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Executives

Marika Diamond – Director of Corporate Communications

Curt Clawson – President, CEO and Chairman

Fred Bentley – COO, President, Global Wheel Group

Jim Yost – EVP and CFO

Analysts

Alberto Garciatunen – Imperial Capital

Peter Troob – Troob Capital

Mark Kaufman – MLK Investments

Jeremy Hellman – Singular Research

Chad Woodson– Paradigm Capital

[Arlene Tarkoff] – [DCM]

Helane Becker – Citi

Hayes Lemmerz International, Inc. (HAYZ) Q4 2007 Earnings Call Transcript April 10, 2008 10:00 AM ET

Operator

Good morning. My name is Kashina and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Hayes Lemmerz fiscal 2007 year-end fiscal results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period.

(Operator instructions)

Thank you. I would now like to turn the call over to Marika Diamond, Director of Corporate Communications. Ms. Diamond, you may begin your conference.

Marika Diamond

Thank you operator. Good morning. On the call today, we have Curt Clawson, President, CEO and Chairman of the Board; Fred Bentley, Chief Operating Officer; and Jim Yost, Executive Vice President and CFO.

This morning, we will discuss our 2007 fiscal year-end financial results. After the remarks, we will be taking your questions pertaining to our results. If you have not seen the slides that accompany today's call, you will find them at www.hayes-lemmerz.com in the Investor Relations section under the Most Recent Investor Presentation. We will refer to the presentation in our discussion.

Before beginning the official program, I would like to remind you that during the call we will be making forward-looking statements that are subject to risks and uncertainties. Some of the factors that could impact our future results are described in Slide 2 of this presentation and also included in our SEC filings. As mentioned in the forward-looking statements slide, we specifically disclaim any obligation to update any forward-looking statement in the future.

If you now turn to Slide 3, this shows our agenda. First Curt Clawson and Fred Bentley will give a company overview and then some highlights. Then Jim Yost will provide a perspective on our financial results.

So with that, please turn to Slide 4, and I will now turn the call over to Curt Clawson. Curt?

Curt Clawson

We start today with our vision. Those of you that have joined our call before, you already know this. We try to do three things in the long-term progress of our company: growth through customer satisfaction, constantly working on our cost structure, and having the best people relative to our competitors.

If you will turn with me please to page number 5, these are the business goals that we laid out a year ago on our year-end call for '06 and I would like to update you on our progress in '07. Number one, executing our operating plan. We grade ourselves green here, because as you know, we have hit our guidance for the full year. Restructuring, we also grade ourselves as green. We think it was a good year and I think it was a good year in terms of divestitures in a very difficult financial market. Third, extend our lead in global wheels. We will allow Fred to talk about the growth in our continuing operations, but again, we also grade ourselves green with a big jump on the top line on a year-over-year basis. And finally, positive free cash flow, proud and happy to report for the first time.

If you will move with me then to page number 6, this is a top-level graphic of our financials to give more details. First you see sales from continuing ops up 18% on a year-over-year basis. Secondly, adjusted EBITDA from '06 to '07 up 23%. You see core operating earnings, which we calculate by taking out one-timers, has been up 95% and free cash flow up $67 million on a year-over-year basis. And finally, you see our liquidity at $300 million, which we think is excellent. So all in all, from my perspective as CEO of the company, not too shabby of a year and my appreciation and congratulations to our associates worldwide who have worked so hard to make this happen.

If you will move to page number 7 then, let's break down a couple of the statistics that we have already mentioned in more detail. First of all you see our sales go from $1.8 billion to $2.1 billion from '06 to '07, an increase of 23%. And you see the EBITDA, almost all of which is in our wheel business, from $156 million in '06 to $192 million or 38% increase in '07.

You see on the right-hand side two pieces of data of note. Number one, our core wheel volume, which is our total wheel volume across all of our three segments, is up from 53 million to 59 million units. And you see below that the five countries where we have made our big bet, our big bet countries so to speak; these other countries that have nice growth rates in our industries where we are also currently growing and plan to continue to grow in the future.

