UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT of 1934

For the fiscal year ended January 31, 2005

Commission file number: 333-107539

HLI Operating Company, Inc.

(Exact name of Registrant as Specified in its Charter)

Registrant’s telephone number, including area code:

(734) 737-5000

Securities Registered Pursuant to Section 15(d) of the Act:

10.5% Senior Notes Due 2010

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

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12(b)-2 of the Act).     Yes o          No þ

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

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

      The number of shares of Common Stock outstanding as of April 28, 2005 was 590,000 shares.

DOCUMENTS INCORPORATED BY REFERENCE

HLI OPERATING COMPANY, INC.

FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS

      Unless otherwise indicated, references to the “Company” mean HLI Operating Company, Inc., and its subsidiaries, and references to a fiscal year means the Company’s year commencing on February 1 of that year and ending January 31 of the following year (e.g., fiscal 2004 means the period beginning February 1, 2004, and ending January 31, 2005). This Annual Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” includes “forward-looking statements” within the meaning of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts included in this Annual Report on Form 10-K regarding the prospects of the Company’s industry and the Company’s prospects, plans, financial position and business strategy, may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “plan,” “foresee,” “believe,” or “continue,” or the negatives of these terms or variations of them or similar terminology. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, the Company can give no assurance that these expectations will prove to be correct. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on the Company’s behalf are expressly qualified in their entirety by the cautionary statements included in this document. These forward-looking statements speak only as of the date

of this Annual Report on Form 10-K. The Company will not update these statements unless the securities laws require the Company to do so. Important factors that could cause actual results to differ materially from the Company’s expectations are disclosed in this Annual Report on Form 10-K, including in conjunction with the forward-looking statements included in this Annual Report on Form 10-K including, but not limited to:

PART I

General

      Unless otherwise indicated, references to “Company” mean (i) prior to the effectiveness of Old Hayes’ Plan of Reorganization (as defined below) and the related restructuring, to Old Hayes (as defined below) and its consolidated subsidiaries (the “Predecessor”), and (ii) after the effectiveness of Old Hayes’ Plan of Reorganization and the related restructuring, to HLI Operating Company, Inc. and its consolidated subsidiaries (the “Successor”). References to fiscal year means the Company’s year commencing on February 1 of that year and ending on January 31 of the following year (i.e., “fiscal 2004” refers to the period beginning February 1, 2004 and ending January 31, 2005, “fiscal 2003” refers to the period beginning February 1, 2003 and ending January 31, 2004, and “fiscal 2002” refers to the period beginning February 1, 2002 and ending January 31, 2003).

      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, powertrain components, and aluminum non-structural components for the automotive, commercial highway, heating, and general equipment industries.

Business Overview

      Originally founded in 1908, the Company is a leading worldwide producer of aluminum and steel wheels for the light vehicle market. The Company is also a leading provider of steel wheels for the commercial highway market. The Company is a leading supplier in the market for suspension, brake, and powertrain components. The Company has a global footprint with 42 facilities and one joint venture located in 14 countries around the world. The Company sells its products to every major North American, Japanese, and European manufacturer of passenger cars and light trucks as well as commercial highway vehicle customers throughout the world. The Company’s products are presently on seven of the top ten selling platforms for passenger cars in the United States and ten of the top ten selling platforms for passenger cars in Europe. The Company’s ability to support its customers globally is further enhanced by the Company’s broad global presence in terms of sales offices, manufacturing facilities, and engineering/ technical centers.

      In fiscal 2004, the Company had sales of $2.2 billion, with approximately 51% of the Company’s net sales for that period derived from international markets. 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. The Company had earnings from operations in fiscal 2004 of $21.7 million, and in fiscal 2003 of $62.0 million (which includes the impact of certain gains and expenses related to its emergence from Chapter 11 proceedings).

      On December 5, 2001, Hayes Lemmerz International, Inc. (“Old Hayes”), 30 of the Company’s wholly owned domestic subsidiaries, and one of the Company’s wholly owned Mexican subsidiaries filed voluntary petitions under Chapter 11 of the Bankruptcy Code with the U.S. Bankruptcy Court in the District of Delaware (the “Bankruptcy Court”). On May 12, 2003, the Bankruptcy Court confirmed the Company’s modified first amended joint plan of reorganization (the “Plan of Reorganization”). Under the Plan of Reorganization, HLI Holding Company, Inc. (“Holdco”) was formed as a new holding company with no business operations and no assets or liabilities, other than immaterial amounts in connection with its formation.

      On June 3, 2003 (the “Effective Date”), Old Hayes emerged from bankruptcy and, under the Plan of Reorganization, Old Hayes was merged with and into the Company, Inc. an indirect subsidiary of Holdco, with the Company continuing as the surviving corporation. As a result of the merger, all of the assets and businesses of Old Hayes are now owned and operated by the Company. Immediately following the merger, Holdco was renamed Hayes Lemmerz International, Inc. (“New Hayes”). All of the Company’s common

stock is held by HLI Parent Company, Inc. (“HLI Parent Co.”), which is wholly owned by New Hayes. New Hayes and HLI Parent Co. remain holding companies that do not conduct any business operations. For further discussion of the Company’s emergence from Chapter 11, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Business, Chapter 11 Filings and Emergence from Chapter 11.”

      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 year ending January 31, 2005 and the eight months ended January 31, 2004 are presented as the “Successor” periods and the pre-emergence financial results of the Company for the four months ended May 31, 2003 and the year ended January 31, 2003 are presented as the “Predecessor” periods. Comparative financial statements do not straddle the Effective Date because, in effect, the Successor Company represents a new entity.

Industry Trends

      The Company believes there are a number of important trends in the automotive parts industry from which the Company has benefited in the past and is well positioned to benefit from in the future. These trends include:

      Increasing Requirements for Global Capabilities. Automotive OEMs are focused on expanding their business operations globally to capitalize on markets that are experiencing high rates of growth or that have low production costs. As a result, suppliers are being required to operate in these same global markets to obtain new business from their customers. The Company believes automotive OEMs favor suppliers that have global operations to supply low-cost, high-quality products, as well as suppliers that have the ability to supply parts for a particular platform to multiple production facilities around the world. The Company believes that few suppliers are truly global and those that are have a competitive advantage.

      Growing Demand for Full Service Suppliers. Automotive OEMs are increasingly outsourcing a greater number of vehicle components to their suppliers and increasingly require that their suppliers have the capabilities to design and engineer the components they manufacture for the OEMs to allow the OEMs to focus on overall vehicle design, development, and marketing. The Company believes automotive OEMs are awarding new business to those suppliers that support the full range of design and engineering services required to provide high quality, technologically advanced products under shortened product development timetables.

      Increasing Use of Aluminum in Vehicles. Automotive OEMs are focused on increasing the fuel efficiency of vehicles while maintaining safety and comfort. Light metals such as aluminum provide automotive OEMs with a way to materially reduce the overall weight of the vehicle and improve fuel efficiencies. Aluminum penetration in the North American wheel market has grown as automotive OEMs have recognized both the weight efficiencies of aluminum and its favorable design characteristics. Aluminum wheel penetration in Europe is lower than in the United States and the Company expects it to continue to grow as the European market looks to both improve fuel efficiency and provide design differentiation.

      Decreasing Dependence on Ford, DaimlerChrysler, and General Motors. The Company derived approximately 44% and 50% of fiscal 2004 and 2003 net sales, respectively, 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 by these customers to foreign competitors in 2003. Additionally, these customers have been experiencing decreasing market share in North America, which could result in lower sales volumes for the Company. The Company’s net sales are continually affected by pressure from its major customers to reduce prices. The Company’s emphasis on reduction of production costs, increased productivity and improvement of production facilities has enabled the Company to respond to this pressure. However, there is no guarantee that the Company will be successful at this in the future.

Competitive Strengths

      The Company believes that the following competitive strengths are instrumental to its success:

      Leading Market Positions across Products and Markets. The Company is a leading supplier of automotive wheels used by OEMs in North America and in Europe. The Company is also a leading supplier of lightweight aluminum suspension, powertrain, and brake components.

      Diversified Base of Business. The Company’s competitive position in the market and opportunities for growth are driven by a diversified base of business that capitalizes on the following competitive advantages:

      The Company currently conducts business in three operating segments: Automotive Wheels, Components, and Other. The Automotive Wheels segment includes cast aluminum wheels and fabricated steel and aluminum wheels. The Components segment includes suspension components, brake components, and powertrain components. The Other segment includes commercial highway products and its aftermarket division.

      Low Cost Producer. To meet the Company’s customers’ demands for the highest quality, lowest cost product delivered globally, the Company has established manufacturing facilities in the Czech Republic, Turkey, Brazil, Mexico, South Africa, Thailand, and India. The ability to produce product at a lower cost, close to the customer, gives the Company an advantage over competitors without its global reach. The Company is in the process of expanding its low pressure aluminum wheel casting capabilities in Thailand and in the Czech Republic to serve customers in Europe and Asia. In January 2004, the Company acquired a cast aluminum wheel plant located in Chihuahua, Mexico, formerly operated as part of a joint venture in which the Company owned a minority interest. Following the Company’s refurbishment and expansion of the plant, it will serve the North American wheel market utilizing low pressure casting technology. The Company anticipates that most future capacity expansion will be in countries with low production costs.

      Strong OEM Relationships. The Company’s position as a supplier with full-service global manufacturing capabilities has enabled it to create long-standing relationships with its customers, including automotive OEMs such as Ford, DaimlerChrysler, General Motors, Nissan/ Renault, Toyota, Honda, BMW, and Volkswagen as evidenced by its continued new business development. The Company’s strong relationships with automotive OEMs have also allowed it to expand the business globally as its customers have moved into new markets and product niches.

      New Product Innovation. The Company is a leader in new product development. The Company has developed many new products to meet customer needs for lighter weight vehicles to improve fuel economy as well as ride and handling. The Company has also developed a method of casting large one-piece aluminum

suspension components and the Company believes it is one of the few suppliers capable of casting these components.

      Full Service Capabilities. The Company has full-service capabilities in all of the product segments, including advanced design and engineering, value-added casting processes, and machining, which allow the Company to provide its customers with total product solutions. The Company is recognized for technology and process innovation.

      Leading Position in Lightweight Aluminum Wheels and Components. The Company is a leading supplier of aluminum wheels globally and is positioned for continued growth if the penetration of aluminum in both wheels and automotive components continues to increase in Europe and the rest of the world. The Company believes that its global presence and technological expertise in aluminum have made the Company a leading supplier of aluminum suspension components.

