##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 for the Year Ended December 31, 2006
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 Commission File Number: 0-3252
 LEXINGTON PRECISION CORPORATION
 (Exact name of registrant as specified in its charter)
 Delaware
    
    22-1830121(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)800 Third Avenue, New York, NY
    
    10022(Address of principal executive offices)
    
    (Zip code)
 Registrants telephone number, including area code: (212) 319-4657
 
 Securities registered pursuant to Section 12(b) of the Act: None
 Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.25 par value
 (Title of Class)
 o þ
 o þ
 þ o
 þ
 
 o o þ
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



LEXINGTON PRECISION CORPORATION
 Annual Report on Form 10-K
 Table of Contents
 PagePART IItem 1.
    
    Business
    
    
    2Item 1A.
    
    Risk Factors
    
    
    5Item 2.
    
    Properties
    
    
    8Item 3.
    
    Legal Proceedings
    
    
    9Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    9PART IIItem 5.
    
    Market for Our Common Stock and Other Stockholder Matters
    
    
    10Item 6.
    
    Selected Financial Data
    
    
    13Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    32Item 8.
    
    Financial Statements and Supplementary Data
    
    
    35Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    65Item 9A.
    
    Controls and Procedures
    
    
    65Item 9B.
    
    Other Information
    
    
    65PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    66Item 11.
    
    Executive Compensation
    
    
    66Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    66Item 13.
    
    Certain Relationships and Related Transactions
    
    
    66Item 14.
    
    Principal Accountant Fees and Services
    
    
    66PART IVItem 15.
    
    Financial Statements, Financial Statement Schedules, Exhibits, and Reports on Form 8-K
    
    
    67EX-10.6EX-10.31EX-21.1EX-31.1EX-31.2EX-31.3EX-32.1EX-32.2EX-32.3
  -1-




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PART I
 
 Item 1. BUSINESS
     Years Ended December 312006
    
    
    2005
    
    
    2004Rubber Group:Automotive original equipment
    
    $
    41,246
    
    
    
    54.2
    %
    
    $
    49,793
    
    
    
    58.6
    %
    
    $
    64,828
    
    
    
    65.1
    %Automotive aftermarket
    
    
    22,728
    
    
    
    29.9
    
    
    
    23,928
    
    
    
    28.2
    
    
    
    23,936
    
    
    
    24.1Total automotive
    
    
    63,974
    
    
    
    84.1
    
    
    
    73,721
    
    
    
    86.8
    
    
    
    88,764
    
    
    
    89.2Medical devices
    
    
    11,039
    
    
    
    14.5
    
    
    
    9,989
    
    
    
    11.8
    
    
    
    10,568
    
    
    
    10.6Other
    
    
    1,077
    
    
    
    1.4
    
    
    
    1,174
    
    
    
    1.4
    
    
    
    233
    
    
    
    0.2$
    76,090
    
    
    
    100.0
    %
    
    $
    84,884
    
    
    
    100.0
    %
    
    $
    99,565
    
    
    
    100.0
    %Metals Group:Automotive original equipment
    
    $
    9,490
    
    
    
    80.3
    %
    
    $
    9,856
    
    
    
    82.4
    %
    
    $
    9,138
    
    
    
    84.7
    %Industrial and commercial
equipment
    
    
    1,623
    
    
    
    13.8
    
    
    
    1,429
    
    
    
    12.0
    
    
    
    1,102
    
    
    
    10.2Other
    
    
    698
    
    
    
    5.9
    
    
    
    673
    
    
    
    5.6
    
    
    
    548
    
    
    
    5.1$
    11,811
    
    
    
    100.0
    %
    
    $
    11,958
    
    
    
    100.0
    %
    
    $
    10,788
    
    
    
    100.0
    %
  -2-




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Major Customers
  Marketing and Sales
  Raw Materials
    Patents and Trademarks
  Seasonal Variations
  -3-




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Backlog
  Competition
  Research and Development
  Environmental Compliance
  Employees
  December 312006
    
    
    2005
    
    
    2004Rubber Group
    
    
    594
    
    
    
    685
    
    
    
    863Metals Group
    
    
    104
    
    
    
    107
    
    
    
    108Corporate Office
    
    
    8
    
    
    
    5
    
    
    
    7706
    
    
    
    797
    
    
    
    978
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Discontinued Operations
  Filings with the Securities and Exchange Commission
 th
 
 Item 1A. RISK FACTORS
 The Company Must Restructure, Refinance, or Repay its Secured Debt and its Senior Subordinated
Notes.
  -5-




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We are dependent on a few major customers.
  We are highly dependent on the automotive industry.
  We encounter significant competition.
  Our high level of debt may adversely affect our financial and operating flexibility.
  Part of our labor force is unionized.
  -6-




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We are subject to labor interruptions at major customers.
  We are vulnerable to fluctuations in the cost and supply of raw materials.
   We are subject to numerous environmental laws and regulations.
  We may be subject to product liability claims and litigation.
  -7-




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Self-insurance may subject us to possible liability that may be partially or completely uninsured.
  We are subject to interest rate changes
  
 Item 2. PROPERTIES
  SquareFeetRubber Group:Jasper, Georgia
    
    
    100,000North Canton, Ohio
    
    
    42,000Vienna, Ohio
    
    
    64,000Rock Hill, South Carolina
    
    
    61,000Total Rubber Group
    
    
    267,000Metals Group:Rochester, New York
    
    
    60,000Total Company
    
    
    327,000
   -8-




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Item 3. LEGAL PROCEEDINGS
  
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  -9-




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PART II
 
 Item 5. MARKET FOR OUR COMMON STOCK AND OTHER STOCKHOLDER MATTERS
  Years Ended December 312006
    
    2005High
    
    Low
    
    High
    
    LowFirst quarter
    
    $
    0.80
    
    
    $
    0.67
    
    
    $
    0.69
    
    
    $
    0.35Second quarter
    
    $
    1.01
    
    
    $
    0.60
    
    
    $
    0.85
    
    
    $
    0.42Third quarter
    
    $
    0.90
    
    
    $
    0.70
    
    
    $
    0.90
    
    
    $
    0.72Fourth quarter
    
    $
    0.80
    
    
    $
    0.41
    
    
    $
    0.79
    
    
    $
    0.70
   -10-




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Performance Graph
  
 2001
    
    2002
    
    2003
    
    2004
    
    2005
    
    2006Lexington Precision Corporation
    
    
    100.00
    
    
    
    170.97
    
    
    
    258.06
    
    
    
    193.55
    
    
    
    225.81
    
    
    
    132.26S&P 500 Index
    
    
    100.00
    
    
    
    76.63
    
    
    
    96.85
    
    
    
    105.56
    
    
    
    108.73
    
    
    
    123.54NASDAQ Composite Index
    
    
    100.00
    
    
    
    68.47
    
    
    
    102.72
    
    
    
    111.54
    
    
    
    113.07
    
    
    
    123.84S&P 1500 Auto Parts & Equipment Index
    
    
    100.00
    
    
    
    91.00
    
    
    
    134.00
    
    
    
    135.00
    
    
    
    108.00
    
    
    
    113.00
  -11-




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Equity Compensation Plan Information
  Shares of common
    
    
    Weighted-average
    
    
    Shares of common stockstock to be issued upon
    
    
    exercise price of
    
    
    remaining available forexercise of outstanding
    
    
    outstanding
    
    
    future issuance underoptions, warrants and
    
    
    options,
    
    
    equity compensationrights
    
    
    warrants and rights
    
    
    plansEquity compensation plans
approved by security holders
    
    
    
    
    
    $                    NA
    
    
    350Equity compensation plans not
approved by security holders
    
    
    
    
    
    NA
    
    
    Total
    
    
    
    
    
    $                    NA
    
    
    350
 -12-




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Item 6. SELECTED FINANCIAL DATA
  Years Ended December 312006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Summary of operations:Net sales
    
    $
    87,901
    
    
    $
    96,842
    
    
    $
    110,353
    
    
    $
    113,231
    
    
    $
    112,363Cost of sales
    
    
    77,159
    
    
    
    87,369
    
    
    
    98,304
    
    
    
    99,773
    
    
    
    97,571Gross profit
    
    
    10,742
    
    
    
    9,473
    
    
    
    12,049
    
    
    
    13,458
    
    
    