If you will move with me then to page number 8, reviewing our restructuring successes for the year of 2007. First of all in February, we sold our suspension business here in North America. In May we did the share rights offering, which got in under the buzzer and really helped our balance sheet. In June we sold our European heavy-duty HVAC casting business, MGG. In July we sold our Wabash powertrain facility. And finally in November, we sold our successful brake business to Brembo to fill out their portfolio and to end our restructuring for the year. So I am very happy with our restructuring activities in '07, particularly in this market and I think it gets us very close to where we want to be in terms of concentrating on our core capabilities and our core geographies.

If you will move with me then finally to page number 9, you see our liquidity at $300 million at year-end. This is a nice number for us and it took a lot of work to get there, so I am very appreciative to those that worked on it. And we feel like the company is on safe financial footing for now and in the future.

And with this I would like to turn it over to a couple of the guys that did a lot of work around here, Fred Bentley, our COO, and then on to Jim Yost.

Fred Bentley

Thanks Curt. Good morning everyone. Curt talked about the results and we did have a nice 2007. What I am going to try to do is give you a little bit more color around how we achieved them. We did hit a milestone in the wheel group. We passed $2 billion in sales in 2007. That is up 50% over the last three years. As Curt mentioned, we have invested in growth regions,and the point on that is that we have invested in the growth regions ahead of the curve and we have benefited from the growth that has happened where we have made our investments over the last few years.

In addition we have reduced or maintained our presence in stable or shrinking markets as well, which has helped improve the stability of the business. More importantly, as you see in the results, these investments have paid off for us, both on the top line and on the earnings line. What I am going to do over the next several pages is talk about the five countries on the right where we see strong growth over the next few years, what our plans are in each of those markets. We are going to continue to focus on where large growth markets are to drive the top line and improve our performance in our stable markets going forward.

If you will flip with me to page 11, I want to give you a sense of where we are geographically. The result of our investment over the past few years has been two things. One is we have a much more balanced global presence, and two we have had significant growth. Again, our top line went from $1.4 billion to $2.1 billion. Over $300 million of that was in 2007 alone, which was really the combination of a number of activities that we took in '05 and '06, and we received the benefit of that in '07.

In addition, as you can see on the pie chart, about 45% of our volume today is in the fast-growth markets. It has been in the places where we have invested. We are over $900 million of total business in South America, Asia and East Europe. In East Europe, in this chart includes Turkey as well. So those have been good markets for us. We plan on them continuing to be good markets for us going forward and you will see in a few slides what we plan to do next in each of those regions.

On page 12, what I want to show here is just a global look at what the next few years look like in each of the markets and each of the products. There is really three key points that I want to make on slide 12. The first is we want to show where growth is likely to occur, and you can see that in the gray box on the left side of the chart. You can see markets like Russia for instance, India, South America, and other in this case includes places like Thailand and Turkey in the total growth. And those are areas that we are focused on, on the passenger car side of the business.

And then you can also see on the commercial truck, one point that I will make on the commercial truck is you see large growth in North America, but that is really just getting back to where the market was a few years ago on the commercial truck side. But large growth in Central and Eastern Europe, in India and some growth in South America, again places where we have a presence today and we want to continue to improve that presence going forward. The third piece, we get growth in our business if this growth happens in these markets just by keeping our share. So it is a good story for us. We are happy with the footprint but we also want to be opportunistic.

And if you flip with me to page 13, I will show you some of the things that we are doing to take advantage not only of just our share of the growth to make sure that we are in a strong position to take advantage of that over the next couple of years. This shows in a little more detail, you have seen this slide before on the specific activities; we give you some more timing around what we are doing in our five targeted countries. You see that eight of the nine projects that we have are in the high-growth, fast-growth regions. The one that is not is in South Africa. We are putting a little bit of capacity in our aluminum plant in South Africa to take advantage of one of the three aluminum suppliers in that market going out.

About 50% of our total capital is on growth projects. We think that is a good number. That has been close to what it has been over the past few years and we feel that '09 will be similar with that level of investment. The point is that in a global position where we believe that we are already very strong, this makes us even stronger in the fast-growth markets and we think that we are going to capitalize as this market evolvement takes place.