      Experienced Management Team. The Company has an experienced management team with significant automotive and lean manufacturing experience at companies including AlliedSignal, ArvinMeritor, Bosch, Ford, and General Motors. Under this team’s leadership, the Company has significantly improved the operations of its business and positioned its business for continued growth and ongoing financial strength.

Business Strategy

      The Company’s strategy is based on the following:

      Leverage Market Leading Positions and Global Capabilities. The Company believes its leading market positions reflect its reputation for quality and excellence in the global light vehicle and commercial highway markets for wheels and other products, including suspension, powertrain, and brake components. The Company believes it benefits from its leadership position in product and process technologies that support its focus on high value-added content, particularly regarding safety-critical products, such as wheels. The Company’s position as the largest wheel producer combined with global capabilities gives it a strong base to provide maximum value to customers.

      As emerging markets develop their manufacturing capabilities and infrastructure, the demand for vehicles, and the capability to build them locally, increases. The Company believes its facilities in emerging market countries position it well in these local markets both to take advantage of the low costs of production and to supply the local automotive markets as they grow at rates generally expected to be faster than in North America and Europe. For example, the Company’s facility in Thailand produces wheels that are shipped to Japanese OEMs and wheels that are sold in Thailand.

      Expand Low Cost Production Capabilities. To meet the Company’s customers’ demands for the highest quality, lowest cost product delivered globally, the Company has established manufacturing facilities in a number of countries that have low production costs. The Company currently has facilities in the Czech Republic, Turkey, Brazil, Mexico, South Africa, Thailand, and India. The ability to produce product at a lower cost, close to the customer, gives the Company an advantage over competitors without its global reach. Through continued investment in countries with low production costs, the Company intends to continue to enhance its global market position while minimizing its costs. The Company is expanding its low pressure aluminum wheel casting capabilities in Thailand and in the Czech Republic to serve customers in Europe and Asia and expanding the cast aluminum wheel plant it recently acquired in Chihuahua, Mexico so that it will serve the North American wheel market utilizing low pressure casting technology. The Company presently anticipates that most future capacity expansion will be in countries with low production costs.

      Enhance the Company’s Strong Customer Relationships. The Company is focused on continuing to strengthen its customer relationships through increased quality, high levels of customer service, and operational excellence, all of which will allow it to continue to provide a high quality product to customers at a low price. The Company’s management team has created a culture that is focused on providing its customers with high quality service and technical support and this is demonstrated in its continuing ability to obtain new business and expand customer relationships. In addition, the Company actively leverages its strong OEM relationships in Europe to increase its business with transplant OEMs in North America.

      Continue Leadership in New Product Innovation and Process Development. The Company believes that it has a track record of developing product and manufacturing process innovations. For example, the Company recently developed a fabricated steel wheel that is both significantly lighter than a standard steel wheel and significantly less expensive than an aluminum wheel, with styling capabilities similar to an aluminum wheel. The Company is also one of the only suppliers globally using the vacuum riserless casting/pressure riserless casting (“VRC/ PRC”) technology that allows for the casting of complex aluminum structural crossmembers that are lighter and more structurally sound than conventionally cast crossmembers. The Company intends to continue its efforts to develop innovative wheel, brake, and other suspension products and manufacturing processes to better serve customers globally and improve product mix and profit margins.

      Focus on Operational Excellence. The Company continuously implements strategic initiatives designed to improve product quality while reducing manufacturing costs. The Company has implemented a broad range of initiatives that have substantially improved its operating performance. For example, the Company recently completed a project at its Sedalia, Missouri facility in which the Company used Six Sigma methodologies to reduce total scrap rates in certain of its products manufactured there. The Company will continue to focus on opportunities to improve operating income including:

      The Company may be unable to successfully implement its business strategies due to a weakening of the economy, changes in the automotive industry, or other factors, including those listed on page 2.

Products

      The Company designs, manufactures and distributes a full line of cast aluminum wheels to automotive OEMs in North America, Europe, South America, South Africa, and Asia. The Company manufactures one-piece and two-piece aluminum wheels including wheels with bright finishes such as GemTech® machining, clads, and premium paints. One-piece aluminum wheels accounted for the majority of its fiscal 2004 sales. With the exception of a limited number of cast aluminum wheels manufactured by Toyota and Ford, there is no significant manufacturing of cast aluminum wheels by OEMs.

      North America. The Company designs, manufactures and distributes a full line of cast aluminum wheels to OEMs in North America. The Company is one of the leading suppliers of cast aluminum wheels to automotive OEMs in North America.

      Europe. The Company designs, manufactures, and distributes a full line of cast aluminum wheels to OEMs in the passenger car and light truck segments of the European automotive industry. The Company is one of the leading suppliers of cast aluminum wheels to the European market. In Europe, its OEM customers demand a wide variety of styles and sizes of cast aluminum wheels, and the Company maintains substantial capabilities to meet such demand. The Company also maintains direct computer links with several customer locations in Europe to determine customer needs and streamline the design and approval process and reduce product development lead time.

      South America, South Africa, and Asia. The Company designs, manufactures, and distributes a full line of cast aluminum wheels to OEMs in South America, South Africa, and Asia. The Company operates a facility in Japan that provides sales, engineering, and service support for the Japanese wheel market.

      The Company designs, manufactures, and distributes fabricated steel and aluminum wheels to automotive OEMs in North America, Europe, and South America. Its fabricated wheel products include steel and aluminum wheels that can be made in drop-center, bead seat attached and full-face designs, in a variety of finishes, including chrome and clads.

      North America. The Company designs, manufactures, and distributes a full line of fabricated wheels to OEMs in North America. The Company is the largest supplier of fabricated steel wheels in North America. The Company believes that the North American steel wheel market will remain significant because OEMs will continue to specify less costly fabricated steel wheels for more moderately priced passenger cars and light trucks and for most spare wheels.

      Europe. The Company designs, manufactures, and distributes a full line of fabricated steel wheels to both OEMs and the automotive aftermarket throughout Europe. The Company is the leading supplier of fabricated steel wheels manufactured in Europe.

      South America. The Company designs, manufactures, and distributes a full line of fabricated steel wheels to both OEMs and the automotive aftermarket throughout Brazil and Argentina. The Company also imports wheels manufactured in Brazil for sale in North America.

      The Company designs, manufactures, and distributes suspension components for sale to North America OEMs. Its primary suspension component products include: (i) aluminum structural components, such as structural crossmembers, subframes, engine cradles, and axle components; and (ii) wheel-end attachments and assemblies, such as steering knuckles, spindles, hub carriers, and control arms. Its suspension components are produced and sold in North America. The Company is a technologically advanced manufacturer of aluminum suspension components for the automotive industry. The Company casts aluminum using green sand, permanent mold, squeeze, and the VRC/ PRC processes. Components are machined on a variety of state-of-the-art equipment.

      Aluminum Structural Components. The Company designs, manufactures, and distributes structural aluminum subframes and crossmembers in North America.

      Wheel-End Attachments and Assemblies. The Company designs, manufactures, and distributes wheel-end attachments and assemblies to OEMs in North America. The Company produces aluminum and iron knuckles, spindles and spindle assemblies, iron hub carriers, axle flanges for the corner of the vehicle, and control arms. Wheel attachments are made from iron, aluminum, and steel.

      The Company designs, manufactures, and distributes automotive brake components consisting primarily of cast iron rotors for disc brakes and composite metal drums and full-cast drums for drum-type brakes. The

Company has developed innovative new component designs for products that generate less noise, are lighter, and last longer, including zinc dust coated components and aluminum composite rotors and drums. Its brake components are produced and sold in North America.

      The Company designs, manufactures, and distributes a variety of aluminum and polymer powertrain components, including engine intake manifolds, aluminum cylinder heads, water crossovers, water pump housings, brackets, and ductile iron exhaust manifolds. The polymer manifolds the Company currently sells are manufactured using lost-core technology. The polymer manifolds market is moving increasingly to welded technology. The Company believes it is well positioned to move into this market. Its powertrain and engine components are produced and sold in North America.

      The Company designs, manufactures, and distributes wheels and brakes for commercial highway vehicles in North America, Europe, South America and Asia.

      North America. The Company manufactures disc wheels and demountable rims for sale to manufacturers of commercial highway vehicles in North America. The Company also manufactures two-piece, take-apart wheels for certain special applications, including the High Mobility Multiple Purpose Wheeled Vehicle (the “Hummer”). The Company manufactures brake components for commercial highway vehicles consisting of conventional cast iron brake drums, double iron hubs, and CentriFuse® brake drums.

      Europe. The Company designs, manufactures and distributes steel truck and trailer wheels for sale to manufacturers of commercial highway vehicles in Europe at its Konigswinter, Germany facility. In addition, the Company produces wheels for the forklift truck market at its Ostrava, Czech Republic facility.

      South America and Asia. The Company designs, manufactures, and distributes steel truck and trailer wheels to OEMs in South America and Asia.

      The Company has aluminum operations in Europe that manufacture a variety of cast aluminum products including heat exchangers used in gas-fired boilers, intake manifolds and aluminum housings for automotive and commercial vehicle applications, and a variety of aluminum products for the general industrial and electronics industries. The operations are owned by its subsidiary, MGG Group B.V. (“MGG”). MGG has three facilities, two of which are in the Netherlands and one of which is in Belgium.

Business Segment and Geographical Information

      See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 21, “Segment Information” to the consolidated financial statements, which are incorporated herein by reference.

Material Source and Supply

      The Company purchases most of the raw materials (such as steel and aluminum) and semi-processed or finished items (such as castings) used in its products from suppliers located within the geographic regions of its operating units. In many cases, these materials are available from several qualified sources in quantities

sufficient for its needs. However, shortages of a particular material or part occasionally occur. During 2004 and 2003, metal markets in global and regional sectors have experienced significant pricing and supply volatility, particularly where agreements and contracts are not in place.

      The Company has a centralized materials and logistics function. In addition, the Company has developed long-term multi-tiered materials sourcing strategies and new supply chain relationships to control costs. Although the Company currently maintains alternative sources for raw materials, its businesses are subject to the risk of material surcharges and periodic volatility in the delivery of certain raw materials and supplies.

