost, Vice President, Finance, and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*


	HAYES LEMMERZ INTERNATIONAL, INC.
	/s/ James A. Yost
	James A. Yost
	Vice President, Finance, and Chief Financial Officer