If you flip with me to page 14, the other point that I think is important to not only have balance in geography is also to have balance with our customers. And this is an important thing for us. I know that sometimes this can be a little bit frustrating for you guys, as you try to pin down what the specific impact of platform up and downs are. For us it is a good deal because it takes a lot of the volatility out. We are on over 200 platforms today and not one of the platforms has over 4% of our total volume.

So what it does is it does a couple of things. One is, it makes swings more of a macro item versus micro, meaning that as the U.S. market shifts, we are more in line with the U.S. market. If the India market grows, we grow with it. And it helps us to have a much more predictable business going forward. The second thing is that as models run out, we are not overly impacted in the life of a specific platform as well. So it does give a little bit more predictable, sustainable model, and it helps us have a much more balanced approach to our customer portfolio as well. The other part on this is that you can see that we are on a number of very good platforms, a good balance between customer and also geography.

If you will go with me to page 15, we have highlighted a few of our wins in 2007. The key points here are the following: we continue to win with the Japanese customers, Toyota, Honda and Nissan, and we are on good platforms with each of them. The wins around the world are very balanced between customer and geography. And then one point that I will make on this is that you will notice that we won an aluminum wheel with Volvo car. That is the first aluminum wheel that we have had with Volvo in several years and we are happy with that and appreciate the work our sales and engineering team did in making that happen. Overall our new business wins for '07 were just over $430 million, so more than enough to sustain our base level of business in 2007.

Keeping with the theme of balance on page 16, you see today that we have a very good global customer mix. We spend a lot of time ensuring that this continues to happen. We broke out on the right a point just to give you a flavor. We have grown our overall top line, while shrinking our U.S. business. This has really been the activity that we have taken, the action we have taken on our aluminum business over the past few years as we have significantly reduced our presence in the U.S. market. What that has done is it has taken a lot of the volatility out of our business and we spend a fair amount of time talking about the ups and downs of the U.S. market. What we are trying to do here is make it much more clear that that impact, specifically what is going on today, has less impact on us than it has in the past. And it has improved the stability of our business and we are much more predictable today than we have been in prior years.

On page 17, just a quick look at our balance of product mix. Again you see very balanced between steel pass car and aluminum pass car, and our truck business continues to grow over $500 million in 2007. So in closing, I want to reiterate the point that 2007 was a positive year. We executed well on our operating plan. As Curt showed earlier, significant improvement in our financials. We continue to improve our geography, our customer mix, and our product mix. Jim Yost and his team did a great job with our balance sheet restructuring. The timing of that in the spring of last year could not have been better relative to what happened in the credit market over the summer and late fall.

In addition John Salvette, our Business Development Manager, and Pat Cauley, our General Counsel, did a great job working on the divestitures and getting us out of those businesses that historically have been an issue for us and we appreciate the work that they did. And I am proud of the wheel team, profitability continues to improve. As I mentioned earlier, we passed the $2 billion mark in sales for the first time, great job to Pieter Klinkers, our Global Head of Sales, and the sales team for all the hard work and the operations group for getting them the product to make that happen. Finally we hit our cash flow positive goal, and overall we are very pleased with the progress that we made operationally in 2007. And Jim is going to go into more details on the financials. Jim?

Jim Yost

Thanks Fred. If you will turn to page 20, I will walk you through our 2007 results. First pageis page 20, is just a summary of some of the key metrics. Sales for 2007 were about $2.1 billion, which is up $330 million and we will discuss that in a later slide. Adjusted EBITDA was $192 million for the year and that was up 23%, as Curt mentioned, or about $36 million; a substantial increase from 2006. And as Fred mentioned, both our sales and our adjusted EBITDA were in line with our guidance and we are very comfortable with that.

Curt mentioned the concept of core operating earnings and we are really introducing that to you the first time here to try and highlight this as a measure to show what our ongoing operational profitability is. And as you can see here it was about $73 million, an increase of about $36 million or basically doubling. And the core operating earnings is essentially our EBIT, but excludes the impact of items such as restructurings or asset impairment items, which are infrequent or non-operational in nature and we will discuss those results a little bit later.

Our net loss for 2007 was about $194 million and that was a slight increase from last year from the $167 million, but that difference is more than explained by an increase in the $52 million in asset impairments and restructuring costs, which we don't expect to re-occur.