      In recent periods there have been significant increases in the global prices of steel and iron, which have had and may continue to have an impact on the Company’s business. Factors leading to the higher prices include the increasing demand for steel in China, industry consolidation and rising raw material costs. In response to the increasing cost of raw materials, metal suppliers have implemented surcharges on existing fixed price contracts. Without the surcharge some suppliers claim they will be unable to provide adequate supplies of steel. In addition, some of the Company’s suppliers have sought, and others may seek in the future, bankruptcy relief which could affect the availability or price of steel. These factors could negatively impact the Company’s results of operations as it may be unable to compel suppliers to comply with existing contracts or to source adequate supplies of steel. Although the Company has been able to partially offset the impact of cost increases through higher scrap sales recoveries and/or by passing some of these costs through to certain of its customers, the Company cannot guarantee that it will be able to continue to do so in the future. The full impact of steel prices is uncertain given the volatility in the global steel market.

Intellectual Property

      The Company considers itself to be an industry leader in product and process technology and it owns significant intellectual property, including numerous United States and foreign patents, trade secrets, trademarks, and copyrights. Therefore, the protection of its intellectual property is important to its business. Its policy is to seek statutory protection for all significant intellectual property embodied in patents, trademarks, and copyrights. The Company relies on a combination of patents, trade secrets, trademarks, and copyrights to provide protection in this regard, but this protection might be inadequate. For example, its pending or future patent applications might not be approved or, if allowed, they might not be of sufficient strength or scope. Conversely, third parties might assert that its technologies infringe their proprietary rights. In either case, litigation, which could result in substantial costs and diversion of its efforts, might be necessary, and whether or not the Company is ultimately successful, the litigation could adversely affect its business.

      Although intellectual property is important to its business operations and in the aggregate constitutes a valuable asset, the Company does not believe that any single patent, trade secret, trademark, or copyright, or group thereof, is critical to the success of the business. From time to time, the Company grants licenses under its patents and technology and receives licenses under patents and technology of others.

Research and Development

      The Company’s objective is to be a leader in offering superior quality and technologically advanced products to its customers at competitive prices. The Company engages in ongoing engineering, research, and development activities to improve the reliability, performance, and cost-effectiveness of its existing products and to design and develop new products for existing and new applications. The Company’s spending on engineering, research, and development programs was $10.4 million for the fiscal year ended January 31, 2005, $2.9 million for the eight months ended January 31, 2004, $1.5 million for the four months ended May 31, 2003, and $7.1 million for the fiscal year ended January 31, 2003.

Seasonality

      Although its business is not seasonal in the traditional sense, July (in North America), August (in Europe), and December are usually lower sales months because OEMs typically perform model changeovers or take vacation shutdowns during the summer, and assembly plants typically are closed for a period from shortly before the year-end holiday season until after New Year’s Day.

Customer Dependence

      In fiscal 2004, the Company’s principal customers were Ford, DaimlerChrysler, and General Motors (the three of which comprised approximately 44% of its fiscal 2004 net sales on a worldwide basis), as well as BMW, Toyota, Volkswagen, Nissan/ Renault, and Honda. Other customers include Isuzu, Fiat, Porsche, Audi, Citroen, Peugeot, Skoda, Mazda, Mitsubishi and Suzuki. The Company also sells some of its components to other Tier 1 automotive suppliers such as Bosch, Continental Teves, Delphi, TRW Automotive, Inc., and Visteon. In fiscal 2003, its commercial highway vehicle customers in North America, Europe, and Asia included Trailmobile, Dana/ Mack, DaimlerChrysler, Iveco, Strick, Great Dane Trailers, Freightliner, PACCAR, Volvo, General Motors, Nissan/ Renault, Western Star, Schmitz Cargobull, and Koegal.

      The loss of a significant portion of sales to any of the Company’s principal customers could have a material adverse impact on its business. The Company has been doing business with each of its principal customers for many years, and sales are composed of a number of different products and of different models or types of the same products and are made to individual divisions of such customers. In addition, the Company supplies products to many of these customers in both North America and Europe, which reduces its reliance on any single market.

Backlog

      Generally, the Company’s products are not on a backlog status. Its products are produced from readily available materials, have a relatively short manufacturing cycle, and have short customer lead times. Each operating unit maintains its own inventories and production schedules.

Competition

      The major domestic and foreign markets for the Company’s products are highly competitive. Competition is based primarily on price, technology, quality, delivery, and overall customer service. The Company’s customers have shifted research and development, design, and validation responsibilities to their key suppliers, focusing on stronger relationships with fewer suppliers. The Company’s global competitors include a large number of other well-established suppliers. Competitors typically vary among each of the Company’s products and geographic markets.

Joint Ventures

      The Company participates in an aluminum wheel joint venture (“aluminum wheel JV”) to produce cast aluminum wheels with operations in Manisa, Turkey. This aluminum wheel JV, Jantas Aliminyum Jant Sanayi ve Ticaret A.S. (a.k.a. Jantas Aluminum Wheels), will serve the Turkish and other European markets. The aluminum wheel JV is expected to begin production at the end of 2005 and to produce up to 1.5 million wheels annually. The aluminum wheel JV is owned 40% by the Company, 35% by Cromodora Wheels S.p.A, and 25% by Inci Holding A.S. As of January 31, 2005, the Company has provided funding to the aluminum wheel JV of $1.6 million.

Environmental Compliance

      The Company is subject to various foreign, federal, state, and local environmental laws, ordinances, and regulations, including those governing discharges into the air and water; the storage, handling and disposal of solid and hazardous wastes; the remediation of soil and groundwater contaminated by petroleum products or hazardous substances or wastes; and the health and safety of its employees. Under certain of these laws, ordinances, or regulations, a current or previous owner or operator of property may be liable for the costs of removal or remediation of certain hazardous substances or petroleum products on, under, or in its property, without regard to whether the owner or operator knew of, or caused, the presence of the contaminants, and regardless of whether the practices that resulted in the contamination were legal at the time they occurred. The presence of, or failure to remediate properly, such substances may adversely affect the ability to sell or rent such property or to borrow using such property as collateral. Persons who generate, arrange for the disposal or treatment of, or dispose of hazardous substances may be liable for the costs of investigation, remediation, or removal of these hazardous substances at or from the disposal or treatment facility, regardless

of whether the facility is owned or operated by that person. Additionally, the owner of a site may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from a site.

      The Company believes that it is in material compliance with environmental laws, ordinances, and regulations and do not anticipate any material adverse effect on its earnings or competitive position relating to environmental matters. It is possible, however, that future developments could lead to material costs of environmental compliance for the Company. The nature of the Company’s current and former operations and the history of industrial uses at some of its facilities expose it to the risk of liabilities or claims with respect to environmental and worker health and safety matters, which could have a material adverse effect on its financial health. The Company is also required to obtain permits from governmental authorities for certain operations. The Company cannot guarantee that it has been, or will be at all times, in complete compliance with such permits. If the Company violates or fails to comply with these permits, the Company could be fined or otherwise sanctioned by regulators. In some instances, such a fine or sanction could be material. In addition, some of its properties are subject to indemnification and/or cleanup obligations of third parties with respect to environmental matters. However, in the event of the insolvency or bankruptcy of such third parties, the Company could be required to bear the liabilities that would otherwise be the responsibility of such third parties. See “Item 3: Legal Proceedings.” The Company has 25 facilities registered or recommended for registration under ISO 14001 and it is working to obtain ISO 14001 Registration at all manufacturing facilities worldwide.

Sales and Marketing

      The Company has a sales and marketing organization of dedicated customer teams that provide a consistent interface with its key customers. These teams are located in all major vehicle producing regions to best represent their respective customers’ interests within its organization, to promote customer programs, and to coordinate global customer strategies with the goal of enhancing overall customer service and satisfaction. The Company’s ability to support its customers globally is further enhanced by its broad global presence in terms of sales offices, manufacturing facilities, engineering/technical centers, and joint ventures.

Employees

      At January 31, 2005, the Company had approximately 11,000 employees. The Company’s employees in the United States, approximately 4.4% are represented by the United Steel Workers (“USW”) union, all of which are employed at its facility in Akron, Ohio. The collective bargaining agreements with the USW affecting these employees was renewed in 2004 and will expire in 2008. As is common in many European jurisdictions, substantially all of the Company’s employees in Europe are covered by country-wide collective bargaining agreements. Additional agreements are often made with the facility Works Council on an individual basis covering miscellaneous topics of local concern. There are no Company-wide or industry-wide bargaining units in the United States. The Company considers its employee relations to be good.

International Operations

      The Company has a worldwide network of 42 facilities and one joint venture in the United States, Germany, Italy, Spain, the Netherlands, Belgium, the Czech Republic, Turkey, Brazil, South Africa, Mexico, Thailand, and India. The Company also provides sales, engineering, and customer service throughout the world. The Company has advanced research and development facilities in the United States, Germany, Belgium, Italy, and Brazil and a sales and engineering office in Japan.

Available Information

      Hayes Lemmerz International, Inc.’s internet website address is www.hayes-lemmerz.com. The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Exchange Act are

available free of charge through the Company’s website as soon as reasonably practical after those reports are electronically filed with, or furnished to, the Securities and Exchange Commission.

      The Company operates 22 facilities in North America, 14 facilities in Europe and six facilities in South America, Asia, and South Africa. The Company believes that the its plants are adequate and suitable for the manufacturing of products for the markets in which we sell. In addition to the operating facilities discussed above, the Company has four non-operating facilities in the United States, three of which are currently held for sale.

      The following table summarizes operating facilities:

      On February 19, 2002, the Company issued restated consolidated financial statements as of and for the fiscal years ended January 31, 2001 and 2000, and related quarterly periods, and for the fiscal quarter ended April 30, 2001. The restatement was the result of the Company’s failure to properly apply certain accounting standards generally accepted in the United States (“GAAP”), and because certain accounting errors and irregularities in the Company’s financial statements were identified. The SEC is conducting an investigation into the facts and circumstances giving rise to the restatements. The Company has been and intends to continue cooperating with the SEC in connection with such investigation, but the Company cannot predict the outcome of the investigation. There can be no assurance that the SEC will not impose fines or take other corrective actions against the Company that could have a significant negative impact on the Company’s financial condition. In addition, publicity surrounding the SEC’s investigation or any enforcement action, even if ultimately resolved favorably for the Company, could have a material adverse impact on the Company’s financial condition, results of operations, or business.