    14,792Selling and administrative expenses
    
    
    6,658
    
    
    
    6,747
    
    
    
    7,383
    
    
    
    7,904
    
    
    
    7,981Gain on sale of assets held for sale
    
    
    
    
    
    
    (1,671
    )
    
    
    
    
    
    
    
    
    
    
    Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47
    
    
    
    Plant closure costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    609Income from operations
    
    
    4,084
    
    
    
    4,397
    
    
    
    4,666
    
    
    
    5,507
    
    
    
    6,202Other income (expense):Interest expense
    
    
    (10,943
    )
    
    
    (9,200
    )
    
    
    (8,662
    )
    
    
    (6,980
    )
    
    
    (7,158
    )Gain on sale of securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    248Gain on repurchase of debt
    
    
    
    
    
    
    77
    
    
    
    8,598
    
    
    
    
    
    
    
    Income (loss) from
continuing operations
before income tax
    
    
    (6,859
    )
    
    
    (4,726
    )
    
    
    4,602
    
    
    
    (1,473
    )
    
    
    (708
    )Income tax provision (benefit)
    
    
    18
    
    
    
    (299
    )
    
    
    (196
    )
    
    
    76
    
    
    
    (538
    )Income (loss) from
continuing operations
    
    
    (6,877
    )
    
    
    (4,427
    )
    
    
    4,798
    
    
    
    (1,549
    )
    
    
    (170
    )Income (loss) from discontinued operations
    
    
    (472
    )
    
    
    644
    
    
    
    (3,208
    )
    
    
    (4,653
    )
    
    
    (1,397
    )Cumulative effect of change in accounting
principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (247
    )
    
    
    Net income (loss)
    
    $
    (7,349
    )
    
    $
    (3,783
    )
    
    $
    1,590
    
    
    $
    (6,449
    )
    
    $
    (1,567
    )Net income (loss) per diluted common share
    
    $
    (1.49
    )
    
    $
    (0.77
    )
    
    $
    0.32
    
    
    $
    (1.36
    )
    
    $
    (0.32
    )
 (continued on next page)
 -13-




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(continued from prior page)
 Years Ended December 312006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Other data (continuing operations):Net cash provided by operating activities of
continuing operations
    
    $
    2,556
    
    
    $
    7,142
    
    
    $
    7,068
    
    
    $
    13,470
    
    
    $
    14,766Reconciliation of income (loss) from continuing
operations to EBITDA from continuing operations:Income (loss) from continuing operations
    
    $
    (6,877
    )
    
    $
    (4,427
    )
    
    $
    4,798
    
    
    $
    (1,549
    )
    
    $
    (170
    )Adjustments:Depreciation and amortization included
in income from continuing operations
    
    
    7,295
    
    
    
    8,374
    
    
    
    8,444
    
    
    
    8,955
    
    
    
    10,247Gain on repurchase of debt
    
    
    
    
    
    
    (77
    )
    
    
    (8,598
    )
    
    
    
    
    
    
    Interest expense
    
    
    10,943
    
    
    
    9,200
    
    
    
    8,662
    
    
    
    6,980
    
    
    
    7,158Gain on sale of securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (248
    )Income tax provision (benefit)
    
    
    18
    
    
    
    (299
    )
    
    
    (196
    )
    
    
    76
    
    
    
    (538
    )EBITDA from continuing operations (1)
    
    $
    11,379
    
    
    $
    12,771
    
    
    $
    13,110
    
    
    $
    14,462
    
    
    $
    16,449Capital expenditures (2)
    
    $
    2,661
    
    
    $
    3,330
    
    
    $
    6,057
    
    
    $
    5,686
    
    
    $
    4,013
 December 312006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Financial position (3):Current assets
    
    $
    20,222
    
    
    $
    22,396
    
    
    $
    28,907
    
    
    $
    30,101
    
    
    $
    32,991Current liabilities
    
    
    82,211
    
    
    
    41,092
    
    
    
    35,777
    
    
    
    37,687
    
    
    
    101,061Net working capital deficit
    
    $
    (61,989
    )
    
    $
    (18,696
    )
    
    $
    (6,870
    )
    
    $
    (7,586
    )
    
    $
    (68,070
    )Total assets
    
    $
    54,440
    
    
    $
    62,343
    
    
    $
    78,377
    
    
    $
    83,687
    
    
    $
    92,145Long-term debt, excluding current portion
    
    $
    406
    
    
    $
    41,545
    
    
    $
    58,949
    
    
    $
    63,681
    
    
    $
    1,117Total stockholders deficit
    
    $
    (28,991
    )
    
    $
    (21,656
    )
    
    $
    (17,875
    )
    
    $
    (19,492
    )
    
    $
    (13,199
    )
 
 (1)
    
    EBITDA is not a measure of performance under U.S. generally accepted accounting principles and should not be considered in isolation or used as a substitute for income from operations, net income, net
cash provided by operating activities, or other operating or cash flow statement data prepared in accordance with U.S. generally accepted accounting principles. We have presented EBITDA here and
elsewhere in this Form 10-K because this measure is used by investors, as well as our management, to evaluate the operating performance of our business, including its ability to incur and to service
debt, and because it is used by our lenders in setting financial covenants. Our definition of EBITDA is not the same definition of EBITDA used to calculate compliance with the financial covenants that
are incorporated in our secured loan agreements and may not be the same as the definition of EBITDA used by other companies.(2)
    
    Includes equipment purchased under capital leases and with seller-provided financing of $157,000 in 2006.(3)
    
    Data includes assets and liabilities of discontinued operations. -14-




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Item 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
   
    
    our ability to cure defaults under our financing arrangements and to
restructure, refinance or repay our debt,
    
    increases and decreases in business awarded to us by our customers,
    
    unanticipated price reductions for our products as a result of competition,
    
    changes in the cost of raw materials,
    
    strength or weakness in the North American automotive market,
    
    financial difficulties encountered by our customers or suppliers,
    
    the filing by one or more of our customers or suppliers for protection under
the federal bankruptcy code,
    
    changes in the competitive environment,
    
    labor interruptions at our facilities or at our customers or suppliers facilities,
    
    unanticipated operating results,
    
    changes in economic conditions, and
    
    changes in interest rates.
    -15-




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Results of Operations  Comparison of 2006, 2005, and 2004
   Years Ended December 312006
    
    
    2005
    
    
    2004Net sales
    
    $
    87,901
    
    
    
    100.0
    %
    
    $
    96,842
    
    
    
    100.0
    %
    
    $
    110,353
    
    
    
    100.0
    %Cost of sales
    
    
    77,159
    
    
    
    87.8
    
    
    
    87,369
    
    
    
    90.2
    
    
    
    98,304
    
    
    
    89.1Gross profit
    
    
    10,742
    
    
    
    12.2
    
    
    
    9,473
    
    
    
    9.8
    
    
    
    12,049
    
    
    
    10.9Selling and administrative expenses
    
    
    6,658
    
    
    
    7.6
    
    
    
    6,747
    
    
    
    7.0
    
    
    
    7,383
    
    
    
    6.7Gain on sale of assets held for sale
    
    
    
    
    
    
    
    
    
    
    1,671
    
    
    
    1.7
    
    
    
    
    
    
    
    Income from operations
    
    
    4,084
    
    
    
    4.6
    
    
    
    4,397
    
    
    
    4.5
    
    
    
    4,666
    
    
    
    4.2Add back: depreciation and amortization (1)
    
    
    7,295
    
    
    
    8.3
    
    
    
    8,374
    
    
    
    8.7
    
    
    
    8,444
    
    
    
    7.7EBITDA (2)
    
    $
    11,379
    
    
    
    12.9
    %
    
    $
    12,771
    
    
    
    13.2
    %
    
    $
    13,110
    
    
    
    11.9
    %Net cash provided by operating activities
of continuing operations (3)
    
    $
    2,556
    
    
    
    2.9
    %
    
    $
    7,142
    
    
    
    7.4
    %
    
    $
    7,068
    
    
    
    6.3
    %
 
 (1)
    
    Does not include the amortization and write-off of deferred financing expenses, which
totaled $3,078,000, $1,315,000, and $1,098,000, in 2006, 2005, and 2004, respectively, and
which is included in interest expense in the consolidated financial statements.(2)
    