Last year we spent $102 million on capital expenditures and that was up $32 million from last year. As Fred mentioned we are continuing our very positive and very successful expansion programs overseas where we are in lower cost areas and where we see very high growth as we discussed, and you will see later on where those numbers and how that impacts our free cash flow. Free cash flow, excluding securitization, was $38 million for the year and that was $67 million better than the negative cash flow we had last year, and we will talk about that more on a later slide.

Let's turn to slide number 21 and I will just quickly cover sales. As I mentioned,sales were up about $330 million. And as you can see with the exception of the impact of the sale of Wabash, all of the other factors were positive. Stronger wheel volumes across all of our product segments drove the increase in volume of $92 million. The continuing weakness of the U.S. dollar has resulted in higher revenues of about $138 million as we translate those foreign sales back into U.S. dollars. And the metal pass-through increased our sales by $68 million. And just to comment on that as we have discussed in prior earnings calls, all of our aluminum contracts essentially are automatic pass-through. So as the price of aluminum varies, so does our sales. For steel some of which we have on pass-through by contract, most of which we negotiate and we have been very successful in achieving significant recovery there. So that really hasn't been an issue for us in the last couple of years and we don't expect it to be an issue for us in 2008.

So if you want to turn to page 22, you will see as I mentioned, that core operating earnings essentially doubled versus the prior year. You will find in the appendix the definition and reconciliation of our core operating earnings here back to the GAAP earnings from operations and that represents really the impairments, restructuring charges and other items, as I mentioned that are one-off, unusual in nature and they are largely non-cash.

As shown on the chart above, you can see gross profit there of $50 million, better than 2007. Volume and mix net of price concessions contributed about $9 million to the year-over-year increase. Productivity as well as decreased U.S. pension and OPEB costs, and the sale of our Wabash, Indiana powertrain facility, which was experiencing some losses, offset the global increases in fuel and utility costs. So we had a gain there net of all of our costs.

Lower depreciation and foreign exchange were also favorable factors in gross profit. MG&A and R&D costs increased by about $16 million and you can see that was due primarily 50/50 to higher exchange rates, where the bulk of our costs are overseas, as well as increases in our short and long-term incentive programs due to the very strong 2007 results.

If you turn to slide number 23, this slide summarizes our free cash flow for 2007. And as I mentioned earlier that excluding free AR programs was $38 million, up $67 million from the prior year. Cash from operations generated that increase, $107 million and was primarily due to the higher increase in EBITDA, as well as improved working capital of about $74 million.

The working capital improvement was the result of the very hard work of our operations to improve payment terms, collect receivables, and reduce inventories. We did benefit from significant year-end actions and the timing of capital expenditure payments that would be difficult to repeat. So I do caution you not to assume we can achieve this again in 2008. We will give you guidance on 2008 later on in the presentation.

Capital expenditures were an offset to that, an increase of $32 million, primarily to support our capacity expansions in the growing regions. And as I think we mentioned in the last earnings call we actually pulled some of those expenditures ahead into the third and fourth quarter of last year, because we are experiencing some severe capacity shortages in some of our growing markets, so that was the major reason why those numbers were up.

Our operations generated cash and improved significantly from last year, and because of that and the refinancing, we were able to reduce the use of our U.S. AR securitization program. On a year-over-year basis, instead of increasing them, we actually decreased them. So the variance there is about $70 million. And you can see some of the detail on cash flow in the appendix on page 29.

Turning to page 24, many of you have asked us in the past to break out our growth capital expenditure from the totals to show an ongoing cash flow, excluding growth. I hope slide 24 provides the information and shows the underlying strength of our free cash flow of our existing operations. On this slide, the free cash flow, excluding AR as we normally report it, is in the blue bars, and free cash flow, excluding those growth expenditures, are shown in the green bars.

So if you take a look at that, we mentioned that our free cash flow was $107 million better year-on-year. But if you pull out the capital expenditures for growth, free cash flow was actually an even bigger increase and was not only positive in 2007 as we reported, but if you exclude those growth expenditures on an ongoing continuing operations basis, actually it was positive in 2006. So this shows that the significant investments we have made in strategic capacity expansions have been beneficial to us as previously mentioned. And actually if you pull those out, it shows a very significant improvement year-over-year and since 2005 in our free cash flow.

On page 25, you can see our capital structure as of 2008, January 31 and compared to the prior year of the same period. And on the right you see our debt maturities for both of those periods. As a result of the refinancing and the rights offering, our total debt declined $83 million to $610 million and leverage declined to 2.3 times adjusted EBITDA.

On the right you can see the refinancing we completed in May of this year significantly defers our debt maturities. As a result our earliest significant maturity for our debt is now 2014. So obviously we have a lot of time to go and continue to execute our operating plan and our strategic initiatives without having to worry about any funding requirements.

Page 26, many of you have also asked about our U.S. pension liabilities. Twenty-six summarizes our unfunded liability on the left and the contributions we have made and expect to make in 2008 associated with our U.S. pension program. You can see on the left that our unfunded liability was about $62 million in 2005 and we expect it to be about zero by the end of this coming year. On the right, as a result of our improved funding status, you can see that our contributions to the plan are down considerably from prior years to an expected level of about $5 million in this year,. And these reductions have also been a good component of our drive for free cash flow positive situation.

Although not shown, in addition to the $11 million we contributed to the U.S. pension plan, which by the way is not included in EBITDA, we also contributed cash payments beyond EBITDA of about $6 million to our U.S. retiree medical plans and about $3 million to our international pension plans. Those are in excess of what is booked into our EBITDA. And we expect these cash flow impacts to decline slightly in 2008. So again those costs continue to come down year-over-year.

Finally on slide 27, we summarize our key goals and financial outlook for 2008. Our goals include executing our 2008 operating plan, continuing our strategic investment strategy, and generating positive free cash flow again. Our financial outlook for 2008 are sales in the range of $2.1 billion to $2.3 billion, adjusted EBITDA of between $215 million and $220 million, and CapEx in the range of $95 million to $105 million. And we are still targeting to get to positive free cash flow.

I am sorry I should have said $205 million to $220 million as shown on the slide. I apologize for any confusion.

So that completes our presentation. We'd be glad to answer any questions. Thank you.

Marika Diamond

Thank you, Jim. This ends our formal remarks. Operator, we are ready to begin the question-and-answer session.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from the line of Alberto Garciatunen with Imperial Capital.

Alberto Garciatunen – Imperial Capital

I just had a quick question on non-U.S. pension liabilities, specifically the U.S. other, the medical, the $168.9 million and also the international pension liabilities of $132.2 million. I just wanted to get more clarity on it and how you are going to resolve the unfunded aspect of those liabilities.

Jim Yost

Okay thanks Alberto. This is Jim.

Alberto Garciatunen – Imperial Capital

Hello, Jim.

Jim Yost

Jim answering the question. As I think you know, generally speaking U.S. retiree medical programs are not funded specifically by underlying assets. Although there have been some programs like Goodyear and Dana, have actually put into place VEBAs to fund those. We have a continuing program where really the expense continues to decline, as well as our contributions continue to decrease because we froze those plans back in 1995. So we don't have any continuing growing liabilities. In fact as mortality rates continue, we will have declining contributions. Most of the individuals covered by that plan are not represented by any active union representation at this point in time. So we really don't have any significant opportunities to do any VEBA funding and we don't think at this point in time it would make any sense for us to fund those. So we are just going to continue to operate those plans as they are paying in cash as needed.

In terms of the pension liabilities outside the U.S., the most significant one is in Germany, and again traditional with the way those plans are handled. We don't have any underlying assets that fund that specific plan. There are a couple of other smaller plans for which we do have some assets to fund those. So we will continue to operate that plan on a pay-as-you-go basis. So those liabilities will largely come down over time, but we don't have any specific plans to do anything but continue to do it on a pay-as-you-go basis.

Alberto Garciatunen – Imperial Capital

Perfect, thank you.

Operator

Your next question comes from the line of Dirk Friedkin with Troob Capital.

Peter Troob – Troob Capital

Hi, it's Peter Troob. How are you guys?

Curt Clawson

Hi, Peter. We are doing well, thank you.

Peter Troob – Troob Capital

I think you guys have done a great job managing your business. And my question really you walked through most of it on your presentation about the free cash flow and about how you are going to get there and so you just say positive in the presentation, people can figure out a number of what they think your free cash flow will be. So can you just discuss you have $160 million of cash on the balance sheet, which is about 50% of your equity market cap. What you are thinking of doing with that cash? And then what you're going to do with the excess cash you are going to get from working capital going forward and the excess cash you are going to get from just operations going forward? I know we have discussed this before but I sort of want to just to hash through it. It is all right if it is capital projects because you're doing a good job but there is a lot of money now sitting there, which can actually become detrimental if you have too much sitting on your balance sheet.

Jim Yost

You are absolutely right. Peter at this point in time we don't think we have that situation where we have excess cash on our balance sheet. As you know, most of the companies in our industry that have gotten into trouble have gotten into trouble because of liquidity issues. And we have run a number of years, particularly in 2006, the end of 2005 and really the beginning of 2007, where our liquidity was adequate but barely adequate. We are pretty comfortable with what we have. As you know in the beginning of every year, we actually go through a fair amount of working capital. We are working capital positive and as our volumes ramp up from the end of the year, as we end up paying for higher material costs that have hit us at the beginning of each year, we actually use working capital.

So at the beginning of the year, first quarter and sometimes into second quarter, we are a significant working capital user. So we have got to be a – I want to caution you a little bit about saying, I mean our liquidity is fine, but year-end is not kind of our average liquidity level. So the first comment is although we do have a fair amount of cash and we are comfortable with that, we will go through a significant amount of that in the first quarter and in the second quarter as we ramp up our operations.

Secondly with the economic uncertainty that I think we all see going forward, we are uncomfortable getting too close on the liquidity side because we don't know what is going to happen. And we are seeing the potential for a recession in the U.S. and there is some weaknesses here and there around the globe that we would prefer to be on the conservative side as we go forward. And as you pointed out, we obviously have some needs for capital expenditures. As we see those needs and we have done a pretty good job over the last couple of years in identifying those areas, we would like to continue to have the firepower to be able to invest in those.

At the end of last year we needed to pull ahead some of those capital requirements. We would like to have the flexibility to do that. And there are a couple of spots here and there in the world that we might see an opportunity to make a small strategic investment and we would like to have the opportunity to do that without any constraints. Given the current capital market situation, it would be impossible for us to really go and get any significant capital in the capital markets if we needed to. So we would like to be on the conservative side.

Curt Clawson

This is Curt. I would like to chip in that I think that this is a valid question and it is one that we talk about both as a leadership team and also as a Board of Directors. SoI think your position is a valid one. We also have security owners that say, hey there could be a global slowdown, there could be a global recession, save every penny that you have, particularly if you plan to keep growing, and play it safe at least for the moment given what is happening here in the U.S. economy could spread outside and be a wider problem. So we are watching the truck market closely to see if there is a slowdown outside the U.S. We haven't really seen too much evidence of that yet, but I for the moment, and this could change from quarter to quarter, but for the moment, I feel good about having a bit of a cash pad and I will re-say what Jim said earlier. We are going to go through some cash in the first half of the year because our material costs are going up and we always build working capital and we are growing the business. So you combine those things, we are going to need a good chunk of this cash first and second quarter.

Peter Troob – Troob Capital

Okay thank you guys.

Operator

Your next question comes from the line of Mark Kaufman with MLK Investments.

Mark Kaufman – MLK Investments

Hi gentlemen. Please disregard the sirens in the background. They are not coming after me. But anyway, I had a couple of questions. How large is the tax loss carry-forward U.S. and overseas right now? Hello?

Jim Yost

Yes, sorry. We just had it on mute here for a second as we are listening to the sirens. We are – overall, we probably have in the range of $250 million to $300 million of tax loss carry-forwards globally. Most of those we have allowance reserves against them because at this point in time, it is difficult for us to see a way to use all of those.

Mark Kaufman – MLK Investments

Okay and where is your cash taxes paid this past year?

Jim Yost

We paid taxes in a lot of our jurisdictions; Thailand, India, Turkey, Czech Republic.

Mark Kaufman – MLK Investments

Okay. Do you have a dollar amount or will that be in the K?

Jim Yost

We are going to have all that information in the K. So I would suggest we'll file that probably later today or first thing tomorrow. So rather than kind of rip through that, I'd suggest you go through the K and then it's very specific.

Mark Kaufman – MLK Investments

All right, and so you are paying euro LIBOR on the term line right now?

Jim Yost

That's correct.

Mark Kaufman – MLK Investments

Okay. And so, I guess partially related to the last question about excess cash, so obviously you can't pay any of that down and then draw on that again?

Jim Yost

That's correct. And that is one of the reasons why, given the fairly low interest rates that we are paying right now on those loans, I am hesitant to pay those down now and in six months from now decide we need them to try and fight the capital markets to get those resources back again.

Mark Kaufman – MLK Investments

That certainly makes sense. And I have another question, in the last couple of years you have gone through the reorganizations and restructuring of the company and basically the operating line has been hit by that. Do you foresee another $85 million of write-downs, restructurings this year or is there a level there? I guess ultimately what I am getting at is that without that and lower interest rates, maybe there is a shot that you actually show some net income this year?

Jim Yost

Let me see if I can kind of understand that, you are talking about the asset impairments and write-downs?

Mark Kaufman – MLK Investments

Exactly.

Jim Yost

Equipment costs?

Mark Kaufman – MLK Investments

Right.

Jim Yost

Yes, the $82 million or so that we had this last year is a fairly high number. We would not expect to be repeating anywhere as near that level going forward. That said, when we do close an operation and we might have to look at that going into this year, there might be one or two operations that we will have to look at. We would have some level of impairments. Most of the facilities that we would be looking at would be largely impaired now, but there could be some restructuring costs to close those facilities if we had to.

Curt Clawson

Let me add, this is Curt, a big part of our restructuring heretofore has been non-wheel businesses. But I would also remind the crowd that we had a lot of plant closures and restructuring, particularly several years ago, in North America and Western Europe that were related to the wheel business. So we have largely finished, for the most part, maybe not totally, but for the most part, our non-wheel divestitures, restructuring, write-down, et cetera. And now we are looking more closely at our wheel portfolio. And depending on market conditions, industry pricing, et cetera, we will have to look at our North American operations closely and also look at Western Europe to see if there is any places there where we still have weak spots where we need to take action. All of our wheel plants in the developing countries are safe and sound and profitable, so there is no issue in that respect, but this paring of the weaker branches I think will continue, although I think most of it or the majority of it is done at this point.

Mark Kaufman – MLK Investments

Thank you.

Operator

(Operator instructions) Your next question comes from the line of Jeremy Hellman with Singular Research.

Jeremy Hellman – Singular Research

Hi good morning everybody. You guys hear me okay?

Curt Clawson

Yes, we got you.

Jeremy Hellman – Singular Research

A lot of my questions are already answered. But digging into things a little bit, can you speak to I guess kind of the macro demand level and what you see seasonality wise for the year? Are you looking at maybe a weaker first half followed by a pickup in the second half? Can you speak to that at all?

Jim Yost

Yes, I will talk to you in regions because it does differ by region. We have – we will talk about Europe first as it is the biggest market. We believe in Europe, that what has been and has been communicated what we all know that is going on in the market will continue, which means a relatively flat market. Eastern Europe is staying fairly stable, so Europe overall, both on the truck market and on the passenger car, fairly stable. In North America we have built in some assumptions on volume being slow through the whole year. We don't believe that either the pass car or the truck market will show much change first half or second half, which means down year-over-year. We are being impacted a little bit by the Axle strike on GM, but not significant in the total picture. And then in our developing markets, we see pretty strong growth, maybe not to the extent that we expected, but still significantly higher than in the rest of the world. So a pretty good story both on the first half and the second half in our growth regions. Maybe a little bit softer than we expected, but not significantly different.

Jeremy Hellman – Singular Research

Right. Kind of taking the regional discussion down another path, can you shed some light on how utilization looks within each region in your plants?

Curt Clawson

Yes. Let me talk to that by product.

Jeremy Hellman – Singular Research

Okay.

Curt Clawson

In our truck wheel business, in all markets except North America, we are relatively full and when I say that over 90% today. In our aluminum wheel business is where we are seeing most of the softening, but globally still over a 90% utilization. Then in our steel wheel plants passenger car, we are 80%, 85% utilization globally with some a little bit higher, some a little bit lower in each of those.

Jeremy Hellman – Singular Research

Okay, great thanks. And in one of the slides I saw your units for '07 were 59 million units. Kind of looking at your guidance for '08, can you address what kind of – whether you are looking at – how much of that is slated to be unit growth or price gains or the like?

Curt Clawson

A little bit of unit, some price and some mix. More on the price and mix than on the unit side in the total picture.

Jeremy Hellman – Singular Research

Okay. One last one and then I will jump off. Can you give any commentary on where you are in terms of taking share? Have you been taking share, or losing share, kind of treading water versus the competition? And maybe that is something to be broken down regionally as well.

Curt Clawson

Yes, it is a tough question. I will say the easiest way to answer that is there have not been significant share changes globally and it would really almost need to get into a country by country discussion and I don't want to do that. But in general we have had relatively stable market share in each of our product segments and have been a little bit more successful in our growth regions with some share gain, but haven't really tried to change that. And really for us, the point here is that the profitability piece profitable growth is more important than the share growth.

Jeremy Hellman – Singular Research

Sure, okay great. I appreciate it and I will follow-up after I read the K if I have any further questions. Thanks.

Operator

Your next question comes from the line of Chad Woodson with Paradigm Capital.

Chad Woodson– Paradigm Capital

Hi. Could you just confirm that on that slide 27 that the historical numbers are ex divestitures for '05, '06, '07?

Jim Yost

Yes, that's correct. They are all adjusted for divestitures.

Chad Woodson– Paradigm Capital

Okay, thank you.

Operator

Your next question comes from the line of [Arlene Tarkoff with DCM].

[Arlene Tarkoff] – [DCM]

Yes, hi. Can you going into sort of the segments and geography, discuss a little bit more what the free cash flow trends are in the North America versus the rest of the world?

Jim Yost

I am sorry, but we don't provide any specific breakout by region on free cash flow.

[Arlene Tarkoff] – [DCM]

And then also in terms of the volume growth, you are going from 53 million units to 59 million. Again what are the trends in terms of what you are seeing in Europe versus North America?

Curt Clawson

If you look at page 11 and that is representative of volume growth. It is not exact but close enough to get – if you take the percentage of growth relative to the sales, you can see that and it is relatively close to the comparison of the total growth.

[Arlene Tarkoff] – [DCM]

Got you. Thank you.

Operator

(Operator instructions) Your next question comes from through line Helane Becker with Citi.

Helane Becker – Citi

Thanks operator and thanks for taking my questions gentlemen. So I have two and you might have discussed this, if I have to hop off for the second. Did you say what your debt covenant tests were or if there are any that you would have to meet for the debt you have refinanced last year? And my second question is, is any of your cash in auction rate securities? Thank you.

Curt Clawson

Well I will answer the second one first. No we don't.

Helane Becker – Citi

Okay.

Curt Clawson

And the first one is there are a number of covenants, the primary ones being a debt-to-EBITDA covenant and the second primary one is an interest coverage. And you can look those up if you want to in our credit agreement, which is available. And we are pretty far away from any of those covenants as we speak today and don't see any issues going forward.

Helane Becker – Citi

Great. Thank you so much for your help.

Curt Clawson

You're welcome.

Marika Diamond

Okay this concludes the call. We would like to thank you for participating in Hayes Lemmerz's 2007 fiscal year-end financial results conference call. And we appreciate your continued support. I'll now turn the call over to the operator. Operator?

Operator

Thank you for participating in today's Hayes Lemmerz conference call. This call will be available for replay beginning at 1:00 pm Eastern Time today through April 20, 2008 at midnight. The conference ID number for the replay is 33146021. Again, the conference ID number for the replay, 33146021. The number to dial for the replay is 1-800-642-1687 or 706-645-9291. Ladies and gentlemen you may now disconnect.

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Source: Hayes Lemmerz International, Inc., Q4 2007 Earnings Conference Call Transcript
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