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

      Additionally, before the date the Company commenced its Chapter 11 Bankruptcy case, four other putative class actions were filed in the U.S. District Court for the Eastern District of Michigan against the Company and certain of the Company’s directors and officers on behalf of an alleged class of purchasers of the Company’s common stock from June 3, 1999 to December 13, 2001, based on similar allegations of securities fraud. On May 10, 2002, the plaintiffs filed a consolidated and amended class action complaint seeking damages against the officers and directors (but not the Company) and KPMG. Pursuant to the Company’s Plan of Reorganization, the Company purchased directors’ and officers’ liability insurance to cover then-current and former directors and officers and agreed to indemnify certain of the Company former directors against certain liabilities, including those matters described above, up to an aggregate of $10 million in excess of the directors’ and officers’ liability insurance coverage to or for the benefit of these indemnities. The Company has been informed that the parties to these actions have agreed to a settlement, which includes payment by certain defendants, including the former directors, of $7.2 million. The Company is currently unable to determine the amount of such payment, if any, that it may be required to pay to its former directors pursuant to this indemnification obligation.

      In October 2003, General Electric Credit Corporation (“GECC”) filed an amended administrative claim in the Bankruptcy Court for $7.5 million relating to certain leased equipment. The leases were rejected during the Company’s Chapter 11 cases. GECC is alleging that its damages were incurred post-petition because the equipment was returned post-petition. If the Bankruptcy Court determines that GECC’s damages are a post-petition expense, GECC may be entitled to an administrative claim for the claim’s full amount. The Company is disputing the amount and the merits of GECC’s claim. On February 1, 2005, the parties concluded a bench trial on the matter. The court will make a final determination after the parties’ submission of post-trial briefs, the last of which were filed in April 2005.

      The Company is the defendant in a patent infringement matter filed in 1997 in the U.S. District Court for the Eastern District of Michigan. Lacks Incorporated (“Lacks”) alleged that the Company infringed on three patents held by Lacks relating to chrome-plated plastic cladding for steel wheels. Prior to fiscal 2000, the Federal District Court dismissed all claims relating to two of the three patents that Lacks claimed were infringed and dismissed many of the claims relating to the third patent. The remaining claims relating to the third patent were submitted to a special master. In January 2001, the special master issued a report finding that Lacks’ third patent was invalid and recommending that Lacks’ remaining claims be dismissed; the trial court accepted these recommendations. Lacks appealed this matter to the Federal Circuit Court. The Federal Circuit Court vacated the trial court’s ruling that the third patent was invalid and remanded the matter back to the trial court for further proceedings. Discovery on the remanded claims is ongoing. In July 2003, Lacks filed an administrative claim in the Bankruptcy Court for $12 million relating to the alleged patent infringement.

      The Company was party to a license agreement with Kuhl Wheels, LLC (“Kuhl”), whereby Kuhl granted the Company an exclusive patent license concerning “high vent” steel wheel technology known as the Kuhl Wheel (the “Kuhl Wheel”), which agreement was terminated as of January 10, 2003 pursuant to a stipulation between the Company and Kuhl in connection with the Company bankruptcy proceeding. The original license agreement (as amended, the “License Agreement”), dated May 11, 1999, granted the Company non-exclusive license for the Kuhl Wheel technology. The License Agreement was subsequently amended to provide the Company with an exclusive worldwide license. On January 14, 2003, the Company filed a Complaint for Declaratory and Injunctive Relief against Kuhl and its affiliate, Epilogics Group, in the U.S. District Court for the Eastern District of Michigan. The Company commenced such action seeking a declaration of noninfringement of two U.S. patents and injunctive relief to prevent Epilogics Group and Kuhl from asserting claims of patent infringement against the Company, and disclosing and using the Company’s technologies, trade secrets, and confidential information to develop, market, license, manufacture, or sell automotive wheels. Expert and fact discovery have just been completed.

      In October 2003, Nissan North America filed suit against the Company in Tennessee state court asserting a $13.7 million breach of contract and breach of warranty claim that the Company believes arose prior to the confirmation date and was discharged by the Plan of Reorganization. A recent mediation with Nissan North America was unsuccessful and the pre-trial phase of the lawsuit is proceeding.

      The Company is involved in a dispute with BNY Capital Resources Corporation (“BNY”) related to leased equipment that the Company intends to return at the end of the lease term. BNY has alleged that the Company has breached several provisions of the lease. On March 29, 2005, the Company filed a Complaint for Declaratory Relief against BNY in the U.S. District Court for the Eastern District of Michigan seeking a judgment declaring that the Company is not in breach of its obligations under the lease documents. No discovery has been conducted and the Company cannot estimate the likelihood that the Company will prevail in this litigation.

      The nature of the Company’s business subjects the Company to litigation in the ordinary course of the Company’s business. In addition, we are from time to time involved in other legal proceedings. Although claims made against the Company prior to May 12, 2003, the date on which the Plan of Reorganization was confirmed, except as described in the immediately following paragraph, were discharged and are entitled only to the treatment provided in the Plan of Reorganization or in connection with settlement agreements that were approved by the Bankruptcy Court prior to the Company’s emergence from bankruptcy, the Company cannot guarantee that any remaining or future claims will not have a significant negative impact on the Company’s

results of operations and profitability. In addition, claims made after the date of the Company’s bankruptcy filing were not discharged in the bankruptcy proceeding.

      Claims made against the Company prior to the date of the bankruptcy filing or the confirmation date may not have been discharged if the claimant had no notice of the bankruptcy filing or various deadlines in the Plan of Reorganization. Although certain parties have informally claimed that their claims were not discharged, the Company is not presently aware of any party, other than Nissan North America, that has sought to enforce claims that the Company believes were discharged or a judicial determination that their claims were not discharged by the Plan of Reorganization. In addition, in other bankruptcy cases, states have challenged whether their claims could be discharged in a federal bankruptcy proceeding if they never made an appearance in the case. This issue has not been finally settled by the U.S. Supreme Court. Therefore, the Company can give no assurance that the Company’s emergence from bankruptcy resulted in a discharge of all claims against the Company with respect to periods prior to the date the Company filed for bankruptcy protection. Any such claim not discharged could have a material adverse effect on the Company’s financial condition and profitability; however, the Company is not presently aware of any such claims. Moreover, the Company’s European operations and certain other foreign operations did not file for bankruptcy protection, and claims against them are not affected by the Company’s bankruptcy filing.

      In the ordinary course of the Company’s business, the Company is a party to other judicial and administrative proceedings involving the Company’s operations and products, which may include allegations as to manufacturing quality, design and safety. The Company carries insurance coverage in such amounts in excess of the Company’s self-insured retention as the Company believes to be reasonable under the circumstances and which may or may not cover any or all of the Company’s liabilities in respect of claims and lawsuits. After reviewing the proceedings that are currently pending (including the probable outcomes, reasonably anticipated costs and expenses, availability and limits of insurance rights under indemnification agreements and established reserves for uninsured liabilities), the Company believes that the outcome of these proceedings will not have a material adverse effect on the financial condition or ongoing results of the Company’s operations.

      The Company is exposed to potential product liability and warranty risks that are inherent in the design, manufacture and sale of automotive products, the failure of which could result in property damage, personal injury, or death. Accordingly, individual or class action suits alleging product liability or warranty claims could result. Although the Company currently maintains what it believes to be suitable and adequate product liability insurance in excess of the Company’s self-insured amounts, there can be no assurance that the Company will be able to maintain such insurance on acceptable terms or that such insurance will provide adequate protection against potential liabilities. In addition, if any of the Company’s products prove to be defective, the Company may be required to participate in a recall involving such products. A successful claim brought against the Company in excess of available insurance coverage, if any, or a requirement to participate in any product recall, could have a material adverse effect on its results of operations or financial condition.

      Under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (“CERCLA”), the Company currently has potential environmental liability arising out of both the Company’s wheel and non-wheel businesses at 17 Superfund sites (the “Sites”). Five of the Sites were related to the operations of Motor Wheel prior to the divestiture of that business by The Goodyear Tire & Rubber Co. (“Goodyear”). In connection with the 1986 purchase of Motor Wheel by MWC Holdings, Inc. (“Holdings”), Goodyear agreed to retain all liabilities relating to these Sites and to indemnify and hold Holdings harmless with respect thereto. Goodyear has acknowledged this responsibility and is presently representing the Company’s interests with respect to all matters relating to these five Sites.

      As a result of activities which took place at the Company’s Howell, Michigan facility prior to the Company’s acquisition of it, the U.S. Environmental Protection Agency (the “EPA”) is performing, under CERCLA, a remedial investigation/feasibility study of PCB contamination at this Site and in the adjacent South Branch of the Shiawasee River. Under the terms of a consent judgment entered into in 1981 by Cast Forge, Inc. (“Cast Forge”) (the previous owner of this Site) and the State of Michigan, any additional PCB

cleanup which may be required is the financial responsibility of the State of Michigan and not of Cast Forge or its successors or assigns (including the Company). The EPA has concurred in the consent judgment.

      The Company is working with various government agencies and the other parties identified by the applicable agency as “potentially responsible parties” to resolve the Company’s liability with respect to seven Sites. The Company’s potential liability at each of these Sites is not currently anticipated to be material.

      The Company has potential environmental liability at the four remaining Sites arising out of businesses presently operated by Kelsey-Hayes. Kelsey-Hayes has assumed and agreed to indemnify the Company with respect to any liabilities associated with these Sites. Kelsey-Hayes has acknowledged this responsibility and is presently representing the Company’s interests with respect to these sites.

      Kelsey-Hayes and, in certain cases, the Company may remain liable with respect to environmental cleanup costs in connection with certain divested businesses relating to aerospace, heavy-duty truck components and farm implements under federal and state laws and under agreements with purchasers of these divested businesses. The Company believes, however, that such costs in the aggregate will not have a material adverse effect on the Company’s consolidated operations or financial condition and, in any event, Kelsey-Hayes has assumed and agreed to indemnify the Company with respect to any liabilities arising out of or associated with these divested businesses.

      In addition to the Sites, The Company also has potential environmental liability at two state-listed sites in Michigan and one in California. One of the Michigan sites is covered under the indemnification agreement with Goodyear described above. The Company is presently working with the Michigan Department of Environmental Quality to resolve the Company’s liability with respect to the second Michigan site, for which no significant costs are anticipated. The California site is a former wheel manufacturing site operated by Kelsey-Hayes in the early 1980’s. The Company is working with two other responsible parties and with the State of California on the investigation and remediation of this site.

      None.