    EBITDA is not a measure of performance under U.S. generally accepted accounting
principles and should not be considered in isolation or used as a substitute for income
from operations, net income, net cash provided by operating activities, or other operating
or cash flow statement data prepared in accordance with U.S. generally accepted
accounting principles. We have presented EBITDA here and elsewhere in this Form 10-K
because this measure is used by investors, as well as our own management, to evaluate the
operating performance of our business, including its ability to service debt, and because
it is used by our lenders in setting financial covenants. Our definition of EBITDA is not
the same definition of EBITDA used to calculate compliance with the financial covenants
that are incorporated in our secured loan agreements and may not be the same as the
definition of EBITDA used by other companies.(3)
    
    The calculation of net cash provided by operating activities is detailed in the
consolidated statement of cash flows that is part of our consolidated financial statements
in Part II, Item 8.  -16-




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Rubber Group
   Years Ended December 312006
    
    
    2005
    
    
    2004Net sales
    
    $
    76,090
    
    
    
    100.0
    %
    
    $
    84,884
    
    
    
    100.0
    %
    
    $
    99,565
    
    
    
    100.0
    %Cost of sales
    
    
    64,772
    
    
    
    85.1
    
    
    
    74,719
    
    
    
    88.0
    
    
    
    85,457
    
    
    
    85.8Gross profit
    
    
    11,318
    
    
    
    14.9
    
    
    
    10,165
    
    
    
    12.0
    
    
    
    14,108
    
    
    
    14.2Selling and administrative expenses
    
    
    3,676
    
    
    
    4.9
    
    
    
    3,702
    
    
    
    4.4
    
    
    
    4,243
    
    
    
    4.3Gain on sale of assets held for sale
    
    
    
    
    
    
    
    
    
    
    571
    
    
    
    0.7
    
    
    
    
    
    
    
    Income from operations
    
    
    7,642
    
    
    
    10.0
    
    
    
    7,034
    
    
    
    8.3
    
    
    
    9,865
    
    
    
    9.9Add back: depreciation and
amortization
    
    
    6,455
    
    
    
    8.5
    
    
    
    7,226
    
    
    
    8.5
    
    
    
    6,929
    
    
    
    7.0EBITDA
    
    $
    14,097
    
    
    
    18.5
    %
    
    $
    14,260
    
    
    
    16.8
    %
    
    $
    16,794
    
    
    
    16.9
    %
 -17-




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-19-




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Metals Group
   Years Ended December 312006
    
    
    2005
    
    
    2004Net sales
    
    $
    11,811
    
    
    
    100.0
    %
    
    $
    11,958
    
    
    
    100.0
    %
    
    $
    10,788
    
    
    
    100.0
    %Cost of sales
    
    
    12,387
    
    
    
    104.9
    
    
    
    12,650
    
    
    
    105.8
    
    
    
    12,847
    
    
    
    119.1Gross profit (loss)
    
    
    (576
    )
    
    
    (4.9
    )
    
    
    (692
    )
    
    
    (5.8
    )
    
    
    (2,059
    )
    
    
    (19.1
    )Selling and administrative expenses
    
    
    669
    
    
    
    5.6
    
    
    
    723
    
    
    
    6.0
    
    
    
    729
    
    
    
    6.8Gain on sale of assets held for sale
    
    
    
    
    
    
    
    
    
    
    1,100
    
    
    
    9.2
    
    
    
    
    
    
    
    Loss from operations
    
    
    (1,245
    )
    
    
    (10.5
    )
    
    
    (315
    )
    
    
    (2.6
    )
    
    
    (2,788
    )
    
    
    (25.9
    )Add back: depreciation and amortization
    
    
    820
    
    
    
    6.9
    
    
    
    1,138
    
    
    
    9.5
    
    
    
    1,476
    
    
    
    13.7EBITDA
    
    $
    (425
    )
    
    
    (3.6
    )%
    
    $
    823
    
    
    
    6.9
    %
    
    $
    (1,312
    )
    
    
    (12.2
    )%
      -20-




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Discontinued Operation
    -21-




---



##### Table of Contents



Years Ended December 312006
    
    
    2005
    
    
    2004Net sales
    
    $
    
    
    
    $
    3,381
    
    
    $
    9,096Income (loss) from operations before asset impairment
charge, increase in carrying value of assets held for sale,
and gain on the sale of assets
    
    $
    (294
    )
    
    $
    130
    
    
    $
    (1,372
    )Impairment of long-lived assets
    
    
    
    
    
    
    
    
    
    
    (1,595
    )Increase in carrying value of assets held for sale
    
    
    
    
    
    
    542
    
    
    
    Gain on sale of assets
    
    
    
    
    
    
    568
    
    
    
    Income (loss) from discontinued operations
    
    
    (294
    )
    
    
    1,240
    
    
    
    (2,967
    )Allocated interest expense
    
    
    178
    
    
    
    262
    
    
    
    241Income (loss) from discontinued operations before
income taxes
    
    
    (472
    )
    
    
    978
    
    
    
    (3,208
    )Income tax provision (1)
    
    
    
    
    
    
    334
    
    
    
    Income (loss) from discontinued operations
    
    $
    (472
    )
    
    $
    644
    
    
    $
    (3,208
    )
 
 (1)
    
    The income tax provision in 2005 was offset by an income tax benefit recorded
in continuing operations. Income tax benefits in 2006 and 2004 were offset by
provisions for valuation allowances.  December 312006
    
    
    2005Assets:Current assets
    
    $
    101
    
    
    $
    254Plant and equipment, net
    
    
    1,418
    
    
    
    1,474Total assets
    
    $
    1,519
    
    
    $
    1,728Liabilities (all current)
    
    $
    221
    
    
    $
    485
 -22-




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##### Table of Contents



Corporate Office
   Years Ended December 312006
    
    
    2005
    
    
    2004Loss from operations
    
    $
    (2,313
    )
    
    $
    (2,322
    )
    
    $
    (2,411
    )Add back: depreciation and amortization (1)
    
    
    20
    
    
    
    10
    
    
    
    39EBITDA
    
    $
    (2,293
    )
    
    $
    (2,312
    )
    
    $
    (2,372
    )
 
 (1)
    
    Excludes the amortization and write-off of deferred financing
expenses, which totaled $3,078,000, $1,315,000, and $1,098,000, in 2006,
2005, and 2004, respectively, and which is included in interest expense
in the consolidated financial statements.  Interest Expense
  Gain on the Repurchase of Debt
  3 4
 -23-




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##### Table of Contents



Income Tax Provision
    Liquidity and Capital Resources
 Operating activities
   Investing Activities
  -24-




---



##### Table of Contents



Financing Activities
    Liquidity
    -25-




---



##### Table of Contents



1.
    
    Fixed Charge Coverage Ratio. The Fixed Charge Coverage Ratio is
calculated by dividing consolidated EBITDA, less Unfinanced Capital Expenditures, by
consolidated Fixed Charges and is required to be not less than 1.1 to 1.0 for each
twelve-month period at the end of each month from December 2006 through November 2007;
and not less than 1.2 to 1.0 for each twelve-month period at the end of each month
thereafter. As of December 31, 2006, January 31, 2007, and February 28, 2007, our Fixed
Charge Coverage Ratio was 1.13 to 1.0, 1.11 to 1.0, and 1.01 to 1.0, respectively.
Accordingly, as of February 28, 2007, the Company failed to comply and remains in
violation of the Fixed Charge Coverage Ratio.2.
    