PART II

      There is no established public trading market for the Company’s common stock. All outstanding common stock of the Company is held by HLI Parent Company, Inc. The Company has not paid dividends on its common stock.

      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 year ended January 31, 2005 and the eight months ended January 31, 2004 are presented as the “Successor” periods and the pre-emergence financial results of the Company for the four months ended May 31, 2003 and the years ended January 31, 2003, 2002, and 2001 are presented as the “Predecessor” periods. Comparative financial statements do not straddle the Effective Date because, in effect, the Successor Company represents a new entity.

      Historically, the Company consolidated its international subsidiaries using the twelve month period ended December 31st. Due to more efficient financial reporting procedures the Company was able to eliminate this one month lag in fiscal 2004. This change is preferable since it aligns the year end reporting date of the Company’s international subsidiaries with the Company’s year end reporting. As a result, the Company’s 2004 fiscal year contains financial information for its international subsidiaries through January 31, 2005. The Company recorded income of $2.6 million as a cumulative effect of a change in accounting principle, which

represents the financial information of its international subsidiaries for the month of January 2004. The amounts presented for the Company’s international subsidiaries for its fiscal 2003 balance sheet are still reported as of December 31st, and the results of operations presented for fiscal 2003 and 2002 are still for the respective twelve month periods ended December 31st.

      The following table sets forth selected consolidated financial data with respect to the Company for the fiscal year ended January 31, 2005, eight months ended January 31, 2004, the four months ended May 31, 2003, and the three fiscal years ended January 31, 2003. The information set forth below should be read in conjunction with the Company’s Consolidated Financial Statements and Notes to Consolidated Financial Statements filed herewith, beginning at page 47.

      The following discussion and analysis should be read in conjunction with the Company’s Consolidated Financial Statements, related notes thereto and the other information included elsewhere herein.

Executive Summary

      Originally founded in 1908, the Company is a leading worldwide producer of aluminum and steel wheels for the light vehicle market. The Company is also a leading provider of steel wheels for the commercial highway market. The Company is a leading supplier in the market for suspension, brake, and powertrain components. The Company has a global footprint with 42 facilities and one joint venture located in 14 countries around the world. The Company sells its products to every major North American, Japanese, and European manufacturer of passenger cars and light trucks as well as commercial highway vehicle customers throughout the world. The Company’s products are presently on seven of the top ten selling platforms for passenger cars in the United States and ten of the top ten selling platforms for passenger cars in Europe. The Company’s ability to support its customers globally is further enhanced by the Company’s broad global presence in terms of sales offices, manufacturing facilities, and engineering/ technical centers.

      In fiscal 2004, the Company had sales of $2.2 billion, with approximately 51% of the Company’s net sales for that period derived from international markets. 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. The Company had earnings from operations in fiscal 2004 of $21.7 million, and in fiscal 2003 of $62.0 million (which includes the impact of certain gains and expenses related to its emergence from Chapter 11 proceedings).

      On December 5, 2001, the Company, 30 of its wholly-owned domestic subsidiaries, and one wholly-owned Mexican subsidiary filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code. 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 Credit Facility consists of a $450.0 million six-year amortizing term loan (the “Term Loan”) and a five-year $100.0 million revolving credit facility. In addition, the Company issued an aggregate of $250.0 million principal amount of 10¹/2% senior notes due 2010 (the “Senior Notes”). On February 11, 2004, New Hayes 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. New Hayes 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 the Company’s outstanding Senior Notes on March 12, 2004 to prepay $16.0 million, plus accrued and unpaid interest thereon, of the Company’s Term Loan on February 12, 2004, and for general corporate purposes.

      The Company believes there are a number of important trends in the automotive parts industry that the Company has benefited from in the past and will continue to benefit from in the future.

      As a result of OEMs expanding their business operations globally, suppliers are being required to operate in these same global markets to obtain new business from their customers. Few suppliers are truly global, and the Company believes those that are have a competitive advantage.

      Automotive OEMs are increasingly outsourcing a greater number of vehicle components to their suppliers and increasingly require that their suppliers have the capabilities to design and engineer the components they manufacture for the OEMs. The Company believes automotive OEMs are awarding new business to those suppliers that support the full range of design and engineering services required to provide high quality, technologically advanced products under shortened product development timetables.

      Automotive OEMs are focused on increasing the fuel efficiency of vehicles while maintaining safety and comfort. Light metals such as aluminum provide automotive OEMs with a way to materially reduce the overall weight of the vehicle and improve fuel efficiencies. Aluminum penetration in the North American wheel market has grown as automotive OEMs have recognized both the weight efficiencies of aluminum and its favorable design characteristics. Aluminum wheel penetration in Europe is lower than in the U.S. and the Company expects it to continue to grow as the European market looks to both improve fuel efficiency and provide design differentiation.

      The Company faces a number of challenges that could negatively impact results.

      OEMs have been seeking ways to lower their own costs of manufacturing that could adversely affect the Company’s business. These cost reductions may be effected through an increased use of internal manufacturing or through relocation of production to countries with lower cost structures. As production is relocated, OEMs might find it more cost-efficient to rely on either internal manufacturing capabilities at such relocated facilities or local or other foreign suppliers with lower production costs. This internal manufacturing or reliance on local or other foreign suppliers may have a significant negative impact on the Company’s business.

      Cost-cutting initiatives adopted by the Company’s customers generally result in increased downward pressure on pricing. OEMs historically have had significant leverage over their outside suppliers because the automotive component supply industry is fragmented and serves a limited number of automotive OEMs. Tier 1 suppliers are subject to substantial continuing pressure from OEMs to reduce the price of their products. If the Company is unable to generate sufficient production cost savings in the future to offset price reductions, its gross margin and profitability would be adversely affected. In addition, changes in OEM’s purchasing policies or payment practices could have an adverse effect on the Company’s business.

      The major domestic and foreign markets for the Company’s products are highly competitive. Competition is based primarily on price, technology, quality, delivery, and overall customer service. The Company’s customers sometimes have shifted research and development, design, and validation responsibilities to their key suppliers, focusing on stronger relationships with fewer suppliers. The Company’s global competitors include a large number of other well-established suppliers. Competitors typically vary among each of the Company’s products and geographic markets. Furthermore, the rapidly evolving nature of the markets in which the Company competes may attract new domestic or international entrants. As a result, the Company’s sales levels and margins could be adversely affected by pricing pressures caused by such new entrants, especially in low-cost foreign markets such as China. As a result of highly competitive market conditions in

the Company’s industry, a number of its competitors have been forced to seek bankruptcy protection. In addition, ongoing consolidation of the automotive industry could adversely affect the Company’s business. Such consolidation could result in a loss of some of its present customers to competitors.

      The Company derived approximately 44% and 50% of fiscal 2004 and 2003 net sales, respectively, 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 business to foreign competitors in fiscal 2003. Additionally, these customers have been experiencing decreasing market share in North America, which could result in lower sales volumes.

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

      In recent periods there have been significant increases in the global prices of steel and iron, which have had and may continue to have an impact on the Company’s business. Factors leading to the higher prices include the increasing demand for steel in China, industry consolidation and rising raw material costs. In response to the increasing cost of raw materials, metal suppliers have implemented surcharges on existing fixed price contracts. Without the surcharge some suppliers claim they will be unable to provide adequate supplies of steel. In addition, some of the Company’s suppliers have sought, and others may seek in the future, bankruptcy relief which could affect the availability or price of steel. These factors could negatively impact the Company’s results of operations as it may be unable to compel suppliers to comply with existing contracts or to source adequate supplies of steel. Although the Company has been able to partially offset the impact of cost increases through higher scrap sales recoveries and/or by passing some of these costs through to certain of its customers, the Company cannot guarantee that it will be able to continue to do so in the future. The full impact of steel prices is uncertain given the volatility in the global steel market.

      A significant portion of the Company’s sales are to automotive OEMs, therefore its financial performance depends, in large part, on conditions in the automotive industry, which, in turn, are generally dependent upon the U.S. and global economies. Relatively modest declines in the Company’s customers’ production levels could have a significant adverse impact on its profitability because the Company has substantial fixed production costs. The Company’s sales are also impacted by retail inventory levels and its customers’ production schedules. If the Company’s OEM customers significantly reduce their inventory levels and reduce their orders, the Company’s performance would be adversely impacted. In this environment, the Company cannot predict future production rates or inventory levels or the underlying economic factors. Continued uncertainty and unexpected fluctuations may have a significant negative impact on the Company’s business.

      The Company’s principal operations are directly related to domestic and foreign automotive and commercial highway vehicle production. Industry sales and production are cyclical and therefore can generally be affected by the strength of the economy, by consumer spending, or in specific regions such as North America or Europe, by prevailing interest rates and by other factors which may have an effect on the level of its sales. Any decline in the demand for new automobiles could have a material adverse impact on the Company’s financial condition and results of operations.

      The Company has substantial levels of debt, including debt under the Credit Facility, the 10¹/2% Senior Notes, and other debt instruments. As of January 31, 2005, the Company had $696.4 million of total

indebtedness and $35.2 million of cash and cash equivalents. The degree to which the Company is leveraged could have important consequences, including: requiring a substantial portion of the Company’s cash flow from operations to be dedicated to debt service and therefore not available to the Company for operations, capital expenditures and future business opportunities; increasing the Company’s vulnerability to a downturn in general economic conditions or in its business; and limiting the Company’s ability to adjust to changing market conditions, placing the Company at a competitive disadvantage compared to its competitors that have relatively less debt.

      The indenture governing the Company’s 10¹/2% Senior Notes, Credit Facility, and other debt agreements contain a number of significant covenants that, among other things, restrict its ability, and the ability of its subsidiaries, to obtain additional financing or access its revolving credit facility in the future for capital expenditures, working capital, or general corporate purposes.

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

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

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

      While the Company’s 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 it to respond to this pressure. The Company continuously implements strategic initiatives designed to improve product quality while reducing manufacturing costs. The Company has implemented a broad range of initiatives that have substantially improved operating performance. For example, the Company recently completed a project at its Sedalia, Missouri facility in which it used Six Sigma methodologies to reduce total scrap rates in certain of the Company’s products manufactured there. The Company continues to focus on opportunities to improve operating income including:

      To meet the Company’s customers’ demands for the highest quality, lowest cost product delivered globally, it has established manufacturing facilities in a number of countries around the globe that have low production costs. The Company is in the process of expanding existing capacity in Turkey, Brazil, Thailand and the Czech Republic and refurbishing and expanding the cast aluminum wheel plant it recently acquired in Chihuahua, Mexico so that it will serve the North American wheel market utilizing low pressure casting technology. However, the Company may be unable to successfully implement its business strategies due to a weakening of the economy, changes in the automotive industry, or other factors.

Chapter 11 Filings and Emergence from Chapter 11

      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”).

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

      Pursuant to the Plan of Reorganization, Old Hayes caused the formation of (i) a new holding company, HLI Holding Company, Inc. (“HoldCo”), a Delaware corporation, (ii) HLI Parent Company, Inc. (“ParentCo”), a Delaware corporation and a wholly owned subsidiary of HoldCo, and (iii) HLI Operating Company, Inc. (the “Company”), a Delaware corporation and a wholly owned subsidiary of ParentCo. On the Effective Date, (i) HoldCo was renamed Hayes Lemmerz International, Inc. (“New Hayes”), (ii) New Hayes contributed to ParentCo 30,0000,000 shares of its common stock, par value $0.01 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 the Company and (iv) pursuant to an Agreement and Plan of Merger, dated as of June 3, 2003 (the “Merger Agreement”), between Old Hayes and the Company, Old Hayes was merged with and into the Company (the “Merger”), with the Company 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 $0.01 per share, of Old Hayes (the “Old Common Stock”), and any other outstanding equity securities of Old Hayes, including all options and warrants, were cancelled. The holders of the existing voting common stock of Old Hayes immediately before confirmation did not receive any voting shares of the emerging entity or any other consideration under the Plan of Reorganization as a result of their ownership interests of the Predecessor. This represented a complete change of control in the ownership of Old Hayes. Promptly following the Merger, the Company 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 Old Hayes, the New Common Stock is deemed registered under Section 12(g) of the Exchange Act. New Hayes filed a Form 15 with the SEC to terminate the registration of the Old Common Stock under the Exchange Act.

      Pursuant to the terms of the Plan of Reorganization, the Company issued 100,000 shares of Preferred Stock, par value $1.00, of the Company (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, the Company entered into a $550.0 million senior secured credit facility, as amended by Amendment No. 1 and Waiver to Credit Agreement, dated October 16, 2003, by Amendment No. 2 and Waiver to the Credit Agreement dated February 6, 2004, by Amendment No. 3 dated May 6, 2004, by Waiver to the Credit Agreement dated June 1, 2004, and by Amendment No. 4, Waiver and Consent to Credit Agreement dated November 10, 2004 these and other amendments are reflected in the Amended and Restated Credit Agreement dated April 11, 2005 (as amended, the “Credit Facility”). The Credit Facility initially consisted of a $450.0 million six-year amortizing term loan (the “Term Loan”) and a five-year $100.0 million revolving credit facility (the “Revolving Credit Facility”). In addition, the Company issued on the Effective Date an aggregate of $250.0 million principal amount of 10¹/2% senior notes due 2010 (the “Senior Notes”). The proceeds from the initial $450.0 million of borrowings under the Credit Facility and the net proceeds from the 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.

      On April 11, 2005, the Company announced that it amended and restated the Credit Facility to establish a new second lien $150 million term loan, from which approximately 50% of the net proceeds were used to repay a portion of the Term Loan, with the remainder to be used for general corporate purposes; reduce the Company’s interest rate on the Term Loan by 50 basis points; favorably modify the financial covenants; and allow the Company to retain 50% of the net proceeds from the proposed divestiture of its Commercial Highway Hub and Drum business for capital expenditures, among other things. The principal balance of $150 million is due on June 3, 2010.

Reorganization Items

      Reorganization items as reported in the four months ended May 31, 2003 and the fiscal 2002 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. Reorganization items were as follows (dollars in millions):

      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 that (i) rewarded critical employees who remained with the Company (and certain affiliates of the Company who are not directly involved in the restructuring) during and through the completion of the restructuring (the “Retention Bonus”) and (ii) provided additional incentives to a more limited group of the most senior critical employees if the enterprise value upon completing the restructuring exceeded an established baseline (the “Restructuring Performance Bonus”).

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

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

      Payments related to Chapter 11 filings not discussed above consisted primarily of professional fees and cure payments and were approximately $1.2 million during the twelve months ended January 31, 2005, and $31.3 million and $22.4 million during the eight months ended January 31, 2004 and the four months ended May 31, 2003, respectively. Payments related to Chapter 11 filings were approximately $81.7 million during fiscal 2002 and consisted primarily of professional fee payments, critical vendor payments, the Retention Bonus, and a portion of accrued interest and fees under the Company’s prepetition credit agreements.

      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 year ending January 31, 2005 and the eight months ended January 31, 2004 are presented as the “Successor” periods and the pre-emergence financial results of the Company for the four months ended May 31, 2003 and the year ended January 31, 2003

are presented as the “Predecessor” periods. Comparative financial statements do not straddle the Effective Date because, in effect, the Successor Company represents a new entity. As a result of applying fresh start accounting, the Successor will have increased depreciation and amortization expense, no reorganization items, no fresh start accounting adjustments, and lower interest expense in comparison to the Predecessor. Depreciation expense of the Successor is expected to be higher annually resulting from: (a) an increase in the carrying value of certain plant, equipment, and tooling to fair value under fresh start accounting; (b) revisions to remaining estimated useful lives under fresh start accounting; and (c) the increase in the carrying value of other property, plant, equipment and tooling from refinancing certain synthetic leases. Amortization expense of the Successor is expected to be higher annually resulting from an increase in the carrying value of definite-lived intangible assets to fair value under fresh start accounting. Interest expense is expected to decrease resulting from the Successor’s new capital structure.

      For purposes of the periods presented in Management’s Discussion and Analysis of Financial Condition and Result of Operations, the Successor eight months ended January 31, 2004 and the Predecessor four months ended May 31, 2003 have been combined for convenience of discussion and are collectively referred to as “fiscal 2003.”

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.

      Historically, the Company consolidated its international subsidiaries using the twelve month period ended December 31^st. Due to more efficient financial reporting procedures, the Company was able to eliminate this one month lag in fiscal 2004. This change is preferable since it aligns the year end reporting date of the Company’s international subsidiaries with the Company’s year end reporting. As a result, the Company’s 2004 fiscal year contains financial information for its international subsidiaries from January 1, 2004 through January 31, 2005. The Company recorded income of $2.6 million as a cumulative effect of a change in accounting principle, which represents the net income of its international subsidiaries for the month of January 2004. The amounts presented for the Company’s international subsidiaries for its fiscal 2003 balance sheet are still reported as of December 31^st, and the results of operations presented for fiscal 2003 and 2002 are still for the respective twelve month periods ended December 31^st.

      The Company’s net sales for the fiscal year ended January 31, 2005 increased $188.1 million to $2,244.5 million from $2,056.4 million in the fiscal year ended January 31, 2004. After adjusting for the net impact of favorable exchange rate fluctuations, relative to the U.S. dollar, net sales for the fiscal year of 2004 improved 5.1% or approximately $104.9 million as compared to the same period in 2003.

      Net sales from the Automotive Wheels segment increased $160.0 million to $1,388.8 million in fiscal year 2004 from $1,228.8 million in fiscal year 2003. Automotive Wheels net sales were favorably impacted by foreign exchange rate fluctuations relative to the U.S. dollar, which increased sales by approximately $73 million. The Company acquired a controlling interest in its steel wheel joint venture in Turkey during the fourth quarter of 2003 and acquired the assets of an aluminum wheel plant in Mexico that it had held a 40% interest in as a joint venture. The consolidation of those sales and increases in international volumes increased net sales in fiscal 2004 by $139 million. These increases were partially offset by decreased unit pricing, unfavorable product mix and lower customer production requirements in North America primarily due to the termination of certain programs by OEM customers.

      Net sales from Components decreased $11.8 million to $696.5 million in fiscal 2004 from $708.3 million in fiscal 2003. The decrease in Components net sales was primarily due to lower customer production requirements and lower unit pricing. This decrease was partially offset by favorable foreign exchange rate fluctuations relative to the U.S. dollar, which increased sales by approximately $12 million, and a more favorable product mix.

      Other net sales increased $39.9 million to $159.2 million during fiscal 2004 from $119.3 million during fiscal 2003. This increase was primarily due to higher volumes in the Company’s commercial highway and aftermarket operations as trailer builds continued to increase in fiscal 2004 from 2003.

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

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

      The Company’s earnings from operations excluding fresh start accounting adjustments and reorganization items decreased by $22.2 million in fiscal 2004 to $21.7 million from earnings of $43.9 million in fiscal 2003. Lower OEM production requirements in North America, lower selling prices, and the impact of higher steel raw material costs, net of recoveries, reduced earnings from operations by $64.4 million. Depreciation expense was $9.2 million higher due to the application of fresh start accounting for a full year in fiscal 2004. Higher management, general, and administrative and research and engineering expenses reduced earnings from operations by $28.7 million. These expenses were higher due to the impact of currency, the inclusion of the Turkish acquisition for a full year in fiscal 2004, and higher costs for the Company’s new system implementation and costs associated with Sarbanes-Oxley compliance. Improved operating performance and higher overall volumes internationally improved earnings from operations by $50.1 million. Lower asset impairment and other restructuring charges improved earnings from operations by $26 million.

      Earnings from operations excluding fresh start accounting adjustments and reorganization items at the Company’s Automotive Wheels operations decreased by $3.2 million in fiscal 2004 compared to the same period in 2003. Lower OEM production requirements in North America, lower selling prices and higher steel raw material costs, net of recoveries, reduced earnings from operations by $47.9 million. Higher management, general, and administrative expenses reduced earnings from operations by $14.4 million. These higher expenses were primarily a result of exchange rate changes, implementation of the Company’s new information systems in the United States and costs associated with Sarbanes-Oxley compliance. The Automotive Wheels segment reduced asset impairment losses, other restructuring charges, and severance by $16 million and implemented cost reduction and productivity improvements that resulted in $14.3 million in savings in fiscal

2004 compared to fiscal 2003. Unit volume increases in the segment’s international markets increased earnings from operations in 2004 by $25.5 million.