    Leverage Ratio. The Leverage Ratio is calculated by dividing Senior
Debt by consolidated EBITDA for the trailing twelve-month period and is required to be
not more than 3.0 to 1.0 at the end of each quarter ending on or prior to June 30,
2007, and not more than 2.5 to 1.0 at the end of each quarter thereafter. As of
December 31, 2006, our Leverage Ratio was 2.92 to 1.0.
    -26-




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-27-




---



##### Table of Contents



Contractual Obligations
  -28-




---



##### Table of Contents



Payments Due by Period2008 &
    
    
    2010 &
    
    
    More thanTotal
    
    
    2007
    
    
    2009
    
    
    2011
    
    
    5 yearsEquipment term loans
    
    $
    11,666
    
    
    
    11,666
    
    
    
    
    
    
    
    
    
    
    $
    Real estate term loan
    
    
    14,755
    
    
    
    14,755
    
    
    
    
    
    
    
    
    
    
    
    Subordinated debt
    
    
    34,524
    
    
    
    34,177
    
    
    
    347
    
    
    
    
    
    
    
    Other long-term debt
    
    
    793
    
    
    
    734
    
    
    
    59
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    263
    
    
    
    137
    
    
    
    126
    
    
    
    
    
    
    
    Equipment purchase
obligations
    
    
    305
    
    
    
    305
    
    
    
    
    
    
    
    
    
    
    
    Fixed interest payments
    
    
    8,558
    
    
    
    8,558
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    70,864
    
    
    
    70,332
    
    
    
    532
    
    
    
    
    
    
    $
    
 Inflation
  Environmental Matters
  Quarterly Financial Data
  Critical Accounting Policies and Estimates
  -29-




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##### Table of Contents



Valuation of Accounts Receivable and Provision for Credit Losses
  Valuation of Inventory
  Valuation of Long-Lived Assets other than Goodwill
   -30-




---



##### Table of Contents



Valuation of Goodwill
  Revenue Recognition
  Other
  Recently Issued Accounting Standards
  Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities
  Statement of Financial Accounting Standards No. 158, Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans
  -31-




---



##### Table of Contents



Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in
Income Taxes
  Statement of Financial Accounting Standards No. 151, Inventory Costs  an Amendment of ARB
No. 43, Chapter 4
  Statement of Financial Accounting Standards No. 123 (revised 2004), Share Based Payment
  
 Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   -32-




---



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-33-




---



##### Table of Contents



-34-




---



##### Table of Contents



Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 Table of Contents
 PageReport of Ernst & Young LLP, Independent Registered Public Accounting Firm
    
    
    36Consolidated Statements of Operations for the Years Ended
December 31, 2006, 2005, and 2004
    
    
    37Consolidated Balance Sheets at December 31, 2006 and 2005
    
    
    38Consolidated Statements of Stockholders Deficit for
the Years Ended December 31, 2006, 2005, and 2004
    
    
    40Consolidated Statements of Cash Flows for the Years Ended
December 31, 2006, 2005, and 2004
    
    
    41Notes to Consolidated Financial Statements
    
    
    42
 -35-




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##### Table of Contents



REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
 
      
 -36-




---



##### Table of Contents



LEXINGTON PRECISION CORPORATION
AND SUBSIDIARIES
 
 Consolidated Statements of Operations
(thousands of dollars, except per share data)
 Years Ended December 312006
    
    
    2005
    
    
    2004Net sales
    
    $
    87,901
    
    
    $
    96,842
    
    
    $
    110,353Cost of sales
    
    
    77,159
    
    
    
    87,369
    
    
    
    98,304Gross profit
    
    
    10,742
    
    
    
    9,473
    
    
    
    12,049Selling and administrative expenses
    
    
    6,658
    
    
    
    6,747
    
    
    
    7,383Gain on the sale of assets held for sale
    
    
    
    
    
    
    1,671
    
    
    
    Income from operations
    
    
    4,084
    
    
    
    4,397
    
    
    
    4,666Other income (expense):Interest expense
    
    
    (10,943
    )
    
    
    (9,200
    )
    
    
    (8,662
    )Gain on repurchase of debt
    
    
    
    
    
    
    77
    
    
    
    8,598Income (loss) from continuing operations before
income taxes
    
    
    (6,859
    )
    
    
    (4,726
    )
    
    
    4,602Income tax provision (benefit)
    
    
    18
    
    
    
    (299
    )
    
    
    (196
    )Income (loss) from continuing operations
    
    
    (6,877
    )
    
    
    (4,427
    )
    
    
    4,798Income (loss) from discontinued operations
    
    
    (472
    )
    
    
    644
    
    
    
    (3,208
    )Net income (loss)
    
    $
    (7,349
    )
    
    $
    (3,783
    )
    
    $
    1,590Basic and diluted income (loss) per share of common stock:Continuing operations
    
    $
    (1.39
    )
    
    $
    (0.90
    )
    
    $
    0.97Discontinued operations
    
    
    (0.10
    )
    
    
    0.13
    
    
    
    (0.65
    )Net income (loss)
    
    $
    (1.49
    )
    
    $
    (0.77
    )
    
    $
    0.32
 See notes to consolidated financial statements
 -37-




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##### Table of Contents



LEXINGTON PRECISION CORPORATION
AND SUBSIDIARIES
 
 Consolidated Balance Sheets
(thousands of dollars, except share and per share data)
 December 312006
    
    
    2005Assets:Current assets:Cash
    
    $
    35
    
    
    $
    13Accounts receivable, net of allowances of $412
and $697, respectively
    
    
    9,852
    
    
    
    12,701Inventories, net of allowances of $417
and $435, respectively
    
    
    8,787
    
    
    
    7,784Prepaid expenses and other current assets
    
    
    1,073
    
    
    
    616Deferred income taxes
    
    
    374
    
    
    
    1,028Current assets of discontinued operations
    
    
    101
    
    
    
    254Total current assets
    
    
    20,222
    
    
    
    22,396Plant and equipment:Land
    
    
    1,776
    
    
    
    1,759Buildings
    
    
    13,368
    
    
    
    13,318Equipment
    
    
    110,980
    
    
    
    109,244126,124
    
    
    
    124,321Accumulated depreciation
    
    
    101,898
    
    
    
    95,834Plant and equipment, net
    
    
    24,226
    
    
    
    28,487Plant and equipment of discontinued operations, net
    
    
    1,418
    
    
    
    1,474Goodwill, net
    
    
    7,623
    
    
    
    7,623Other assets, net
    
    
    951
    
    
    
    2,363$
    54,440
    
    
    $
    62,343
 See notes to consolidated financial statements
    
    (continued on next page)
 -38-




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##### Table of Contents



LEXINGTON PRECISION CORPORATION
AND SUBSIDIARIES
 Consolidated Balance Sheets
(thousands of dollars, except share and per share data)
 December 312006
    
    
    2005Liabilities and stockholders deficit:Current liabilities:Accounts payable
    
    $
    6,370
    
    
    $
    9,053Accrued expenses, excluding interest expense
    
    
    3,789
    
    
    
    4,701Accrued interest expense
    
    
    2,130
    
    
    
    849Debt in default
    
    
    68,967
    
    
    
    Short-term debt
    
    
    
    
    
    
    11,979Current portion of long-term debt
    
    
    734
    
    
    
    14,025Current liabilities of discontinued operations
    
    
    221
    
    
    
    485Total current liabilities
    
    
    82,211
    
    
    
    41,092Long-term debt, excluding current portion
    
    
    406
    
    
    
    41,545Deferred income taxes
    
    
    374
    
    
    
    1,028Other long-term liabilities
    
    
    440
    
    
    
    334Stockholders deficit:Common stock, $0.25 par value, 10,000,000 shares
authorized, 4,981,767 and 4,931,767 shares issued and
outstanding at December 31, 2006 and 2005, respectively
    
    
    1,235
    
    
    
    1,233Additional paid-in-capital
    
    
    13,181
    
    
    
    13,169Accumulated deficit
    
    
    (43,407
    )
    
    
    (36,058
    )Total stockholders deficit
    
    
    (28,991
    )
    
    
    (21,656
    )$
    54,440
    
    
    $
    62,343
 See notes to consolidated financial statements
 -39-




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##### Table of Contents



LEXINGTON PRECISION CORPORATION
AND SUBSIDIARIES
 
 Consolidated Statements of Stockholders Deficit
(thousands of dollars)
 Additional
    
    
    
    
    
    
    TotalCommon
    
    
    Paid-in-
    
    
    Accumulated
    
    
    StockholdersStock
    
    
    Capital
    
    
    Deficit
    
    
    DeficitBalance at January 1, 2004
    
    $
    1,233
    
    
    $
    13,169
    
    
    $
    (33,894
    )
    
    $
    (19,492
    )Net income
    
    
    
    
    
    
    
    
    
    
    1,590
    
    
    
    1,590Amortization of restricted stock grants
    
    
    
    
    
    
    
    
    
    
    27
    
    
    
    27Balance at December 31, 2004
    
    
    1,233
    
    
    
    13,169
    
    
    
    (32,277
    )
    
    
    (17,875
    )Net loss
    
    
    
    
    
    
    
    
    
    
    (3,783
    )
    
    
    (3,783
    )Amortization of restricted stock grants
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    2Balance at December 31, 2005
    
    
    1,233
    
    
    
    13,169
    
    
    
    (36,058
    )
    
    
    (21,656
    )Net loss
    
    
    
    
    
    
    
    
    
    
    (7,349
    )
    
    
    (7,349
    )Vesting of restricted stock grants
    
    
    2
    
    
    
    12
    
    
    
    
    
    
    
    14Balance at December 31, 2006
    
    $
    1,235
    
    
    $
    13,181
    
    
    $
    (43,407
    )
    
    $
    (28,991
    )
 See notes to consolidated financial statements
 -40-




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##### Table of Contents



LEXINGTON PRECISION CORPORATION
AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
(thousands of dollars)
 Years Ended December 312006
    
    
    2005
    
    
    2004Operating activities:Net income (loss)
    
    $
    (7,349
    )
    
    $
    (3,783
    )
    
    $
    1,590Adjustments to reconcile net income (loss) to net cash
provided by operating activities of continuing operations:Net (income) loss from discontinued operations
    
    
    472
    
    
    
    (644
    )
    
    
    3,208Depreciation
    
    
    6,919
    
    
    
    8,012
    
    
    
    8,140Amortization included in cost of sales
    
    
    376
    
    
    
    362
    
    
    
    304Amortization and write-off of deferred financing
expenses included in interest expense
    
    
    3,078
    
    
    
    1,315
    
    
    
    1,098Gain on repurchase of debt
    
    
    
    
    
    
    (77
    )
    
    
    (8,598
    )Gain on sale of assets held for sale
    
    
    
    
    
    
    (1,671
    )
    
    
    Changes in operating assets and liabilities that
provided (used) cash:Accounts receivable, net
    
    
    2,849
    
    
    
    2,621
    
    
    
    561Inventories, net
    
    
    (1,003
    )
    
    
    1,007
    
    
    
    (1,158
    )Prepaid expenses and other assets
    
    
    (457
    )
    
    
    1,151
    
    
    
    310Accounts payable
    
    
    (2,683
    )
    
    
    (700
    )
    
    
    1,920Accrued expenses, excluding interest expense
    
    
    (912
    )
    
    
    (138
    )
    
    
    (1,154
    )Accrued interest expense
    
    
    1,281
    
    
    
    (126
    )
    
    
    827Other long term liabilities
    
    
    12
    
    
    
    (31
    )
    
    
    104Other
    
    
    (27
    )
    
    
    (156
    )
    
    
    (84
    )Net cash provided by continuing operations
    
    
    2,556
    
    
    
    7,142
    
    
    
    7,068Net cash provided (used) by discontinued operations
    
    
    (514
    )
    
    
    1,023
    
    
    
    (135
    )Net cash provided by operating activities
    
    
    2,042
    
    
    
    8,165
    
    
    
    6,933Investing activities:Purchases of plant and equipment
    
    
    (2,504
    )
    
    
    (3,330
    )
    
    
    (5,715
    )Proceeds from sales of assets held for sale
    
    
    
    
    
    
    4,518
    
    
    
    271Expenditures for tooling owned by customers
    
    
    (174
    )
    
    
    (544
    )
    
    
    (650
    )Other
    
    
    50
    
    
    
    39
    
    
    
    9Net cash provided (used) by continuing operations
    
    
    (2,628
    )
    
    
    683
    
    
    
    (6,085
    )Net cash provided (used) by discontinued operations
    
    
    (13
    )
    
    
    2,360
    
    
    
    (440
    )Net cash provided (used) by investing activities
    
    
    (2,641
    )
    
    
    3,043
    
    
    
    (6,525
    )Financing activities:Net increase (decrease) in borrowings under revolving
lines of credit
    
    
    (3,585
    )
    
    
    (2,555
    )
    
    
    2,421Proceeds from issuance of debt
    
    
    28,500
    
    
    
    1,500
    
    
    
    7,000Repayment of debt
    
    
    (22,527
    )
    
    
    (9,705
    )
    
    
    (6,364
    )Repurchase of debt
    
    
    
    
    
    
    
    
    
    
    (2,892
    )Payment of financing expenses
    
    
    (1,767
    )
    
    
    (452
    )
    
    
    (745
    )Net cash provided (used) by financing activities
    
    
    621
    
    
    
    (11,212
    )
    
    
    (580
    )Net increase (decrease) in cash
    
    
    22
    
    
    
    (4
    )
    
    
    (172
    )Cash at beginning of year
    
    
    13
    
    
    
    17
    
    
    
    189Cash at end of year
    
    $
    35
    
    
    $
    13
    
    
    $
    17
 See notes to consolidated financial statements
 -41-




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1  Summary of Significant Accounting Policies
 Principles of Consolidation
   Use of Estimates
  Valuation of Accounts Receivable and Provision for Credit Losses
  Valuation of Inventory
  -42-




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  December 312006
    
    
    2005Finished goods
    
    $
    4,595
    
    
    $
    3,845Work in process
    
    
    2,279
    
    
    
    2,114Raw materials
    
    
    1,913
    
    
    
    1,825$
    8,787
    
    
    $
    7,784
 Plant and Equipment
  Valuation of Long-Lived Assets other than Goodwill
   Valuation of Goodwill
  -43-




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Deferred Financing Expenses
  Research and Development Expenses
  Interest Expense
  Years Ended December 312006
    
    
    2005
    
    
    2004Interest expense
    
    $
    10,943
    
    
    $
    9,200
    
    
    $
    8,662Interest expense allocated
to discontinued operations
    
    
    178
    
    
    
    262
    
    
    
    241Total interest expense
    
    $
    11,121
    
    
    $
    9,462
    
    
    $
    8,903
 Net Income or Loss per Common Share
  Revenue Recognition
  -44-




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Recently Issued Accounting Standards
  Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities
  Statement of Financial Accounting Standards No. 158, Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans
  Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in
Income Taxes
  -45-




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Statement of Financial Accounting Standards No. 151, Inventory Costs  an Amendment of ARB
No. 43, Chapter 4
  Statement of Financial Accounting Standards No. 123 (revised 2004), Share Based Payment
  Basis of Presentation
   -46-




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
      Note 2  Other Noncurrent Assets
  -47-




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 3  Accrued Expenses, excluding Interest Expense
  December 312006
    
    
    2005Employee fringe benefits
    
    $
    2,530
    
    
    $
    2,701Salaries and wages
    
    
    356
    
    
    
    877Taxes
    
    
    117
    
    
    
    142Other
    
    
    786
    
    
    
    981$
    3,789
    
    
    $
    4,701
 Note 4  Debt
  December 312006
    
    
    2005Debt in default:Revolving line of credit
    
    $
    8,369
    
    
    $
    Equipment term loan
    
    
    11,666
    
    
    
    Real estate term loan
    
    
    14,755
    
    
    
    12% Senior Subordinated Notes
    
    
    34,177
    
    
    
    Total debt in default
    
    
    68,967
    
    
    
    Short-term debt:Revolving line of credit
    
    
    
    
    
    
    11,954123/4% Senior Subordinated Notes
    
    
    
    
    
    
    25Subtotal
    
    
    
    
    
    
    11,979Current portion of long-term debt
    
    
    734
    
    
    
    14,025Total short-term debt
    
    
    734
    
    
    
    26,004Long-term debt:Equipment term loan
    
    
    
    
    
    
    8,512Real estate term loan
    
    
    
    
    
    
    4,681Increasing Rate Note
    
    
    
    
    
    
    7,00012% Senior Subordinated Notes
    
    
    
    
    
    
    34,17713% Junior Subordinated Note
    
    
    347
    
    
    
    347Series B Preferred Stock
(liquidation value $666)
    
    
    657
    
    
    
    644Other
    
    
    136
    
    
    
    209Subtotal
    
    
    1,140
    
    
    
    55,570Less current portion
    
    
    (734
    )
    
    
    (14,025
    )Total long-term debt
    
    
    406
    
    
    
    41,545Total Debt
    
    $
    70,107
    
    
    $
    67,549
 -48-




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Revolving Line of Credit
  Equipment Term Loan
  Real Estate Term Loan
  -49-




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Restrictive Covenants
  Senior Subordinated Notes
  Junior Subordinated Note
  -50-




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Series B Preferred Stock
   Fair Value of Financial Instruments
   Cash Interest Paid
  Non-Cash Investing and Financing Activities
  -51-




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 5  Common Stock, Warrants, and Other Equity Securities
 Common Stock, $.25 Par Value
  Warrants
  Other Authorized Preferred Stock
  Note 6  Employee Benefit Plans
 Retirement and Savings Plan
  Incentive Compensation Plan
  -52-




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2005 Stock Award Plan
        Note 7  Income Taxes
   Years Ended December 312006
    
    
    2005
    
    
    2004Current:Federal
    
    $
    
    
    
    $
    (334
    )
    
    $
    (328
    )State
    
    
    18
    
    
    
    35
    
    
    
    13218
    
    
    
    (299
    )
    
    
    (196
    )Deferred:Federal
    
    
    
    
    
    
    
    
    
    
    Income tax provision (benefit)
    
    $
    18
    
    
    $
    (299
    )
    
    $
    (196
    )
  -53-




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    Years Ended December 312006
    
    
    2005
    
    
    2004Federal statutory income tax provision
    
    $
    (2,332
    )
    
    $
    (1,607
    )
    
    $
    1,564Change in valuation allowance
    
    
    2,317
    
    
    
    1,265
    
    
    
    (1,542
    )Adjustment of tax liabilities
    
    
    
    
    
    
    
    
    
    
    (328
    )State income taxes, net of federal benefit
    
    
    12
    
    
    
    23
    
    
    
    87Other
    
    
    21
    
    
    
    20
    
    
    
    23Income tax provision (benefit)
    
    $
    18
    
    
    $
    (299
    )
    
    $
    (196
    )
  December 312006
    
    
    2005Deferred tax assets:Net operating losses and tax credit carryforwards:Federal net operating losses
    
    $
    9,267
    
    
    $
    7,475State net operating losses
    
    
    2,079
    
    
    
    1,915Federal alternative minimum taxes
    
    
    864
    
    
    
    864Investment tax credit
    
    
    100
    
    
    
    100Other tax credit
    
    
    81
    
    
    
    81Total tax carryforwards
    
    
    12,391
    
    
    
    10,435Deductible temporary differences:Impairment of long-lived assets
    
    
    175
    
    
    
    175Accounts receivable and inventory reserves
    
    
    310
    
    
    
    385Tax inventory over book
    
    
    142
    
    
    
    220Interest
    
    
    590
    
    
    
    Compensation accruals
    
    
    321
    
    
    
    531Other accruals
    
    
    384
    
    
    
    434Other
    
    
    145
    
    
    
    139Total deferred tax assets
    
    
    14,458
    
    
    
    12,319Valuation allowance
    
    
    (12,945
    )
    
    
    (10,139
    )Net deferred tax assets
    
    
    1,513
    
    
    
    2,180Deferred tax liabilities: Tax over book depreciation
    
    
    (1,513
    )
    
    
    (2,180
    )Net deferred taxes
    
    $
    
    
    
    $
    
 -54-




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    2007
    
    $
    1,2462008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    1,379Thereafter
    
    
    24,630Total federal net operating loss
carryforwards
    
    $
    27,255
 Note 8  Segments
 Description of Segments and Products
   -55-




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Measurement of Segment Profit or Loss
   Factors Management Used to Identify Reportable Segments
  Industry Concentration, Reliance on Large Customers, and Credit Risk
   -56-




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   -57-




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Segment Financial Data
  Years Ended December 312006
    
    
    2005
    
    
    2004Net sales:Rubber Group
    
    $
    76,090
    
    
    $
    84,884
    
    
    $
    99,565Metals Group
    
    
    11,811
    
    
    
    11,958
    
    
    
    10,788Total net sales
    
    $
    87,901
    
    
    $
    96,842
    
    
    $
    110,353Income (loss) from operations:Rubber Group
    
    $
    7,642
    
    
    $
    7,034
    
    
    $
    9,865Metals Group
    
    
    (1,245
    )
    
    
    (315
    )
    
    
    (2,788
    )Subtotal
    
    
    6,397
    
    
    
    6,719
    
    
    
    7,077Corporate Office
    
    
    (2,313
    )
    
    
    (2,322
    )
    
    
    (2,411
    )Total income from operations
    
    $
    4,084
    
    
    $
    4,397
    
    
    $
    4,666Depreciation and amortization(1):Rubber Group
    
    $
    6,455
    
    
    $
    7,226
    
    
    $
    6,929Metals Group
    
    
    820
    
    
    
    1,138
    
    
    
    1,476Subtotal
    
    
    7,275
    
    
    
    8,364
    
    
    
    8,405Corporate Office
    
    
    20
    
    
    
    10
    
    
    
    39Total depreciation and amortization
    
    $
    7,295
    
    
    $
    8,374
    
    
    $
    8,444Capital expenditures(2):Rubber Group
    
    $
    2,118
    
    
    $
    3,034
    
    
    $
    5,277Metals Group
    
    
    511
    
    
    
    292
    
    
    
    773Subtotal
    
    
    2,629
    
    
    
    3,326
    
    
    
    6,050Corporate Office
    
    
    32
    
    
    
    4
    
    
    
    7Total capital expenditures
    
    $
    2,661
    
    
    $
    3,330
    
    
    $
    6,057
 Dec. 31,
    
    
    Dec. 31,
    
    
    Dec. 31,2006
    
    
    2005
    
    
    2004Assets:Rubber Group
    
    $
    45,056
    
    
    $
    50,412
    
    
    $
    60,377Metals Group
    
    
    7,381
    
    
    
    7,692
    
    
    
    9,872Subtotal
    
    
    52,437
    
    
    
    58,104
    
    
    
    70,249Corporate Office
    
    
    484
    
    
    
    2,511
    
    
    
    3,352Total assets (3)
    
    $
    52,921
    
    
    $
    60,615
    
    
    $
    73,601
 
 (1)
    
    Excludes the amortization and write-off of deferred financing expenses, which
totaled $3,078,000, $1,315,000, and $1,098,000, during 2006, 2005, and 2004,
respectively, and which is included in interest expense in the consolidated
financial statements.(2)
    
    Capital expenditures for 2006 included $157,000 of equipment with
seller-provided financing. Capital expenditures for 2004 included $144,000 of equipment
purchased under capitalized lease obligations and $198,000 of equipment acquired with
seller-provided financing.(3)
    
    Excludes the assets of discontinued operations, which totaled $1,519,000,
$1,728,000, and $4,776,000, at December 31, 2006, 2005, and 2004, respectively. -58-




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 9  Net Income (Loss) per Common Share
  Years Ended December 312006
    
    
    2005
    
    
    2004Numerator  Net income (loss):Continuing operations
    
    $
    (6,877
    )
    
    $
    (4,427
    )
    
    $
    4,798Discontinued operations
    
    
    (472
    )
    
    
    644
    
    
    
    (3,208
    )Net income (loss)
    
    $
    (7,349
    )
    
    $
    (3,783
    )
    
    $
    1,590Denominator  Weighted average shares outstanding
    
    
    4,939
    
    
    
    4,932
    
    
    
    4,932Basic and diluted income (loss) per share of
common stock:Continuing operations
    
    $
    (1.39
    )
    
    $
    (0.90
    )
    
    $
    0.97Discontinued operations
    
    
    (0.10
    )
    
    
    0.13
    
    
    
    (0.65
    )Net income (loss)
    
    $
    (1.49
    )
    
    $
    (0.77
    )
    
    $
    0.32
 Note 10  Commitments and Contingencies
 Purchase Commitments
  Leases
  -59-




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Legal Actions
  Other
  Note 11  Related Parties
    Note 12 Gain on the Repurchase of Debt
  -60-




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Repurchase of 123/4% Senior Subordinated Notes
 3 4
 Repurchase of 101/2% Senior, Unsecured Note
 1 2
 Repurchase of 12% Senior Subordinated Notes
  Note 13  Discontinued Operations
    -61-




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Years Ended December 312006
    
    
    2005
    
    
    2004Net sales
    
    $
    
    
    
    $
    3,381
    
    
    $
    9,096Income (loss) from operations before asset impairment
charge, increase in carrying value of assets held for sale,
and gain on the sale of assets
    
    $
    (294
    )
    
    $
    130
    
    
    $
    (1,372
    )Impairment of long-lived assets
    
    
    
    
    
    
    
    
    
    
    (1,595
    )Increase in carrying value of assets held for sale
    
    
    
    
    
    
    542
    
    
    
    Gain on sale of assets
    
    
    
    
    
    
    568
    
    
    
    Income (loss) from discontinued operations
    
    
    (294
    )
    
    
    1,240
    
    
    
    (2,967
    )Allocated interest expense
    
    
    178
    
    
    
    262
    
    
    
    241Income (loss) from discontinued operations before
income taxes
    
    
    (472
    )
    
    
    978
    
    
    
    (3,208
    )Income tax provision (1)
    
    
    
    
    
    
    334
    
    
    
    Income (loss) from discontinued operations
    
    $
    (472
    )
    
    $
    644
    
    
    $
    (3,208
    )
 
 (1)
    
    The income tax provision in 2005 was offset by an income tax benefit recorded
in continuing operations. Income tax benefits in 2006 and 2004 were offset by
provisions for valuation allowances.
  December 312006
    
    
    2005Assets:Current assets
    
    $
    101
    
    
    $
    254Plant and equipment, net
    
    
    1,418
    
    
    
    1,474Total assets
    
    $
    1,519
    
    
    $
    1,728Total liabilities (all current)
    
    $
    221
    
    
    $
    485
 -62-




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 14  Quarterly Financial Data (Unaudited)
  Quarters Ended2006
    
    Mar. 31
    
    
    June 30
    
    
    Sept. 30
    
    
    Dec. 31Net sales
    
    $
    24,798
    
    
    $
    24,439
    
    
    $
    20,371
    
    
    $
    18,293Gross profit
    
    $
    3,739
    
    
    $
    3,411
    
    
    $
    2,186
    
    
    $
    1,406Loss from continuing operations
    
    $
    (330
    )
    
    $
    (1,033
    )
    
    $
    (1,456
    )
    
    $
    (4,058
    )Loss from discontinued operations
    
    
    (70
    )
    
    
    (69
    )
    
    
    (49
    )
    
    
    (284
    )Net loss
    
    $
    (400
    )
    
    $
    (1,102
    )
    
    $
    (1,505
    )
    
    $
    (4,342
    )Basic and diluted loss per share
of common stock:Continuing operations
    
    $
    (0.07
    )
    
    $
    (0.21
    )
    
    $
    (0.29
    )
    
    $
    (0.82
    )Discontinued operations
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    (0.06
    )Net loss
    
    $
    (0.08
    )
    
    $
    (0.22
    )
    
    $
    (0.30
    )
    
    $
    (0.88
    )
 Quarters Ended2005
    
    Mar. 31
    
    
    June 30
    
    
    Sept. 30
    
    
    Dec. 31Net sales
    
    $
    26,284
    
    
    $
    25,294
    
    
    $
    23,502
    
    
    $
    21,762Gross profit
    
    $
    3,122
    
    
    $
    2,741
    
    
    $
    1,978
    
    
    $
    1,632Loss from continuing operations
    
    $
    (994
    )
    
    $
    (150
    )
    
    $
    (1,857
    )
    
    $
    (1,426
    )Income (loss) from discontinued operations
    
    
    294
    
    
    
    167
    
    
    
    411
    
    
    
    (228
    )Net income (loss)
    
    $
    (700
    )
    
    $
    17
    
    
    $
    (1,446
    )
    
    $
    (1,654
    )Basic and diluted income (loss) per share
of common stock:Continuing operations
    
    $
    (0.20
    )
    
    $
    (0.03
    )
    
    $
    (0.37
    )
    
    $
    (0.29
    )Discontinued operations
    
    
    0.06
    
    
    
    0.03
    
    
    
    0.08
    
    
    
    (0.05
    )Net loss
    
    $
    (0.14
    )
    
    $
    
    
    
    $
    (0.29
    )
    
    $
    (0.34
    )
  -63-




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 15  Plant Closings and Sales of Land and Buildings
   -64-




---



##### Table of Contents



Item 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 Item 9A. CONTROLS AND PROCEDURES
  
 Item 9B. OTHER INFORMATION
  -65-




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##### Table of Contents



PART III
 
 Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
  
 Item 11. EXECUTIVE COMPENSATION
  
 Item 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  
 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  -66-




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##### Table of Contents



PART IV
 
 Item 15.
    
    FINANCIAL STATEMENTS, FINANCIAL STATEMENT
SCHEDULES, EXHIBITS, AND REPORTS ON FORM 8-K
 (a)
    
    1.      Financial Statements
  2.
    
    Financial Statement Schedule
  3.
    
    Exhibits
 3-1
    
    Articles of Incorporation and Restatement thereof3-2
    
    By-laws, as amended3-3
    
    Certificate of Correction dated September 21, 19763-4
    
    Certificate of Ownership and Merger dated May 24, 19773-5
    
    Certificate of Ownership and Merger dated May 31, 19773-6
    
    Certificate of Reduction of Capital dated December 30, 19773-7
    
    Certificate of Retirement of Preferred Shares dated December 30, 19773-8
    
    Certificate of Reduction of Capital dated December 28, 19783-9
    
    Certificate of Retirement of Preferred Shares dated December 28, 19783-10
    
    Certificate of Reduction of Capital dated January 9, 19793-11
    
    Certificate of Reduction of Capital dated December 20, 19793-12
    
    Certificate of Retirement of Preferred Shares dated December 20, 19793-13
    
    Certificate of Reduction of Capital dated December 16, 19823-14
    
    Certificate of Reduction of Capital dated December 17, 19823-15
    
    Certificate of Amendment of Restated Certificate of Incorporation
dated September 26, 1984
 -67-




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##### Table of Contents



3-16
    
    Certificate of Retirement of Stock dated September 24, 19863-17
    
    Certificate of Amendment of Restated Certificate of Incorporation
dated November 21, 19863-18
    
    Certificate of Retirement of Stock dated January 15, 19873-19
    
    Certificate of Retirement of Stock dated February 22, 19883-20
    
    Certificate of Amendment of Restated Certificate of Incorporation
dated January 6, 19893-21
    
    Certificate of Retirement of Stock dated August 17, 19893-22
    
    Certificate of Retirement of Stock dated January 9, 19903-23
    
    Certificate of the Designations, Preferences and Relative
Participating, Optional and Other Special Rights of 12% Cumulative
Convertible Exchangeable Preferred Stock, Series C, and the
Qualifications, Limitations and Restrictions thereof dated January 10,
19903-24
    
    Certificate of Ownership and Merger dated April 25, 19903-25
    
    Certificate of Elimination of 12% Cumulative Convertible Exchangeable
Preferred Stock, Series C, dated June 4, 19903-26
    
    Certificate of Retirement of Stock dated March 6, 19913-27
    
    Certificate of Retirement of Stock dated April 29, 19943-28
    
    Certificate of Retirement of Stock dated January 6, 19953-29
    
    Certificate of Retirement of Stock dated January 5, 19963-30
    
    Certificate of Retirement of Stock dated January 6, 19973-31
    
    Certificate of Retirement of Stock dated January 9, 19983-32
    
    Certificate of Retirement of Stock dated January 13, 19993-33
    
    Certificate of Retirement of Stock dated January 26, 20004-1
    
    Certificate of Designations, Preferences, Rights and Number of Shares
of Redeemable Preferred Stock, Series B4-2
    
    Purchase Agreement dated as of February 7, 1985, between Lexington
Precision Corporation (LPC) and L&D Precision Limited Partnership
(L&D Precision) and exhibits thereto4-3
    
    Amendment Agreement dated as of April 27, 1990, between LPC and L&D
Precision with respect to Purchase Agreement dated as of February 7,
1985
 -68-




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##### Table of Contents



4-4
    
    Recapitalization Agreement dated as of April 27, 1990, between LPC and
L&D Woolens Limited Partnership (L&D Woolens) and exhibits thereto4-5
    
    Indenture, dated as of December 18, 2003, between the Company and
Wilmington Trust Company, as Trustee4-6
    
    Registration Rights Agreement, dated as of December 18, 2003, between
the Company and Purchasers listed therein4-7
    
    Form of Unit4-8
    
    Form of Warrant4-9
    
    Form of 12% Senior Subordinated Note due August 1, 20094-10
    
    Form of 13% Junior Subordinated Note due November 1, 200910-1
    
    Purchase Agreement dated as of February 7, 1985, between LPC and L&D
Precision and exhibits thereto10-2
    
    Amendment Agreement dated as of April 27, 1990, between LPC and L&D
Precision with respect to Purchase Agreement dated as of February 7,
198510-3
    
    Lexington Precision Corporation Flexible Compensation Plan, as amended10-4
    
    1986 Restricted Stock Award Plan, as amended10-5
    
    Lexington Precision Corporation Retirement and Savings Plan, as amended10-6
    
    Description of 2006 Compensation Arrangements with Lubin, Delano, &
Company  filed herewith10-7
    
    Corporate Office 2002 Management Cash Bonus Plan10-8
    
    Recapitalization Agreement dated as of April 27, 1990, between LPC and
L&D Woolens and exhibits thereto10-9
    
    Exchange Agreement, dated as of December 18, 2003, between the Company
and each of Michael A. Lubin and Warren Delano10-10
    
    Warrant Agent Agreement, Dated as of December 18, 2003, between the
Company and Wilmington Trust Company, as Warrant Agent10-11
    
    Payoff Agreement, dated as of December 18, 2003, by and between Nomura
Special Situations Investment Trust and the Company10-12*
    
    Delphi Corporation Lifetime Contract, dated as of November 22, 2004,
by and between Delphi Automotive Systems LLC and Lexington Connector
Seals10-13
    
    Purchase Agreement, dated as of February 22, 2005, by and between
Lexington Precision Corporation and City of Casa Grande
 -69-




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##### Table of Contents



10-14
    
    Lexington Precision Corporation 2005 Stock Award Plan  incorporated
by reference from Exhibit A to the Proxy Statement on Schedule 14A of
Lexington Precision Corporation filed with the Securities and Exchange
Commission on April 22, 200510-15
    
    Form of the Incentive Stock Option Award Agreement Pursuant to the
Lexington Precision Corporation 2005 Stock Award Plan10-16
    
    Form of the Non-Qualified Stock Option Award Agreement Pursuant to the
Lexington Precision Corporation 2005 Stock Award Plan10-17
    
    Form of the Restricted Stock Award Agreement Pursuant to the Lexington
Precision Corporation 2005 Stock Award Plan10-18
    
    Equipment Purchase Agreement dated as of August 2, 2005, between
Lexington Precision Corporation and Premier Tool & Die Cast Corp.10-19
    
    Bailment Agreement dated as of August 2, 2005, between Lexington
Precision Corporation and Premier Tool & Die Cast Corp.10-20
    
    Indemnity Agreement dated as of August 2, 2005, between Lexington
Precision Corporation and Premier Tool & Die Cast Corp.10-21
    
    Lease Agreement dated as of December 31, 2005, between the Company and
Premier Lakewood, Inc.10-22
    
    Indemnity Agreement, dated as of December 31, 2005, between the
Company and Premier Lakewood, Inc.10-23
    
    Guarantee, dated as of December 31, 2005, by Premier Tool & Die Cast
Corp. in favor of the Company10-24
    
    Credit and Security Agreement, dated as of May 31, 2006, by and among
LPC and LRG, as borrowers, the lenders from time to time party thereto
(the Lenders), CapitalSource Finance LLC, as collateral agent and
administrative agent for the Lenders, and CapitalSource Finance LLC
and Webster Business Credit Corporation, as co-documentation agents10-25
    
    Pledge Agreement, dated as of May 31, 2006, made by LPC in favor of
CapitalSource Finance LLC, as agent10-26
    
    Loan and Security Agreement, dated as of May 31, 2006, by and among
LPC and LRG, as borrowers, the lenders from time to time party thereto
(the Term Lenders), and CSE Mortgage LLC, as collateral agent and
administrative agent for the Term Lenders10-27
    
    Pledge Agreement, dated as of May 31, 2006, made by LPC in favor of
CSE Mortgage LLC, as agent
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10-28
    
    Termination Agreement, dated as of May 31, 2006, by and among Wachovia
Bank, National Association, as agent and lender, Ableco Finance LLC,
as lender, LPC, LRG, and CapitalSource Finance LLC10-29
    
    Intercreditor Agreement, dated as of May 31, 2006, by and between
CapitalSource Finance LLC, as agent, and CSE Mortgage LLC, as agent,
with the acknowledgment of LPC and LRG, as borrowers, and Webster
Business Credit Corporation, CapitalSource Finance LLC, CSE Mortgage
LLC, and DMD Special Situations, LLC, as lenders10-30
    
    First Amendment and Default Waiver Agreement dated as of November 20,
2006, among Lexington Precision Corporation and Lexington Rubber
Group, Inc., as borrowers, and CapitalSource Finance LLC, as a lender,
as Agent and as Co-Documentation Agent, Webster Business Credit
Corporation, as a lender and as Co-Documentation Agent, CSE Mortgage
LLC, as a lender and an Agent, and DMD Special situations, LC, as a
lender10-31
    
    Amendment Agreement dated as of January 31, 2006, between LPC and
Michael A. Lubin with respect to the 13% Junior Subordinated Note21-1
    
    Significant Subsidiary of Registrant  filed herewith31-1
    
    Rule 13(a)  14(a) / 15(d)  14(a) Certification of Michael A. Lubin,
Chairman of the Board and Co-Principal Executive Officer of the
registrant  filed herewith31-2
    
    Rule 13(a)  14(a) / 15(d)  14(a) Certification of Warren Delano,
President and Co-Principal Executive Officer of the registrant 
filed herewith31-3
    
    Rule 13(a)  14(a) / 15(d)  14(a) Certification of Dennis J.
Welhouse, Chief Financial Officer and Principal Financial Officer of
the registrant  filed herewith32-1
    
    Certification of Michael A. Lubin, Chairman of the Board and
Co-Principal Executive Officer of the registrant, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002  filed herewith32-2
    
    Certification of Warren Delano, President and Co-Principal Executive
Officer of the registrant, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 
filed herewith32-3
    
    Certification of Dennis J. Welhouse, Chief Financial Officer and
Principal Financial Officer of the registrant, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002  filed herewith
 
 *
    
    Portions of this exhibit have been omitted pursuant to a
request for confidential treatment under Rule 24b-2 of the Securities
Exchange Act of 1934, as amended, and the omitted material has been
separately filed with the Securities and Exchange Commission. -71-




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##### Table of Contents



LEXINGTON PRECISION CORPORATION
AND SUBSIDIARIES
 Schedule II  Valuation and Qualifying Accounts and Reserves
of Continuing Operations
(thousands of dollars)
 Balance at
    
    Charged to
    
    Deductions
    
    BalanceBeginning
    
    Costs and
    
    From
    
    at Endof Period
    
    Expenses
    
    Reserves
    
    of PeriodAllowance forDoubtful AccountsYear ended December 31, 2006
    

    $
    697
    
    
    $
    55
    
    
    $
    340
    
    
    $
    412Year ended December 31, 2005
    

    
    537
    
    
    
    170
    
    
    
    10
    
    
    
    697Year ended December 31, 2004
    

    
    545
    
    
    
    380
    
    
    
    388
    
    
    
    537Inventory ReserveYear ended December 31, 2006
    

    $
    435
    
    
    $
    245
    
    
    $
    263
    
    
    $
    417Year ended December 31, 2005
    

    
    845
    
    
    
    11
    
    
    
    421
    
    
    
    435Year ended December 31, 2004
    

    
    931
    
    
    
    110
    
    
    
    196
    
    
    
    845
 -72-




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##### Table of Contents



SIGNATURES
  LEXINGTON PRECISION CORPORATION
(Registrant)By:
    /s/Warren DelanoWarren Delano, President   Principal Executive Officers and Directors:/s/Michael A. LubinMichael A. Lubin, Chairman of the Board/s/Warren DelanoWarren Delano, President and Director Principal Financial and Accounting Officer:/s/Dennis J. WelhouseDennis J. Welhouse, Senior Vice President,Chief Financial Officer, and Secretary Directors:/s/William B. ConnerWilliam B. Conner, Director/s/Kenneth I. GreensteinKenneth I. Greenstein, Director/s/Joseph A. PardoJoseph A. Pardo, Director/s/Elizabeth H. RumlElizabeth H. Ruml, Director -73-