      Components earnings from operations excluding fresh start accounting adjustments and reorganization items decreased by $34.9 million in fiscal 2004 compared to the same period in fiscal 2003. During fiscal 2004 lower selling prices, higher steel raw material costs, net of recoveries, and lower volumes reduced earnings from operations by $30.3 million. Higher management, general, and administrative expenses and research and engineering expenses reduced earnings from operations by $13.0 million. These higher costs were primarily the result of exchange rate changes, implementation of the Company’s new information system in the United States, and costs associated with Sarbanes-Oxley compliance. Components recorded asset impairment losses and restructuring charges of $0.4 million and $10.9 million, in 2004 and 2003 respectively, at various facilities.

      Loss from operations excluding fresh start accounting adjustments and reorganization items in the Company’s Other segment improved by $15.9 million in fiscal 2004 compared to fiscal 2003. This improvement is primarily the result of increased volumes and improved pricing in the Company’s commercial highway and aftermarket operations.

      Interest expense, net, was $51.6 million for fiscal 2004 compared to $65.9 million for 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. See Notes 1, “Description of Business, Chapter 11 Filings, and Emergence from Chapter 11”, and Note 11, “Bank Borrowings, Other Notes, and Long-Term Debt”, to the consolidated financial statements included herein regarding the Company’s new capital structure.

      Income tax expense was $19.7 million for fiscal 2004 compared to $71.2 million for fiscal 2003.

      The Company’s net sales for the fiscal year ended January 31, 2004 increased $54.8 million to $2,056.4 million from $2,001.6 million in the fiscal year ended January 31, 2003. After adjusting for the net impact of favorable exchange rate fluctuations, relative to the U.S. dollar, net sales for the first fiscal year of 2003 declined 4.2% or approximately $84 million as compared to the same period in 2002.

      Net sales from the Automotive Wheels segment increased $60.0 million to $1,228.8 million in fiscal year 2003 from $1,168.8 million in fiscal year 2002. Automotive Wheels net sales were favorably impacted by foreign exchange rate fluctuations relative to the U.S. dollar, which increased sales by approximately $118 million, and also by favorable product mix. These increases were partially offset by decreased unit pricing and lower customer production requirements in North America primarily due to the termination and balancing out of certain programs by OEM customers.

      Net sales from Components decreased $29.4 million to $708.3 million in fiscal 2003 from $737.7 million in fiscal 2002. The decrease in Components net sales was primarily due to lower customer production requirements, the termination and balancing out of certain programs and lower unit pricing, which was partially offset by a more favorable product mix. Net sales in fiscal 2002 were $16 million higher compared to

fiscal 2003 due to the closure of the Company’s Petersburg, Michigan facility and the sale of the Company’s Maulbronn, Germany foundry in fiscal 2002. This was offset by the impact of favorable foreign exchange rate fluctuations, which increased net sales by approximately $20 million.

      Other net sales increased $24.2 million to $119.3 million during fiscal 2003 from $95.1 million during fiscal 2002. This increase was primarily due to higher volumes in the Company’s commercial highway and aftermarket operations, as trailer builds continued to increase in fiscal 2003 from 2002.

      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 that do not represent normal operating performance of the Company as these items relate only to the Company’s Chapter 11 Filings and emergence. Earnings (loss) from operations excluding fresh start accounting adjustments and reorganization items is calculated as follows (dollars in millions):

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

      The Company’s earnings from operations excluding fresh start accounting adjustments and reorganization items decreased by $0.3 million in fiscal 2003 to $43.9 million from earnings of $44.2 million in fiscal 2002. Adjusted for the net impact of foreign exchange rate fluctuations relative to the U.S. dollar, the Company’s earnings from operations excluding fresh start accounting adjustments and reorganization items decreased by approximately $12 million from fiscal 2002. This decline is primarily driven by a $25.5 million increase in depreciation and amortization expense due primarily to the adoption of fresh start accounting upon the Company’s emergence from Chapter 11. Improved operating performance and a favorable product mix improved earnings from operations by $43 million, but were partially offset by lower OEM production requirements and increased pricing pressures of $33 million.

      Earnings from operations excluding fresh start accounting adjustments and reorganization items at the Company’s Automotive Wheels operations increased by $17.1 million from fiscal 2002 compared to the same period in 2003. The Company’s Automotive Wheels segment recorded asset impairment losses and other restructuring charges of $24.4 million in 2003 and $36.4 million in fiscal 2002. It recorded asset impairment losses when it determined, based on its most recent sales projections, that its current estimate of the future undiscounted cash flows from certain of its facilities would not be sufficient to recover the carrying value of the fixed assets and production tooling at those facilities and also when management’s plan for the future use of machinery and equipment changed. In fiscal 2003, Automotive Wheels recorded asset impairment losses and restructuring charges of $5.7 million at its La Mirada, California facility, $6.4 million at its Gainesville, Georgia operations, and $8.8 million at its Howell, Michigan facility. The Automotive Wheels segment also recorded $3.5 million of impairment losses and other restructuring costs at various facilities in fiscal 2003. Further, on April 1, 2004 the Company announced the closure of its Howell, Michigan facility. During fiscal 2002, Automotive Wheels recorded asset impairment losses of $15.5 million at its La Mirada, California facility, $3.3 million of impairment losses at its Sedalia, Missouri facility and $2.2 million at the Company’s Howell, Michigan facility, as well as $8.6 million in impairment losses and facility closure costs related to its Somerset, Kentucky facility, and $6.8 million in impairment losses and other restructuring costs at various facilities. The remaining increase in Automotive Wheels earnings from operations excluding fresh start accounting adjustments and reorganization items is due primarily to improved operating performance and favorable fluctuations in foreign exchange rates relative to the U.S. dollar, which improved earnings from operations excluding fresh start accounting adjustments and reorganization items by approximately $23 million and $10 million, respectively. This was partially offset by lower OEM production requirements in North America and increased pricing and customer satisfaction pressures, which decreased earnings from operations by approximately $19 million. Higher depreciation and amortization expense primarily related to the Company’s adoption of fresh start accounting upon emergence from Chapter 11 decreased earnings from operations excluding fresh start accounting adjustments and reorganization items by approximately $6 million. Earnings from operations excluding fresh start accounting adjustments and reorganization items for fiscal 2003 also includes absorption of the $3.6 million fair value adjustment to inventory included in the Successor’s opening balance sheet, which negatively impacted earnings.

      Components earnings from operations excluding fresh start accounting adjustments and reorganization items decreased by $16.8 million in fiscal 2003 compared to the same period in fiscal 2002. During fiscal 2003 and 2002, Components recorded asset impairment losses and restructuring charges of $10.9 million and $2.6 million, respectively, at various facilities. Components recorded asset impairment losses of $7.5 million in 2003 when it determined, based on its most recent sales projections, that its current estimate of the future undiscounted cash flows from the Wabash, Indiana facility would not be sufficient to recover the carrying value of that facility’s building, fixed assets, and production tooling. Improved operating performance and higher value added sales increased earnings from operations excluding fresh start accounting adjustments and reorganization items by approximately $22 million during fiscal 2003. This increase was offset by lower OEM production requirements and increased pricing pressures, which decreased earnings from operations by $19 million, as well as the $1.6 million fair value adjustment to inventory included in the Successor’s opening balance sheet, which negatively impacted earnings. Higher depreciation and amortization expense, due primarily to the Company’s adoption of fresh start accounting during emergence from Chapter 11, decreased earnings from operations excluding fresh start accounting adjustments and reorganization items by approximately $11 million.

      Loss from operations excluding fresh start accounting adjustments and reorganization items in the Company’s Other segment increased by $0.6 million in fiscal 2003. Subsequent to the Company’s emergence from Chapter 11, it continued to incur post-emergence bankruptcy-related professional fees and it also established a long term incentive plan for senior management during 2003, which combined decreased earnings from operations by approximately $10 million. This was partially offset by increased volumes and improved operating performance in the Company’s commercial highway and aftermarket operations. Earnings from the Company’s other segment were also negatively impacted in fiscal 2002 by $4.0 million of restructuring costs, primarily related to an early retirement program.

      Interest expense, net, was $65.9 million for fiscal 2003 compared to $72.7 million for fiscal 2002. Interest expense, net, between the two periods is not comparable because of the Company’s new capital structure established upon emergence from Chapter 11. (See Note 1, Description of Business, Chapter 11 Filings and Emergence from Chapter 11, and Note 11, Bank Borrowings. Other Notes and Long-Term Debt included herein regarding the Company’s new capital structure.)

      Income tax expense was $71.2 million for fiscal 2003 compared to $3.6 million for fiscal 2002. This expense is the result of deferred taxes of approximately $46.0 million relating to fresh start accounting adjustments in foreign jurisdictions, $6.5 million of state tax related to the taxable merger between the Predecessor and the Company, and tax related to operations in foreign jurisdictions as well as in 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 United States federal income tax benefit recorded against current losses.

      Operating Activities: The Company’s cash flows provided by operations increased $49.6 million to $164.6 million fiscal 2004 from $115.0 million in fiscal 2003. This improvement resulted primarily from improved domestic vendor payment terms and decreased receivables. The lower receivables level is a result of the implementation of the accounts receivable securitization program. The impact of this program was partially offset by the discontinuance of accelerated payment programs in which the Company participated, higher sales.

      Investing Activities: Cash used for investing activities decreased by $12.9 million to $158.0 million in fiscal 2004 from $170.9 million in fiscal 2003. The decrease primarily resulted from the purchases of a

controlling interest in the Company’s joint ventures in Turkey and Mexico in 2003, partially offset by increased capital spending in 2004.

      Capital expenditures in fiscal 2004 were $158.7 million. These expenditures were primarily used to meet demand for new vehicle platforms and support maintenance and cost reduction programs, including approximately $16 million for renovation and expansion of its aluminum wheel plant located in Chihuahua, Mexico. The Company anticipates capital expenditures for fiscal 2005 will be approximately $145 million.

      Financing Activities: Cash used for financing activities increased by $54.0 million during fiscal 2004 compared with fiscal 2003.

      On February 11, 2004, New Hayes closed on a primary offering of 7,720,970 shares of its common stock for net proceeds of $117.0 million. On March 12, 2004, New Hayes used a portion of the net proceeds to redeem $87.5 million aggregate principal amount, plus accrued and unpaid interest thereon, of the Company’s outstanding Senior Notes at a redemption price of 110.5%. This redemption resulted in a loss on early extinguishment of $11.8 million during the first quarter of fiscal 2004, including $2.6 million related to original issue discount and debt issuance costs on the redeemed portion of the Company’s Senior Notes. New Hayes also used a portion of the primary stock offering proceeds to prepay $16.0 million, plus accrued and unpaid interest thereon, of the Company’s Term Loan on February 12, 2004. Upon prepayment, New Hayes recognized a loss on early extinguishment of $0.4 million related to debt issuance costs on the prepaid portion of the Term Loan.

      During fiscal 2004, the Company also repaid in full $13.1 million of notes payable issued in conjunction with the purchases of its Chihuahua, Mexico and Manisa, Turkey facilities.

      The principal sources of liquidity for the Company’s future operating, capital expenditure, facility closure, restructuring and reorganization requirements are expected to be (i) cash flows from operations, (ii) proceeds from the sale of non-core assets and businesses, (iii) cash and cash equivalents on hand, including proceeds from the new term loan closed April 11, 2005, (iv) proceeds related to the Company’s $75.0 million trade receivable securitization program, and (v) borrowings under the $100.0 million revolving credit facility under the Credit Facility. While the Company expects that such sources will meet these requirements, there can be no assurances that such sources will prove to be sufficient, in part, due to inherent uncertainties about applicable future capital market conditions.

      The Company continues to implement operational improvements, which consist of a number of cost-cutting and profit-enhancing initiatives. If the implementation of the operational improvements is not successful, the Company may be unable to offer products at competitive prices to generate sufficient operating funds to pay the interest on the Senior Notes and make payments due under its 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.

      During the third quarter of fiscal 2004, two of the Company’s OEM customers in the U.S. notified the Company of the discontinuance of accelerated payment programs in which the Company participated. The termination of these programs negatively impacted cash flow during fiscal 2004 by approximately $16 million and is expected to negatively impact future cash flow through March 2005 by an additional $14 million. The Company’s securitization program is intended to offset the negative impact associated with the loss of these programs.

      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.

      The indenture governing the Company’s Senior Notes, Credit Facility and other debt agreements contain a number of significant covenants that, among other things, restrict its ability, and the ability of its subsidiaries, to:

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

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

      The Medicare Prescription Drug, Improvement, and Modernization Act, which was signed into law on December 8, 2003, expanded Medicare to include, for the first time, coverage for prescription drugs. The Company sponsors retiree welfare programs and has determined that this legislation reduces the Company’s costs for some of these programs. In accordance with guidance from the FASB, the Company adopted the provisions of FASB Staff Position No. FAS 106-2 “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003,” (“FSP 106-2”) in the third quarter of 2004 and elected to recognize the effect of the subsidy retroactively. The reduction in interest costs related to the third quarter of fiscal 2004 was $0.2 million and the increased amortization of net gain for the same period was $0.2 million. The reduction in the Company’s accumulated postretirement benefit obligation was approximately $13.3 million.

      On December 9, 2004 the Company established an accounts receivable securitization facility in the U.S., which provides up to $75.0 million in funding from commercial paper conduits sponsored by commercial lenders. The actual amount of funding available at any given time is based on availability of eligible receivables and other customary factors. Pursuant to the securitization facility, certain of the Company’s subsidiaries sell trade accounts receivable to a non-consolidated special purpose entity, which resells the receivables to a qualifying special purpose entity, which then pledges the receivables to secure borrowings from commercial paper conduits. The securitization transactions are accounted for as sales of the receivables under the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” and were removed from the consolidated balance sheets. The proceeds received are included in cash flows from operating activities in the consolidated statements of cash flows. Costs associated with the receivables facility are recorded as other expense in the consolidated statements of operations. The Company began selling receivables pursuant to the securitization program during the fourth quarter of fiscal 2004. As of January 31, 2005 the Company had sold $57.0 million under this program.

      The following table identifies the Company’s significant contractual obligations as of January 31, 2005 (dollars in millions):

      The Company anticipates the following approximate significant cash requirements to be paid in fiscal 2005 (dollars in millions):

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

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

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

      The Company periodically analyzes the impact of foreign exchange fluctuations related to its forward foreign currency exchange contracts on earnings and has determined that, at January 31, 2005, excluding the translation effects referred to above, a hypothetical 10% adverse movement in foreign exchange rates would not have a material effect on earnings, fair values, or cash flows related to these forward foreign currency exchange contracts.

      The Company generally manages its risk associated with interest rate movements through the use of a combination of variable and fixed rate debt. Under the Company’s post-emergence capital structure at January 31, 2005, approximately $458.5 million of the Company’s debt was variable rate debt. A hypothetical 10% adverse movement in the interest rate on variable rate debt would affect earnings by approximately

$2.5 million on an annual basis. Approximately $183.7 million of the Company’s debt was fixed rate debt at January 31, 2005. A hypothetical 10% adverse movement in interest rates would result in a loss in the fair value of this fixed rate debt of approximately $5.1 million.

      The Company relies upon the supply of certain raw materials and other inputs in its production process and has entered into firm purchase commitments for substantially all of its aluminum and steel requirements for 2005. The Company manages the exposures associated with these commitments primarily through the terms of its supply and procurement contracts. Additionally, the Company occasionally uses forward contracts to hedge against changes in certain specific commodity prices of the purchase commitments outstanding. The Company had no significant forward contracts during fiscal 2003 and 2004.

      The Company does not believe that sales of its products are materially affected by inflation, although there can be no assurance that such an effect will not occur in the future. In accordance with industry practice, the costs or benefits of fluctuations in aluminum prices are passed through to customers. In the United States, the Company adjusts the sales prices of its aluminum wheels every one to six months, if necessary, to fully reflect any increase or decrease in the price of aluminum. As a result, the Company’s net sales of aluminum wheels are adjusted, although gross profit per wheel is not materially affected. From time to time, the Company enters into futures contracts or purchase commitments solely to hedge against possible aluminum price changes that may occur between the dates of aluminum wheel price adjustments. Pricing and purchasing practices are similar in Europe, but opportunities to recover increased material costs from customers are more limited than in the United States.

      Changes in legislative, regulatory, or industry requirements or in competitive technologies may render certain of the Company’s products obsolete or less attractive. The Company’s ability to anticipate changes in technology and regulatory standards and to successfully develop and introduce new and enhanced products on a timely basis will be a significant factor in the Company’s ability to remain competitive. There can be no assurance that the Company will be able to achieve the technological advances that may be necessary for the Company to remain competitive or that certain of the Company’s products will not become obsolete. The Company is also subject to the risks generally associated with new product introductions and applications, including lack of market acceptance, delays in product development, and failure of products to operate properly.

      Approximately 51% of the Company’s net sales in fiscal 2004 were derived from sales in foreign markets. The Company expects sales from international markets to continue to represent a substantial portion of net sales. Risks inherent in international operations include the following:

      Any of these factors could have a material adverse effect on the Company’s business, financial condition and results of operations.

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

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

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

      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.

      On February 1, 2002, the Company adopted FASB 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.

      The Successor Company has changed its annual test date from January 31st to November 1st for testing whether goodwill is impaired. This change is both preferable and allowed in that (1) choosing the 1st day of the 4th quarter allows adequate time to perform the first step of the test and, if necessary, the second step of the test while still providing time to report the impact of the test in the Company’s periodic filings, (2) the successor Company has never chosen a test date for goodwill impairment, (3) goodwill of the Predecessor Company was eliminated as a result of fresh start accounting, and (4) the Predecessor Company no longer exists. The Company will test goodwill for impairment as of November 1st of each fiscal year, or more frequently should circumstances change or events occur that would more likely than not reduce the fair value of a reporting unit below its carrying amount, as provided for in SFAS No. 142.

      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.

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

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

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

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

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

      In May 2003, the FASB issued Statement No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity” (“SFAS No. 150”). SFAS No. 150 requires that certain classes of free-standing financial instruments that embody obligations for entities be classified as liabilities. Generally, SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. In accordance with the provisions of SFAS No. 150, the redeemable preferred stock of the Company is classified as a liability in the consolidated balance sheet as of January 31, 2004. Other than this classification, the adoption of SFAS No. 150 did not have a material impact on the financial position or results of operations of the Company. In November 2003, the FASB issued FASB Staff Position No. 150-3, “Effective Date, Disclosures, and Transition for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests under FASB Statement 150,” which indefinitely deferred the SFAS No. 150 measurement requirements for mandatorily redeemable financial instruments. Accordingly, the redeemable preferred stock of the Company is recorded at its fair value upon issuance, plus accrued but unpaid dividends thereon, as of January 31, 2004.

      The response to this Item is set forth above in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, under the heading “Market Risks.”

HLI OPERATING COMPANY, INC.

INDEX TO FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of

HLI Operating Company, Inc.:

      We have audited the accompanying consolidated balance sheets of HLI Operating Company, Inc. and subsidiaries as of January 31, 2005 and 2004 (the Successor), and the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for the year ended January 31, 2005, and the period from June 1, 2003 to January 31, 2004 (Successor periods), the period from February 1, 2003 to May 31, 2003 and the year ended January 31, 2003 (Predecessor periods). In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule listed in Item 15. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

      We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of HLI Operating Company, Inc. and subsidiaries as of January 31, 2005 and 2004 (the Successor), and the results of their operations and their cash flows for the year ended January 31, 2005, and the period from June 1, 2003 to January 31, 2004 (Successor periods), the period from February 1, 2003 to May 31, 2003 and the year ended January 31, 2003 (Predecessor periods), in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

      We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of HLI Operating Company, Inc. and subsidiaries’ internal control over financial reporting as of January 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated April 18, 2005 expressed an unqualified opinion on management’s assessment of, and an adverse opinion on the effective operation of, internal control over financial reporting.

      As described in Notes 1 and 2 to the consolidated financial statements, the Successor emerged from bankruptcy on June 3, 2003 pursuant to a Plan of Reorganization confirmed by the Bankruptcy Court by order dated May 12, 2003. Accordingly, the accompanying consolidated financial statements of the Successor have been prepared in conformity with the fresh start accounting provisions of the AICPA’s Statement of Position 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code” (“SOP 90-7”). As a result, the consolidated financial statements of the Successor are presented on a different basis than that prior to the reorganization and, therefore, are not comparable in all respects.

      As described in Note 2, for the year ended January 31, 2005 the Successor eliminated the one-month lag previously related to the consolidation of the financial statements of its international subsidiaries. As described

in Notes 2 and 8, effective February 1, 2002, the Predecessor adopted the provisions of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.”

Detroit, Michigan

April 18, 2005

HLI OPERATING COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes to consolidated financial statements.

HLI OPERATING COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See accompanying notes to consolidated financial statements.

HLI OPERATING COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS