##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION      For the fiscal year ended:
    
    Commission file number:December 31, 2003
    
    333-84903
   J.L. FRENCH AUTOMOTIVE CASTINGS, INC.  Delaware
(State of Incorporation)
    
    13-3983670
(I.R.S. Employer Identification No.)
 4508 IDS CenterMinneapolis, Minnesota
(Address of Principal
Executive Offices)
    
    55402
(Zip Code)
 Registrants telephone number, including area code: (612) 332-2335   Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None   Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934, during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No
[   ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X] Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes  [   ]  No [X] The number of shares outstanding of the Registrants common stock at March 17,
2004 was 11 shares of Class A common stock, 7 shares of Class A-1 common stock,
21 shares of Class B common stock, 5 shares of Class C common stock, 7 shares
of Class D-1 common stock, 7 shares of Class D-2 common stock, 4 shares of
Class E common stock, 14 shares of Class P common stock, 65,118 shares of Class
Q-1 common stock and 11,593 shares of Class Q-2 common stock. Registrants
common equity is not publicly traded. DOCUMENTS INCORPORATED BY REFERENCE:
None.    1




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J.L. French Automotive Castings, Inc.
Annual Report on Form 10-K Table of Contents PART IItem 1.
    
    Business
    
    3Item 2.
    
    Properties
    
    15Item 3.
    
    Legal Proceedings
    
    16Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    17PART IIItem 5.
    
    Market for
Registrants Common Equity, Related Stockholder Matters and Issuers Purchases
    
    17Item 6.
    
    Selected Financial Data
    
    18Item 7.
    
    Managements Discussion and Analysis of Results of Operations and Financial Condition
    
    20Item 7A.
    
    Quantitative and Qualitative Disclosure about Market Risk
    
    33Item 8.
    
    Financial Statements and Supplementary Data
    
    33Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    34Item 9A.
    
    Controls and Procedures
    
    34PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    35Item 11.
    
    Executive Compensation
    
    37Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    38Item 13.
    
    Certain Relationships and Related Transactions
    
    41Item 14.
    
    Principal Accountant Fees and Services
    
    43PART IVItem 15.
    
    Exhibits, Financial Statement Schedules, and Reports on Form 8-K
    
    44SIGNATURESCERTIFICATIONSLetter from Independent Public AccountantCertification of Chief Executive OfficerCertification of Chief Financial OfficerCertification of Chief Executive OfficerCertification of Chief Financial Officer
 2




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PART I 
 ITEM 1. BUSINESS (a) General Development of Business Overview J.L. French Automotive Castings, Inc. (French, Company, we, us, or
our) is an international designer and manufacturer of aluminum die cast
components and assemblies for the global automotive industry. The Companys
primary operating subsidiaries are J.L. French Corporation (Sheboygan),
Allotech International (Allotech), Nelson Metal Products Corporation
(Nelson), Shoreline Industries, Inc. (JLF Benton Harbor), J.L. French U.K.
Ltd. (JLF UK), Fundiciones Viuda de Ansola, S.A. (Ansola), and J.L. French
S. de R.L. de C.V. (JLF Mexico), all of which are wholly owned. We have
manufacturing facilities located in Kentucky, Michigan, Wisconsin, Mexico,
Spain and the United Kingdom. We manufacture highly engineered, assembly-line ready engine and drivetrain
components, such as cam covers, bedplates, engine front covers, front-end
accessory drive brackets, oil pans, transmission cases and water pump housings.
Over the past five years, we have grown significantly by capitalizing on the
trend toward the use of lighter-weight, more fuel-efficient aluminum components
in automobiles. During the same period, we have enhanced operating margins by
leveraging our proprietary processing technologies and highly efficient,
fully-integrated aluminum recycling and casting operations. Unlike most of our
competitors who focus primarily on either aluminum casting or machining, we
machine and assemble over 80% of the components we cast, thereby increasing the
value we provide to our customers while improving our profitability. We are the leading independent aluminum die cast supplier to three of the top
four selling vehicles and a significant supplier to thirteen of the top twenty
selling vehicles in North America. We are a supplier on more than twenty Ford
Motor Company (Ford) models and have significant content on Fords top
selling vehicles, including the F-Series, Ranger, Escape, Freestar, and
Taurus/Sable. We also have significant content on two of General Motors (GM)
high volume platforms: the Silverado and S-10 truck platforms. In 2003, we
were awarded the DaimlerChrysler (DCX) world engine block program utilized
across a variety of four cylinder engine platforms. In addition to our
Original Equipment Manufacturers (OEM) customers, we also sell to leading
Tier 1 automotive suppliers such as Delphi, Robert Bosch, TRW and Visteon. We
supply substantially all of the products we manufacture to our automotive
customers on a sole-source basis. During the last five years, our sales have
increased from $254.3 million in 1998 to $521.1 million in 2003. The majority
of the increase is the result of our 1999 acquisition of Nelson Metal Products
Corporation. As of December 31, 2003, we have been awarded new programs that,
based on CSM Worldwides (CSM) independent estimates of expected program
volumes and our current expectations of program pricing, represent over $40.0
million in annualized net incremental sales. A portion of these programs
launched in 2003 or are scheduled to launch beginning in 2004 and will be in
full production by 2006. We maintain a website at www.jlfrench.com. Our website, and the information
contained therein, are expressly not included in or as a part of this report. Competitive Strengths We are one of a limited number of global, full-service suppliers in the
aluminum components segment of the automotive components supply industry.
Unlike most other segments of the automotive components supply industry, the
aluminum components segment continues to be highly fragmented. Most of our
competitors are either fabricators of aluminum castings, or engage in the
machining and assembly of components. Few suppliers have global reach and
full-service design, engineering and manufacturing capabilities. Consistent
with the trend toward consolidation in other segments of the automotive supply
industry, our market segment is moving toward full-service providers with a
global reach. We believe we are well positioned to capitalize on these trends
as a result of the following competitive strengths: 3




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Low-Cost, Vertically Integrated Operations.Our vertically integrated
operations and highly efficient machining and assembly processes enable us to
be a low-cost manufacturer of high-volume, long production run automotive
aluminum die cast components and assemblies. Among our principal competitors,
we are the only independent automotive aluminum die caster in North America
with captive recycling capabilities, which enable us to reduce our materials
costs and improve product quality and operational efficiency. We work closely
with our equipment vendors to design robust, highly customized high-pressure
die casting equipment, which is specifically adapted to our manufacturing
processes. Given our focus on high-volume, long production run products, we
are able to continuously enhance the efficiency of our die casting equipment
and improve our manufacturing processes, which has resulted in industry leading
productivity, as measured by factors such as faster cycle times, reduced scrap
rates and equipment down time. Extensive Machining and Assembly Capabilities.We believe that we have the
most extensive machining and assembly capabilities among our principal
independent competitors. These services increase the value-added content of
our products and allow us to deliver production line-ready components and
assemblies, which are increasingly required by OEMs. We currently machine and
assemble over 80% of the products we manufacture. Since many of our
competitors have limited machining and assembly capabilities, these skills
provide us with a competitive advantage with respect to service and quality,
while enhancing our profitability. Full-Service, Global Design, Engineering and Manufacturing Capabilities.Our
extensive design and engineering capabilities have resulted in strong,
collaborative customer relationships that typically begin during the initial
design stage. In addition, we have highlymotivated, skilled employees,
proprietary processes and an established track record for handling complex
components with an accelerated timeline to product launch. Our technical
design and engineering capabilities, rapid prototyping, modeling and our
efficient manufacturing operations enable us to secure sole-source supplier
relationships for highly engineered products that require both machining and
assembly. Our global design, engineering and manufacturing capabilities
position us to compete for virtually any automotive aluminum high-pressure die
casting business in North America and Europe. These capabilities represent a
competitive advantage, as only a few suppliers can meet the full-service
requirements of OEMs for aluminum die casting in North America and only two
other independent suppliers can meet these requirements globally. Large Aluminum Casting Expertise.We believe we are one of a few independent
manufacturers in the world able to produce large aluminum die cast components,
such as transmission cases and engine blocks. We currently produce
transmission cases for the Ford F-Series truck, the highest volume vehicle sold
in North America, as well as the Ford Ranger and Explorer. These transmission
cases weigh over 45 pounds and require very precise tolerances because of their
critical performance requirements. Due to our experience producing large
aluminum die cast components, DaimlerChrysler has chosen us to supply the
engine block for its World Engine Program. We will begin production in
November 2004. We believe our expertise in designing and manufacturing large
aluminum components will enable us to develop new product applications as the
use of aluminum is expanded to structural, chassis and suspension components. Market Opportunity Fragmented Nature of Industry Segment with Few, Full-Service Global Suppliers.
As compared to other segments of the automotive supplier industry, we believe
that the automotive aluminum die casting segment is in the early stages of
consolidation and globalization. We estimate that the North American
automotive aluminum die casting segment is estimated at approximately $10.5
billion in annual sales. We estimate that the number of independent aluminum
die casting companies in the United States is over 250, implying an average
revenue per company of approximately $42.0 million. As a result of our global,
low-cost manufacturing capabilities and our ability to provide value-added
machining and assembly services, we believe we have a significant opportunity
to obtain new business previously provided by non-full-service suppliers. In
addition, we continue to evaluate acquiring competitors that could enhance our
product, manufacturing and service capabilities. 4




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Increasing Aluminum Content per Vehicle. The average aluminum content per
vehicle in North America has increased from 165 pounds in 1990 to an estimated
280 pounds in 2003 representing a compound annual growth rate of 4.2%. This
increase is creating significant growth opportunities for us. Growth in demand
for cast aluminum parts in the automotive sector has been favorably impacted
by:  
    
    government mandated fuel efficiency requirements, which have driven
OEMs to use lighter weight aluminum components as a means of reducing
vehicle weight;  
    
    the favorable strength-to-weight ratio of an aluminum component
versus ferrous cast or stamped metal parts; and  
    
    the ability to cast complex aluminum components with fewer
secondary manufacturing operations than alternative processing methods. As a result of these numerous value-enhancing benefits, OEMs are replacing
ferrous metals, such as iron and steel, with aluminum. Increasingly, aluminum
is used in a broader range of applications than its traditional engine and
drive train applications. For example, in Europe, aluminum is being used in a
variety of structural, chassis and suspension applications in order to increase
fuel efficiency. We expect this trend to develop in North America as fuel
efficiency requirements become more stringent. Continued Outsourcing. In order to improve the efficiency of their core
vehicle assembly, marketing and distribution functions, OEMs are increasingly
outsourcing component manufacturing, machining and assembly operations to their
suppliers. This outsourcing trend is evident in the high-pressure die casting
segment where the in-house die casting operations of the OEMs are often high
cost, inefficient and utilize outdated technology. All OEMs still have
significant in-house casting, machining or assembly operations that will likely
be rationalized over time, affording additional growth opportunities to
full-service, global suppliers like us. Business Strategy Our strategy is to leverage our position as a leading global supplier of highly
engineered aluminum components to capitalize on the market opportunity arising
from the fragmented nature of our industry segment, the increasing use of
lightweight aluminum in automobiles, and the continued trend in the automotive
industry of OEMs toward outsourcing. Key elements of our operating and growth
strategies are outlined below. Operating Strategy Pursue Continuous Operating Improvements.We have enhanced margins by creating
and reinforcing a culture of continuous improvement. We continue to implement
lean manufacturing processes with a focus on preventative maintenance, uptime,
standardized work, first time quality, visual factory, orderly work cell,
working capital management, work force training and customer service. The
implementation of the French Operating System, our corporate wide quality and
data driven continuous improvement system, has established a common process for
waste reduction and a solid basis for continual improvement through the use of
Lean /Six Sigma tools. The areas of ongoing improvement efforts and
measurement include:  
    
    maximizing cycle times, product quality, timeliness of delivery,
inventory turns and labor efficiency;  
    
    minimizing raw material costs, scrap and equipment down time; and  
    
    locating production in our most efficient, low-cost facilities. 5




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To achieve our continuous improvement objectives, our manufacturing and
engineering personnel continually evaluate ways in which new and existing
equipment can be further customized and improved. We believe we invest more
time and capital than many of our competitors in the initial design of new
equipment, the maintenance and improvement of existing equipment and the
leveraging of best practices across our operations. We expect to realize
additional operating improvements from the ongoing implementation of our lean
manufacturing principles at our facilities. We believe these strategic
initiatives, when combined with our new business awards, will enable us to
maintain operating margins that are among the highest in our industry. Improve Return on Invested Capital.We continue to employ and enhance our
methodology for evaluating business opportunities and capital expenditures,
using our return on invested capital as the key element in our decision-making.
In addition, we incorporated certain return on invested capital parameters
into our incentive compensation programs in order to encourage the optimization
of employed capital. We believe that these initiatives have enhanced, and will
continue to enhance, our ability to generate attractive profit margins as we
grow and further develop our business. Growth Strategy Increase Market Share in Fragmented Industry Segment. We believe the large and
fragmented nature of the automotive aluminum die casting segment will create
significant opportunities for us to increase our market share and grow our
sales and earnings. Our ability to supply assembly line-ready components,
together with our global scale, and low-cost structure allow us to deliver a
quality and value proposition that we believe differentiates us from our
competitors. Capitalize on Demand for New Aluminum Applications. We intend to leverage our
comprehensive design, engineering and low-cost manufacturing capabilities to
capitalize on the trend toward the use of lightweight aluminum for a variety of
new vehicle applications. Our engineers have been proactively working with
OEMs and Tier 1 suppliers on new applications for lightweight aluminum in
chassis, suspension and structural components. Approximately 50% of our new
program awards represent new product applications. Capitalize on Outsourcing Trend.The vast majority of automotive OEMs still
have significant in-house casting, machining and assembly operations that we
believe are high-cost and inefficient as compared to our operations. As OEMs
seek to restructure their respective manufacturing operations in order to focus
on design, final-stage vehicle assembly and marketing, we believe that a large
portion of their in-house volume will be outsourced. Given the critical nature
of these components, we believe that OEMs will increasingly award outsourced
business to global, full-service suppliers like us. Pursue New Customer Relationships.We continue to pursue new customer
relationships with leading OEMs on a global basis. We believe that significant
opportunity exists for us to acquire new customers in Europe and Asia and with
their respective transplants operations in North America. We have added
professionals to our sales and engineering staff that are engaged in current
dialogues regarding potential new customer opportunities. Ford and GM
currently account for 81% of our sales. While we continue to actively pursue
business with these customers, our long-term goal is to diversify our customer
base. Pursue Strategic Acquisitions, Alliances and Partnerships. Over the longer
term, we believe that there are numerous opportunities for acquisitions,
alliances and partnerships as a result of the large number of high-quality
companies in our market segment that lack global scale or full-service
capabilities. In addition to meeting our return on invested capital standards,
any future acquisition, alliance or partnership usually should meet one or more
of the following criteria:  
    
    broaden our geographic coverage and strengthen our ability to
supply products on a global basis;  
    
    add new customers;  
    
    provide additional and complementary product applications; or  
    
    add new manufacturing or technical capabilities. 6




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We believe that globalization and consolidation trends will provide further
attractive opportunities to either acquire, or invest in, companies that
complement our existing business. Products The following table sets forth the percentage of sales from certain products
for the years ended December 31: Percentage of Sales by Product Category Product Category
    
    2003
    
    2002
    
    2001Medium to Large Automotive Aluminum Die Castings:Oil Pans
    
    
    27
    %
    
    
    32
    %
    
    
    31
    %Transmission Cases
    
    
    13
    
    
    
    13
    
    
    
    12Engine Front Covers
    
    
    10
    
    
    
    10
    
    
    
    9Bedplates
    
    
    8
    
    
    
    9
    
    
    
    8Other Medium to Large Aluminum Die Castings
    
    
    26
    
    
    
    20
    
    
    
    24Small Automotive Aluminum Die Castings
    
    
    15
    
    
    
    15
    
    
    
    14Other Products
    
    
    1
    
    
    
    1
    
    
    
    2Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 For additional information regarding our sales by product category, see Note 16
to our 2003 Consolidated Financial Statements. Set forth below is a brief description of our principal products and their
applications: Large Automotive Aluminum Die Castings.The following are examples of
high-pressure aluminum die cast products: Oil Pans.An aluminum oil pan is attached to the engine block for the primary
purpose of serving as a reservoir for oil used in the lubrication of engine
galleries and bearings. The oil pan is an example of a product that was at one
time inexpensively stamped from steel but has been converted to a higher cost
aluminum casting due to the multiple benefits provided by aluminum which offset
their higher cost, including: (1) better sealing characteristics; (2) greater
structural integrity; (3) better harmonics resulting in reduced vibration and a
quieter engine; (4) better heat dissipation characteristics; and (5)
integration of parts. Oil pans range in weight from five to 14 pounds. Transmission Cases.The transmission case houses the clutches, bands, gear
sets and inner ends of the transmission shafts. Our transmission cases weigh
over 45 pounds. Engine Front Covers.The engine front cover bolts over the crankshaft snout,
holding the oil seal at the front of the crankshaft in place. Engine front
covers range in weight from four to eight pounds. Bedplates.The bedplate, also called the girdle or lower crankcase, is an
integrated component of the engine block. The bedplate is the lower bulkhead
housing for the crankshaft and provides attachment points for the transmission
and oil pan. Bedplates range in weight from 11 to 25 pounds. Other Medium to Large Automotive Aluminum Die Castings.The following are
examples of high pressure-aluminum die cast products: Ladderframes.The ladderframe is an intermediate structure between the engine
block and a stamped-steel oil pan. It provides similar structural integrity
and harmonics characteristics as an aluminum oil pan. Our design incorporates
a windage baffle, which protects the lubrication of the crankshaft, replacing a
stamped steel component. Our ladderframes weigh approximately 11 pounds. Cam Covers.The cam cover is the overhead housing for the camshaft. Cam
covers range in weight from seven to eight pounds. 7




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##### Table of Contents



Water Pump Housings.The water pump housing forms the main body of the water
pump, a mechanism that forces water through the engine block, cylinder head,
hoses and radiator. Our water pump housings weigh approximately three pounds. FEAD Brackets. Front end accessory drive (FEAD) brackets connect power
steering, air conditioning and alternator assemblies to the engine block. Our
FEAD brackets weight approximately one to nine pounds. Small Automotive Aluminum Die Castings.Through our operations in the UK,
Spain and Mexico, we generated approximately 15% of our 2003 sales from
production of over 150 small automotive aluminum die cast components (generally
weighing less than three pounds). Other Products.Also, through our operations in the UK, Spain and Mexico, we
generated approximately 1% of our 2003 sales from non-automotive aluminum die
cast components, primarily small home appliances and white goods parts. Customers and Marketing The North American automotive market is dominated by GM, Ford and DCX, with
Japanese and other foreign manufacturers accounting for approximately 38% of
the market. Our principal customers include OEMs, Tier 1 automotive suppliers
and, to a very small extent, European white good manufacturers. Approximately
81% of our 2003 sales were derived from OEMs, largely Ford and GM, which we
supply on a global basis. Our second largest category of customers is Tier 1
automotive suppliers, such as Boge, Robert Bosch, Continental, Delphi
Automotive Systems, Fagor, Perkins, Phoenix, TRW and Visteon. Sales to Tier 1
customer suppliers are made principally through our European operations and
represented approximately 17% of 2003 sales. The following is a summary of our significant customers for each of the
last three years: Customer
    
    2003
    
    2002
    
    2001Ford
    
    
    51
    %
    
    
    53
    %
    
    
    52
    %GM
    
    
    30
    
    
    
    33
    
    
    
    36Tier 1 Suppliers
    
    
    17
    
    
    
    10
    
    
    
    10Other
    
    
    2
    
    
    
    4
    
    
    
    2Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 Largely as a result of our operations in the UK and Spain, we derive a
significant amount of our sales from outside of North America. Set forth below
is a summary of sales to customers located in the following geographic regions
for the years ended December 31: Region
    
    2003
    
    2002
    
    2001North America
    
    

    74
    %
    
    
    77
    %
    
    
    80
    %Europe
    
    
    22
    
    
    
    23
    
    
    
    19Other
    
    
    4
    
    
    
    
    
    
    
    1Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 For additional information regarding sales and long-lived assets by geographic
region, see Note 16 to our 2003 Consolidated Financial Statements. Our customers award contracts for a particular car or truck platform, which may
include more than one model. Such contracts range from one year to the life of
the platform, which is generally three to seven years, and do not require the
purchase by the customer of any minimum number of units. 8




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##### Table of Contents



The following table presents an overview of the major models for which we have
orders to supply products on current vehicles: Customer
    
    Component or Assembly
    
    VehicleOEMs:Ford
    
    I4 Oil Pan, FEAD Bracket
    
    Focus,  FiestaDuratec Oil Pan, FEAD Bracket
    
    Mazda Tribute, Escape,Mondeo, Taurus, Sable3.8L/4.2L Oil Pan, Front Cover,
    
    Mustang, F-Series, E-Series Van,Water Pump Housing, FEAD
    
    FreestarBracketZetec Oil Pan
    
    Mondeo, Fiesta, KaSigma Oil Pan
    
    Fiesta, Ka1.3L HCS Oil Pan
    
    Escort, Fiesta, Ka4.6L/5.4L/6.8L 2V Front Cover
    
    Mustang, Town Car, Grand Marquis,Crown Victoria, F-Series, E-SeriesVan, Excursion, Expedition,Explorer, Mountaineer, Monterey3.0L 2VFront Cover
    
    Taurus, Sable, Ranger3.0L 4VFront Cover
    
    Jaguar X400Transmission Case 4R100
    
    F-Series, Excursion, E Series VanTransmission Case 5R110
    
    F-Series, E Series VanTransmission Case 4R75W
    
    Mustang, Crown Victoria, GrandMarquis, Town Car, F-Series, ESeries Van, ExpeditionAX4N Transmission Cover
    
    Taurus, Sable, FreestarDuratec Bedplate
    
    Lincoln LS, T-Bird, Jaguar, Mazda 6,Mazda, Tribute, Escape, Mondeo,Taurus, Sable3.9L Bedplate, Sump
    
    Lincoln LSZetec Ladderframe
    
    Mondeo, Fiesta, Ka4.6L/5.4L 4V Cam Cover
    
    Mustang, Navigator, Aviator2.0L Zetec FEAD Bracket
    
    Focus2.0L/2.4L Cam Carrier
    
    Light truck diesel engineBrackets
    
    VariousBearing Caps
    
    VariousCam Covers
    
    VariousGM
    
    3.1L/3.4L Oil Pan
    
    Century, Impala, Grand Am,Malibu, Monte Carlo, Rendezvous4.3L Oil Pan, Rocker Arm Support
    
    Blazer, S-10, Safari, Savana, Sonoma3.8L Oil Pan
    
    Park Avenue, Regal, LeSabre4.8L/5.3L/6.0L Oil Pan, FEAD
    
    Yukon, Silverado, Sierra, Suburban,Bracket
    
    Tahoe, Escalade, Avalanche,Express, Savana5.7L Oil Pan, Flywheel Housing
    
    Corvette4.0L/4.6L Bedplate
    
    Deville, Seville4.2L Bearing Stiffener
    
    Trailblazer, Envoy, Rainier,Isuzu Ascender, Saab4T65 Transmission Cover
    
    Century, Regal, Impala, Monte Carlo,Grand Prix, Venture, Silhouette,Montana, LaSabre, Park Avenue,Bonneville, Aztec, RendezvousBrackets
    
    Various SaabDCX
    
    Engine Block (beginning in Nov. 2004)Liberty, Wrangler, Dakota, StratusBrackets, Water Pumps, Caps
    
    VariousAudi AG
    
    Ladderframe, Bracket
    
    A6, A8Nissan
    
    Brackets
    
    Primera
 9




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Customer
    
    Component or Assembly
    
    VehicleTier 1 Suppliers:Boge
    
    Vibration Control Cast Mounts for Engines
    
    VariousDelphi Automotive Systems
    
    Steering System Housings and Engine Covers
    
    Various GMNSK
    
    Steering Column Components
    
    Various DCXGetrag
    
    Main Housing
    
    Cadillac CTS, ChryslerPacifica, CorvettePerkins Engines
    
    Front Covers
    
    VariousPhoenix
    
    Drive-Shaft Control Mounts
    
    VariousPhoenix, Continental
    
    Vibration-Control Cast Mounts forEngines and Gear Boxes
    
    Opel AstraRobert Bosch
    
    Electronic Circuit Housings (ABS,
    
    VariousAirbag, etc.)TRW
    
    Electronic Power Assist Steering
    
    Renault Megane, Scenic, ClioVisteon (Hungary,
    
    Housing for 1.1-2.9 KW StarterBrazil, India)
    
    Motors
    
    VariousVisteon (Portugal)
    
    Housing for Airbag ElectronicControl
    
    VariousUnitsVisteon (Spain)
    
    Bottom Covers and Heatsinks forElectronic Systems
    
    VariousBearing Caps
    
    Mondeo, FocusOFA
    
    Mondeo, FocusFEAD Brackets
    
    Mondeo, Focus, Fiesta
 We typically pursue new business opportunities that have the three key
characteristics summarized below:  
    
    High-Volume Production, Long Production Runs. Production runs for
our targeted parts typically last seven years with desired production
ranging from 16 to 24 hours per day, five days a week.  
    
    Highly Engineered Components with Extensive Machining and Assembly
Requirements. Components requiring extensive machining operations and
engineered assembly provide the opportunity for enhanced profitability
because of the strength and efficiency of our machining and assembly
operations. Our ability to deliver production line-ready components
enhances our role in the production process while increasing our
importance to OEMs.  
    
    Sole-Source Supply Relationships. We typically do not pursue
contracts which involve more than one supplier or internal OEM
competition. Design and Engineering Support We work with our customers engineering and development teams at the beginning
of the design process for new components and assemblies, or the redesign
process for existing components and assemblies, in order to maximize production
efficiency and quality. These processes may take place from one to five years
prior to the commencement of production. On average, development of a new
component takes 12 to 24 months during the design phase, while the
re-engineering of an existing part may take from one to six months, depending
on the extent of the redesign. Early design involvement can result in a
product that meets or exceeds the customers design and performance
requirements and is more efficient to manufacture. In addition, our extensive
involvement enhances our position for bidding on such business. Consistent with our value-added engineering focus, we have developed
relationships with the engineering departments of our customers. These
relationships not only help identify new business opportunities, but also
enable us to compete based on the quality of our products and services, rather
than exclusively on price. We are currently involved in the design stage of
several products for our customers and will begin production of these products
in the years 2004 to 2007. 10




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Manufacturing The entire production process, from aluminum scrap or ingot to production
line-ready aluminum die cast product, typically takes under four hours,
depending upon the amount of machining and assembly associated with the
particular component. Although our production facilities currently utilize
slightly different processes, we are establishing uniform processes to elevate
the efficiency of all sites to world class levels. Operations Management.We have introduced the French Operating System during
the fourth quarter of 2003. The objective is to support our manufacturing
strategy by motivating behavior leading to continuous improvement in customer
confidence, quality, cost, and delivery. Manufacturing cells use andon displays to reflect real time performance against
targets. In addition, processes in JLF UK are controlled by the use of
proprietary software programs, which monitor the die cast process. This
PC-based system monitors up to 25 critical parameters during each cycle,
compares the results to preset parameters and instructs the robotic extractor
to segregate any castings that are produced outside the process parameters for
further analysis. Information on parameters is accumulated for future use to
correct problems, improve efficiency and implement process designs or
re-designs. This same process control software is being implemented at our
U.S. manufacturing facilities to provide more robust process control. Aluminum Recycling.Our manufacturing process begins with the recycling of
aluminum. Recycling is the process of refining metal and altering its chemical
composition by adding or removing elements. By having this expertise in-house,
we are able to purchase lower grade, less expensive, scrap aluminum and refine
it to the level specified for high-quality aluminum die castings. We have
several of our aluminum recycling capabilities at our plants in Sheboygan,
Wisconsin; Glasgow, Kentucky; the UK; and Spain. Casting Process.Once the aluminum has been melted and properly formulated,
our die cast products are made primarily by using the high-pressure die casting
process, which is most commonly used for high-volume, thin-wall applications.
In this process, molten aluminum alloy is shot into a mold. Pressure of up
to 20,000 pounds per square inch is applied to the aluminum within the die to
maximize consistency and to eliminate air pockets. The aluminum is then
quickly cooled and solidified by chilling the die. The casting is then removed
from the die and the process is repeated. This process from molten aluminum to
solidified casting represents one cycle. We believe our proprietary casting
processes and relentless improvement and attention to detail have resulted in
industry leading cycle times. Once the castings have cooled, excess aluminum is trimmed from the components
edges and recycled for remelting and use in another casting. The cast and
trimmed component is then visually inspected. If the component passes this
test, it is ready for shot blasting, a process whereby the exterior surfaces of
the component are blasted with steel shot to remove any sharp edges. Cast and
trimmed components are gauged and leak tested prior to shipment. We sell some
cast and trimmed components, but generally seek to perform additional machining
and assembly to add more value and validate the casting is free of sub-surface
defects. We are known throughout our industry for our ability to manufacture large,
highly complex castings. This ability to efficiently produce these castings in
certain of our North American and European facilities is aided by the use of
robotics. The benefits of robotics include:  
    
    the ability to operate in a high temperature or otherwise inhospitable environment;  
    
    the ability to handle larger castings without fatigue;  
    
    consistency of motion and time; and  
    
    labor savings. Management selectively determines which operations should incorporate robotics
based on cost-benefit and return on invested capital analysis. 11




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Machining.Our machining operations utilize a mix of specially designed,
dedicated machining centers and computer numerically controlled (CNC)
machines. Because of our concentration on high-volume programs, we use a large
number of dedicated machining centers in the United States while JLF UK and
Ansola use CNC machines, some of which are dedicated to a specific product.
Machining capabilities differ by facility, but generally our machining
capabilities include: face milling; bore and ream; drill and ream; drill and
tap; drill, ream and burnish; hollow milling; contour milling; slit sawing;
rotary grinding and routing. Testing.Most of our machined parts are subjected to a pressurized leak test
and dimensionally measured on a proprietary virtual condition gauge to
determine functionality on key features. On a sample basis, some parts undergo
destructive testing to verify casting integrity and freedom from internal
defects. Assembly.During the assembly process, purchased parts such as drain plugs,
screws, helicoils, baffles, covers and gaskets are assembled onto the cast
part. Once assembled, all parts are again visually inspected. Part numbers
and bar codes are then applied before the part is shipped to the customer.
Management believes that our extensive and efficient machining and assembly
capabilities are a core competency which provides us with an advantage over our
competitors, many of which do not offer machining and assembly services. Our
European operations are increasingly performing assembly operations on
manufactured components and systems. Product Delivery.As a Tier 1 supplier, we are responsible for manufacturing
our products on a just-in-time basis. Shipments are generally made by common
carrier, as arranged by the customer. To facilitate this delivery system, we
utilize direct computer links to our customers. This on-line, real time
capability enables us to meet just-in-time manufacturing requirements and to
minimize inventories, carrying costs and fixed costs. Quality.We believe that we are one of the highest quality manufacturers in
the automotive aluminum die casting industry and the number of defective parts
per million pieces shipped to our customers is among the lowest in the
industry. In 2003, we were awarded a First Time Quality Award for 99% rating
of product being accepted first-time through (on a scale of 100%) from one of
Fords major transmission plants. The strength of our overall design,
production and delivery capabilities is reflected in the supplier quality
ratings received from our major customers including Fords Q1 award.
Maintenance of high-quality performance ratings at all customers is
instrumental in obtaining new business and maintaining existing programs with
our customers. In addition to customer quality recognition, each of our
operations are QS 9000 certified, which is required to be a Tier 1 supplier.
During 2002, each of our locations received ISO 14001 certification. We have
the process in place to transition from QS 9000 to TS 16949, the international
quality standard, required to be in place by December 2006 in order to do
business with most global manufacturers. Competition The aluminum die casting industry is highly competitive and fragmented. We
principally compete for new business at the beginning of the development of new
models and upon the redesign of existing models. New model development
generally begins two to five years before marketing of such models to the
public. Once a producer has been designated to supply parts for a new program,
an OEM usually will continue to purchase those parts from the designated
producer for the life of the program. Competitive factors in the market for
our products include product quality and reliability, cost, timely delivery,
technical expertise, development capability, new product innovation and
customer service. Our principal competitors are Ryobi Die Casting (USA), Inc.,
Metaldyne Corporation, Honsel International Technologies, Toralcast, and Bocar
Inc., as well as the internal aluminum casting operations of General Motors and
DaimlerChrylser. Raw Materials and Suppliers Our principal raw material is aluminum scrap. We deal with a number of
aluminum scrap suppliers and brokers and limit our dealings to parties who have
consistently delivered aluminum scrap which meets specified levels of quality
and grade. As commodities, aluminum scrap and ingot can be purchased from any
number of sources with relatively small differences in price between suppliers. Due to our large production volume, we have the necessary scale to economically
operate a captive secondary aluminum processing operation at each of our two
Wisconsin plants as well as in Glasgow, Kentucky; Witham, England; Prestiegne,
Wales; and San Andres de Echevarria, Spain. We purchase less 12




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costly scrap
aluminum and off-grade aluminum ingot and refine the metal to required OEM
specifications.
Unlike our competitors who lack the ability to upgrade aluminum alloy, our
secondary aluminum recycling capability enables us to lower raw material costs
and to control the quality of our processed aluminum by eliminating machining
hard spots. We have the capacity to process and upgrade approximately 600
million pounds of aluminum per year, which currently exceeds our production
requirements. Our contracts with customers typically provide for price adjustments related to
changes in the cost of aluminum alloy, as quoted on the London Metals Exchange.
As a result, we have limited exposure to aluminum market price fluctuations. In the process of manufacturing production line-ready parts, we must purchase
certain subcomponents, including helicoils, drain plugs and gaskets, from
manufacturers specified by us or our OEM customers. We seek competitive bids
on the parts we purchase if two or more potential Tier 2 manufacturers of the
part are each approved as a supplier to the OEM. We employ just-in-time manufacturing and sourcing systems to meet customer
requirements for faster deliveries and to minimize our need to carry
significant inventory levels. We have not experienced any significant
shortages of raw materials and normally do not carry inventories of raw
materials or finished products in excess of those reasonably required to meet
production and shipping schedules. Employees As of December 31, 2003, we had 2,869 employees. Overall, 14.3% of our
employees are salaried and the balance are hourly. Our U.S. employee-base is
non-union. Several of our European and our Mexico operations either recognize
a union or have employees that are members of unions as individuals. We have
not experienced any work stoppages and consider our relationship with our
employees to be good. (b) Disclosure Regarding Forward-Looking Statements This report contains forward-looking statements. These statements may be found
throughout this report, particularly under the headings Business, within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 and Managements Discussion and Analysis of
Financial Condition and Results of Operations, among others. Forward-looking
statements typically are identified by the use of terms such as may, will,
should, expect, anticipate, believe, estimate, intends and similar
words, although some forward-looking statements are expressed differently. You
should consider statements that contain these words carefully because they
describe our expectations, plans, strategies, goals and beliefs concerning
future business conditions, our results of operations, financial position, and
our business outlook or state other forward-looking information based on
currently available information. The factors listed below and in the other
sections of this report provide examples of risks, uncertainties and events
that could cause our actual results to differ materially from the expectations
expressed in our forward-looking statements. These factors include, among
other things, the following:  
    
    changes in general economic conditions in the United States and Europe;  
    
    our reliance on major customers and selected models;  
    
    the cyclicality and seasonality of the automotive market;  
    
    the failure to complete additional strategic acquisitions or
encounter unseen difficulties in integrating acquisitions;  
    
    the degree to which we are leveraged, which could, among other
things make us more vulnerable to unfavorable economic conditions and
make it more difficult to obtain additional financing in the future for
working capital expenditures and other general corporate purposes;  
    
    obtaining new business on new and redesigned models;  
    
    the ability to achieve the anticipated volume of production from
new and planned supply programs; 13




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
    
    general economic or business conditions affecting the automotive
industry (which is dependent on consumer spending), either nationally
or regionally, being less favorable than expected;  
    
    our failure to develop new applications of aluminum in automobiles;  
    
    increased competition in the automotive components supply market;  
    
    unforeseen problems associated with international sales, including
gains and losses from foreign currency exchange;  
    
    implementation of or changes in the laws, regulations or policies
governing the automotive industry that could negatively affect the
automotive components supply industry; and  
    
    impact of legal proceedings. The forward-looking statements made in this report relate only to events as of
the date on which the statements are made. We undertake no obligation to
update beyond that required by law any forward-looking statement to reflect
events or circumstances after the date on which the statement is made or to
reflect the occurrence of unanticipated events. 14




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ITEM 2. PROPERTIES Facilities Our corporate office is located in Minneapolis, Minnesota and our operating
headquarters are located at our Taylor Drive facility in Sheboygan, Wisconsin. The following table provides information regarding our
principal facilities: ApproximateLocation
    
    
    
    Type
    
    Square Footage
    
    InterestSheboygan, Wisconsin
    
    
    
    Operating Headquarters/Die Castingand Machining Plant (Taylor Drive)
    
    230,000 sq. ft.
    
    OwnedSheboygan, Wisconsin
    
    
    
    Die Casting and Machining Plant(Gateway)
    
    298,000 sq. ft.
    
    OwnedSheboygan, Wisconsin
    
    
    
    Warehouse
    
    50,000 sq. ft.
    
    LeasedWarehouse
    
    37,000 sq. ft
    
    LeasedGrandville, Michigan
    
    (1)
    
    Die Casting and Machining Plant
    
    224,000 sq. ft.
    
    OwnedGlasgow, Kentucky
    
    
    
    Die Casting Plant
    
    175,000 sq. ft.
    
    OwnedMachining Plant
    
    172,000 sq. ft.
    
    LeasedWarehouse
    
    108,000 sq. ft.
    
    LeasedBenton Harbor, Michigan
    
    
    
    Die Casting and Machining Plant
    
    50,000 sq. ft.
    
    OwnedWarehouse
    
    10,000 sq. ft.
    
    LeasedWitham, England
    
    
    
    Administrative/Die Casting andMachining Plant
    
    340,000 sq. ft.
    
    LeasedPresteigne, Wales
    
    
    
    Die Casting Plant
    
    136,000 sq. ft.
    
    OwnedCheshunt, England
    
    (2)
    
    Die Casting Plant
    
    44,000 sq. ft.
    
    LeasedSan Andres de Echevarria, Spain
    
    
    
    Administrative/Die Casting andMachining Plant and Warehouse
    
    171,000 sq. ft.
    
    OwnedSaltillo, Mexico
    
    (3)
    
    Die Casting and Machining Plant
    
    45,000 sq. ft.
    
    Owned
  (1)
    
    The Grandville, Michigan facility, which was closed on May 31, 2003, is currently held for sale.  (2)
    
    In the fourth quarter of 2003, we announced the closure of the Cheshunt, UK facility. We expect the closure to be completed by March 31, 2004.  (3)
    
    Approximately 37,000 sq. ft. of the Saltillo, Mexico building is held for sale while the remaining 8,000 sq. ft. die casting plant is currently in use. We also have leased sales and service offices located in Novi, Michigan;
Indianapolis, Indiana; Bridgend, England; and Darmstadt and Düsseldorf,
Germany. Utilization of our facilities varies with North American and European light
vehicle production and general economic conditions in such regions. All
locations are principally used for manufacturing. All properties in the United
States and the UK are pledged as collateral to secure the repayment of our
senior credit facility and secured second lien term loan. The machining facility in Glasgow, Kentucky was financed through approximately
$1.6 million of industrial revenue bonds, which were issued to Glasgow/Barren
County Industrial Development Economic Authority. To secure repayment of these
bonds, we have transferred title of this facility to Glasgow/Barren County,
which leases the facility back to us. Upon the final lease payment on November
1, 2006, we have the right to purchase this property from Glasgow/Barren County
for $1.00. The balance owed by us at December 31, 2003 was $542,000. 15




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ITEM 3. LEGAL PROCEEDINGS Litigation From time to time, we are involved in various disputes and litigation matters
that arise in the ordinary course of business. The litigation process is
inherently uncertain and it is possible that the resolution of these disputes
and lawsuits could have a material adverse effect on us. We believe, however,
that the ultimate resolution of any pending litigation, individually or in the
aggregate, will not have a material adverse effect on our financial condition
or results of operations. Environmental Matters We are subject to the requirements of federal, state, local and foreign
environmental and occupational health and safety laws and regulations.
Although we have made and will continue to make capital and other expenditures
to comply with environmental requirements, we do not expect to incur material
capital expenditures for environmental controls in 2004. Certain of our
operations generate hazardous substances and wastes. If a release of hazardous
substances occurs on or from our properties or any associated offsite disposal
location, or if contamination is discovered at any of our current or former
properties, we may be held liable, and the amount of such liability could be
material. We are studying how to upgrade the drainage systems at our Cheshunt, UK
facility to address potential petroleum contamination that may be associated
with past drainage. Based on estimates by our environmental consultants, the
cost of this matter is currently not expected to be material. As part of our acquisition of Ansola, the sellers of Ansola agreed to indemnify
us, subject to certain limitations, for environmental liabilities resulting
from the sellers operation of Ansola, including a specific indemnity for
cleanup of certain areas of contamination identified at the San Andres de
Echevarria, Spain facility during our due diligence. Actual cleanup work was
completed in 1999 at a cost of approximately $80,000 and a claim for
indemnification was made and paid out of an escrow established at acquisition.
Final escrow funds were released on July 31, 2003. In connection with our acquisition of Nelson, we are obligated to clean up
contamination at a facility formerly operated by Nelson located in Grand
Rapids, Michigan. An interim response groundwater recovery system is operating
at the facility under the oversight of the Michigan Department of Environmental
Quality, or MDEQ. MDEQ may require additional investigation and cleanup of
soil and groundwater, including any contaminated groundwater that may have
migrated offsite. Prior to the acquisition, Nelson estimated that the cost to
complete the cleanup would be approximately $400,000. Since the acquisition,
we have retained an environmental consultant to investigate the facility and
prepare a plan describing the work that will be necessary to complete the
cleanup and an estimate of the cost of completing the cleanup. Recent
evaluation of the site has shown that our exposure to losses approximates
$100,000 if a cleanup is required. The former stockholders of Nelson agreed to
indemnify us for losses arising out of this matter, to the extent such losses
exceed $400,000. Specifically, the stockholders are obligated to indemnify us
for 85% of the next $3.0 million of such losses. The indemnity expired on
October 15, 2003, but does not expire with respect to those losses that we have
committed to pay before the expiration date.There were no losses that we had
committed to pay prior to that date. There can be no assurances, however, that
the former stockholders will be able or willing to fulfill their indemnity
obligations if we call upon them to do so. We have engaged a third-party
consultant to finalize the requirements with the state authorities. The United States Environmental Protection Agency (U.S. EPA) promulgated new
air quality standards applicable to secondary aluminum production operations
that fixed a compliance date of March 24, 2003. Within 180 days of that date,
facilities subject to the standards were required to have successfully
completed performance testing to demonstrate compliance with the air emission
limitations. These new standards are applicable to the secondary aluminum
facilities in Wisconsin and Kentucky. The Taylor Drive facility in Sheboygan,
Wisconsin and the facility in Glasgow, Kentucky have met the standards. The
initial performance testing at the Gateway Drive facility in Sheboygan,
Wisconsin was timely and conducted under a building expansion permit period
which is still active as the expansion has not been completed. The initial
test indicated that we would need to perform certain enhancements to the
process to be considered compliant with the dioxin/furan emission limits
applicable to the feedstock being processed. 16




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Process
changes have now been made and a new performance test is scheduled before
expiration of the building permit in 2004. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS In the fourth quarter of 2003, the Companys stockholders approved a 1 for
1,000 reverse stock split. The reverse stock split was completed December 29,
2003 and approved by a majority of the holders of each of our classes of common
stock. 
 PART II 
 ITEM
5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND                ISSUER PURCHASES There is no established public trading market for any of our classes of capital
stock. Set forth below is the approximate number of holders of each of our
outstanding classes of common stock: Class ofCommon
    
    Number of RecordStock
    
    HoldersA
    
    
    31A-1
    
    
    1B
    
    
    1C
    
    
    1D-1
    
    
    3D-2
    
    
    2E
    
    
    1Q-1
    
    
    8Q-2
    
    
    8P
    
    
    9
 No dividends were paid on any of our outstanding shares of common stock. 17




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ITEM 6. SELECTED FINANCIAL DATA The selected financial data presented below for each of the years in the
five-year period ended
December 31, 2003 is derived from our audited consolidated financial
statements. The consolidated financial statements at December 31, 2003 and
2002 and for each of the three years in the period ended December 31, 2003 and
the auditors reports thereon are included elsewhere in this report. This
selected financial data should be read in conjunction with Managements
Discussion and Analysis of Results of Operations and Financial Condition and
the Consolidated Financial Statements and Notes to Consolidated Financial
Statements, included elsewhere in this report. Years Ended December 31,2003
    
    2002
    
    2001
    
    2000(2)
    
    1999(1)(in thousands)Statements of Operations Data:Sales
    
    $
    521,083
    
    
    $
    550,447
    
    
    $
    505,709
    
    
    $
    557,002
    
    
    $
    351,829Cost of sales (8)
    
    
    452,627
    
    
    
    481,308
    
    
    
    425,360
    
    
    
    470,647
    
    
    
    267,514Gross profit
    
    
    68,456
    
    
    
    69,139
    
    
    
    80,349
    
    
    
    86,355
    
    
    
    84,315Selling, general and administrative
expenses (8)
    
    
    18,341
    
    
    
    14,083
    
    
    
    16,363
    
    
    
    25,544
    
    
    
    19,577Restructuring, impairment, recapitalization and
other charges (9)
    
    
    107,222
    
    
    
    34,815
    
    
    
    4,053
    
    
    
    
    
    
    
    30,537Amortization of intangibles (3)
    
    
    45
    
    
    
    57
    
    
    
    8,374
    
    
    
    9,317
    
    
    
    9,732Operating (loss) income
    
    
    (57,152
    )
    
    
    20,184
    
    
    
    51,559
    
    
    
    51,494
    
    
    
    24,469Cash interest expense
    
    
    60,212
    
    
    
    48,855
    
    
    
    53,629
    
    
    
    61,057
    
    
    
    37,563Non cash interest expense
    
    
    14,627
    
    
    
    2,292
    
    
    
    2,297
    
    
    
    3,453
    
    
    
    1,198Interest expense
    
    
    74,839
    
    
    

    51,147
    
    
    
    55,926
    
    
    
    64,510
    
    
    
    38,761Other income
    
    
    (617
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss before income taxes and cumulative effect of
change in accounting principle
    
    
    (131,374
    )
    
    
    (30,963
    )
    
    
    (4,367
    )
    
    
    (13,016
    )
    
    
    (14,292
    )Income tax provision (benefit) (4)
    
    
    1,315
    
    
    
    38,528
    
    
    
    2,555
    
    
    
    (3,542
    )
    
    
    (595
    )Loss before cumulative
effect of change in accounting principle
    
    
    (132,689
    )
    
    
    (69,491
    )
    
    
    (6,922
    )
    
    
    (9,474
    )
    
    
    (13,697
    )Cumulative effect of change in
accounting principle (5)
    
    
    
    
    
    
    202,622
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    (132,689
    )
    
    $
    (272,113
    )
    
    $
    (6,922
    )
    
    $
    (9,474
    )
    
    $
    (13,697
    )
 At December 31,2003
    
    2002
    
    2001
    
    2000
    
    1999(in thousands)Balance Sheets Data:Working capital (deficit)
    
    $
    (11,061
    )
    
    $
    2,069
    
    
    $
    (48,807
    )
    
    $
    (16,723
    )
    
    $
    15,366Total assets
    
    
    366,681
    
    
    
    464,939
    
    
    
    700,909
    
    
    
    776,544
    
    
    
    695,234Total debt
    
    
    617,525
    
    
    
    585,563
    
    
    
    551,241
    
    
    
    555,891
    
    
    
    606,444Total stockholders deficit
    
    
    (418,341
    )
    
    
    (294,511
    )
    
    
    (26,696
    )
    
    
    (7,669
    )
    
    
    (41,593
    )
 Years Ended December 31,2003
    
    2002
    
    2001
    
    2000
    
    1999(in thousands)Statements of Cash Flows:Operating activities
    
    $
    29,859
    
    
    $
    12,149
    
    
    $
    35,844
    
    
    $
    48,159
    
    
    $
    19,295Investing activities
    
    
    (35,035
    )
    
    
    (22,381
    )
    
    
    (31,982
    )
    
    
    (98,651
    )
    
    
    (219,978
    )Financing activities
    
    
    3,232
    
    
    
    12,331
    
    
    
    (7,908
    )
    
    
    53,976
    
    
    
    201,988
   18




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(1)
    
    Includes the results of operations of (i) JLF Mexico from August 17, 1999
and (ii) Nelson from October 15, 1999.  (2)
    
    Includes the results of operations of JLF Benton Harbor from March 17,
2000.  (3)
    
    Amortization of debt issuance cost of $2,415 (in thousands) in 2002,
$2,308 in 2001, $1,972 in 2000, and $1,435 in 1999 was reclassified from
amortization expense to interest expense for those respective years  (4)
    
    In 2002, we provided a valuation allowance against our deferred tax
assets, which we continued to provide for in 2003.  (5)
    
    In 2002, we adopted the provisions of SFAS No. 142, Goodwill and Other
Intangible Assets. As a result, we wrote off $202.6 million of goodwill
as a cumulative effect of change in accounting principle.  (6)
    
    Represents the following:  i) 2003 
    
    additional costs related to the closure of our
Grandville, MI facility, closure of our Cheshunt, UK facility and
toolmaking facilities in the United Kingdom, and goodwill impairment
charges of our Sheboygan and Ansola reporting units.ii) 2002 
    
    costs associated with the closure of our Grandville,
MI facility.iii) 2001 
    
    impairment charge associated with long-lived assets of
our Saltillo, Mexico facility.  See Note 13 to our consolidated financial statements.(7)
    
    In connection with our debt financing in 2002 and our recapitalization in
1999, we wrote off debt issuance costs of $13.5 million and $8.1 million,
respectively.  (8)
    
    Beginning in 2003, we began classifying certain plant-related expenses
from selling, general andministrative expenses to cost of sales. Results
for the years ended December 31, 2002 and 2001 have been reclassified to
conform to the new presentation. The reclassification had no impact on
previously reported operating income (loss) or net loss.(9)
    
    Restructuring, impairment, recapitalization and other charges consisted
of the following: Years Ended December 31,2003
    
    2002
    
    2001
    
    2000
    
    1999(in thousands)Restructuring, impairment,
recapitalization and other charges:Recapitalization expenses
    
    $
    

    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    22,425Restructuring and impairment charges (6)
    
    
    106,414
    
    
    
    21,308
    
    
    
    4,053
    
    
    
    
    
    
    
    Loss on sale of business assets
    
    
    808
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss on early retirement of debt (7)
    
    
    
    
    
    
    13,507
    
    
    
    
    
    
    
    
    
    
    
    8,112Total
    
    $
    107,222
    
    
    $
    34,815
    
    
    $
    4,053
    
    
    $
    
    
    
    $
    30,537
 19




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##### Table of Contents



ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Organization of Information Managements Discussion and Analysis provides a narrative on the Companys
financial performance and condition that should be read in conjunction with the
accompanying consolidated financial statements. It includes the following
sections:  
    
    Introduction  
    
    Results of Operations  
    
    Liquidity and Capital Resources  
    
    Contractual Obligations, Commitments and Off-Balance-Sheet Arrangements  
    
    New Accounting Policies  
    
    Critical Accounting Policies and Estimates Introduction We are one of the worlds largest independent designers and manufacturers of
aluminum die cast components for automotive OEMs. During the last five years,
our sales have increased from $254.3 million in 1998 to $521.1 million in 2003.
The majority of the increase is the result of our 1999 acquisition of Nelson
Metal Products Corporation. Since 1996, we have substantially expanded our
design, engineering and manufacturing capabilities. Additionally, we completed
several acquisitions that have expanded our operations from a single facility
to eleven plants located throughout North America and Europe. Our organic growth has been the result of business awards on new vehicle
platforms for both existing and new customers and the expansion of our
manufacturing capabilities to include large die cast components and machining
and assembly operations. In 1997, we began producing transmission cases for
Ford. These transmission cases weigh over 45 pounds and are the largest
products we manufacture. We believe we are one of only a few independent die
casters that have the ability to manufacture these types of products. During
this time, we also expanded the value-add services we offer our customers by
adding machining and assembling capabilities. Currently, we machine and
assemble over 80% of the components we cast. Over the same period of time, we completed five strategic acquisitions to
increase our capabilities and expand our global reach. We derive substantially all of our sales from automotive OEMs and Tier 1
suppliers. The automotive industry is highly cyclical and dependent upon
consumer spending. During the third and fourth quarters of 2000, OEMs reduced
production levels in response to a decline in consumer demand. This decline
continued throughout 2001. Overall, North American automotive and light truck
production decreased approximately 9.8% in 2001 as compared to the prior year.
In 2002, North American automotive production increased approximately 5.9% from
2001 production levels. In 2003, North American automotive production
decreased approximately 3.0% from 2002 production levels. 20




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##### Table of Contents



The following table sets forth the percentage relationship of certain items to
sales for the period indicated: Years EndedDecember 31,2003
    
    2002
    
    2001Sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    86.9
    
    
    
    87.4
    
    
    
    84.1Gross profit
    
    
    13.1
    
    
    
    12.6
    
    
    
    15.9Selling, general and administrative expenses
    
    
    3.5
    
    
    
    2.6
    
    
    
    3.2Restructuring and impairment charges
    
    
    20.4
    
    
    
    3.9
    
    
    
    0.8Amortization of intangibles
    
    
    
    
    
    
    
    
    
    
    1.7Loss on sale of business assets
    
    
    0.2
    
    
    
    
    
    
    
    Loss on early retirement of debt
    
    
    
    
    
    
    2.5
    
    
    
    Operating income (loss)
    
    
    (11.0
    )
    
    
    3.6
    
    
    
    10.2Interest expense
    
    
    14.4
    
    
    
    9.3
    
    
    
    11.1Other income
    
    
    (0.1
    )
    
    
    
    
    
    
    Loss before income taxes and cumulative effect of
change in accounting principle
    
    
    (25.3
    )
    
    
    (5.7
    )
    
    
    (0.9
    )Provision for income taxes
    
    
    0.3
    
    
    
    7.0
    
    
    
    0.5Loss before cumulative effect of change in accounting
principle
    
    
    (25.6
    )
    
    
    (12.7
    )
    
    
    (1.4
    )Cumulative effect of change in accounting principle
- goodwill
    
    
    
    
    
    
    (36.8
    )
    
    
    Net Loss
    
    
    (25.6
    )%
    
    
    (49.5
    )%
    
    
    (1.4
    )%
 Results of Operations Comparison of Year Ended December 31, 2003 to Year Ended December 31, 2002 Sales Sales for the year ended December 31, 2003 decreased by $29.4 million,
or approximately 5.3%, to $521.1 million from $550.4 million for the year ended
December 31, 2002. Sales from our North American operations decreased to
$397.7 million in 2003 from $448.3 million in 2002. The North American
operations were negatively impacted by lower Ford and GM production of
automobiles and light trucks, resulting in $54.2 million lower sales and by
lower selling prices totaling $9.0 million. These decreases were partially
offset by higher aluminum prices in 2003, which are passed through to
customers, which increased sales by $1.9 million versus 2002 and by component
mix, which increased sales by
$10.7 million versus 2002. Sales from our European operations increased to $123.4 million in 2003 from
$102.1 million in 2002. Changes in currency rates had the effect of increasing
sales by $13.5 million in 2003. The remaining increase was due to net new
business, including new programs with TRW, Ford, and Nissan that reached
optimum monthly sales levels in 2003. Cost of Sales Cost of sales for the year ended December 31, 2003 decreased
by $28.7 million, to
$452.6 million from $481.3 million for the year ended December 31, 2002. On a
percentage of sales basis, costs decreased to 86.9% in 2003 from 87.4% in 2002.
Higher aluminum prices (which we passed on to our customers) had the impact of
increasing cost as a percentage of sales by 0.5% in 2003. Cost reductions and
usage control efforts in the areas of labor, scrap, supplies, assembled
components, and other manufacturing costs resulted in cost improvements
approximating $26.0 million in 2003 (or approximately 5.0% of sales) as
compared to the prior year. These cost savings were offset by customer price
reductionsand ramp-up costs associated with new business. Selling, General and Administrative Expenses Selling, general, and
administrative expenses for the year ended December 31, 2003 increased $4.3
million to $18.3 million from $14.1 million for the year ended December 31,
2002. On a percentage of sales basis, costs increased from 2.6% in 2002 to
3.5% in 2003. Excluding $1.7 million in pension expense recognized in 2003
related to our U.K. operations as a result of lowering the discount rate, costs
increased to 3.2% on a percentage of sales basis from 2002. The year over year
remaining increase is attributable primarily to $0.6 million increase in legal
and professional fees and increases in compensation and benefit costs. 21




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##### Table of Contents



Restructuring and Impairment Charges  Restructuring and impairment charges
for the years ended December 31, 2003 and 2002 were as follows: Years Ended December 31,Business Unit
    
    2003
    
    2002Goodwill impairment
    
    Sheboygan and Ansola reporting units
    
    $
    96,013
    
    
    $
    Asset write-down
    
    Saltillo, Mexico
    
    
    4,924
    
    
    
    Asset write-down
    
    JLF UK operations (primarily Cheshunt, UK facility)
    
    
    2,161
    
    
    
    Asset write-down
    
    Grandville, MI facility
    
    
    
    

    
    
    17,953Restructuring costs
    
    Grandville, MI facility
    
    
    2,683
    
    
    
    3,355Restructuring costs
    
    JLF UK operations
    
    
    633
    
    
    
    Total
    
    
    
    $
    106,414
    
    
    $
    21,308
 Restructuring and impairment charges for the year ended December 31, 2003
consisted of $96.0 million write-off of goodwill related to the Sheboygan and
Ansola reporting units, $4.9 million write-down of assets at the Saltillo,
Mexico plant, $2.2 million write-down of assets of the JLF UK operations
(primarily Cheshunt facility), and $3.3 million in restructuring costs. The
2003 restructuring costs were as follows: $2.7 million for the continued
closure of the Grandville, MI facility and $0.6 for the various JLF UK
restructurings that began in the fourth quarter of 2003. The $21.3 million in
2002 related entirely to the closure of our Grandville, Michigan facility.
Included in the charge were costs associated with closing the facility of $3.3
million and asset impairments of $18.0 million. The $3.3 million was comprised
of lease terminations, post shutdown property taxes, employee related costs,
and other exit costs. Loss on Sale of Business Assets Effective December 31, 2003, we sold
substantially all the assets, net of certain liabilities, of our Wilson &
Royston division of JLF UK for approximately $0.1 million in cash. The sale
resulted in a loss of approximately $0.8 million. Interest Expense Interest expense for the year ended December 31, 2003 was
$74.8 million, an increase of $23.7 million from $51.1 million in the year
ended December 31, 2002. The increase was the result of higher weighted
average interest rates and debt levels in the 2003 period. Non-cash interest
expense for the year ended December 31, 2003 was $14.6 million compared to $2.3
million in 2002. The increase is the result of the December 2002 refinancing. Other Income During the year ended December 31, 2003, we recorded non-cash
income of $0.6 million related to exchange rate fluctuations on debt
denominated in foreign currencies. Income Taxes Pursuant to the requirements of Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, we continue
to provide a valuation allowance for all U.S. Federal and remaining state
deferred tax assets. Additionally, we provide a valuation allowance for tax
benefits associated with carryforward foreign losses. For the years ended
December 31, 2003 and 2002, the provision for income taxes was $1.3 million and
$38.5 million, respectively. The 2003 provision is primarily the result of
minimum state taxes in the U.S. which are not income based and Mexican asset
taxes. The 2002 provision is primarily the result of the valuation allowance. 22




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##### Table of Contents



Comparison of Year Ended December 31, 2002 to Year Ended December 31, 2001 Sales  Sales for the year ended December 31, 2002 increased by $44.7
million, or approximately 8.8%, to $550.4 million from $505.7 million for the
year ended December 31, 2001. Sales from our North American operations
increased to $448.3 million in 2002 from $425.6 million in 2001. The North
American operations were positively impacted by stronger Ford and GM production
of automobiles and light trucks, resulting in $28.7 million higher sales. In
addition, higher aluminum prices in 2002, which are passed through to
customers, increased sales by $11.3 million versus 2001. These volume and
aluminum price gains were partially offset by $13.7 million of discontinued,
unprofitable business which the Company no longer produces, and lower selling
prices totaling $3.6 million. Sales from our European operations increased to $102.1 million in 2002 from
$80.1 million in 2001. Changes in currency rates had the effect of increasing
sales by $3.8 million in 2002. The remaining increase was due to net new
business, which began production during 2002, including new programs with TRW,
Ford, and General Motors as well as higher European automotive production
levels in 2002 as compared to 2001. Cost of Sales Cost of sales for the year ended December 31, 2002 increased
by $55.9 million, to
$481.3 million from $425.4 million for the year ended December 31, 2001. On a
percentage of sales basis, costs increased to 87.4% in 2002 from 84.1% in 2001.
Lower utilization of loss contract reserves from $29.4 million in 2001 to $6.1
million in 2002 increased costs as a percent of sales by 4.2%. Higher aluminum
prices (which we passed on to our customers) had the impact of increasing cost
as a percentage of sales by 0.3% in 2002. Cost reductions and usage control
efforts in the areas of labor, scrap, supplies, assembled components, and other
manufacturing costs resulted in cost improvements approximating
$20 million in 2002 (or approximately 3.6% of sales) as compared to the prior
year. These cost savings were offset by customer price reductions, higher
depreciation expense and ramp-up costs associated with new business. Selling, General and Administrative Expenses Selling, general, and
administrative expenses for the year ended December 31, 2002 decreased $2.3
million to $14.1 million from $16.4 million for the year ended December 31,
2001. On a percentage of sales basis, costs decreased from 3.2% in 2001 to
2.6% in 2002. The year over year change is attributable to labor and benefit
cost increases offset by a reduction in legal and professional costs. Restructuring and Impairment Charges In the fourth quarter of 2002, we
recorded a charge of
$21.3 million related to the closure of our Grandville, Michigan facility.
Included in the charge are costs associated with closing the facility of $3.3
million and asset impairments of $18.0 million. The
$3.3 million is comprised of lease terminations, post shutdown property taxes,
employee related costs, and other exit costs. The facility was closed on May
31, 2003. During 2001, under the impairment tests of SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, we recorded an impairment charge of $4.1 million to write down the
goodwill of our Saltillo, Mexico operations given that the sum of the expected
future cash flows (undiscounted and without interest charges) was less than the
carrying amount of goodwill. The impairment charge was previously reflected in
amortization of intangible assets as a non-cash charge and has been
reclassified to restructuring and impairment charges in the accompanying 2001
consolidated statements of operations. Amortization Expense Amortization expense decreased by $8.3 million from
$8.4 million for the year ended December 31, 2001 to $0.1 million for the year
ended December 31, 2002. The adoption of SFAS No. 142, Goodwill and Other
Intangible Assets, which resulted in the discontinuation of goodwill
amortization effective January 1, 2002, accounted for the majority of the
decrease. Loss on Early Retirement of Debt We expensed previously capitalized debt
issuance costs of
$4.8 million and $8.7 million of payments made to the senior credit facility
lenders in conjunction with the December 27, 2002 amendment. This total charge
of $13.5 million was originally reflected as an extraordinary loss for the year
ended December 31, 2002 as the modification of the terms of the senior credit
facility was considered significant and has been reclassified in accordance
with EITF No. 96-19. 23




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##### Table of Contents



Interest Expense Interest expense for the year ended December 31, 2002 was
$51.1 million, a decrease of $4.8 million from $55.9 million in the year ended
December 31, 2001. Lower weighted average interest rates resulted in $6.8
million less interest, slightly offset by $2.0 million in higher interest due
primarily to higher average debt balance and foreign currency exchange rates. Income Taxes Pursuant to the requirements of SFAS No. 109, Accounting for
Income Taxes, we provided a valuation allowance for all of our U.S. Federal and
remaining state deferred tax assets. This resulted in a provision for income
taxes of $38.5 million for the year ended December 31, 2002. For the year
ended December 31, 2001, we recorded an income tax provision of $2.6 million
despite a pretax loss of $4.4 million. The provision is the result of minimum
state income taxes in the U.S. and a valuation allowance for tax benefits
associated with foreign losses. Liquidity and Capital Resources Sources of Cash Our principal sources of cash are cash flow from operations and commercial
borrowings. For the year ended December 31, 2003 and 2002, we generated cash
from operations of $29.9 million and
$12.1 million, respectively. Cash generated from operations before changes in
working capital items was $33.1 million for 2003 compared to $51.9 million in
2002. Increases in working capital used cash of
$3.2 million during 2003 compared to a usage of cash of $39.7 million in 2002.
The increases in working capital resulted from changes in trade receivable,
inventory and trade payable levels. Trade receivable balances decreased in
2003, providing $6.4 million of cash, compared to a $0.6 million usage of cash
in 2002. The receivables decrease in 2003 was a result of lower sales as
compared to 2002. Inventory decreased due to a combination of lower sales and
inventory reduction programs that led to a $3.8 million source of cash in 2003
compared to a $3.4 million use of cash in 2002 to support inventory growth
needed to support higher sales. Reduced accounts payable, along with changes
to other assets and liabilities, used cash of $13.4 million compared to cash
usage of $35.8 million in 2002. The payables reduction was due to more
restrictive trade credit terms prior to amending the senior credit facility and
new borrowing under a new secured second lien term loan, further discussed
below, which was completed in December 2002. In December 2002, we amended our senior credit facility and incurred the
additional following indebtedness:  (i)
    
    $95.0 million of a Tranche C term loan under the senior
credit facility, which resulted in proceeds of $90.3 million after
payment of certain fees to the lenders. The Tranche C term loan is
part of our senior credit facility and matures in October 2006. The
loan bears interest at the greater of 11% or prime plus 6%, payable
quarterly. There are no scheduled principal payments until
maturity. All principal payments are subject to an exit fee of 5%
of such principal payment. Additionally, there is a 1% annual
anniversary fee on all principal amounts outstanding.(ii)
    
    $96.4 million secured second lien term loan, which resulted
in proceeds of $94.0 million net of debt discount. The secured
second lien term loan bears 12% cash interest, payable quarterly,
and 7% deferred interest. The principal and deferred interest are
due on December 31, 2007. The term loan is secured by a second lien
on substantially all of our domestic assets. We also issued
warrants to acquire 5% of our authorized Q-1 shares to the lenders
of the secured second lien term loans. Concurrently with the debt issuances, we issued 65,118 shares of Class Q-1 and
11,593 shares of Class Q-2 common stock to a partnership owned by certain of
our stockholders for total proceeds of $1.0 million. The net proceeds from the debt and stock issuances described above were used to
retire all tranche A term loan balances of $125.4 million, repay $16.6 million
of the tranche B term loan, reduce borrowings under the revolving credit
facility by $33.8 million and pay transaction related costs of $9.5 million. In connection with the financing described above, we also amended our senior
credit facility to extend the revolving credit facility availability until June
30, 2006. Our senior credit facility and the secured second lien notes include
certain quarterly restrictive financial covenants including minimum interest
coverage and 24




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##### Table of Contents



maximum leverage ratios. We were in compliance with all financial covenants at
December 31, 2003 and December 31, 2002. At December 31, 2003, our senior credit facility consisted of: (i) a $133.8
million tranche B term loan that matures in October 2006, bears interest at
prime plus 3.5% or minimum LIBOR of 2.5% plus 4.5% and has no scheduled
principal repayments until maturity; (ii) a $96.3 million tranche C term that
matures in October 2006, bears interest at the greater of 11% or prime plus 6%
and has no scheduled principal repayments until maturity; and (iii) a $90.0
million revolving credit facility. At December 31, 2003, borrowings
outstanding totaled $59.8 million under the revolving credit facility. At
December 31, 2003, rates on borrowings under the senior credit facility varied
from 5.2% to 11.0%. Net cash provided by financing activities totaled $3.2 million during 2003
compared to $12.3 million in 2002. New borrowings under our $95 million
tranche C term loan and $96.4 million secured second lien term loan were used
to repay previous borrowings as of December 27, 2002 of $175.8 million under
our tranche A and tranche B term loans. Uses of Cash Net cash used in investing activities was $35.0 million during 2003 compared to
$22.4 million during 2002, all of which represented capital expenditures. Such
capital expenditures were primarily for equipment purchases related to new or
replacement programs. In both 2003 and 2002, we entered into sale-leaseback
transactions. In 2003, we entered into an agreement to sell and lease back two
machines at our Sheboygan, Wisconsin facilities. The majority of the assets
sold in the transaction were purchased during 2003. Net proceeds from the
transaction were approximately $3.0 million. In 2002, we entered into an
agreement to sell and lease back certain equipment in the amount of $4.6
million at our Glasgow, Kentucky facility. We expect that capital expenditures
will be in the range of $35 million to $40 million in 2004. Liquidity The Company has a substantial amount of leverage. As of December 31, 2003, the
Company had outstanding indebtedness of $617.5 million, and a working capital
deficiency of $11.1 million. In addition, the Company incurred net losses of
$132.7 million and $272.1 million in 2003 and 2002, respectively. Total
shareholders deficit was $418.3 million at December 31, 2003. In 2003, cash
interest costs were $60.2 million and total interest costs were $74.8 million.
Management believes total interest costs will remain at approximately the same
levels in 2004. In order to maintain compliance with restrictive loan
covenants in 2004 and beyond, the Company will need to improve its consolidated
earnings before interest, taxes, depreciation, amortization, restructuring and
impairment charges (EBITDA) and cash flows from current levels. As of
December 31, 2003, the Company had borrowing availability under its revolving
credit facility and cash on hand of approximately $28.4 million. In order to reduce costs, improve EBITDA and maintain adequate liquidity, the
Company has taken the following actions: (i) completed the December 27, 2002
financing transactions (see Note 7) which eliminated all scheduled senior debt

principal repayments until 2006, (ii) closed the Grandville, Michigan facility,
(iii) closed two facilities in JLF UK, (iv) aligned the cost structure with the
revenue base through personnel and other cost reductions, and (v) implemented
stringent operating and cost management policies and controls. The Companys credit facilities contain restrictive covenants that, among other
things, limit the Companys ability to incur indebtedness, make capital
expenditures, and pay dividends. The most restrictive covenants require the
Company to maintain the following financial ratios:  
    
    Ratio of consolidated earnings before interest, taxes,
depreciation, amortization, restructuring and impairment charges, or
EBITDA, as defined, to consolidated cash interest expense of not
less than 1.40 at December 31, 2003 (actual of 1.60) and 1.50 at
December 31, 2004.  
    
    Ratio of total indebtedness to EBITDA, as defined (Total
Leverage Ratio), of less than 6.75 at December 31, 2003 (actual of
6.43) and 6.25 at December 31, 2004.  
    
    Ratio of indebtedness under the Senior Credit Facility,
including outstanding standby letters of credit, to EBITDA, as
defined, of less than 3.50 at December 31, 2003 (actual of 3.03) and
3.25 at December 31, 2004. 25




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##### Table of Contents



The most restrictive quarterly covenant in 2004 will be the Total Leverage
Ratio at December 31, 2004. Assuming total debt remains at $617.5 million (the
balance at December 31, 2003), either an EBITDA, as defined, of approximately
$99 million would need to be achieved to be in compliance with the required
ratio of 6.25 at December 31, 2004 (EBITDA, as defined, was $96.6 million in
2003) or debt would need to be reduced to a sufficient level such that the
required ratio would be achieved. Management believes its operating plans for
2004 will enable the Company to remain in compliance with the quarterly
covenants in 2004. Management also believes that cash generated from
operations together with available borrowings under the senior credit facility
will provide sufficient liquidity and capital resources to fund working
capital, debt service obligations and capital expenditures during 2004. The
assumptions underlying this belief include, among other things, that there will
be no future material adverse developments in either the Companys business or
the automotive market in general. As stated in Note 7 of the consolidated financial statements, the aggregate
maturities of long-term debt and obligations under capital leases are $23.3
million in 2004 and $9.9 million in 2005. In October 2006, the Companys
senior credit facility matures, resulting in cash requirements of approximately
$297.0 million. The Company will need to enter into a new credit facility or
raise additional capital prior to the October 2006 maturity. There is no
assurance the Company can enter into a new credit facility or raise additional
required capital on terms acceptable to the Company, or at all. Contractual Obligations, Commitments and Off Balance Sheet Arrangements Our contractual obligations as of December 31, 2003 were as follows (in
thousands): Payments Due by Period2009 andContractual Obligations
    
    Total
    
    2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    thereafterLong-term debt
    
    $
    596,265
    
    
    $
    16,820
    
    
    $
    4,077
    
    
    $
    292,812
    
    
    $
    104,155
    
    
    $
    1,178
    
    
    $
    177,223Capital lease obligations
    
    
    21,256
    
    
    
    6,512
    
    
    
    5,870
    
    
    
    4,207
    
    
    
    3,422
    
    
    
    1,245
    
    
    
    Operating leases
    
    
    15,504
    
    
    
    5,874
    
    
    
    4,062
    
    
    
    2,823
    
    
    
    1,673
    
    
    
    255
    
    
    
    817Balance at December 31
    
    $
    633,025
    
    
    $
    29,206
    
    
    $
    14,009
    
    
    $
    299,842
    
    
    $
    109,250
    
    
    $
    2,678
    
    
    $
    178,040
 At December 31, 2003, our commercial commitments included $3.3 million of
standby letters of credit which were available under our senior credit
facility. Insurance Significant changes have occurred during 2003 and 2002 in the commercial
insurance market, which impacted the cost and availability of the Companys
insurance coverage. We have successfully renewed all of our policies in the
current year, with premiums and deductibles at levels consistent with the prior
year. 26




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##### Table of Contents



Pension Plans The Company maintains two defined benefit pension plans, which cover all union
employees of our former Grandville, Michigan facility and pre-acquisition
employees at our United Kingdom facilities. Our policy is to fund each plan
based upon actuarially determined amounts and as required by law. The assumptions used to account for plan assets include a discount rate of 5.6%
to 6.25% for 2003 based upon a review of long-term bonds as reviewed by our
actuaries. The top end of discount rate has decreased from our range of 5.6%
to 6.75% in 2002. In developing our expected long-term rate of return
assumption, we evaluated input from our actuaries as well as review of broad
equity and bond indices. In 2003, we maintained our long-term return
assumption of 8.0% from 2002. We regularly review our actual asset allocation and periodically balance our
investments to our targeted allocation when considered appropriate. We will
continue to evaluate at least annually our actuarial assumptions, including our
expected rate of return, and will adjust these as necessary. Our measurement
date for both plans is as of October 31. For both plans, we follow SFAS No.
87, Employers Accounting for Pensionsand SFAS No. 132 (revised 2003),
Employers Disclosures about Pensions and Other Postretirement Benefits. Our actual return on plan assets approximated $4.2 million and $(0.3) million
for the years ended December 31, 2003 and December 31, 2002, respectively. We
contributed $1.4 million and $2.6 million for the years ended December 31, 2003
and December 31, 2002, respectively. The actual return on plan assets and
contributions are based upon a number of actuarial assumptions as described
above. The fair value of our plan assets increased from $33.0 million at
December 31, 2002 to $40.1 million at December 31, 2003. The investment
performance returns, somewhat reduced by our declining discount rates, have
decreased our underfunded position from $16.2 million at December 31, 2002 to
$15.4 million at December 31, 2003. The Company will be making the required
quarterly payments as determined by our actuaries to supply the continuation of
our pension plans. We do not expect we will need to contribute to the plans in
2004. Over the past few years, the value of assets in the plans have declined in line
with the performance of the financial markets generally. This situation
combined with the increase in the present value of pension obligations results
in pension obligations exceeding the fair value of plan assets. In this
circumstance, the accounting rules require that we record an immediate
adjustment to reflect the unfunded accumulated pension obligation. Accordingly,
at December 31, 2003, we recorded an additional minimum pension liability
adjustment totaling $8.6 million ($6.1 million after tax). The accounting rules
require that this after-tax adjustment be recorded as a reduction of equity by
charging accumulated other comprehensive income in our consolidated balance
sheets rather than as a current year expense in our consolidated statements of
operations. Expense recognition under the pension accounting rules is based upon plan asset
returns and plan benefit costs over the life of the Companys workforce.
Pension expense increased from $2.1 million in 2002 to $3.1 million in 2003.
The increase in 2003 was due primarily to a lower discount rate used to measure
the present value of plan obligations and a lower expected long-term return on
plan assets. For 2003 expense, the discount rate assumption decreased from a
range of 5.5% to 7.25% for 2002 expense to a range of 5.6% to 6.75% reflecting
the decline in overall market interest rates and the expected return on plan
assets was reduced from a range of 8.0% to 9.0% for 2002 expense to 8.0%
reflecting trends in the overall financial markets. 27




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We expect pension costs to decrease in 2004 to $1.5 million. The decrease is
due primarily to a further decrease in the discount rate assumption and the
fact that there will be no additional service cost relative to our Grandville,
MI pension plan as the facility was closed on May 31, 2003. For 2004 expense,
the discount rate assumption is decreasing from a range of 5.6% to 6.75% for
2003 expense to a range of 5.6% to 6.25%, reflecting the further decline in
prevailing market interest rates. Our long-term expected rate of return on
plan assets remains at 8.0% for 2004. A 25 basis point decrease (increase) in our discount rate, holding constant our
expected long-term return on plan assets and other assumptions, would increase
(decrease) pension expense by approximately $140,000 per year. We elected to
utilize a 25 basis point hypothetical change as the assumption difference to
demonstrate the sensitivity of our pension expense to a change in the discount
rate. A one percent decrease (increase) in the expected return on plan assets
assumption, holding constant our discount rate and other assumptions, would
increase (decrease) pension expense by approximately $401,000 per year. We
elected to use a one percent hypothetical change as the assumption difference
facilitates extrapolation of changes in the expected rate of return assumption. The Company also maintains a noncontributory defined contribution plan that
covers certain U.S. based employees after one year of service. Contributions
made by the Company are based upon the number of hours worked for participants.
All investments are self-directed by participants. Seasonality We typically experience decreased sales and operating income during the third
calendar quarter of each year due to production shutdowns at OEMs for model
changeovers and vacations. Effects of Inflation Inflation affects us in two principal ways. First, a portion of our debt is
tied to prevailing short-term interest rates, which may change as a result of
inflation rates, translating into changes in interest expense. Second, general
inflation can impact material purchases, labor and other costs. While the
contracts with customers provides for pass-through increases in the price of
aluminum, we do not have the ability to pass through inflation-related cost
increases for labor and other costs. In the past few years, however, inflation
has not significantly affected our operating results. Market Risk We are exposed to various market risks arising from adverse changes in market
rates and prices, such as foreign currency exchange and interest rates. We do
not enter into derivatives or other financial instruments for trading or
speculative purposes. The strategy for management of currency risk relies
primarily upon conducting operations in such countries respective currencies
and we may, from time to time, engage in hedging programs intended to reduce
our exposure to currency fluctuations. The counterparties are major financial
institutions. Interest rate risk is managed by balancing the amount of fixed and variable
debt. For fixed rate debt, interest rate changes affect the fair market value
of such debt but do not impact earnings or cash flows. Conversely for variable
rate debt, interest rate changes generally do not affect the fair market value
of such debt, but do impact future earnings and cash flows, assuming other
factors are held constant. At December 31, 2003, all of our debt other than
the senior subordinated notes and the secured second lien term loan were at
variable rates. Holding other variables constant (such as foreign exchange
rates and debt levels), a one percentage point change in interest rates would
be expected to have an estimated impact on pretax earnings and cash flows for
the next year of approximately $3.1 million. We had entered into an interest rate swap agreement during 2000 with a bank,
having a notional amount of $75 million, to reduce the impact of changes in
interest rates on floating rate long-term debt. This agreement effectively
changed our interest rate exposure on $75 million of floating rate debt from a
LIBOR base rate to a fixed base rate of 6.6%. We were required to prepay
interest when the fair market value exceeded a certain amount, as defined in
the agreement. The interest rate swap matured on December 31, 2003, and had
been designated as and met the criteria for a cash flow hedge. Initial
adoption of SFAS No. 133 on January 1,
2001 resulted in the recording of a liability for the fair value of the swap
agreement, net of taxes, of $1.2 million as a component of accumulated other
comprehensive loss. 28




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A portion of our sales is derived from manufacturing operations in the UK,
Spain and Mexico. The results of operations and the financial position of the
operations in these countries are principally measured in their respective
currency and translated into U.S. dollars. The effects of foreign currency
fluctuations in such countries are somewhat mitigated by the fact that expenses
are generally incurred in the same currencies in which sales are generated.
The reported income of these operations will be higher or lower depending on a
weakening or strengthening of the U.S. dollar against the respective foreign
currency. Certain of our assets are located in foreign countries and are translated into
U.S. dollars at currency exchange rates in effect as of the end of each period,
with the effect of such translation reflected as a component of accumulated
other comprehnsive income (loss) within stockholders investment (deficit).
Accordingly, the consolidated stockholders investment (deficit) will fluctuate
depending upon the weakening or strengthening of the U.S. dollar against the
respective foreign currency. New Accounting Pronouncements In April 2002, the Financial Accounting Standards Board (FASB) issued SFAS
No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections. This statement eliminates the
automatic classification of gain or loss on extinguishment of debt as an
extraordinary item of income and requires that such gain or loss be evaluated
for extraordinary classification under the criteria of Accounting Principles
Board No. 30, Reporting Results of Operations. This statement also requires
sales-leaseback accounting for certain transactions and makes various other
technical corrections to existing pronouncements. The Company adopted SFAS No.
145 on January 1, 2003 and, as a result, the $13.5 million extraordinary loss
recorded in the fourth quarter of 2002 related to the early retirement of debt
is presented as a component of income from continuing operations for the year
ended December 31, 2002. In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS No. 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies EITF Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). The principal difference between SFAS No.
146 and EITF No. 94-3 relates to SFAS No. 146s requirements for the timing of
recognizing a liability for a cost associated with an exit or disposal
activity. SFAS No. 146 requires that a liability for a cost associated with an
exit or disposal activity be recognized when the liability is incurred. Under
EITF No. 94-3, a liability for an exit cost was recognized at the date of an
entitys commitment to an exit plan. SFAS No. 146 is effective for exit or
disposal activities that are initiated after December 31, 2002. SFAS No. 146
also increases the disclosure requirements associated with exit or disposal
activities. SFAS No. 146 is applied prospectively. On December 31, 2002, the
Company announced the closure of its Grandville facility. All accruals related
to the closure made in 2002 were in compliance with EITF No. 94-3. Accounting
for the exit activities related to this closure is in accordance with SFAS No.
146 commencing in 2003, and any relevant additional liabilities are recorded as
they are incurred. In November 2002, the FASB issued Interpretation No. 45, Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others;in January 2003, the FASB issued Interpretation No. 46,
Consolidation of Variable Interest Entities; and in April 2003, the FASB issued
SFAS No. 149, Amendment of Statement No. 133 on Derivative Instruments and
Hedging Activities. The adoption of these accounting pronouncements had no
impact on the Company. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity. SFAS No. 150
applies specifically to a number of financial instruments that companies have
historically presented within their financial statements as equity or between
the liabilities section and the equity section, rather than as liabilities.
SFAS No. 150 is effective for financial instruments entered into or modified
after May 31, 2003, and otherwise became effective in the quarter ended
September 30, 2003. The Company adopted the provisions of SFAS No. 150 in the
third quarter of 2003 and concluded a change in the accounting for or
classification of the $60.0 million outstanding redeemable common stock is not
required pursuant to the provisions of SFAS No. 150, as the redemption of this
stock is not mandatory. In December 2003, the FASB issued SFAS No. 132 (revised 2003), Employers
Disclosures about Pensions and Other Postretirement Benefits. The revised SFAS
No. 132 requires additional disclosures 29




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concerning the types of plan assets,
investment strategy, measurement date(s), plan obligations, cash flows, and
components of net periodic benefit costs recognized during the interim periods.
The revised SFAS No. 132 is effective for the Company for the year ended
December 31, 2003 and subsequent interim periods. Critical Accounting Policies and Estimates In December 2001, the SEC requested that all registrants list their most
critical accounting policies in their periodic reports under the caption
Managements Discussion and Analysis of Financial Condition and Results of
Operations. The SEC indicated that a critical accounting policy is one
which is both important to the portrayal of their financial condition and
results and requires managements most difficult, subjective or complex
judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain. Management believes that the following
accounting policies fit this definition. Critical Accounting Estimates Preparation of our financial statements
requires that we make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses. We believe the most
complex and sensitive judgments, because of their significance to our
consolidated financial statements, result primarily from the need to make
estimates about the effects of matters that are inherently uncertain. The most
significant areas involving management judgments and estimates are described
below. Actual results in these areas could differ from our estimates. Revenue Recognition We typically enter into contracts to provide products
for the life of a platform for automotive original equipment manufacturers.
Revenue is recognized when the product is shipped from our facility as that is
the time that title passes to the customer and the selling price is fixed. We
establish reserves as appropriate for any pricing related disputes. Reserve for Doubtful Accounts Senior management reviews the accounts
receivable aging on a monthly basis to determine if any receivables will
potentially be uncollectible. Detailed reviews are conducted on any accounts
significantly in arrears or of material amounts. After all attempts to collect
the receivable have failed, the receivable is written off against the reserve.
Based on the information available, management believes the reserve for
doubtful accounts of $2.6 million as of December 31, 2003 is adequate.
However, no assurances can be given that actual write-offs will not exceed the
recorded reserve. Loss Contracts We are committed under certain existing agreements to supply
products to our customers at selling prices which are not sufficient to cover
the costs to produce such product. These agreements were part of an
acquisition made by the Company. In such situations, we record a liability for
the estimated future amount of losses. Such losses are recognized at the time
that the loss is probable and reasonably estimatable and are recorded at the
minimum amount necessary to fulfill the obligation to the customer. Losses are
estimated based upon information available at the time of the estimate,
including future production volume estimates, length of the program and selling
price and product information, and adjusted as new facts are determined. Any
change in the estimate will result in a change in period income. The reserve
was reduced by $2.2 million for the year ended December 31, 2003 and $6.1
million for the year ended December 31, 2002. The liability was reduced due to
the sale of products, the movement of certain production from the closed
Grandville facility on May 30, 2003 to other lower-cost facilities and also
included an adjustment of approximately $1.3 million and $1.1 million in 2003
and 2002, respectively, due to cost reductions and reductions in estimated
future shipments. Interest expense recognized related to loss contracts was
$0.1 million for the year ended December 31, 2003 and $0.2 million for the year
ended December 31, 2002. 30




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Valuation of Long-Lived Assets and Investments We periodically review the
carrying value of our long-lived assets and investments for continued
appropriateness. This review is based upon our projections of anticipated
future cash flows and is performed whenever events or changes in circumstances
indicate that asset carrying values may not be recoverable. Such changes in
circumstances include, but are not limited to, significant adverse changes in
the extent or manner in which a long-lived asset or group of assets is being
used, the accumulation of costs significantly in excess of the amount
originally expected for the acquisition of a long-lived asset or group of
assets, current-period operating or cash flow loss combined with a history of
operating or cash flow losses or a projection or forecast that demonstrates
continuing losses associated with the use of a long-lived asset or group of
assets, and expectations that, more likely than not, a long-lived asset or
group of assets will be sold or otherwise disposed of significantly before the
end of its previously estimated useful life. The closure of our Grandville, Michigan production facility, which was
announced in December 2002, prompted our review of the recoverability of
long-lived assets at the Grandville facility. We categorized the Grandville
assets by those that will be transferred to our Sheboygan and Glasgow
production facilities, those that will be sold, and those that will be
disposed. We projected the future cash flows on the latter two categories of
these assets to be less than their carrying value. Our estimated future cash
flows for the Grandville assets included assumptions regarding the fair value
of assets to be sold, based in part on independent appraisals, and the extent
of use and duration of time which the assets will continue to be utilized.
While management believes that its estimates of future cash flows are
reasonable, different assumptions regarding such cash flows could materially
affect the valuations. See further discussion of the Grandville closure under
Restructuring Costs below. During 2003, we concluded that we could not manufacture components for the key
customer at our Saltillo, Mexico facility at an acceptable profit margin.
Therefore, the business is being re-sourced to another supplier. As a result,
the Company concluded that the cash flows from its Saltillo, Mexico operations
would be less than the carrying value of those fixed assets. Accordingly, we
recorded an impairment charge of approximately $4.9 million related to the
fixed assets of that operation. During the fourth quarter of 2003, we announced and implemented a restructuring
plan for our U.K. operations. As a result, we recognized a charge to earnings
of $2.8 million, which reflects $0.6 million in severance costs in accordance
with SFAS No. 146 and asset impairments of $2.2 million that were recognized in
accordance with SFAS No. 144. With the transfer of production to other
facilities (estimated completion date of March 31, 2004), the closing of the
Cheshunt, England facility will result in a net workforce reduction of 50
hourly and salaried employees. The closure of the Birmingham, England tooling
operation (estimated completion during the first quarter of 2004) will result
in a net workforce reduction of 21 hourly and salaried employees. The 2003
restructuring charge did not cover certain aspects of the activities that will
be occurring in future periods, including the movement of equipment, certain
severance costs and employee relocation and training. The remaining estimated
costs of $5.5 million will be recognized in future periods as incurred in
accordance with SFAS No. 146. Goodwill  Upon adoption of SFAS No. 142 in 2002, we completed step one of
the transitional goodwill impairment test, using a combination of valuation
techniques, including the discounted cash flow approach and the market multiple
approach, for each of our five reporting units (Sheboygan including Allotech;
the Grandville, Michigan, and Glasgow, Kentucky facilities of Nelson; JLF
Benton Harbor; JLF UK; and Ansola). The step one impairment test demonstrated
that the fair market value of our Nelson, Benton Harbor, and JLF UK reporting
units potentially exceeded the carrying value of the related goodwill. We then
completed the step two impairment test for these four reporting units by
utilizing the valuation techniques previously described for the step one test,
and determined the fair value of assets and liabilities, using independent
appraisals for property, plant, and equipment and other identifiable intangible
assets. After comparing the fair value of these assets and liabilities to the
fair value of the reportable units, we concluded that the goodwill associated
with these three reportable units was fully impaired. Accordingly, we recorded a transitional impairment charge of approximately
$202.6 million, which was recorded as a cumulative effect of a change in
accounting principle on January 1, 2002 in the Companys consolidated statement
of operations for the year ended December 31, 2002. 31




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In connection with the annual impairment tests under SFAS No. 142 performed in
the third quarter of 2003, we determined that the carrying amount of the
underlying assets of the Sheboygan and Ansola reporting units was greater than
estimated fair value. Additionally, we determined that the fair market value
of the goodwill associated with these reporting units was less than the
carrying value, resulting in an impairment charge of approximately $96.0
million for the three months ended September 30, 2003. During 2003 and
primarily in the third quarter, the cash flows from these two reporting units
were lower than projections that were used in the 2002 valuation. In
particular, cash flows were less than the previous projections due to (i) a
decrease in production volumes by our largest customers, Ford and General
Motors, commensurate with those customers market share declines in 2003, (ii)
the transfer of production of a part to a Nelson reporting unit facility rather
than to a Sheboygan reporting unit facility, and (iii) an increase in the
discount rate reflecting the our higher cost of capital. These events led to
the reduction in the fair value of the Sheboygan and Ansola reporting units and
resulting goodwill impairment. This charge represents the write-off of the
entire goodwill for the Sheboygan and Ansola reporting units. In 2001, the current and historical operating and cash flow losses of our
Mexico operating segment combined with forecasts that demonstrated continuing
losses prompted us to assess the recoverability of the long-lived assets of the
Mexico operating segment. Based on our assessment, the carrying value of
Mexicos goodwill exceeded its fair value, and we accordingly recorded an
impairment charge of approximately $4.0 million on the Mexico goodwill asset.
The impairment charge for the Mexico goodwill was evaluated and measured under
SFAS No. 121, portions of which were amended and superseded by SFAS No. 142
effective January 1, 2002, as previously discussed. Pension and Other Post-Employment Benefits The determination of the
obligation and expense for pension and other postretirement benefits is
dependent on the selection of certain assumptions used by actuaries in
calculating such amounts. Those assumptions include, among others, the
discount rate, expected long-term rate of return on plan assets, as well as
expected increases in compensation and health care costs. In accordance with
generally accepted accounting principles, actual results that differ from these
assumptions are accumulated and amortized over future periods and, therefore,
generally affect the recognized expense and recorded obligation in such future
periods. While we believe that current assumptions are appropriate based on
available information, significant differences in the actual experience or
significant changes in the assumptions may materially affect the pension and
other postretirement obligations and the future expense. Income Tax Accounting As part of the process of preparing the consolidated
financial statements, we are required to estimate income taxes in each of the
jurisdictions in which we operate. The process involves estimating actual
current tax expense along with assessing temporary differences resulting from
differing treatment of items for book and tax purposes. These temporary
differences result in deferred tax assets and liabilities, which are included
in the consolidated balance sheet. We record a valuation allowance to reduce
deferred tax assets to the amount that is more likely than not to be realized,
considering future taxable income and ongoing tax planning strategies in
assessing the need for the valuation allowance. Increases in the valuation
allowance result in additional expense to be reflected within the tax provision
in the consolidated statement of operations. Our historical results have been
adversely impacted by the impairment of goodwill and the restructuring charge
previously discussed as well as other non-recurring events such as integration
difficulties involving the acquisition of Nelson. As a result of accounting
charges related to these events, the Company has incurred accounting losses on
a cumulative basis since 1999. Because SFAS No. 109, Accounting for Income
Taxes, requires that we weight historical reported results greater than
projections of future income, management increased the valuation allowance on
the deferred tax assets to $93.3 million at the end of 2002. As we potentially
realize positive earnings in the future, we will reassess the need for this
valuation allowance, and based on positive historical earnings and projections
that demonstrate all or a portion of the related tax assets will be utilized,
we will appropriately reduce the valuation allowance and credit the income tax
provision. 32




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Restructuring Costs In 2002, we recorded a pretax restructuring charge of
$21.3 million related to the closing of our Grandville, Michigan facility.
Included in this charge are costs associated with closing the facility of $3.3
million and asset impairments of $18.0 million. These charges related to the
impairment of property, plant and equipment, lease terminations,
employee-related costs and other exit costs. These actions resulted in the net
workforce reduction of 225 salaried and hourly employees, the elimination of
approximately 224,000 square feet of facilities and the disposal of assets
associated with the exited facilities. Shutdown expenses that occurred in 2003
were expensed in accordance with SFAS No. 146. For the year ended December 31,
2003, the Company expensed $3.3 million in cash costs which were not reserved
for, of which $2.7 million related to the Grandville restructuring and $0.6
million related to the JLF UK restructuring. Contingencies We are involved in various legal proceedings. Due to their
nature, such legal proceedings involve inherent uncertainties including, but
not limited to, court rulings, negotiations between affected parties and
governmental intervention. Management assesses the probability of loss for
such contingencies and accrues a liability and/or discloses the relevant
circumstances, as appropriate. Management believes that any liability that may
arise as a result of currently pending legal proceedings will not have a
material adverse effect on the financial condition or results of operations of
the Company taken as a whole. 
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See Market Risk section of Item 7. 
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements of the Company are hereby attached to this document
beginning on page 49. 33




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ITEM 9.
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE The Company determined, for itself and on behalf of its subsidiaries, to
dismiss our independent auditors, Arthur Andersen LLP (Arthur Andersen) and
to engage the services of Deloitte & Touche LLP (Deloitte & Touche) as our
new independent auditors. The change in our auditors was approved by the
Companys Audit Committee and Board of Directors and was effective as of
January 6, 2003. As a result, Deloitte & Touche audited the Companys
consolidated financial statements for the year ended December 31, 2002. Arthur Andersens report on the Companys consolidated financial statements for
the year ended December 31, 2001 did not contain adverse opinion or disclaimer
of opinion, nor was it qualified or modified as to uncertainty, audit scope or
accounting principles. During the year ended December 31, 2001, through
January 6, 2003 (the Relevant Period), (1) there were no disagreements with
Arthur Andersen on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure which, if not resolved to
Arthur Andersens satisfaction, would have caused Arthur Andersen to make
reference to the subject matter of the disagreement(s) in connection with its
reports on the Companys consolidated financial statements for such year, and
(2) there were no reportable events as described in Item 304(a)(1)(v)
(Reportable Events) of the Commissions Regulation S-K. During the Relevant Period, neither the Company nor anyone acting on its behalf
consulted with Deloitte & Touche regarding (i) the application of accounting
principles to a specified transaction, either completed or proposed, or the
type of audit opinion that might be rendered on our consolidated financial
statements, or (ii) any matters or reportable events as set forth in Items
304(a)(1)(iv) and (v), respectively, or Regulation S-K. The Company has not been able to obtain, after reasonable efforts, the
re-issued reports or consents of Arthur Andersen related to the 2001
consolidated financial statements and financial statement schedules.
Therefore, the Company has included a copy of their previously issued report. 
 ITEM 9A. CONTROLS AND PROCEDURES An evaluation was performed under the supervision and with the participation of
our Companys management, including the Chief Executive Officer and the Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Exchange Act Rules 13c 
15(e) and 15d  15(e)) as of December 31, 2003, the end of the year covered by
this report. The Companys management, including our Chief Executive Officer
and Chief Financial Officer, have concluded, based on that evaluation, that our
disclosure controls and procedures are effective for gathering, analyzing and
disclosing the information we are required to disclose in our reports filed
under the Securities Exchange Act of 1934. There have been no significant changes in our internal controls over financial
reporting during our last quarter that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, as ours are designed to do, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. 34




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PART III 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information with respect to our current
directors and executive officers and their ages as of March 10, 2004: Name
    
    Age
    
    Principal Position(s)John F. Falcon
    
    
    55
    
    
    President, Chief Executive Officer and DirectorAnthony A. Barone
    
    
    54
    
    
    Chief Financial Officer, Chairman and DirectorCharles M. Waldon
    
    
    54
    
    
    Executive Vice President, Chief Technical OfficerJames A. Amodeo
    
    
    55
    
    
    Vice President of FinanceJuan Manuel Orbea
    
    
    51
    
    
    General Manager of AnsolaDugald K. Campbell
    
    
    57
    
    
    DirectorS. A. (Tony) Johnson
    
    
    63
    
    
    DirectorEric J. Rosen
    
    
    42
    
    
    DirectorKarl F. Storrie
    
    
    65
    
    
    DirectorJohn L. Thomson
    
    
    52
    
    
    Director
 John F. Falconwas named President and Chief Executive Officer of the Company
in July 2003. Mr. Falcon served as President and Chief Executive Officer of
Shiloh Industries, Inc. from April 1999 to January 2002. From 1995 to April
1999, Mr. Falcon held several positions at Lear Corporation, a supplier of
automotive interior systems, including Director of Interiors for its General
Motors division. Prior to that time, he had over twenty years of experience at
General Motors, a manufacturer of vehicles, where he held several positions,
including, among others, Worldwide Operations Manager for ignition and
filtration products. Anthony A. Baronehas served as Director of the Company since November 2000.
He was appointed Chief Financial Officer of the Company in June 2003. He has
been Chairman of the Board of Directors since August 1, 2003. He served as
Vice President of Tower Automotive, Inc. from May 1995 to May 31, 2003. Mr.
Barone served as Chief Financial Officer of Tower Automotive from May 1995
through November 2002. From June 1984 to January 1995, Mr. Barone served as
Chief Financial Officer of OSullivan Corporation, a manufacturer of interior
trim components for the automotive industry. Charles M. Waldonwas named Executive Vice President and Chief Technical
Officer of the Company in February 2001. From April 1996 to February 2001, he
served as President, Chief Executive Officer of the Company. Mr. Waldon joined
the Company in 1983 and became Executive Vice President  Manufacturing in
1987. Prior to joining the Company, Mr. Waldon was employed for 16 years by GM
in its aluminum die casting operation in Bedford, Indiana. James A. Amodeowas named Vice President of Finance of the Company in September
2003. Mr. Amodeo joined the Company in 2001 serving as Controller of
Operations Accounting. Mr. Amodeo has served as Vice President of Finance at
Trailmobile, Inc. from 1995 to 2000, and UNC, Inc. from 1992 to 1995. He
served as Vice President of Naval Products Division, Uncasville, Connecticut
from 1987 to 1991. Juan Manuel Orbeahas served as the General Manager of Ansola since 1977. From
1993 until 1998, Mr. Orbea served as Chairman of the Spanish Technical
Association for the Development of Pressure Casting. Dugald K. Campbellhas served as a Director of the Company since May 1999. Mr.
Campbell has also served as President, Chief Executive Officer and a Director
of Tower Automotive, Inc. since December 1993. From 1991 to 1993, Mr. Campbell
served as a consultant to Hidden Creek. From 1988 to 1991, he served as Vice
President and General Manager of the Sensor Systems Division of Siemens
Automotive, a manufacturer of engine management systems and components. From
1972 to 1988, Mr. Campbell held various executive, engineering and marketing
positions with Allied Automotive, a manufacturer of vehicle systems and
components and a subsidiary of AlliedSignal, Inc. S. A. (Tony) Johnsonhas served as a Director of the Company since the April
1999 recapitalization. He also served as Chairman from the April 1999
recapitalization through March 2003. Mr. Johnson has been the Chairman of
Hidden Creek since May 2001. From 1989 to May 2001, he was Chief Executive
Officer and President of Hidden Creek. Mr. Johnson is also a General Partner
of J2R Partners III. Prior to forming 35




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Hidden Creek, Mr. Johnson served from 1985 to 1989 as Chief Operating Officer
of Pentair, Inc., a diversified industrial company. Mr. Johnson served as
Chairman and a Director of Automotive Industries Holding, Inc., a supplier of
interior trim components to the automotive industry, from May 1990 to August
1995. Mr. Johnson is also Chairman and director of Tower Automotive, Inc. and
a director of Dura Automotive Systems, Inc. Eric J. Rosenhas served as a Director of the Company since the April 1999
recapitalization. Mr. Rosen is Managing Director of Onex Investment Corp., a
diversified industrial corporation and an affiliate of Onex, and served as a
Vice President of Onex Investment Corp. from 1989 to February 1994. Prior
thereto, Mr. Rosen was employed in the merchant banking group at Kidder,
Peabody & Co. Incorporated from 1987 to 1989. Mr. Rosen is also a director of
Dura Automotive Systems, Inc. Karl F. Storriehas served as a Director of the Company since May 1999. Mr.
Storrie served as President and Chief Executive Officer of Dura Automotive
Systems, Inc. from March 1991 until January 2003. Prior to joining Dura
Automotive Systems, Inc. and from 1986, Mr. Storrie was Group President of a
number of aerospace manufacturing companies owned by Coltec Industries, a
multi-divisional public corporation. From 1981 to 1986 and prior to becoming a
Group President, Mr. Storrie was a Division President of two aerospace design
and manufacturing companies for Coltec Industries. During his 35 year career,
Mr. Storrie has held a variety of positions in technical and operations
management. Mr. Storrie is also a director of Dura Automotive Systems, Inc.
and Argo-Tech Corporation, a manufacturer of aircraft fuel, boost and transfer
pumps. John L. Thomsonhas served as a Director of the Company since November 2000.
Mr. Thomson is a General Partner of Norwest Equity Partners, a private equity
firm. Prior to joining Norwest Equity Partners in 1984, Mr. Thomson was with
Norwest Bank for 10 years, as an active leader in the management buyout
marketplace. Each director is elected to serve until the next annual meeting of stockholders
or until a successor is duly elected and qualified. Our executive officers are
duly elected by the Board to serve until their respective successors are
elected and qualified. There are no family relationships between any of our
directors or executive officers. Directors are elected pursuant to the terms
of an investor stockholders agreement. See Certain Relationships and Related
Transactions  Investor Stockholders Agreement. Our directors are currently not entitled to receive any compensation for
serving on the Board. Directors are reimbursed for their out-of-pocket
expenses incurred in connection with such services. Our Board has appointed an Audit Committee comprised of John Thomson
(chairman), Dug Campbell and Karl Storrie. The Board has determined that each
member of the Committee satisfies the independence requirements applicable to
audit committees as set forth in the applicable rules of the Securities and
Exchange Commission. To date, the Board has not designated an audit committee
financial expert within the meaning of the SECs regulations. The current
members of the audit committee do not have the requisite experience to qualify
as such an expert under the SECs current rules. We have a Code of Ethics for our Chief Executive Officer and Senior Financial
Officers. A copy of the Code is available on our website at www.jlfrench.com. 36




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ITEM 11. EXECUTIVE COMPENSATION The following table sets forth compensation information for 2003, 2002 and 2001
for our chief executive officer and the four other executive officers who were
the most highly compensated executive officers for that year (Named Executive
Officers). Summary Compensation Table Annual CompensationOther Annual
    
    All OtherSalary
    
    Bonus
    
    Compensation
    
    CompensationName and Principal Position
    
    
    
    
    
    ($) (6)
    
    ($) (6)
    
    ($) (7)
    
    ($) (8)John F. Falcon
    
    
    2003
    
    
    $
    206,250
    
    
    $
    100,000
    
    
    $
    750
    
    
    $
    571President, Chief Executive Officer (1)
    
    
    2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Charles M. Waldon
    
    
    2003
    
    
    
    350,000
    
    
    
    511,877
    
    
    
    4,080
    
    
    
    5,150Executive Vice President, Chief
    
    
    2002
    
    
    
    350,730
    
    
    
    115,238
    
    
    
    4,828
    
    
    
    4,232Technical Officer (2)
    
    
    2001
    
    
    
    350,000
    
    
    
    78,750
    
    
    
    2,080
    
    
    
    2,889James A. Amodeo
    
    
    2003
    
    
    
    203,934
    
    
    
    124,814
    
    
    
    
    
    
    
    38,888Vice President of Finance (3)
    
    
    2002
    
    
    
    200,404
    
    
    
    38,767
    
    
    
    
    
    
    
    6,5752001
    
    
    
    168,077
    
    
    
    26,250
    
    
    
    
    
    
    
    Timothy R. Kaderabek
    
    
    2003
    
    
    
    212,500
    
    
    
    82,500
    
    
    
    2,080
    
    
    
    Vice President of Large Castings (4)
    
    
    2002
    
    
    
    53,030
    
    
    
    19,090
    
    
    
    
    
    
    
    2001
    
    
    
    141,923
    
    
    
    
    
    
    
    150
    
    
    
    Juan Manuel Orbea
    
    
    2003
    
    
    
    326,963
    
    
    
    42,458
    
    
    
    
    
    
    
    General Manager, Ansola, Spain Operations
    
    
    2002
    
    
    
    262,421
    
    
    
    26,458
    
    
    
    
    
    
    
    2001
    
    
    
    237,354
    
    
    
    
    
    
    
    
    
    
    
    David S. Hoyte
    
    
    2003
    
    
    
    443,800
    
    
    
    
    
    
    
    405,001
    
    
    
    61,268Former President and Chief Executive Officer(5)
    
    
    2002
    
    
    
    419,711
    
    
    
    167,918
    
    
    
    4,541
    
    
    
    41,7162001
    
    
    
    328,846
    
    
    
    371,000
    
    
    
    
    
    
    
    152,924
  (1)
    
    Mr. Falcon was appointed president and chief executive officer in July
2003.  (2)
    
    Mr. Waldon served as president and chief executive officer through
February 2001. Mr. Waldons bonus payment relates primarily to a
long-term incentive plan adopted in 2001. Under the terms of the plan a
portion of the amount earned each year was deferred. Final payment under
the plan was made in February 2004.  (3)
    
    Mr. Amodeo was appointed vice president of finance in September 2003.
Prior to that, he served as director of operations accounting.  (4)
    
    Mr. Kaderabek was appointed vice president of large castings in North
America in September 2003. Prior to that, he served asdirector of
manufacturing at the Sheboygan operations.  (5)
    
    Mr. Hoyte was appointed president and chief executive officer in February
2001. Mr. Hoyte resigned in July 2003. His severance payments are
included in Other Annual Compensation.  (6)
    
    Includes amounts deferred by employees under our 401(k) employee savings
plan.  (7)
    
    The amounts disclosed in this column include amounts contributed to our
401(k) employee savings plan and profit sharing plan and dollar value of
premiums we paid for term life insurance on behalf of the Named Executive
Officers.  (8)
    
    Includes the value of personal benefits and prerequisites and relocation
expenses. Option Grants in Last Fiscal Year We did not grant any options during our last fiscal year. Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values Our Named Executive Officers did not exercise any options during our last
fiscal year and did not hold any unexercised options as of December 31, 2003. 37




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ITEM 12.
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS Our authorized capital stock consists of eleven classes of common stock
designated as class A common stock, class A-1 common stock, class A-2 common
stock, class B common stock, class C common stock, class D-1 common stock,
class D-2 common stock, class E common stock, class P redeemable common stock,
class Q-1 common stock and class Q-2 common stock. At December 31, 2003, we had the following shares issued and outstanding: 11.6
shares of class A common stock, 7.1 shares of class A-1 common stock, 20.7
shares of class B common stock, 5.2 shares of class C common stock, 7.1 shares
of class D-1 common stock, 7.3 shares of class D-2 common stock, 3.6 shares of
class E common stock, 14.2 shares of class P redeemable common stock, 65,118.3
shares of class Q-1 common stock and 11,592.7 shares of class Q-2 common stock.
The outstanding classes of common stock generally differ with respect to
dividend, liquidation preference and voting rights. The holders of each of the
outstanding classes of common stock are entitled to receive distributions,
whether as a dividend, liquidating distribution or otherwise and whether in
cash, property or securities, based on the relative priority of, and the
aggregate number of shares of such class outstanding as a percentage of the
total number of shares of common stock outstanding. These distributions will
be allocated between the various classes as set forth in our certificate of
incorporation. Each outstanding share of common stock (other than shares of
class D-2 common stock, class P redeemable common stock and class Q-2 common
stock, which are non-voting) is entitled to one vote on all matters submitted
to a vote of stockholders. Except as otherwise required by our certificate of
incorporation or applicable law, all classes of voting common stock (other than
the class D-2 common stock, the class P redeemable common stock and the class
Q-2 common stock) vote together as a single class on all matters submitted to a
vote of the stockholders, including the election of directors. On December 29, 2003 we completed a 1 for 1,000 reverse stock split. All
references to the number of shares outstanding have been retroactively restated
to reflect the reverse stock split. The table below sets forth certain information regarding the equity ownership
of the Company as of February 29, 2004 by: (1) each person or entity known by
the Company to beneficially own five percent or more of a class of our voting
common stock, (2) each director and Named Executive Officer and (3) all of the
Companys directors and executive officers as a group. Unless otherwise
stated, each of the persons named in the table has sole voting and investment
power with respect to the securities beneficially owned by it or him as set
forth opposite its or his name. Beneficial ownership of the common stock
listed in the table has been determined in accordance with the applicable rules
and regulations promulgated under the Securities Exchange Act of 1934. 38




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##### Table of Contents



Percent ofNumber of
    
    Percent of
    
    VotingDirectors, Officers and 5% Stockholders
    
    Class
    
    Shares
    
    Class
    
    Power(1)Onex Corporation(2)(3)(4)(5)
    
    Class B
    
    
    18.6
    
    
    
    90
    %
    
    
    *
    %Class P
    
    
    6.3
    
    
    
    44
    
    
    
    (16
    )Class Q-1
    
    
    42,791.0
    
    
    
    66
    
    
    
    65.6J2R Partners III(6)
    
    Class C
    
    
    5.2
    
    
    
    100
    
    
    
    (3
    )Class E
    
    
    3.6
    
    
    
    100
    
    
    
    (3
    )Alan Quarterman(7)
    
    Class A
    
    
    6.1
    
    
    
    54
    
    
    
    *Class P
    
    
    1.6
    
    
    
    11
    
    
    
    (16
    )The Northwestern Mutual Life Insurance
Company(8)
    
    Class D-1
    
    
    4.9
    
    
    
    71
    
    
    
    (3
    )Class P
    
    
    1.6
    
    
    
    11
    
    
    
    (16
    )Class Q-1
    
    
    11,083.8
    
    
    
    17
    
    
    
    (3
    )Robert W. Baird & Co. Entities(9)
    
    Class D-1
    
    
    1.9
    
    
    
    28
    
    
    
    (3
    )Class P
    
    
    0.7
    
    
    
    5
    
    
    
    (16
    )Class Q-1
    
    
    4,134.1
    
    
    
    6
    
    
    
    (3
    )Norwest Equity Capital, L.L.C.(10)
    
    Class P
    
    
    1.5
    
    
    
    10
    
    
    
    (16
    )Class Q-2
    
    
    6,955.6
    
    
    
    60
    
    
    
    (16
    )BancAmerica Capital Investors II, L.P.(11)
    
    Class D-2
    
    
    2.9
    
    
    
    40
    
    
    
    (16
    )Class P
    
    
    1.0
    
    
    
    7
    
    
    
    (16
    )Class Q-2
    
    
    4,637.1
    
    
    
    40
    
    
    
    (16
    )Tower Automotive, Inc.(12)
    
    Class A
    
    
    2.6
    
    
    
    23
    
    
    
    (3
    )Class A-1
    
    
    7.1
    
    
    
    100
    
    
    
    *Class P
    
    
    0.7
    
    
    
    5
    
    
    
    (16
    )S. A. Johnson(12)(13)
    
    Class C
    
    
    5.2
    
    
    
    100
    
    
    
    (3
    )Class E
    
    
    3.6
    
    
    
    100
    
    
    
    (3
    )Class P
    
    
    0.2
    
    
    
    1
    
    
    
    (16
    )Class Q-1
    
    
    841.0
    
    
    
    1
    
    
    
    (3
    )Charles M. Waldon(3)
    
    Class A
    
    
    0.8
    
    
    
    7
    
    
    
    (3
    )John A. Falcon
    
    
    
    
    
    
    
    
    
    
    
    
    Anthony A. Barone
    
    
    
    
    
    
    
    
    
    
    
    
    Dugald K. Campbell(15)
    
    Class A
    
    
    0.1
    
    
    
    *
    
    
    
    (3
    )Class C
    
    
    5.2
    
    
    
    100
    
    
    
    (3
    )Class E
    
    
    3.6
    
    
    
    100
    
    
    
    (3
    )John L. Thomson(14)
    
    Class P
    
    
    1.5
    
    
    
    10
    
    
    
    (16
    )Class Q-2
    
    
    6,955.6
    
    
    
    60
    
    
    
    (16
    )Eric J. Rosen(2)
    
    Class Q-1
    
    
    62.1
    
    
    
    *
    
    
    
    *Karl F. Storrie(15)
    
    Class C
    
    
    5.2
    
    
    
    100
    
    
    
    (3
    )Class E
    
    
    3.6
    
    
    
    100
    
    
    
    (3
    )Class Q-1
    
    
    97.7
    
    
    
    *
    
    
    
    (3
    )Christopher A. Govan(17)
    
    Class B
    
    
    1.2
    
    
    
    6
    
    
    
    *Class P
    
    
    0.4
    
    
    
    3
    
    
    
    (16
    )Terrance W. Glarner(18)
    
    Class D-2
    
    
    4.4
    
    
    
    60
    
    
    
    (16
    )All directors and officers as a group
(8 persons)
    
    All
    
    
    1,010.5
    
    
    
    
    
    
    
    *
   *
    
    Denotes less than one percent.(1)
    
    Except as otherwise required by our certificate of incorporation or
applicable law, all classes of voting common stock vote together as a
single class on all matters submitted to a vote of the stockholders,
including the election of directors.(2)
    
    Onex Corporation (Onex) has shared voting power over 65,160 shares of
common stock (see note (3)). Mr. Rosen, a Director of French, is Managing
Director of Onex Investment Corp., a wholly owned subsidiary of Onex. The
address for Onex and Mr. Rosen is c/o Onex Investment Corp., 712 Fifth
Avenue, 40th Floor, New York, New York 10019.(3)
    
    Onex, J2R Partners III, The Northwestern Mutual Life Insurance Company,
Robert W. Baird & Co. Entities (as defined below), Messrs. Johnson and
Waldon and all of Frenchs other existing stockholders (other than the Mr.
Quarterman (see note 7)) have entered into a stockholders agreement
pursuant to which such stockholders agreed to vote their shares of common
stock in the same manner as Onex votes its shares on the election of
directors and, with the exception of Northwestern Mutual Life, on all
other matters presented to Frenchs stockholders for a vote and, to the
extent permitted by law, granted to Onex a proxy to effectuate such
agreement. As a result, Onex has voting control of approximately 99% of
the Companys common stock. 39




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##### Table of Contents



(4)
    
    Class B includes 18.4 shares owned by Onex and 0.2 shares owned by J.L.
French Partners, LP, a partnership controlled by Onex. Class P includes
6.2 shares owned by Onex and 0.1 shares owned by J.L. French Partners, LP.
The address for J.L. French Partners, LP is 421 Leader Street, Marion, OH
43302.(5)
    
    Includes 42,791.0 shares of Class Q-1 common stock owned by Onex American
Holdings II LLC (OAH II), a wholly owned subsidiary of Onex Corporation.
The address for OAH II is 421 Leader Street, Marion, Ohio 43302.(6)
    
    The general partners of J2R Partners III are S. A. Johnson, Dugald K.
Campbell, Karl F. Storrie, Scott D. Rued, Carl E. Nelson, David J. Huls,
Mary L. Johnson, Judith A. Vijums and Daniel F. Moorse. The address for
J2R Partners III is c/o Hidden Creek, 4508 IDS Center, Minneapolis,
Minnesota 55402.(7)
    
    The address for Mr. Quarterman is 1001 Club Commons Circle, Atlanta,
Georgia 30326.(8)
    
    The address for The Northwestern Mutual Life Insurance Company (NML) is
720 East Wisconsin Avenue, Milwaukee, Wisconsin 53202. NML indirectly
owns 55% of the outstanding capital stock of Robert W. Baird & Co.
Incorporated.(9)
    
    Shares of class D-1 common stock and class P redeemable common stock are
owned by the following Robert W. Baird & Co. Entities: Class PClass D-1
    
    RedeemableCommon Stock
    
    Common StockRobert W. Baird & Co.
    
    
    0.6
    
    
    
    BCP II Affiliates Fund L.P.
    
    
    0.3
    
    
    
    BCP II L.P.
    
    
    0.9
    
    
    
    0.1BCP III Affiliates Fund L.P.
    
    
    
    
    
    
    0.1BCP III Special Affiliates L.P.
    
    
    
    
    
    
    0.1BCP III L.P.
    
    
    0.1
    
    
    
    0.41.9
    
    
    
    0.7
  Collectively, the Robert W. Baird & Co. Entities, due to their common
control, may be deemed to beneficially own each others shares, but each
disclaims such beneficial ownership. The address for the Robert W. Baird &
Co. Entities is c/o Robert W. Baird & Co., 277 W. Monroe St., Suite 2100,
Chicago, Illinois 60606.(10)
    
    Norwest Equity Capital, L.L.C. is an affiliate of Norwest Equity
Partners. The address for Norwest Equity Capital, L.L.C. is 3600 IDS
Center, 80 South 8th Street, Minneapolis, Minnesota 55402.(11)
    
    The address for BancAmerica Capital Investors II, L.P. is 231 South
LaSalle Street, 19th Floor, Chicago, Illinois 60697.(12)
    
    The address for Tower is 27175 Haggerty Road, Novi, Michigan 48377-3626.
Mr. Johnson is a member of the board of directors of Tower. Mr. Johnson
disclaims beneficial ownership of the shares owned by Tower.(13)
    
    Includes 5.2 shares of class C common stock and 3.6 shares of class E
common stock owned by J2R Partners III, of which Mr. Johnson is a general
partner and 0.2 shares of class P common stock owned by Mr. Johnson. The
address for Mr. Johnson is c/o OG Partners, 294 Grove Lane East, Suite
260, Wayzata, Minnesota 55391.(14)
    
    Includes 1.5 shares of class P common stock and 6,955.6 shares of Class
Q-2 common stock owned by Norwest Equity Capital, L.L.C., an affiliate of
Norwest Equity Partners, of which Mr. Thomson is a General Partner. The
address for Mr. Thomson is c/o Norwest Equity Partners, 3600 IDS Center,
80 South 8th Street, Minneapolis, Minnesota 55402.(15)
    
    Includes 5.2 shares of class C common stock and 3.6 shares of class E
common stock owned by J2R Partners III, of which Messrs. Campbell and
Storrie are general partners. Each of Messrs. Campbell and Storrie
disclaims beneficial ownership of the shares owned by J2R Partners III.
The address of each of them is c/o Hidden Creek, 4508 IDS Center,
Minneapolis, Minnesota 55402.(16)
    
    Class D-2, class P, and class Q-2 common stock are non-voting.(17)
    
    Christopher A. Govan is Managing Director-Taxation of Onex. The address
for Mr. Govan is 161 Bay Street, P.O. Box 700, Toronto, Ontario, Canada
M5J 251.(18)
    
    The address for Mr. Glarner is 160 Montrose Place, St. Paul, Minnesota
55104. Equity Compensation Plans The Company currently does not maintain any equity compensation plans. 40




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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Investor Stockholders Agreement In connection with the April 1999 recapitalization, French and each of its
stockholders entered into an investor stockholders agreement, dated as of April
21, 1999. Tower Automotive and Onex Advisor LLC and the other employees and
affiliates of Onex who purchased shares of the Companys class A common stock
in connection with Frenchs financing of the acquisition of Nelson became
parties to this stockholders agreement by executing joinder and rights
agreements dated as of October 15, 1999. The stockholders agreement provides
that the Companys board of directors will be established at seven directors
and will be comprised of: (1) three representatives designated by J2R, two of
whom shall be S. A. Johnson and Anthony A. Barone, (2) two representatives
designated by Onex, which representatives shall be Eric J. Rosen and John F.
Falcon, (3) one representative designated by Windward, which shall be Gary L.
Swenson and (4) one representative designated by Northwestern Mutual Life,
which shall be A. Kipp Koester. In 2002, Mr. Swenson and Mr. Koester resigned
from the board. Windward and Northwestern Mutual Life have not yet designated
replacement directors. The parties to the stockholders agreement subsequently
voted to increase the size of the Companys Board of directors to up to eleven
directors and appointed Karl F. Storrie and Dugald K. Campbell to the Board.
In addition, each party to the stockholders agreement has agreed to consent to
a sale of French if such sale is approved by our board of directors. Except for Windward, each of the parties to the stockholders agreement has also
agreed to vote their common stock as directed by Onex on the election of
directors and, with the exception of Northwestern Mutual Life, on all other
matters submitted to a vote of stockholders, and has granted the person who is
at any time the president of Onex a proxy to vote its common stock. The voting
provision of the stockholders agreement automatically terminates upon the sale
by French of at least 20% of its common stock, on a fully diluted basis, in an
underwritten public offering. The stockholders agreement generally restricts the transfer of any shares of
common stock held by the parties to the stockholders agreement by granting
certain parties thereto rights of first offer and participation rights in
connection with any proposed transfer by any other party, with certain
exceptions. In addition, French has agreed not to issue to any person at any
time prior to an initial public offering of equity securities, any shares of
common stock or any other securities entitled to participate in distributions
or to vote (or securities convertible or exercisable for any of the foregoing)
unless the parties to the stockholders agreement are given the opportunity to
purchase their pro rata share at the same price and on the same terms, subject
to certain exceptions. Registration Agreement In connection with the April 1999 recapitalization, each of our stockholders
entered into a registration agreement. Tower Automotive and Onex Advisor LLC
and the other employees and affiliates of Onex who purchased shares of our
class A common stock in connection with the financing of the acquisition of
Nelson became parties to this registration agreement by executing joinder and
rights agreements dated as of October 15, 1999. Pursuant to the registration
agreement, the holders of a majority of (1) the shares of class B common stock
issued pursuant to the recapitalization, or issued or issuable in respect of
such securities, and (2) any other shares of common stock held by persons
holding any of the foregoing may request, at any time, up to five registrations
of all or any part of their common stock on Form S-1 or any similar long-form
registration statement or, if available, an unlimited number of registrations
on Form S-2 or S-3 or any similar short-form registration statement, each at
the Companys expense. At present, Onex AH LLC owns all of the outstanding
class B common stock. In the event that the holders of these securities make
such a demand registration request, all other parties to the registration
agreement will be entitled to participate in such registration. In the event
that none of these securities are outstanding, the holders of a majority of (1)
the common stock issued pursuant to the recapitalization, or issued or issuable
with respect thereto, and (2) any common stock held by persons holding any of
the foregoing will be entitled to exercise these demand registration rights.
The registration agreement also grants to the parties thereto piggyback
registration rights with respect to all other registrations by us and we will
pay all expenses related to such piggyback registrations. 41




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Management Stockholders Agreement On July 16, 1999, the Company, Onex and members of management who owned shares
of the Companys common stock, including Mr. Waldon, entered into a management
stockholders agreement. In July 1999 and December 1999, the Company sold 2.138
shares of Frenchs class A common stock to its managers, representing
approximately 4.0% of its outstanding common stock. The amount of management
stock held by each of the Companys executive officers is as set forth in
Security Ownership of Certain Beneficial Owners and Management. Each
management stockholder purchased such stock (fractional shares) that would
equate to a price of $4,212,000 per share, which is the per share amount paid
by the equity investors in connection with the recapitalization. The agreement
permits the management stockholders to borrow up to half of the purchase price
of their stock being pledged to secure repayment of the loan. Pursuant to this agreement, each management stockholder granted a right of
first refusal to the Company, and, if the Company does not exercise such right,
to Onex, to purchase such management stockholders stock. In the event neither
French nor Onex exercises their rights of first refusal, at any time after the
Company has become a public company, a management stockholder desiring to sell
his stock may sell up to 5% of his stock in the public market during any 90-day
period, up to a maximum of one-third of the stock acquired by the management
stockholder prior to such date. The Company, Onex and each of the management stockholders have agreed that
either the Company or Onex will purchase at book value, and each management
stockholder will sell, the stock held by such management stockholder in the
event such management stockholders employment is terminated for any reason at
any time prior to Frenchs initial public offering. After such time as the
Company becomes a public company, a management stockholder may sell his stock
in the public market, provided that, in the event the management stockholders
employment terminates due to: (1) retirement, he can sell his stock so long as
he does not sell more than 75% of his stock during the year following his
termination; (2) his death or disability, he may sell without restriction; and
(3) in all other cases, he can sell his stock so long as he does not sell more
than half in the year following his termination. The agreement further provides that, in the event the Companys board of
directors approves a sale of the Company, French has a right to require each
management stockholder to sell such management stockholders stock to the
proposed purchaser. In addition, in the event the Company effects a public
offering, French has agreed to include each management stockholders stock in
such offering, provided that each management stockholder may not register a
greater proportion of his stock than the proportion of Onexs stock being
registered by Onex in such offering. The terms of the management stockholders agreement govern all common stock
owned or later acquired by the management stockholders other than any stock
purchased in the open market at any time after the Company has consummated an
initial public offering. Management Agreement with Hidden Creek Pursuant to the terms of a management agreement dated as of April 21, 1999,
Hidden Creek has agreed to provide strategic direction and financial management
and administrative services to the Company. In exchange for such services, the
Company has contracted to pay Hidden Creek an annual management fee in the
amount of $1 million. This management agreement is for an initial term of five
years, but may be canceled by Hidden Creek upon 30 days notice. The agreement
is automatically renewable after five years on a year-to-year basis unless the
Company gives Hidden Creek 30 days notice of its intent to terminate the
agreement. The agreement will terminate in any event upon a sale of the
Company. The Company was charged by Hidden Creek approximately $2.4 million in
2002 for services rendered for the refinancing of our debt in 2002. 42




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Transactions with Significant Stockholders In October 2002, JLF/AR-I LLC purchased trade accounts receivable from the
Company. JLF/AR-I LLC is a limited liability company whose members include OMI
Partnership Holdings Ltd., a wholly owned subsidiary of Onex, the Baird
Entities, Hidden Creek, Northwestern Mutual Life Insurance Company, Norwest
Equity Capital, L.L.C., BancAmerica Capital Investors II L.P. and S. A.
Johnson. The total discount for all trade receivables purchased was
approximately $15,000. The maximum amount purchased was approximately $4.2
million. All amounts were collected by the partnership by October 25, 2002. In December 2002, the Company issued approximately $9.9 million of the secured
second lien term loan to JLF/AR-I LLC. In addition, the Company issued
65,118.3 shares of Class Q-1 and 11,592.7 shares of Class Q-2 common stock to
JLF/AR-I LLC for consideration of $1.0 million. During 2003, JLF/AR-I LLC sold
the secured second lien term loan to a non related third party. 
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The following table presents fees for professional services rendered by
Deloitte & Touche for the audit of the Companys annual financial statements
for 2003 and 2002 and fees billed for audit-related services, tax services and
all other services rendered by Deloitte & Touche for 2003 and 2002 (in
thousands). Year Ended December 31,2003
    
    2002(1)
    
    Audit fees
    
    $
    792
    
    
    $
    748(2)
    
    Audit-related fees
    
    
    
    
    
    
    (3)
    
    Tax fees (a)
    
    
    426
    
    
    
    148(4)
    
    All other fees (b)
    
    
    
    
    
    
    121$
    1,218
    
    
    $
    1,017
  (a)
    
    Principally relates to tax compliance services (including U.S. federal and
international returns) and tax examination assistance.(b)
    
    Principally due diligence assistance. All audit-related services, tax services and other services were pre-approved
by the Audit Committee, which concluded that the provision of such services by
Deloitte & Touche was compatible with the maintenance of that firms
independence in the conduct of its auditing functions. The Audit Committees
policy on the approval of audit and nonaudit services provides for pre-approval
of audit, audit-related and tax services specifically described by the Audit
Committee on an annual basis and, in addition, individual engagements
anticipated to exceed pre-established thresholds must be separately approved.
The policy also requires specific approval by the Audit Committee if total fees
for audit-related and tax services would exceed total fees for audit services
in any fiscal year. The policy authorizes the Audit Committee to delegate to
one or more of its members pre-approval authority with respect to permitted
services. 43




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##### Table of Contents



PART IV 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K  (a)
    
    Documents Filed as Part of this Report on Form 10-K  (1)
    
    Financial Statements:  -
    
    Independent Auditors Report by Deloitte & Touche LLP for 2003 and 2002-
    
    Report of Independent Public Accountants by Arthur Andersen LLP for 2001-
    
    Consolidated Balance Sheets as of December 31, 2003 and 2002-
    
    Consolidated Statements of Operations
for the Years Ended December 31, 2003, 2002 and 2001-
    
    Consolidated Statements of
Stockholders Deficit and Comprehensive Income (Loss)
for the Years Ended December 31, 2003, 2002 and 2001-
    
    Consolidated Statements of Cash Flows
for the Years Ended December 31, 2003, 2002 and 2001-
    
    Notes to Consolidated Financial
Statements  (2)
    
    Financial Statement Schedules:  -
    
    Schedule II  Valuation and
Qualifying Accounts  (3)
    
    Exhibits: See Exhibit Index beginning on
page 46.  (b)
    
    Reports on Form 8-KDuring the quarter ended December 31, 2003, the Company filed the
following Current Reports on Form 8-K with the Securities and
Exchange Commission:Filing on November 10, 2003 under Item 12 on Form 8-K. The
purpose of the filing was to disclose the Companys results for
the third quarter ended September 30, 2003. 44




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##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized. J.L. FRENCH AUTOMOTIVE CASTINGS, INC.Date: March 17, 2004
    
    By
    
    /s/ ANTHONY A. BARONEAnthony A. Barone, Chairman
 Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated. Signature
    
    Title
    
    Date/s/
JOHN F. FALCONJohn F. Falcon
    
    President, Chief Executive
Officer (Principal Executive
Officer) and Director
    
    March 17, 2004/s/
ANTHONY A. BARONEAnthony A. Barone
    
    Chief Financial Officer
(Principal Financial and
Accounting Officer) and Director
    
    March 17, 2004/s/ DUGALD K. CAMPBELLDugald K. Campbell
    

    Director
    
    March 17, 2004/s/ JOHN L. THOMSONJohn L. Thomson
    
    Director
    
    March 17, 2004/s/ S. A. JOHNSONS. A. Johnson
    
    Director
    
    March 17, 2004/s/ ERIC J. ROSENEric J. Rosen
    
    Director
    
    March 17, 2004/s/ KARL F. STORRIEKarl F. Storrie
    
    Director
    
    March 17, 2004
 45




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##### Table of Contents



J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-K
For The Fiscal Year Ended December 31, 2003 Page Number inSequentialNumberingof all Form 10-Kand Exhibit Pages3.1
    
    Amended Certificate of Incorporation of J.L. French Automotive Castings, Inc.,
incorporated by reference to Exhibit 10.1 of the Registrants Form 10-Q for the
quarterly period ended June 30, 2002 (the June 2002 10-Q).
    
    
    *3.2
    
    By-laws of J.L. French Automotive Castings, Inc., incorporated by reference
to Exhibit 3.2 of the S-4.
    
    
    *3.3
    
    Restated Certificate of Incorporation of French Holdings, Inc., incorporated by
reference to Exhibit 3.3 of the S-4.
    
    
    *3.4
    
    Amended and Restated By-laws of French Holdings, Inc., incorporated by
reference to Exhibit 3.4 of the S-4.
    
    
    *3.5
    
    Articles of Incorporation of J.L. French Corporation, incorporated by
reference to Exhibit 3.5 of the S-4.
    
    
    *3.6
    
    By-laws of J.L. French Corporation, incorporated by reference to
Exhibit 3.6 of the S-4.
    
    
    *3.7
    
    Articles of Incorporation of Allotech International, Inc., incorporated by
reference to Exhibit 3.7 of the S-4.
    
    
    *3.8
    
    By-laws of Allotech International, Inc., incorporated by reference to
Exhibit 3.8 of the S-4.
    
    
    *4.1
    
    Indenture, dated May 28, 1999, by and among J.L. French Automotive
Castings, Inc., the Subsidiary Guarantors and U.S. Bank Trust National Association,
as trustee, incorporated by reference to Exhibit 4.1 of the S-4.
    
    
    *4.2
    
    Registration Rights Agreement, dated May 28, 1999, by and among J.L. French
Automotive Castings, Inc., the Subsidiary Guarantors and the Initial
Purchasers, incorporated by reference to Exhibit 4.2 of the S-4.
    
    
    *10.1
    
    Amended and Restated Credit Agreement, dated October 15, 1999, among
J.L. French Automotive Castings, Inc., Automotive Components Investments
Limited, Morris Ashby Limited, the several banks and other financial
institutions from time to time parties to the agreement (the Lenders),
Bank of America NT&SA, as syndication agent for the Lenders, Chase
Manhattan International Limited, as administrative agent for the English
Lenders, and the Chase Manhattan Bank, as administrative agent for the
Lenders, incorporated by reference to Exhibit 10.1 of the S-4, as amended
pursuant to the First Amendment dated as of November 27, 2000, incorporated
by reference to Exhibit 10.1 of the December 2000 8-K.
    
    
    *10.2
    
    Investor Stockholders Agreement, dated April 21, 1999, by and among
J.L. French Automotive Castings, Inc., Onex American Holdings LLC, J2R
Partners III and the stockholders listed on the signature pages thereto (the
Stockholders Agreement), incorporated by reference to Exhibit 10.2 of the
S-4.
    
    
    *10.3
    
    Registration Agreement, dated April 21, 1999, by and among J.L. French
Automotive Castings, Inc. and the investors listed on the signature pages
thereto (the Registration Agreement), incorporated by reference to Exhibit
10.3 of the S-4.
    
    
    *10.4
    
    Management Agreement, dated April 21, 1999, by and between J.L. French
Automotive Castings, Inc. and Hidden Creek Industries, incorporated by reference
to Exhibit 10.4 of the S-4.
    
    
    *10.5
    
    Joinder and Rights Agreement, dated October 15, 1999, by and between J.L.
    
    
    *
 46




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##### Table of Contents



Page Number inSequentialNumberingof all Form 10-Kand Exhibit PagesFrench Automotive Castings, Inc., Onex Advisor LLC and each of the other persons
listed on the signature pages thereto, relating to the Stockholders Agreement and
the Registration Agreement, incorporated by reference to Exhibit 10.5 of the S-4.10.6
    
    Joinder and Rights Agreement, dated October 15, 1999, by and between J.L.
French Automotive Castings, Inc. and Tower Automotive, Inc., relating to the
Stockholders Agreement and the Registration Agreement, incorporated by
reference to Exhibit 10.6 of the S-4.
    
    
    *10.7
    
    Sublease Agreement, dated March 25, 1998, by and between J.L. French
Corporation and American Bumper & Mfg. Co., incorporated by reference to
Exhibit 10.7 of the S-4.
    
    
    *10.9**
    
    Employment Agreement, dated April 30, 1998, by and between Fundiciones
Viuda de Ansola S.A. and Juan Manuel Orbea, incorporated by reference to
Exhibit 10.9 of the S-4.
    
    
    *10.10**
    
    Employment Agreement, dated April 30, 1998, by and between Ansola
Acquisition Corporation, S.R.L. and Juan Manuel Orbea, incorporated by
reference to Exhibit 10.10 of the S-4.
    
    
    *10.11
    
    Management Stockholders Agreement, dated July 16, 1999, by and between
J.L. French Automotive Castings, Inc., Onex American Holdings LLC and the
individuals named on Schedule I thereto, incorporated by reference to Exhibit
10.11 of the S-4.
    
    
    *10.12
    
    Form of Stock Subscription Agreement by and between J.L. French Automotive
Castings, Inc. and certain members of management purchasing common stock
(including a schedule identifying Subscription Agreements executed by Charles M.
Waldon, Paul A. Buckley, Thomas C. Dinolfo, Donald W. Porritt, Lowell E. Shoaf and
Stephen R. Southern), incorporated by reference to Exhibit 10.12 of the S-4.
    
    
    *10.14
    
    Stock Purchase Agreement, dated October 14, 1999, by and among J.L. French
Automotive Castings, Inc., Onex American Holdings LLC, J2R Partners III and
the persons set forth on Schedule A attached thereto, incorporated by
reference to Exhibit 10.14 of the S-4.
    
    
    *10.15
    
    Stock Purchase Agreement, dated May 24, 2000, by and among J.L. French
Automotive Castings, Inc., J2R Partners III and the stockholders listed on
the signature pages thereto.
    
    
    *10.16
    
    Stock Purchase Agreement, dated November 30, 2000, by and among J.L.
French Automotive Castings, Inc., Tower Automotive and the stockholders listed on the signature pages thereto.
    
    
    *10.17
    
    Second Amendment, dated as of July 15, 2002, to the Amended and Restated
Credit Agreement dated as of October 15, 1999, incorporated by reference to
Exhibit 10.2 of the June 2002 10-Q.
    
    
    *10.18
    
    Third Amendment, dated as of November 19, 2002, to the Amended and
Restated Credit Agreement dated as of October 15, 1999, incorporated by
reference to Exhibit 10.3 of the June 2002 10-Q.
    
    
    *10.19
    
    Fourth Amendment, dated as of November 22, 2002, to the Amended and
Restated Credit Agreement dated as of October 15, 1999, incorporated by
reference to Exhibit 10.4 of the June 2000 10-Q.
    
    
    *10.20
    
    Fifth Amendment, dated as of December 26, 2002, to the Amended and Restated
Credit Agreement dated as of October 15, 1999, incorporated by reference to
Exhibit 10.5 of the June 2002 10-Q.
    
    
    *10.21
    
    Securities Purchase Agreement, dated December 27, 2002, $96,410,256.41
19% Senior Secured Notes due December 31, 2007, incorporated by reference to
Exhibit 10.6 of the June 2002 10-Q.
    
    
    *10.22
    
    Amendment No. 3, dated December 27, 2002, to the Investor Stockholders
Agreement dated April 21, 1999, incorporated by reference to Exhibit 10.7
of the June 2002 10-Q.
    
    
    *10.23
    
    Amendment No. 2, dated December 27, 2002, to Registration Agreement and
Joinder and Rights Agreement dated April 21, 1999, incorporated by reference
to Exhibit 10.8 of the June 2002 10-Q.
    
    
    *18.1
    
    Letter from independent public accountant related to change in application of
accounting principle, filed herewith.
    
    
    8131.1
    
    Certification of Chief Executive Officer required by Section 302 of the
    
    Filed herewith
 47




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Page Number inSequentialNumberingof all Form 10-Kand Exhibit PagesSarbanes Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer required by Section 302 of the
Sarbanes Oxley Act of 2002.
    
    Filed herewith32.1
    
    Certification of Chief Executive Officer required by Section 906 of the
Sarbanes Oxley Act of 2002.
    
    Furnished herewith32.2
    
    Certification of Chief Financial Officer required by Section 906 of the
Sarbanes Oxley Act of 2002.
    
    Furnished herewith
   *
    
    Incorporated by reference.**
    
    Indicates compensatory arrangement. 48




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INDEPENDENT AUDITORS REPORT Board of Directors and Stockholders
J.L. French Automotive Castings, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheets of J.L. French
Automotive Castings, Inc. and Subsidiaries (the Company) as of December 31,
2003 and 2002 and the related consolidated statements of operations,
stockholders deficit and comprehensive income (loss), and cash flows for each
of the two years in the period ended December 31, 2003. These consolidated
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. The consolidated financial statements of the
Company for the year ended December 31, 2001, prior to the addition of the
transitional disclosures discussed in Note 5, were audited by other auditors
who have ceased operations. Those auditors expressed an unqualified opinion on
those financial statements in their report dated February 6, 2002. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of J.L. French Automotive Castings,
Inc. and Subsidiaries as of December 31, 2003 and 2002 and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 2003 in conformity with accounting principles generally accepted
in the United States of America. As discussed in Note 5 to the consolidated financial statements, the Company
changed its method of accounting for goodwill and other intangible assets in
2002. Our audit was conducted for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The Schedule II:
Valuation and Qualifying Accounts is presented for the purpose of complying
with the Securities and Exchange Commissions rules and is not a required part
of the basic consolidated financial statements. This schedule is the
responsibility of the Companys management. Such schedule for 2003 and 2002
has been subjected to the auditing procedures applied in our audit of the basic
2003 and 2002 consolidated financial statements and, in our opinion, is fairly
stated in all material respects when considered in relation to the basic 2003
and 2002 consolidated financial statements taken as a whole. Such schedule for
2001 was subjected to auditing procedures by other auditors who have ceased
operations. Those auditors stated, in their report dated February 6, 2002,
that such schedule for 2001 is fairly stated in all material respects when
considered in relation to the basic consolidated financial statements as of and
for the year ended December 31, 2001, taken as a whole. 49




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As discussed above, the consolidated financial statements of the Company as of
December 31, 2001 and for the year then ended were audited by other auditors
who have ceased operations. As described in Note 3, those consolidated
financial statements have been revised to give effect to the reverse stock
split on December 29, 2003. We audited the adjustments described in Note 3
that were applied to revise the 2001 consolidated financial statements for such
reverse stock split. Our audit procedures included: (i) comparing the
previously reported shares outstanding per the Companys accounting analysis to
the previously issued consolidated financial statements, and (ii) recalculating
the shares to give effect to the reverse stock split and testing the
mathematical accuracy of the underlying analysis. Also, as described in Note
4, the 2001 consolidated statement of operations has been revised to include
the following reclassifications: (i) certain plant-related expenses from
selling, general and administrative expenses to cost of sales; (ii) certain
impairment charges from amortization expense to restructuring and impairment
charges; (iii) certain amortization expense of debt issuance costs to non-cash
interest expense; and (iv) interest expense into its respective cash and
non-cash components. Our audit procedures with respect to the 2001 disclosures
in Note 4 included: (i) comparing the previously reported cost of sales,
selling, general and administrative expenses, restructuring charge,
amortization of intangible assets, and interest expense to the previously
issued consolidated financial statements; (ii) comparing the adjustments to
cost of sales, selling, general and administrative expenses, restructuring
charges, amortization of intangible assets, and interest expense to the
Companys underlying analyses obtained from management; and (iii) testing the
mathematical accuracy of the underlying analyses. Also, as described in Note
5, the consolidated financial statements have been revised to include the
transitional disclosures required by Statement of Financial Accounting
Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, which was
adopted by the Company as of January 1, 2002. Our audit procedures with
respect to the transitional disclosures in Note 5 for 2001 included (i)
agreeing the previously reported net loss to the previously issued consolidated
financial statements and the adjustments to reported net loss representing
amortization expense (including any related tax effects) recognized in those
periods related to goodwill to the Companys underlying records obtained from
management, and (ii) testing the mathematical accuracy of the reconciliation of
adjusted consolidated net income to reported consolidated net loss. In our
opinion, (i) the adjustments for the reverse stock split described in Note 3
have been properly applied, (ii) the reclassifications described in Note 4 have
been properly applied, and (iii) the transitional disclosure for 2001 described
in Note 5 is appropriate. However, we were not engaged to audit, review, or
apply any procedures to the 2001 consolidated financial statements of the
Company other than with respect to such reverse stock split adjustments,
reclassifications, and disclosures and, accordingly, we do not express an
opinion or any other form of assurance on the 2001 consolidated financial
statements taken as a whole. DELOITTE & TOUCHE LLP Minneapolis, Minnesota
February 6, 2004 50




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The following report is a copy of a report previously issued by Arthur Andersen
LLP (Andersen), which report has not been reissued by Andersen. Certain
financial information for year ended December 31, 2001 was not reviewed by
Andersen and includes:  (i)
    
    reclassifications to conform to our 2003 consolidated
financial statement presentation,(ii)
    
    additional disclosures to conform with new accounting
pronouncements and SEC rules and regulations issued during such
fiscal year and(iii)
    
    December 29, 2003 1 for 1,000 reverse stock split. Report of independent public accountants To J. L. French Automotive Castings, Inc. and Subsidiaries: We have audited the accompanying consolidated balance sheets of J. L. French
Automotive Castings, Inc. (a Delaware corporation) and Subsidiaries as of
December 31, 2001 and 2000, and the related consolidated statements of
operations, stockholders investment and comprehensive income (loss) and cash
flows for each of the three years in the period ended December 31, 2001. These
consolidated financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of J. L. French
Automotive Castings, Inc. and Subsidiaries as of December 31, 2001 and 2000,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States. ARTHUR ANDERSEN LLP Minneapolis, Minnesota,
February 6, 2002 51




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J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31
(in thousands, except share and per share amounts) 2003
    
    2002ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    1,497
    
    
    $
    3,337Accounts receivable, less allowance for doubtful accounts of $2,566 and
$1,777, respectively
    
    
    46,550
    
    
    
    49,574Inventories
    
    
    32,623
    
    
    
    35,357Assets held for sale
    
    
    4,677
    
    
    
    Other current assets
    
    
    12,742
    
    
    
    13,437Total current assets
    
    
    98,089
    
    
    
    101,705PROPERTY, PLANT AND EQUIPMENT, net
    
    
    251,993
    
    
    
    250,969GOODWILL, net of accumulated amortization of $0 and $15,438, respectively
    
    
    
    
    
    
    95,171INTANGIBLES AND OTHER ASSETS, net of accumulated amortization of $6,152
and $2,919, respectively
    
    
    16,599
    
    
    
    17,094$
    366,681
    
    
    $
    464,939LIABILITIES AND STOCKHOLDERS DEFICITCURRENT LIABILITIES:Accounts payable
    
    $
    52,332
    
    
    $
    56,187Accrued liabilities
    
    
    33,485
    
    
    
    31,107Current portion of long-term debt
    
    
    23,333
    
    
    
    12,342Total current liabilities
    
    
    109,150
    
    
    
    99,636LONG-TERM DEBT, net of current portion
    
    
    419,192
    
    
    
    398,221SUBORDINATED NOTES
    
    
    175,000
    
    
    
    175,000OTHER NONCURRENT LIABILITIES
    
    
    21,680
    
    
    
    26,593Total liabilities
    
    
    725,022
    
    
    
    699,450COMMITMENTS AND CONTINGENCIES (Notes 7, 9, 10, 12, and 15)
    
    
    
    
    
    
    REDEEMABLE COMMON STOCK, CLASS P non-voting; par value $0.01; 20 shares
authorized; 14 shares issued and outstanding
    
    
    60,000
    
    
    
    60,000STOCKHOLDERS DEFICIT:Common stock, Class A; par value $0.01; 20 shares
authorized; 11 and 12 shares issued and outstanding
    
    
    
    
    
    
    Common stock, Class A-1; par value $0.01; 10 shares
authorized; 7 shares issued and outstanding
    
    
    
    
    
    
    Common stock, Class A-2; par value $0.01; 50 shares
authorized; 0 shares issued and outstanding
    
    
    
    
    
    
    Common stock, Class B; par value $0.01; 30 shares
authorized; 21 shares issued and outstanding
    
    
    
    
    
    
    Common stock, Class C; par value $0.01; 6 shares authorized;
5 shares issued and outstanding
    
    
    
    
    
    
    Common stock, Class D-1; par value $0.01; 15 shares authorized;
7 shares issued and outstanding
    
    
    
    
    
    
    Common stock, Class D-2 non-voting; par value $0.01; 8 shares
authorized; 7 shares issued and outstanding
    
    
    
    
    
    
    Common stock, Class E; par value $0.01; 4 shares authorized;
4 shares issued and outstanding
    
    
    
    
    
    
    Common stock, Class Q-1; par value $0.01; 97,845 shares authorized;
65,118 shares issued and outstanding
    
    
    1
    
    
    
    1Common stock, Class Q-2 non-voting; par value $0.01; 12,000 shares
authorized; 11,593 shares issued and outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    87,144
    
    
    
    87,537Accumulated deficit
    
    
    (504,022
    )
    
    
    (371,333
    )Accumulated other comprehensive loss
    
    
    (1,464
    )
    
    
    (10,716
    )Total stockholders deficit
    
    
    (418,341
    )
    
    
    (294,511
    )$
    366,681
    
    
    $
    464,939
 The accompanying notes are an integral part of these consolidated financial statements. 52




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J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands) Years Ended December 31,2003
    
    2002
    
    2001Sales
    
    $
    521,083
    
    
    $
    550,447
    
    
    $
    505,709Cost of sales
    
    
    452,627
    
    
    
    481,308
    
    
    
    425,360Gross profit
    
    
    68,456
    
    
    
    69,139
    
    
    
    80,349Selling, general and administrative expenses
    
    
    18,341
    
    
    
    14,083
    
    
    
    16,363Restructuring and impairment charges (Note 13)
    
    
    106,414
    
    
    
    21,308
    
    
    
    4,053Amortization of intangible assets
    
    
    45
    
    
    
    57
    
    
    
    8,374Loss on sale of business assets (Note 6)
    
    
    808
    
    
    
    
    
    
    
    Loss on early retirement of debt (Note 7)
    
    
    
    
    
    
    13,507
    
    
    
    Operating (loss) income
    
    
    (57,152
    )
    
    
    20,184
    
    
    
    51,559Cash interest expense
    
    
    60,212
    
    
    
    48,855
    
    
    
    53,629Non-cash interest expense
    
    
    14,627
    
    
    
    2,292
    
    
    
    2,297Interest expense
    
    
    74,839
    
    
    
    51,147
    
    
    
    55,926Other income (Note 4)
    
    
    (617
    )
    
    
    
    
    
    
    Loss before income taxes and cumulative effect of change
in accounting principle
    
    
    (131,374
    )
    
    
    (30,963
    )
    
    
    (4,367
    )Income tax provision (Note 11)
    
    
    1,315
    
    
    
    38,528
    
    
    
    2,555Loss before cumulative effect of change in accounting
principle
    
    
    (132,689
    )
    
    
    (69,491
    )
    
    
    (6,922
    )Cumulative effect of change in accounting principle 
goodwill impairment (Note 5)
    
    
    
    
    
    
    202,622
    
    
    
    Net loss
    
    $
    (132,689
    )
    
    $
    (272,113
    )
    
    $
    (6,922
    )
 The accompanying notes are an integral part of these consolidated financial statements. 53




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##### Table of Contents



J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except share data, which has been restated to reflect the December 2003 1:1000 reverse stock split) AccumulatedCommon Stock (Note 3)
    
    AdditionalPaid-In
    
    Accumulated
    
    OtherComprehensiveShares
    
    Amount
    
    Capital
    
    Deficit
    
    Income (Loss)
    
    TotalBALANCE, December 31, 2000
    
    
    64
    
    
    $
    
    
    
    $
    90,877
    
    
    $
    (92,886
    )
    
    $
    (5,660
    )
    
    $
    (7,669
    )Comprehensive loss -Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,922
    )Initial effect of adoption of SFAS No. 133, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,223
    )Change in unrealized loss on derivative financial
instruments, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (864
    )Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,356
    )Minimum pension liability, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (774
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,139
    )Repurchase of common stock, net of loan repayments
    
    
    (1
    )
    
    
    
    
    
    
    (2,212
    )
    
    
    
    
    
    
    
    
    
    
    (2,212
    )Dividends on Class A-1 and Class P stock (Note 3)
    
    
    
    
    
    
    
    
    
    
    1,687
    
    
    
    (6,487
    )
    
    
    
    
    
    
    (4,800
    )Collection of common stock subscription receivables
    
    
    
    
    
    
    
    
    
    
    124
    
    
    
    
    
    
    
    
    
    
    
    124BALANCE, December 31, 2001
    
    
    63
    
    
    
    
    
    
    
    90,476
    
    
    
    (106,295
    )
    
    
    (10,877
    )
    
    
    (26,696
    )Comprehensive loss -Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (272,113
    )Change in unrealized loss on derivative financial
instruments, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,464Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,007Minimum pension liability, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,310
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (271,952
    )Repurchase of common stock
    
    
    (1
    )
    
    
    
    
    
    
    (2,676
    )
    
    
    
    
    
    
    
    
    
    
    (2,676
    )Issuance of common stock
    
    
    76,711
    
    
    
    1
    
    
    
    999
    
    
    
    
    
    
    
    
    
    
    
    1,000Issuance of warrants
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    50Dividends on Class A-1 and Class P stock (Note 3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,800
    )
    
    
    
    
    
    
    (4,800
    )Reversal of dividends on Class A-1 and Class P stock (Note 3)
    
    
    
    
    
    
    
    
    
    
    (1,875
    )
    
    
    11,875
    
    
    
    
    
    
    
    10,000Collection of common stock subscription receivables
    
    
    
    
    
    
    
    
    
    
    563
    
    
    
    
    
    
    
    
    
    
    
    563BALANCE, December 31, 2002
    
    
    76,773
    
    
    
    1
    
    
    
    87,537
    
    
    
    (371,333
    )
    
    
    (10,716
    )
    
    
    (294,511
    )Comprehensive loss -Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (132,689
    )Change in unrealized loss on derivative financial

instruments, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    623Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,889Minimum pension liability, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,740Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (123,437
    )Repurchase of common stock
    
    
    
    
    
    
    
    
    
    
    (393
    )
    
    
    
    
    
    
    
    
    
    
    (393
    )BALANCE, December 31, 2003
    
    
    76,773
    
    
    $
    1
    
    
    $
    87,144
    
    
    $
    (504,022
    )
    
    $
    (1,464
    )
    
    $
    (418,341
    )
 The accompanying notes are an integral part of these consolidated financial statements. -54-




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##### Table of Contents



J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) Years Ended December 31,2003
    
    2002
    
    2001OPERATING ACTIVITIES:Net loss
    
    $
    (132,689
    )
    
    $
    (272,113
    )
    
    $
    (6,922
    )Adjustments to reconcile net loss to net cash
provided by operating activities:Cumulative effect of change in accounting principle  goodwill
impairment
    
    
    
    
    
    
    202,622
    
    
    
    Loss on early retirement of debt
    
    
    
    
    
    
    13,507
    
    
    
    Cash restructuring payments
    
    
    (3,503
    )
    
    
    
    
    
    
    Restructuring and impairment charges
    
    
    106,414
    
    
    
    21,308
    
    
    
    4,053Non-cash interest
    
    
    14,627
    
    
    
    2,292
    
    
    
    2,297Depreciation and amortization
    
    
    45,738
    
    
    
    46,228
    
    
    
    50,486Deferred income taxes
    
    
    2,277
    
    
    
    38,047
    
    
    
    5,971Loss on sale of business assets
    
    
    808
    
    
    
    
    
    
    
    Currency exchange gain
    
    
    (617
    )
    
    
    
    
    
    
    Change in other operating items:Accounts receivable
    
    
    6,362
    
    
    
    (560
    )
    
    
    33,738Inventories
    
    
    3,837
    
    
    
    (3,388
    )
    
    
    9,151Other assets
    
    
    (2,264
    )
    
    
    (11,554
    )
    
    
    (14,156
    )Accounts payable and accrued liabilities
    
    
    (11,131
    )
    
    
    (24,240
    )
    
    
    (48,774
    )Net cash provided by operating activities
    
    
    29,859
    
    
    
    12,149
    
    
    
    35,844INVESTING ACTIVITIES -Capital expenditures
    
    
    (35,035
    )
    
    
    (22,381
    )
    
    
    (31,982
    )FINANCING ACTIVITIES:Borrowings under revolving credit facilities
    
    
    56,811
    
    
    
    58,213
    
    
    
    30,216Repayments of revolving credit facilities
    
    
    (25,124
    )
    
    
    (58,996
    )
    
    
    (21,740
    )Long-term borrowings
    
    
    13,768
    
    
    
    223,159
    
    
    
    4,974Repayment of long-term borrowings
    
    
    (41,388
    )
    
    
    (205,551
    )
    
    
    (19,270
    )Debt issuance costs
    
    
    (442
    )
    
    
    (3,431
    )
    
    
    Borrowings under receivables financing
    
    
    
    
    
    
    8,287
    
    
    
    Repayment of receivables financing
    
    
    
    
    
    
    (8,287
    )
    
    
    Proceeds from sale of common stock and warrants
    
    
    
    
    
    
    1,050
    
    
    
    Repurchase of common stock, net of subscription receivable
collections
    
    
    (393
    )
    
    
    (2,113
    )
    
    
    (2,088
    )Net cash provided by (used for) financing activities
    
    
    3,232
    
    
    
    12,331
    
    
    
    (7,908
    )EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS
    
    
    104
    
    
    
    183
    
    
    
    (952
    )NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    (1,840
    )
    
    
    2,282
    
    
    
    (4,998
    )CASH AND CASH EQUIVALENTS, beginning of year
    
    
    3,337
    
    
    
    1,055
    
    
    
    6,053CASH AND CASH EQUIVALENTS, end of year
    
    $
    1,497
    
    
    $
    3,337
    
    
    $
    1,055SUPPLEMENTAL CASH FLOW INFORMATION-Cash paid for:Interest
    
    $
    59,791
    
    
    $
    49,641
    
    
    $
    55,326Income taxes, net of refunds received
    
    $
    495
    
    
    $
    (2,465
    )
    
    $
    454NON-CASH INVESTING AND FINANCING TRANSACTIONS-Capital leases
    
    $
    9,827
    
    
    $
    6,202
    
    
    $
    4,022
 The accompanying notes are an integral part of these consolidated financial statements. -55-




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##### Table of Contents



J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  1.
    
    Organization and Basis of Presentation J.L. French Automotive Castings, Inc. (French or the Company) is an
international designer and manufacturer of aluminum die cast components and
assemblies for the global automotive industry. The Companys primary operating
subsidiaries are J.L. French Corporation (Sheboygan), Allotech International
(Allotech), Nelson Metal Products Corporation (Nelson), Shoreline
Industries, Inc. (JLF Benton Harbor), J.L. French U.K. Ltd. (JLF UK),
Fundiciones Viuda de Ansola, S.A. (Ansola), and J.L. French S. de R.L. de
C.V. (JLF Mexico), all of which are wholly owned. The Company has
manufacturing facilities located in Kentucky, Michigan, Wisconsin, Mexico,
Spain and the United Kingdom.  2.
    
    Financial Leverage and Covenant Compliance The Company has a substantial amount of leverage. As of December 31, 2003, the
Company had outstanding indebtedness of $617.5 million, and a working capital
deficiency of $11.1 million. In addition, the Company incurred net losses of
$132.7 million and $272.1 million in 2003 and 2002, respectively. Total
shareholders deficit was $418.3 million at December 31, 2003. In 2003, cash
interest costs were $60.2 million and total interest costs were $74.8 million.
Management believes total interest costs will remain at approximately the same
levels in 2004. In order to maintain compliance with restrictive loan
covenants in 2004 and beyond, the Company will need to improve its consolidated
earnings before interest, taxes, depreciation, amortization, restructuring and
impairment charges (EBITDA) and cash flows from current levels. As of
December 31, 2003, the Company had borrowing availability under its revolving
credit facility and cash on hand of approximately $28.4 million. In order to reduce costs, improve EBITDA and maintain adequate liquidity, the
Company has taken the following actions: (i) completed the December 27, 2002
financing transactions (see Note 7) which eliminated all scheduled senior debt
principal repayments until 2006, (ii) closed the Grandville, Michigan facility,
(iii) closed two facilities in JLF UK, (iv) aligned the cost structure with the
revenue base through personnel and other cost reductions, and (v) implemented
stringent operating and cost management policies and controls. The Companys credit facilities contain restrictive covenants that, among other
things, limit the Companys ability to incur indebtedness, make capital
expenditures, and pay dividends. The most restrictive covenants require the
Company to maintain the following financial ratios:  
    
    Ratio of consolidated earnings before interest, taxes,
depreciation, amortization, restructuring and impairment charges, or
EBITDA, as defined, to consolidated cash interest expense of not
less than 1.40 at December 31, 2003 (actual of 1.60) and 1.50 at
December 31, 2004.  
    
    Ratio of total indebtedness to EBITDA, as defined (Total
Leverage Ratio), of less than 6.75 at December 31, 2003 (actual of
6.43) and 6.25 at December 31, 2004.  
    
    Ratio of indebtedness under the Senior Credit Facility,
including outstanding standby letters of credit, to EBITDA, as
defined, of less than 3.50 at December 31, 2003 (actual of 3.03) and
3.25 at December 31, 2004. -56-




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##### Table of Contents



The most restrictive quarterly covenant in 2004 will be the Total Leverage
Ratio at December 31, 2004. Assuming total debt remains at $617.5 million (the
balance at December 31, 2003), either an EBITDA, as defined, of approximately
$99 million would need to be achieved to be in compliance with the required
ratio of 6.25 at December 31, 2004 (EBITDA, as defined, was $96.6 million in
2003) or debt would need to be reduced to a sufficient level such that the
required ratio would be achieved. Management believes its operating plans for
2004 will enable the Company to remain in compliance with the quarterly
covenants in 2004. Management also believes that cash generated from
operations together with available borrowings under the senior credit facility
will provide sufficient liquidity and capital resources to fund working
capital, debt service obligations and capital expenditures during 2004. The
assumptions underlying this belief include, among other things, that there will
be no future material adverse developments in either the Companys business or
the automotive market in general. As stated in Note 7, the aggregate maturities of long-term debt and obligations
under capital leases are $23.3 million in 2004 and $9.9 million in 2005. In
October 2006, the Companys senior credit facility matures, resulting in cash
requirements of approximately $297.0 million. The Company will need to enter
into a new credit facility or raise additional capital prior to the October
2006 maturity. There is no assurance the Company can enter into a new credit
facility or raise additional required capital on terms acceptable to the
Company, or at all.  3.
    
    Common Stock On December 29, 2003, the Company effected a 1,000-for-1 reverse stock split.
All references to number of shares outstanding have been retroactively restated
to reflect the reverse stock split. The Company has 11 classes of common stock authorized and 10 classes
outstanding. Each share of common stock is entitled to one vote, except
classes D-2, P and Q-2, which are non-voting. Following is a summary of common
stock transactions for the period from December 31, 2000 through December 31,
2003: Class
    
    Class
    
    ClassA
    
    Q-1
    
    Q-2Shares outstanding, December 31, 2000
    
    
    13
    
    
    
    
    
    
    
    Repurchase of common stock
    
    
    (1
    )
    
    
    
    
    
    
    Shares outstanding, December 31, 2001
    
    
    12
    
    
    
    
    
    
    
    Repurchase of common stock
    
    
    (1
    )
    
    
    
    
    
    
    Issuance of common stock
    
    
    
    
    
    
    65,118
    
    
    
    11,593Shares outstanding, December 31, 2002
    
    
    11
    
    
    
    65,118
    
    
    
    11,593Shares outstanding, December 31, 2003
    
    
    11
    
    
    
    65,118
    
    
    
    11,593
 There were no Class A-1, A-2, B, C, D-1, D-2, E or P transactions for the
period December 31, 2000 through December 31, 2003. On November 30, 2000, certain stockholders acquired 14 shares of non-voting
Class P common stock for total consideration to the Company of $60.0 million.
Prior to the issuance of Class Q-1 and Q-2 shares discussed below, the Class P
common stock accrued dividends at an annual rate of 8% and the dividends were
to be paid in cash at the time of redemption of the Class P common stock. -57-




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##### Table of Contents



Concurrent with the November 30, 2000 transaction described above, the holder
of the Companys 71⁄2% Convertible Subordinated Note exchanged the note for 7
shares of Class A-1 common stock. Prior to the issuance of class Q-1 and Q-2
shares discussed below, the Class A-1 common stock accrued pay-in-kind
dividends at an annual rate of 71⁄2%. The dividends were to be paid in kind,
at the sole election of the holder, in either (i) shares of Class A-2 common
stock equal to the amount of the dividend to be paid divided by $4.21 or (ii)
shares of Class A common stock equal to the amount of the dividend to be paid
divided by $5.90. In December 2002, the Companys stockholders authorized an amendment to the
Companys Articles of Incorporation to provide for the issuance of up to 97,845
shares of Class Q-1 and 12,000 shares of Class Q-2 common shares. On December
27, 2002, the Company issued 65,118 shares of Class Q-1 and 11,593 shares of
Class Q-2 common stock for proceeds of $1.0 million. The Class Q-1 and Class
Q-2 shares are entitled to 99.9% of all future equity distributions, as defined
in the amended Articles of Incorporation. In connection with the issuance of the secured second lien term loan (see Note
7), also in December 2002, the Company issued warrants to the lenders to
acquire 4,041 shares of Class Q-1 common stock. The warrants have an exercise
price of $10 per share and are exercisable at the option of the holder any time
before their expiration in December 2009. The Company assigned a value of
$50,000 to the warrants at the time of the issuance, which represented fair
value. The holders of the warrants may put them to the Company at the earlier
of December 31, 2007, a sale of the Company or a change of control, as defined.
The purchase price will be the fair value of the underlying common stock as
determined by the Companys Board of Directors at the time such event occurs.
At any time after December 31, 2008, the Company may repurchase the warrants.
The repurchase price will be the fair value of the underlying common stock as
determined by the Companys board of directors at that time. As a result of the issuance of the Class Q-1 and Q-2 shares and amendment to
the Companys Articles of Incorporation in December 2002, the Company concluded
that the Class P and Class A-1 shares and related dividends had no value.
Accordingly, the Company credited to retained earnings the accrued Class P
dividends of $10.0 million and the accrued Class A-1 paid in kind dividends of
$1.9 million.  4.
    
    Significant Accounting Policies Principles of Consolidation and PresentationThe consolidated financial
statements include the financial statements of the Company and its wholly owned
subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation. Use of EstimatesThe preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reported period. Ultimate
results could differ from those estimates. Cash and Cash EquivalentsCash and cash equivalents consist of highly liquid
investments with an original maturity of three months or less. Cash
equivalents consist primarily of short-term money market instruments with
Spanish and United States financial institutions. Cash equivalents are stated
at cost, which approximates fair value. InventoriesInventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out (FIFO) method or the average cost
methods, either of which approximates current cost. The raw material market is
determined by the quoted price. -58-




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##### Table of Contents



Inventories consisted of the following (in thousands): December 31,2003
    
    2002Raw materials
    
    $
    15,671
    
    
    $
    15,005Work-in-process
    
    
    7,738
    
    
    
    9,407Finished goods
    
    
    9,214
    
    
    
    10,945$
    32,623
    
    
    $
    35,357
 Other Current AssetsOther current assets consisted of the following (in
thousands): December 31,2003
    
    2002Customer tooling-in-progress
    
    $
    7,351
    
    
    $
    6,408Other
    
    
    5,391
    
    
    
    7,029$
    12,742
    
    
    $
    13,437
 Customer tooling-in-progress represents costs incurred by the Company in the
production of customer-owned tooling to be used by the Company in the
manufacture of its products. The Company receives a specific purchase order
for this tooling and is reimbursed by the customer for the cost of such tooling
within one operating cycle. Costs are deferred until reimbursed by the
customer. Forecasted losses on incomplete projects are recognized currently. Property, Plant and EquipmentProperty, plant and equipment consisted of the
following (in thousands): December 31,2003
    
    2002Land and land improvements
    
    $
    4,650
    
    
    $
    6,373Buildings
    
    
    92,482
    
    
    
    88,545Machinery and equipment
    
    
    335,196
    
    
    
    304,432Furniture, fixtures and other
    
    
    5,717
    
    
    
    5,358Construction in progress
    
    
    7,487
    
    
    
    9,660445,532
    
    
    
    414,368Less - Accumulated depreciation and amortization
    
    
    (193,539
    )
    
    
    (163,399
    )Net property, plant and equipment
    
    $
    251,993
    
    
    $
    250,969
 Property, plant and equipment are stated at cost. Depreciation of plant and
equipment is calculated on the straight-line method over the following
estimated useful lives: Buildings and land improvements
    
    
    15 to 39 yearsMachinery and equipment
    
    
    5 to 13 yearsFurniture, fixtures and other
    
    
    3 to 10 years
 Depreciation and amortization expense was approximately $45.7 million, $46.2
million, and $50.5 million in 2003, 2002, and 2001, respectively. The Company capitalizes interest cost as a component of the cost of
construction in progress. Interest costs of $1.4 million, $0.5 million, and
$1.2 million were capitalized in 2003, 2002, and 2001, respectively. The
Company had buildings and machinery under capital leases of $37.6 million and
$21.2 million at December 31, 2003 and 2002, respectively. Accumulated
amortization of these assets was $11.9 million and $7.6 million at December 31,
2003 and 2002, respectively. These assets and accumulated amortization are
included in the table above. -59-




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Maintenance and repairs are charged to expense as incurred. Major betterments
and improvements, which extend the useful life of the item, are capitalized and
depreciated. The cost and accumulated depreciation of property, plant and
equipment retired or otherwise disposed of are removed from the related
accounts, and any residual values are charged or credited to income. Goodwill and Intangible AssetsIn June 2001, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No.
142, Goodwill and Other Intangible Assets. Under SFAS No. 142, goodwill and
intangible assets with indefinite lives are no longer amortized but are
reviewed annually for impairment (comparison of estimated fair value to
carrying value), or more frequently if impairment indicators arise. Fair value
is estimated using the present value of the expected future cash flows and
other valuation techniques. The Companys policy is to test annually for
impairment during the third quarter. Intangible and Other AssetsIntangible and other assets consisted of the
following (in thousands): December 31,2003
    
    2002Debt issuance costs and other
    
    $
    22,749
    
    
    $
    20,013Less - Accumulated amortization
    
    
    (6,150
    )
    
    
    (2,919
    )Net intangibles and other assets
    
    $
    16,599
    
    
    $
    17,094
 Separable intangible assets that are not deemed to have indefinite lives are
amortized over their useful lives. Debt issuance and financing costs are
amortized over the term of the applicable agreement, except as otherwise
required under Emerging Issues Task Force (EITF) Abstract No. 96-19, Debtors
Accounting for a Modification or Exchange of Debt Instruments. The estimated aggregate amortization expense for intangible assets with finite
useful lives for the next five years is as follows (in thousands): Years Ending December 312004
    
    $
    3,3272005
    
    
    3,3272006
    
    
    3,2182007
    
    
    2,6752008
    
    
    755
 Recoverability of Long-Lived Assets Other Than Goodwill and Intangible
AssetsThe Company periodically evaluates whether events and circumstances have
occurred which may affect the estimated useful life or the recoverability of
the remaining balance of its long-lived assets. If such events or
circumstances indicate that the carrying amount of these assets will not be
recoverable, the Company estimates the future cash flows expected to result
from the use of the assets and their eventual disposition. If the sum of the
expected future cash flows (undiscounted and without interest charges as it
relates to long-lived assets other than goodwill) are less than the carrying
amount of long-lived assets, the Company estimates fair value of such
long-lived assets, and would recognize an impairment to the extent that
carrying value exceeded fair value. See Note 13 regarding impairments of
long-lived assets recognized in both 2003 and 2002. -60-




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Accrued LiabilitiesAccrued liabilities consisted of the following (in
thousands): December 31,2003
    
    2002Compensation and benefits
    
    $
    15,518
    
    
    $
    14,563Loss contracts
    
    
    203
    
    
    
    1,547Interest
    
    
    4,412
    
    
    
    4,409Other
    
    
    13,352
    
    
    
    10,588$
    33,485
    
    
    $
    31,107
 Income TaxesThe Company recognizes deferred income tax assets and liabilities
for the expected future tax consequences of events that have been included in
the financial statements or tax returns. Deferred income tax assets and
liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities using currently enacted tax
rates. The Company regularly assesses the likelihood that the deferred tax
assets will be recovered from future taxable income, and records a valuation
allowance to reduce the deferred tax assets to the amounts believed to be
realizable. Financial InstrumentsThe carrying amounts of cash and cash equivalents,
accounts receivable, accounts payable and accrued liabilities approximate fair
value, because of the short maturity of these instruments. The fair value of
long-term debt is based on quoted market prices for the same or similar issues
or on the current rates offered to the Company for a term equal to the same
remaining maturities. At December 31, 2003 and 2002, the fair value of the
Companys long-term senior debt was determined to be the same as the carrying
amount. Based on quoted market values, the fair value of the Subordinated
Notes (see Note 8) was determined to be $105.0 million and $84.0 million at
December 31, 2003 and 2002, respectively. Revenue Recognition and Sales CommitmentsThe Company recognizes revenue as its
products are shipped to its customers, which coincides with passage of legal
title and the transfer of risk of ownership. The Company enters into
agreements to produce products for its customers at the beginning of a given
vehicles production cycle. Once such agreements are entered into by the
Company, fulfillment of the customers purchasing requirements is the
obligation of the Company for the entire production cycle of the vehicle, with
terms averaging seven years. The Company has no intention to terminate such
contracts. In certain instances, the Company is committed under existing
agreements to supply products to its customers at selling prices which are not
sufficient to cover the costs to produce such product. In such situations, the
Company records a liability for the estimated future amount of losses. Such
losses are recognized at the time that the loss is probable and reasonably
estimable and are recorded at the minimum amount necessary to fulfill the
Companys obligation to the customer. Losses are estimated based upon
information available at the time of the estimate, including future production
volume estimates, length of the program and selling price and product
information, and adjusted as new facts are determined. The remaining liability
was approximately $0.6 million and $2.8 million at December 31, 2003 and 2002,
respectively. Of these amounts, $0.4 million and $1.2 million were included in
other noncurrent liabilities in the accompanying consolidated balance sheets at
December 31, 2003 and 2002, respectively. Accounting for Derivative Instruments and Hedging ActivitiesEffective January
1, 2001, the Company adopted SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133, SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, and by SFAS No. 149, Amendment of
Statement No. 133 on Derivative Instruments and Hedging Activities. SFAS No.
133, as amended, establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative instruments embedded
in other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. The statement requires that changes in
the derivatives fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivatives gains and losses to offset related results on the hedged
item and requires that a company must formally document, designate and assess
the effectiveness of transactions that receive hedge accounting. -61-




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The Company entered into an interest rate swap agreement during 2000 with a
bank, having a notional amount of $75 million, to reduce the impact of changes
in interest rates on its floating rate long-term debt. This agreement
effectively changed the Companys interest rate exposure on $75 million of
floating rate debt from a LIBOR base rate to a fixed base rate of 6.6%. The
Company was required to prepay interest when the fair market value exceeded a
certain amount, as defined in the agreement. The interest rate swap matured on
December 31, 2003, and had been designated as and met the criteria for a cash
flow hedge. Initial adoption of SFAS No. 133 on January 1, 2001 resulted in
the recording of a liability for the fair value of the swap agreement, net of
taxes, of $1.2 million as a component of accumulated other comprehensive loss.
The fair value of the interest rate swap at December 31, 2002 was a liability
of $1.1 million. Foreign Currency TranslationThe assets and liabilities of all foreign
subsidiaries are translated into U.S. dollars using the year-end rates of
exchange. Results of operations are translated at average rates prevailing
throughout the period. Related translation adjustments are recorded as a
component of other accumulated comprehensive income (loss). To the extent that
transactions are denominated in a currency other than the functional currency,
any changes in the expected amount of functional currency cash flows upon
settlement of the transaction due to changes in exchange rates will be
considered in determining earnings during the period. During 2003, the Company
recorded $0.6 million of foreign currency exchange income with regards to a
loan by the U.S. based company to JLF UK. This amount is reflected in other
income in the accompanying consolidated statements of operations. Comprehensive Income (Loss)Comprehensive income (loss) reflects the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from nonowner sources. For the Company, comprehensive
loss represents net loss adjusted for foreign currency translation adjustments,
cumulative effect of adoption of SFAS No. 133, unrealized gain (loss) on
derivative instruments and minimum pension liability. The Company has chosen
to disclose comprehensive income (loss) in the accompanying consolidated
statements of stockholders deficit and comprehensive income (loss). ReclassificationsCertain amounts previously reported in the 2002 and 2001
consolidated financial statements have been reclassified to conform to the 2003
presentation, as follows: (1) certain plant-related expenses in 2002 and 2001
from selling, general and administrative expenses to cost of sales, (2) certain
impairment charges in 2001 from amortization expense to restructuring and
impairment charges, (3) certain amortization expense in 2001 of debt issuance
costs to non-cash interest expense, and (4) interest expense in 2002 and 2001
into its respective cash and non-cash components. These reclassifications had
no effect on previously reported net loss or stockholders deficit. The accompanying statements of operations for 2002 and 2001 have been revised
from the amounts previously reported to conform to the reclassifications
adopted in 2003 (in thousands): Years Ended December 31,2002
    
    2001As
    
    
    
    
    
    AsPreviously
    
    
    
    
    
    PreviouslyReported
    
    As Revised
    
    Reported
    
    As RevisedCost of sales
    
    $
    467,437
    
    
    $
    481,308
    
    
    $
    414,310
    
    
    $
    425,360Selling, general, and administrative expenses
    
    
    27,954
    
    
    
    14,083
    
    
    
    27,413
    
    
    
    16,363Restructuring and impairment charges
    
    Unchanged
    
    
    N/A
    
    
    
    
    
    
    
    4,053Amortization of intangible assets
    
    Unchanged
    
    
    N/A
    
    
    
    14,735
    
    
    
    8,374Cash interest expense
    
    
    
    
    
    
    48,855
    
    
    
    
    
    
    
    53,629Non-cash interest expense
    
    
    
    
    
    
    2,292
    
    
    
    
    
    
    
    2,297Interest expense
    
    
    51,147
    
    
    
    51,147
    
    
    
    53,618
    
    
    
    55,926
 New Accounting PronouncementsIn April 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No.
13, and Technical Corrections. This statement eliminates the automatic
classification of gain or loss on extinguishment of debt as an extraordinary
item of income and requires that such gain or loss be evaluated for
extraordinary -62-




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classification under the criteria of Accounting Principles Board No. 30,
Reporting Results of Operations. This statement also requires sales-leaseback
accounting for certain transactions and makes various other technical
corrections to existing pronouncements. The Company adopted SFAS No. 145 on
January 1, 2003 and, as a result, the $13.5 million extraordinary loss recorded
in the fourth quarter of 2002 related to the early retirement of debt is
presented as a component of income from continuing operations for the year
ended December 31, 2002. In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS No. 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies EITF Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). The principal difference between SFAS No.
146 and EITF No. 94-3 relates to SFAS No. 146s requirements for the timing of
recognizing a liability for a cost associated with an exit or disposal
activity. SFAS No. 146 requires that a liability for a cost associated with an
exit or disposal activity be recognized when the liability is incurred. Under
EITF No. 94-3, a liability for an exit cost was recognized at the date of an
entitys commitment to an exit plan. SFAS No. 146 is effective for exit or
disposal activities that are initiated after December 31, 2002. SFAS No. 146
also increases the disclosure requirements associated with exit or disposal
activities. SFAS No. 146 is applied prospectively. On December 31, 2002, the
Company announced the closure of its Grandville facility. All accruals related
to the closure made in 2002 were in compliance with EITF No. 94-3. Accounting
for the exit activities related to this closure is in accordance with SFAS No.
146 commencing in 2003, and any relevant additional liabilities are recorded as
they are incurred. See Note 13 for further discussion. In November 2002, the FASB issued Interpretation No. 45, Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others; in January 2003, the FASB issued Interpretation No. 46,
Consolidation of Variable Interest Entities; and in April 2003, the FASB issued
SFAS No. 149, Amendment of Statement No. 133 on Derivative Instruments and
Hedging Activities. The adoption of these accounting pronouncements had no
impact on the Company. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity. SFAS No. 150
applies specifically to a number of financial instruments that companies have
historically presented within their financial statements as equity or between
the liabilities section and the equity section, rather than as liabilities.
SFAS No. 150 is effective for financial instruments entered into or modified
after May 31, 2003, and otherwise became effective in the quarter ended
September 30, 2003. The Company adopted the provisions of SFAS No. 150 in the
third quarter of 2003 and concluded a change in the accounting for or
classification of the $60.0 million outstanding redeemable common stock is not
required pursuant to the provisions of SFAS No. 150, as the redemption of this
stock is not mandatory. In December 2003, the FASB issued SFAS No. 132 (revised 2003), Employers
Disclosures about Pensions and Other Postretirement Benefits. The revised SFAS
No. 132 requires additional disclosures concerning the types of plan assets,
investment strategy, measurement date(s), plan obligations, cash flows, and
components of net periodic benefit costs recognized during the interim periods.
The revised SFAS No. 132 is effective for the Company for the year ended
December 31, 2003 and subsequent interim periods (see Note 12). -63-




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5. Goodwill Upon adoption of SFAS No. 142 on January 1, 2002, the Company completed step
one of the transitional goodwill impairment test, using a combination of
valuation techniques, including the discounted cash flow approach and the
market multiple approach, for each of its five reporting units (Sheboygan, the
Grandville, Michigan and Glasgow, Kentucky facilities of Nelson, JLF Benton
Harbor, JLF UK, and Ansola). Upon completion of the required assessments under
SFAS No. 142 in 2002, it was determined that the fair market value of the
goodwill assigned to its Nelson, Benton Harbor, and JLF UK reporting units was
lower than the book value of those reporting units, resulting in a transitional
impairment charge of approximately $202.6 million. This charge represented the
entire write-off for the Nelson, Benton Harbor, and JLF UK reporting units
goodwill. The write-off was recorded as a cumulative effect of a change in
accounting principle on January 1, 2002 in the Companys consolidated statement
of operations in 2002. The following transitional disclosures reflect the non-amortization provision
of SFAS No. 142 as if they had been adopted January 1, 2001 (in thousands): Year EndedDecember 31,2001Reported net loss
    
    $
    (6,922
    )Add back goodwill amortization, net of income taxes
    
    
    7,727Adjusted net income
    
    $
    805
 In connection with the annual impairment tests under SFAS No. 142 performed in
the third quarter of 2003, management determined that the carrying amount of
the underlying assets of the Sheboygan and Ansola reporting units was greater
than the estimated fair value. Additionally, the Company determined that the
fair market value of the goodwill associated with these reporting units was
less than the carrying value, resulting in an impairment charge of
approximately $96.0 million. During 2003 and primarily in the third quarter,
the cash flows from these two reporting units were lower than projections that
were used in the 2002 valuation. In particular, cash flows were less than the
previous projections due to (i) a decrease in production volumes by the
Companys largest customers, Ford and General Motors, commensurate with those
customers market share declines in 2003, (ii) the transfer of production of a
part to a Nelson reporting unit facility rather than to a Sheboygan reporting
unit facility, and (iii) an increase in the discount rate reflecting the
Companys higher cost of capital. These events led to the reduction in the
fair value of the Sheboygan and Ansola reporting units and resulting goodwill
impairment. The 2003 goodwill impairment charge is reflected as a component of
restructuring and impairment charges in the accompanying consolidated
statements of operations. This charge represents the write-off of the entire
goodwill for the Sheboygan and Ansola reporting units. During 2001, under the impairment tests of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
the Company recorded an impairment charge of approximately $4.0 million to
write down the goodwill of its Saltillo, Mexico operations given that the sum
of the expected future cash flows (undiscounted and without interest charges)
was less than the carrying amount of goodwill. The impairment charge was
previously reflected in amortization of intangible assets as a non-cash charge
and has been reclassified to restructuring and impairment charges in the
accompanying 2001 consolidated statements of operations. -64-




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The change in the carrying amount of goodwill, by reporting units, was as
follows (in thousands): BentonSheboygan
    
    Nelson
    
    Harbor
    
    UK
    
    Ansola
    
    TotalBalance at December
31, 2001
    
    $
    84,647
    
    
    $
    150,095
    
    
    $
    3,566
    
    
    $
    44,913
    
    
    $
    8,936
    
    
    $
    292,157Transitional
impairment loss
    
    
    
    
    
    
    (150,095
    )
    
    
    (3,566
    )
    
    
    (48,961
    )
    
    
    
    
    
    
    (202,622
    )Currency
translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,048
    
    
    
    1,588
    
    
    
    5,636Balance at December
31, 2002
    
    
    84,647
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,524
    
    
    
    95,171Impairment charge
    
    
    (84,647
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,366
    )
    
    
    (96,013
    )Currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    842
    
    
    
    842Balance at December
31, 2003
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 6. Divestiture Effective December 31, 2003, the Company sold substantially all the assets, net
of certain liabilities, of its Wilson & Royston division of JLF UK for
approximately $0.1 million in cash. The sale resulted in a loss of
approximately $0.8 million and is reflected as a component of continuing
operations in loss on sale of business assets in the accompanying consolidated
statements of operations. 7. Long-Term Debt Long-term debt consisted of the following (in thousands): December 31,2003
    
    2002Senior credit facility:Revolving credit facility
    
    $
    59,798
    
    
    $
    26,902Tranche B term loan
    
    
    133,761
    
    
    
    132,707Tranche C term loan
    
    
    96,257
    
    
    
    95,000Total senior credit facility
    
    
    289,816
    
    
    
    254,609Secured second lien term loans, net of unamortized
discount of $1,969 and $2,455, respectively
    
    
    101,548
    
    
    
    93,955Unsecured sterling loan notes
    
    
    
    
    
    
    24,730Peseta term loans
    
    
    21,684
    
    
    
    14,359Obligations under capital leases (Note 9) and other
    
    
    29,477
    
    
    
    22,910442,525
    
    
    
    410,563Less - current portion
    
    
    (23,333
    )
    
    
    (12,342
    )$
    419,192
    
    
    $
    398,221
 Senior Credit FacilityThe Company and certain of its direct and indirect
subsidiaries have a senior credit facility that provides a tranche B term loan,
a tranche C term loan and revolving credit facility which provides for total
borrowings and letters of credit of $90.0 million. At December 31, 2003, after
taking into consideration outstanding borrowings under the revolving credit
facility of $59.8 million and outstanding letters of credit of $3.3 million,
the Company had borrowing availability under the revolving credit facility and
cash on hand of approximately $28.4 million. At December 31, 2003, the
Companys senior credit facility, as amended, consisted of the following: -65-




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Tranche B term loan The tranche B term loan has no scheduled
amortization payments until its maturity in October 2006. Interest,
which is payable quarterly, is at prime plus 3.5% or a minimum LIBOR of
2.5% plus 4.5% (7.0% at December 31, 2003). Principal payments on the
tranche B term loan are subject to an exit fee of 1% in 2003, 2% in 2004
and 3% in 2005 and thereafter. This exit fee is being accrued as
additional interest expense over the term of the loan. At December 31,
2003, approximately $1.1 million of the outstanding debt balance
represents these accrued fees. Tranche C term loan The $95.0 million tranche C term loan was issued on
December 27, 2002 resulting in net proceeds of $90.3 million after
payment of certain issuance costs and has no scheduled amortization
payments until its maturity in October 2006. Interest, which is payable
quarterly, is at the greater of 11% or prime plus 6% (11.0% at December
31, 2003). Principal payments on the tranche C term loan are subject to
an exit fee of 5% over the term of the loan. This exit fee is being
accrued as additional interest expense over the term of the loan. At
December 31, 2003, approximately $1.3 million of the outstanding debt
balance represents these accrued fees. Revolving credit facility The revolving credit facility provides for
total borrowings and letters of credit of $90.0 million through June
2006. Interest, which is payable quarterly, is at prime plus 3% or LIBOR
plus 4% (5.2% at December 31, 2003). As of December 31, 2003 the Company
had outstanding standby letters of credit of $3.3 million, which reduce
the borrowing availability of the line of credit and expire at various
dates through 2004 but are automatically renewable. Borrowings under the tranche B and tranche C term loans are subject to
mandatory prepayments based on excess cash flow and proceeds from asset sales,
as defined in the senior credit agreement. No such prepayments were required
based on cash flows in 2003 or 2002. Borrowings under the senior credit facility are secured by all of the assets of
and guaranteed by all material present and future subsidiaries of the Company,
in each case with exceptions for certain foreign subsidiaries and to the extent
permitted by applicable law. The senior credit facility, as amended, requires the Company to maintain
certain financial ratios including minimum interest coverage ratios and maximum
leverage ratios. The senior credit facility also limits capital expenditures
and cash dividends, among other restrictions. The Company and its lenders
amended such covenants in November 2000, and in July, November and December
2002. The Company was in compliance with all financial covenants at both
December 31, 2003 and 2002. The modification of the terms of the senior credit facility was considered
significant under the definition provided in EITF No. 96-19. Accordingly, the
Company expensed previously capitalized debt issuance costs of $4.8 million and
$8.7 million of payments made to the senior credit facility lenders in
conjunction with the December 27, 2002 amendment. This total charge of $13.5
million was reflected as an extraordinary loss for the year ended December 31,
2002 and has been reclassified to Loss on early retirement of debt as a
component of continuing operations in the accompanying consolidated statement
of operations in accordance with the provisions of SFAS No. 145. Secured Second Lien Term LoanOn December 27, 2002, the Company issued a
secured second lien term loan of $96.4 million, resulting in net proceeds of
$94.0 million after payment of certain issuance costs. The second lien term
loan has no scheduled amortization payments and matures in December 2007. Cash
interest, which is payable quarterly, is at 12% and deferred interest, which is
due at the maturity of the loan, accrues at a 7% annualized rate. At December
31, 2003 and December 31, 2002, $7.1 million and $0.1 million, respectively, of
the outstanding debt balance was accrued interest paid-in-kind. Borrowings
under the second lien term loan are subject to mandatory prepayments based on
excess cash flow and proceeds from asset sales, as defined in the loan
agreement. No such prepayments were required based on cash flows in 2003 or
2002. Borrowings under the loan are secured by a second lien on all of the
assets of and guaranteed by all material present and future subsidiaries of the
Company, in each case with exceptions for certain foreign subsidiaries and to
the extent permitted by applicable law. The second lien term loan requires the
Company to maintain certain financial ratios including minimum interest
coverage ratios and -66-




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maximum leverage ratios. The second lien term loan also limits cash dividends,
among other restrictions. The Company was in compliance with all financial
covenants at both December 31, 2003 and 2002. The Company may, at its option, redeem the notes prior to maturity. Such
redemptions are subject to a premium of 9% in 2004, 6% in 2005, 3% in 2006 and
2% thereafter. Upon a change of control, as defined, the Company is required
to make an offer to redeem the notes. Such redemptions are subject to a
premium of 9% through 2005 and 1% thereafter. In conjunction with the secured second lien term loan, the Company issued
65,118 shares of Class Q-1 and 11,583 shares of Class Q-2 common stock to a
partnership owned by certain stockholders of the Company for total proceeds of
$1.0 million. In addition, the Company issued warrants to acquire 4,041 shares
of Class Q-1 common stock at an exercise price of $10 per share (see Note 3). Unsecured Sterling Loan NotesIn conjunction with the acquisition of JLF UK,
unsecured sterling loan notes were issued in exchange for certain shares
acquired by the Company. The loan notes were guaranteed by a letter of credit
that expired in January 2003 under the Companys revolving credit facility.
Payment was made in February 2003 utilizing the Companys borrowing capacity
under the revolving credit facility and cash flows from operations. Peseta Term LoansPeseta term loans represent borrowings by Ansola from Spanish
banks. The loans are used by Ansola to finance capital expenditures and
generally have restrictions that require approval prior to the disposal of
assets. The loans have various payment terms and maturity dates through 2008.
The effective interest rate was approximately 3.15% and 4.2% in 2003 and 2002,
respectively. Aggregate MaturitiesThe aggregate maturities of long-term debt, including the
Subordinated Notes (see Note 8) and obligations under capital leases, for each
of the five years subsequent to December 31, 2003 are as follows (in
thousands): Years Ending December 312004
    
    $
    23,3332005
    
    
    9,9492006
    
    
    297,0192007
    
    
    107,5782008
    
    
    2,4232009 and thereafter
    
    
    177,223$
    617,525
 8. Subordinated Notes In
May 1999, the Company completed an offering of
$175.0 million of 111⁄2%
Senior Subordinated Notes due 2009 (Subordinated Notes). Net proceeds of the
offering of approximately $169.6 million, combined with $0.4 million of cash,
were used in part to retire $2.5 million of borrowings under the former tranche
A term loan and $37.5 million of borrowings under the tranche B term loan. The
Company did not make a $10.1 million interest payment on the notes on December
2, 2002, the scheduled payment date. The payment was made on December 27,
2002, within the thirty-day grace period allowed by the indenture governing the
Subordinated Notes. 9. Leases The Company is obligated at December 31, 2003 under various capital leases for
certain machinery and equipment, including vehicles that expire at various
dates through 2008. Amortization of assets held under capital leases is
included in depreciation expense. -67-




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##### Table of Contents



The Company also leases buildings, vehicles, machinery and equipment under
noncancelable operating leases expiring on various dates through 2011. Total
rent expense from operating leases, including month-to-month leases, was $8.3
million, $8.5 million and $7.3 million in 2003, 2002 and 2001, respectively. The Company entered into certain sale and leaseback transactions in 2003 and
2002, applying the provisions of SFAS No. 98, Accounting for Leases. Upon
commencement of the lease term, the assets were removed from the Companys
balance sheet in accordance with accounting for the machines as operating
leases. The following transactions were entered into:  
    
    In October 2003, the Company entered into an agreement to
sell and lease back two machines. The majority of the assets sold
in the transaction were purchased during 2003. Net proceeds from
the transaction were approximately $3.0 million. The transaction
resulted in an insignificant loss.
    
    In March 2002, the Company entered into an agreement to sell
and lease back five machines. All of the assets sold in the
transaction were purchased during the first quarter of 2002. Net
proceeds from the transaction were approximately $4.6 million. The
transaction resulted in a gain of approximately $0.2 million, which
was deferred and is being amortized over the lease term. The present value of the future minimum lease payments for these two
sale-leasebacks was approximately $4.8 million and $2.9 million at December 31,
2003 and 2002, respectively. Aggregate future minimum lease payments at December 31, 2003 relating to
capital leases and noncancelable operating leases with an initial term in
excess of one year were as follows (in thousands): Capital
    
    OperatingLeases
    
    LeasesYears Ending December 312004
    
    $
    7,510
    
    
    $
    5,8742005
    
    
    6,569
    
    
    
    4,0622006
    
    
    4,598
    
    
    
    2,8232007
    
    
    3,646
    
    
    
    1,6732008
    
    
    1,308
    
    
    
    2552009 and thereafter
    
    
    
    
    
    
    817Total minimum lease payments
    
    
    23,631
    
    
    $
    15,504Less - Amount representing interest (rates from 5% to 11%)
    
    
    (2,370
    )Present value of net minimum capital lease payments
    
    
    21,261Less - Current installments of obligations under capital leases
    
    
    (6,512
    )Obligations under capital leases, excluding
current installments
    
    $
    14,749
 -68-




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10. Loss Contracts As a result of the acquisition of Nelson in 1999, the Company identified
certain customer contract commitments that existed at the acquisition date that
will result in future losses. As shipments of parts under these contracts are
made, the loss contract reserve is reduced based on the per part loss. The
reserve was reduced by $2.2 million, $6.1 million and $29.4 million in 2003,
2002 and 2001, respectively. The liability was reduced due to the sale of
products, the movement of certain production from the closed Grandville
facility on May 30, 2003 to other lower-cost facilities and also included an
adjustment of approximately $1.3 million, $1.1 million and $8.3 million in
2003, 2002 and 2001, respectively, due to cost reductions and reductions in
estimated future shipments. Interest expense recognized related to loss
contracts was $0.1 million, $0.2 million and $1.8 million in 2003, 2002 and 2001,
respectively. At December 31, 2003 and 2002, the liability for those losses was
$0.6 million and $2.8 million, respectively. The reserve for loss contracts at
December 31, 2003 consisted of a $0.2 million current liability and $0.4
million of non-current liability. 11. Income Taxes Loss before income taxes and cumulative effect of change in accounting
principle consists of the following (in thousands): Years Ended December 31,2003
    
    2002
    
    2001Domestic
    
    $
    (108,365
    )
    
    $
    (28,988
    )
    
    $
    7,034Foreign
    
    
    (23,009
    )
    
    
    (1,975
    )
    
    
    (11,401
    )Total
    
    $
    (131,374
    )
    
    $
    (30,963
    )
    
    $
    (4,367
    )
 The provision for income taxes consisted of the following (in thousands): Years Ended December 31,2003
    
    2002
    
    2001Current
    
    $
    648
    
    
    $
    481
    
    
    $
    (10,324
    )Deferred
    
    
    (959
    )
    
    
    38,047
    
    
    
    12,879Foreign
    
    
    1,626
    
    
    
    
    
    
    
    Total
    
    $
    1,315
    
    
    $
    38,528
    
    
    $
    2,555
 -69-




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##### Table of Contents



Deferred income tax assets and liabilities consisted of the following (in
thousands): December 31,2003
    
    2002Current deferred income tax assets:Accounts receivable
    
    $
    733
    
    
    $
    296Inventories
    
    
    155
    
    
    
    259Accrued vacation and other
    
    
    657
    
    
    
    4,119Loss contracts
    
    
    112
    
    
    
    538Subtotal
    
    
    1,657
    
    
    
    5,212Less - valuation allowance
    
    
    (1,657
    )
    
    
    (5,212
    )Total
    
    $
    
    
    
    $
    Non-current deferred income tax assets (liabilities):Employee benefit plans
    
    $
    815
    
    
    $
    3,195Loss contracts
    
    
    92
    
    
    
    440Other liabilities
    
    
    (711
    )
    
    
    (1,096
    )Cash flow hedge
    
    
    
    
    
    
    341Foreign net operating loss carryforwards
    
    
    9,099
    
    
    
    3,135State tax credit and net operating loss carryforwards
    
    
    16,556
    
    
    
    14,096Federal tax credit and net operating loss carryforwards
    
    
    68,750
    
    
    
    49,197Depreciation
    
    
    (11,417
    )
    
    
    (10,875
    )Intangible assets
    
    
    52,321
    
    
    
    26,573Subtotal
    
    
    135,505
    
    
    
    85,006Less - valuation allowance
    
    
    (141,734
    )
    
    
    (88,106
    )Total
    
    $
    (6,229
    )
    
    $
    (3,100
    )
 In the fourth quarter of 2002, the Company recorded a valuation allowance for
its U.S. Federal and all state deferred tax assets. In prior years, the
Company recorded a valuation allowance for its foreign deferred tax assets and
certain state deferred tax assets. SFAS No. 109, Accounting for Income Taxes,
and relevant interpretations of SFAS No. 109, require a valuation allowance be
provided when it is more probable than not that the related income tax assets
will not be utilized. Reported historical income has been adversely impacted
by the write-off of goodwill (see Note 5), restructuring and impairment charges
(see Note 13) and other nonrecurring events such as integration difficulties
involving the acquisition of Nelson. As a result of accounting charges related
to these and other events, the Company has incurred accounting losses on a
cumulative basis since 1999. Because SFAS No. 109 requires the Company to
weight historical reported results greater than projections of future income,
the Company recorded a full valuation allowance on the deferred tax assets in
2002 and continued to record a full valuation allowance in 2003 due to
continuing operating losses. The Company will continue to assess the need for
a valuation allowance on these assets in the future. The deferred tax
liabilities at December 31, 2003 consist of foreign deferred tax liabilities. -70-




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##### Table of Contents



A reconciliation of income taxes computed at the statutory rates to the
reported income tax provisions is as follows: 2003
    
    2002
    
    2001Federal benefit at statutory rates
    
    
    (34.0
    )%
    
    
    (34.0
    )%
    
    
    (35.0
    )%State tax provision, net of
federal benefit
    
    
    0.5
    
    
    
    2.8
    
    
    
    7.6Non-deductible goodwill
    
    
    
    
    
    
    
    
    
    
    14.7Foreign sales corporation
    
    
    
    
    
    
    
    
    
    
    (16.1
    )Valuation allowance
    
    
    33.1
    
    
    
    251.7
    
    
    
    86.3Other, net
    
    
    1.4
    
    
    
    0.2
    
    
    
    1.01.0
    %
    
    
    220.7
    %
    
    
    58.5
    %
 The Company has approximately $16.4 million of state tax credit carryforwards
which expire through 2018, $105.4 million of state net operating loss
carryforwards which expire between 2014 and 2023, $26.0 million of foreign net
operating loss carryforwards which expire in 2018 and $202.1 million of federal
net operating loss carryforwards which expire between 2018 and 2023. No
provision has been made for U.S. income taxes related to undistributed earnings
of foreign subsidiaries that are intended to be permanently reinvested. 12. Employee Benefit Plans The Company has a noncontributory defined contribution retirement plan covering
certain U.S. employees after one year of service. Under the terms of the plan,
contributions made by the Company are based on the number of hours worked by
each participant. The expense in 2003, 2002 and 2001 was $2.3 million, $2.1
million and $2.0 million, respectively. The Company also sponsors several 401(k) savings plans covering substantially
all U.S. employees. Company contributions under the hourly 401(k) plan were
equal to 50% of the first $800 contributed by each employee in 2003, 50% of the
first $550 contributed by each employee in 2002, and 50% of the first $300
contributed by each employee in 2001. For the salaried 401(k) plan, the
Company contributed 0.25% of gross pay for every 1% of employee contributions
up to a 1% maximum ($2,000) for 2003 and up to a 4% maximum for 2002. The
Companys total 401(k) expense for 2003, 2002 and 2001 was $0.2 million, $0.2
million and $0.1 million, respectively. The Company sponsors defined benefit pension plans covering certain employee
groups at JLF UK and Nelson. The Companys policy is to fund the amounts which
are actuarially determined and as required by applicable law. In addition, the
Company has a postretirement medical benefit plan for certain employee groups
and has recorded a liability for its estimated obligation under that plan. The
Company has the right to modify or terminate certain of these benefits in the
future. As part of the Grandville restructuring (see Note 13), the Companys pension
and postretirement medical plan obligations were required to be remeasured for
purposes of determining any curtailment gains/losses in accordance with SFAS
No. 88, Employers Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits, and SFAS No. 106,
Employers Accounting for Postretirement Benefits Other Than Pensions. Both
plans were remeasured at December 31, 2002 and again at May 30, 2003 upon the
accelerated plant closure. The curtailment gains/losses were as follows (in
thousands): PostretirementCurtailment Gain (Loss)
    
    Pension Plan
    
    Medical PlanAs of December 31, 2002 remeasurement
    
    $
    (155
    )
    
    $
    As of May 30, 2003 remeasurement
    
    
    (148
    )
    
    
    784
 -71-




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##### Table of Contents



The pension plan curtailment loss of $155,000 as of December 31, 2002 was
recognized as part of the initial 2002 restructuring charge and was
subsequently reduced to $148,000. The postretirement medical plan curtailment
gain was recognized in 2003. In October 2003, the Company exercised its right to terminate the benefits for
the hourly participants in the Nelson postretirement medical and death benefit
plan. The participants were notified that the benefits would cease on December
31, 2003. As a result, the Company recorded an actuarially determined
$5.9 million settlement gain during the fourth quarter of 2003. The change in benefit obligation and plan assets consisted of the following (in
thousands): Postretirement BenefitsPension Benefits
    
    Other Than Pensionsas of December 31,
    
    as of December 31,2003
    
    2002
    
    2003
    
    2002Benefit obligation at beginning of the year
    
    $
    49,230
    
    
    $
    44,751
    
    
    $
    7,208
    
    
    $
    7,306Service cost
    
    
    1,947
    
    
    
    1,782
    
    
    
    174
    
    
    
    252Interest cost
    
    
    3,042
    
    
    
    2,680
    
    
    
    423
    
    
    
    459Actuarial gain
    
    
    (1,776
    )
    
    
    (1,809
    )
    
    
    (1,192
    )
    
    
    (12
    )Plan participants contributions
    
    
    526
    
    
    
    488
    
    
    
    
    
    
    
    Benefits paid
    
    
    (1,963
    )
    
    
    (2,720
    )
    
    
    (430
    )
    
    
    (413
    )Curtailment gain
    
    
    (66
    )
    
    
    
    
    
    
    (443
    )
    
    
    Settlement gain
    
    
    
    
    
    
    
    
    
    
    (5,177
    )
    
    
    Foreign currency exchange rate changes
    
    
    4,610
    
    
    
    4,058
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (384
    )Benefit obligation at end of the year
    
    $
    55,550
    
    
    $
    49,230
    
    
    $
    563
    
    
    $
    7,208Fair value of plan assets at beginning of the year
    
    $
    32,989
    
    
    $
    30,273
    
    
    $
    
    
    
    $
    Actual return on plan assets
    
    
    4,208
    
    
    
    (301
    )
    
    
    
    
    
    
    Employer contributions
    
    
    1,391
    
    
    
    2,608
    
    
    
    430
    
    
    
    413Plan participants contributions
    
    
    526
    
    
    
    488
    
    
    
    
    
    
    
    Benefits paid
    
    
    (1,963
    )
    
    
    (2,720
    )
    
    
    (430
    )
    
    
    (413
    )Foreign currency exchange rate changes
    
    
    2,976
    
    
    
    2,641
    
    
    
    
    
    
    
    Fair value of plan assets at end of the year
    
    $
    40,127
    
    
    $
    32,989
    
    
    $
    
    
    
    $
    
 The funded status of the Companys plans was as follows (in thousands): Postretirement BenefitsPension Benefits
    
    Other Than Pensionsas of December 31,
    
    as of December 31,2003
    
    2002
    
    2003
    
    2002Funded status
    
    $
    (15,422
    )
    
    $
    (16,241
    )
    
    $
    (563
    )
    
    $
    (7,525
    )Unrecognized actuarial loss (gain)
    
    
    13,623
    
    
    
    16,232
    
    
    
    
    
    
    
    (67
    )Unrecognized transition amount
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    384Unrecognized prior service cost
    
    
    
    
    
    
    155
    
    
    
    
    
    
    
    Prepaid (accrued) benefit cost
    
    $
    (1,799
    )
    
    $
    146
    
    
    $
    (563
    )
    
    $
    (7,208
    )Amounts recognized in the consolidated balance sheet:Accrued benefit liability
    
    $
    (10,813
    )
    
    $
    (10,963
    )
    
    $
    (563
    )
    
    $
    (7,208
    )Prepaid asset
    
    
    432
    
    
    
    
    
    
    
    
    
    
    
    Intangible asset
    
    
    
    
    
    
    156
    
    
    
    
    
    
    
    Accumulated other comprehensive loss
    
    
    8,582
    
    
    
    10,953
    
    
    
    
    
    
    
    Net amount recognized
    
    $
    (1,799
    )
    
    $
    146
    
    
    $
    (563
    )
    
    $
    (7,208
    )Accumulated other comprehensive loss
    
    $
    8,582
    
    
    $
    10,953
    
    
    $
    
    
    
    $
    Deferred tax asset
    
    
    (2,503
    )
    
    
    (2,868
    )
    
    
    
    
    
    
    Accumulated other comprehensive loss, net of tax
    
    $
    6,079
    
    
    $
    8,085
    
    
    $
    
    
    
    $
    
 -72-




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##### Table of Contents



The following assumptions were used to account for the plan assets: Postretirement BenefitsPension Benefits for the
    
    Other Than Pensions for theYears Ended December 31,
    
    Years Ended December 31,2003
    
    2002
    
    2003
    
    2002Discount rate
    
    
    5.6-6.25
    %
    
    
    5.6-6.75
    %
    
    
    6.25
    %
    
    
    6.75
    %Expected return on plan assets
    
    
    8.0
    %
    
    
    8.0
    %
    
    
    
    
    
    
    Rate of compensation increases
    
    
    0.0-3.25
    %
    
    
    0.0-4.0
    %
    
    
    
    
    
    
    Measurement date(s)
    
    
    10/31/03
    
    
    
    10/31/02
    
    
    
    10/31/03
    
    
    
    10/31/02
 The components of net periodic benefit costs (income) were as follows (in
thousands): Postretirement BenefitsPension Benefits for the
    
    Other Than Pensions for theYears Ended December 31,
    
    Years Ended December 31,2003
    
    2002
    
    2001
    
    2003
    
    2002
    
    2001Service cost
    
    $
    1,947
    
    
    $
    1,782
    
    
    $
    1,620
    
    
    $
    174
    
    
    $
    252
    
    
    $
    242Interest cost
    
    
    3,000
    
    
    
    2,680
    
    
    
    2,443
    
    
    
    423
    
    
    
    459
    
    
    
    531Expected return on plan assets
    
    
    (2,849
    )
    
    
    (2,844
    )
    
    
    (3,113
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    (55
    )
    
    
    
    
    
    
    Recognition of actuarial loss
    
    
    74
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Curtailment gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (784
    )
    
    
    
    
    
    
    Settlement gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,975
    )
    
    
    
    
    
    
    Other
    
    
    902
    
    
    
    458
    
    
    
    101
    
    
    
    
    
    
    
    (396
    )
    
    
    Net periodic benefit cost (income)
    
    $
    3,081
    
    
    $
    2,076
    
    
    $
    1,051
    
    
    $
    (6,217
    )
    
    $
    315
    
    
    $
    773
 The Companys accumulated benefit obligation for purposes of calculating the
additional minimum pension liability as it relates to the pension plan(s) was
$50.2 million and $43.9 million at the October 31, 2003 and 2002 measurement
dates, respectively. For measurement purposes, a 6.6% medical and 9.0% prescription annual rate of
increase in the per capita cost of health care benefits was assumed for 2003,
decreasing for both to 5.0% in 2008 and remaining constant thereafter. Assumed
health care cost trend rates have a significant effect on the amounts reported
for the postretirement medical benefit plans. A one percentage point change in
assumed health care cost trend rates would have the following effects (in
thousands): One Percentage
    
    One PercentagePoint Increase
    
    Point DecreaseEffect on total of service and interest cost components
    
    $
    75
    
    
    $
    (63
    )Effect on the postretirement benefit obligation
    
    $
    30
    
    
    $
    (27
    )
 The Companys domestic pension plan weighted-average asset allocations at the
October 31 measurement dates by asset category were as follows: October 31,2003
    
    2002Equity securities
    
    
    63
    %
    
    
    71
    %Fixed income investments
    
    
    24
    
    
    
    13Debt securities
    
    
    13
    
    
    
    13Money market
    
    
    
    
    
    
    3Total
    
    
    100
    %
    
    
    100
    %
 The investment strategy for the domestic defined benefit pension plan is
becoming more conservative due to the cessation of accepting new participants.
The focus is on diminishing the underfunding of $1.3 million at -73-




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December 31, 2003 and at the same time protecting the participants positions.
Consequently, the current target investment mix is 60% in equity securities and
40% in fixed income and debt securities. The Company does not expect to contribute to either its domestic pension plan
or postretirement plan in 2004. The following benefit payments, which reflect expected future service, as
appropriate, are expected to be paid for the domestic defined benefit plan
(Note that the expected future benefit payments out of the post-retirement
domestic plan are not significant): PensionBenefits2004
    
    $
    3522005
    
    
    3882006
    
    
    4262007
    
    
    4692008
    
    
    5162009 and thereafter
    
    
    4,379Total
    
    $
    6,530
 13. Restructuring and Impairment Charges Grandville Restructuring and Asset ImpairmentOn December 31, 2002, the
Companys board of directors approved a restructuring plan that included the
closing of the Grandville, Michigan facility. As a result, the Company
recognized a charge to earnings of $21.3 million in the fourth quarter of 2002,
which reflected the estimated qualifying exit costs to be incurred over the
next year. Included in this charge were estimated costs associated with
closing the facility of $3.3 million in accordance with EITF No. 94-3 and asset
impairments of $18.0 million that were recognized in accordance with SFAS No.
144. With the transfer of production to other facilities, the closing of the
Grandville, Michigan facility resulted in a net workforce reduction of 225
hourly and salaried employees, which occurred throughout the five-month period
ending May 30, 2003 (original estimate was 225 as of December 31, 2002). The
2002 restructuring charge did not cover certain aspects of the activities that
occurred in 2003, including the movement of equipment, certain severance costs
and employee relocation and training. Certain of these costs, totaling $2.7
million (net of $1.0 million of accrual reversals), were recognized in 2003
with the remaining costs estimated at $0.3 million to be recognized in future
periods. The Company originally estimated the closure to be completed by the fourth
quarter of 2003. On
April 1, 2003, the Company distributed notices to all employees notifying them
that operations would cease on May 30, 2003. The acceleration of the close was
primarily due to available capacity at other lower cost facilities to fulfill
customer orders. The Company anticipates utilizing the remaining restructuring reserves as
originally intended, with the ultimate dispositions occurring during the year
ended December 31, 2004. Approximately $0.5 million of the remaining
Grandville restructuring reserve of $0.7 million relates to 2003 property taxes
to be paid in 2004. During 2003, the Company recorded $2.7 million (gross $3.7 million offset by
$1.0 million in accrual reversals related to workers compensation and leases)
in incremental restructuring charges that had not been specifically reserved
for in 2002 in conjunction with the Grandville restructuring. These amounts
have been recognized as expense as incurred along with $0.6 million in costs
related to the 2003 U.K. restructuring and are recorded in restructuring and
impairment charges in the accompanying consolidated statements of operations. -74-




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In connection with the closing of the Grandville facility in the second quarter
of 2003, the Company assessed property, plant and equipment in accordance with
SFAS No. 144 and reclassified $4.5 million as current assets based on the
Companys preliminary assessment of the likelihood of sale of those assets.
These assets are classified as assets held for sale in the accompanying
consolidated balance sheets. Certain of the equipment was sold in August 2003.
The remaining assets, which primarily consist of real estate held for sale as
of December 31, 2003, was $3.3 million. U.K. Restructuring and Asset ImpairmentDuring the fourth quarter of 2003, the
Company announced and implemented a restructuring plan for its U.K. operations.
As a result, the Company recognized a charge to earnings of $2.8 million,
which reflects $0.6 million in severance costs in accordance with SFAS No. 146
and asset impairments of $2.2 million that were recognized in accordance with
SFAS No. 144. With the transfer of production to other facilities (estimated
completion date of March 31, 2004), the closing of the Cheshunt, England
facility will result in a net workforce reduction of 50 hourly and salaried
employees. The closure of the Birmingham, England tooling operation (estimated
completion during the first quarter of 2004) will result in a net workforce
reduction of 21 hourly and salaried employees. The 2003 restructuring charge
did not cover certain aspects of the activities that will be occurring in
future periods, including the movement of equipment, certain severance costs
and employee relocation and training. The remaining estimated costs of $5.5
million will be recognized in future periods as incurred in accordance with
SFAS No. 146. Saltillo, Mexico Asset ImpairmentDuring 2003, the Company concluded that it
could not manufacture components for its key customer at its Saltillo, Mexico
facility at an acceptable profit margin. Therefore, the business was
anticipated to be sourced to another supplier. As a result, the Company
concluded that the cash flows from its Saltillo, Mexico operations would be
less than the carrying value of those fixed assets. Accordingly, the Company
recorded an impairment charge of approximately $4.9 million related to the
fixed assets of that operation. The charge is recorded as a component of
restructuring and impairment charges in the accompanying consolidated
statements of operations. The estimated fair value $1.8 million valuation is
reflected as follows: $1.4 million in assets held for sale and $0.4 million in
depreciable property, plant and equipment at December 31, 2003 in the
accompanying consolidated balance sheets, based on the anticipated disposition
and use of the equipment, respectively. -75-




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Company-wide Consolidated Restructuring ActivityThe accrual of $1.1 million
and $3.3 million at December 31, 2003 and 2002, respectively, is recorded in
accrued liabilities in the Companys consolidated balance sheets. The
following table provides a rollforward of the restructuring accrual for 2003
(in thousands): Accrual balance at December 31, 2002
    
    $
    3,355Cash payments
    
    
    (1,794
    )Charges to expense
    
    
    580Reversals
    
    
    (992
    )Accrual balance at December 31, 2003
    
    $
    1,149
 The 2003 restructuring charges reflected in restructuring and impairment
charges in the accompanying consolidated statements operations comprised the
following (in thousands): Postretirement medical plan curtailment gain (see Note 12)
    
    $
    784Equipment moving and related costs
    
    
    (1,752
    )Severance and employee related costs
    
    
    (3,199
    )Accrual reversals
    
    
    992Other
    
    
    (141
    )Total
    
    $
    (3,316
    )
 SummaryThe Company recorded the following restructuring and impairment charges
in the accompanying consolidated statements of operations (in thousands): Referto
    
    Years Ended December 31,Note
    
    2003
    
    2002
    
    2001Goodwill impairment
    
    
    5
    
    
    $
    96,013
    
    
    $
    
    
    
    $
    4,053Asset impairment
    
    
    13
    
    
    
    7,085
    
    
    
    17,953
    
    
    
    Restructuring costs
    
    
    13
    
    
    
    3,316
    
    
    
    3,355
    
    
    
    Total
restructuring and
impairment
charges
    
    
    
    
    
    $
    106,414
    
    
    $
    21,308
    
    
    $
    4,053
 14. Related-Party Transactions The Company expensed approximately $1.4 million and $1.1 million for management
services and debt placement costs to an affiliate, Hidden Creek Industries
(Hidden Creek), in 2003 and 2001, respectively. In 2002, the Company was
charged $2.4 million by Hidden Creek for assistance in obtaining financing, and
capitalized such amount as deferred loan costs. In addition, the Company
expensed $0.1 million in 2002 for management services from Onex Corporation
(Onex), its majority shareholder. In October 2002, certain of the Companys stockholders purchased trade accounts
receivable from the Company to provide additional liquidity. The total
discount for all trade receivables purchased by the stockholders was
approximately $15,000. The maximum amount purchased by the stockholders was
approximately $4.2 million. All trade receivables purchased by the
stockholders were collected by
October 25, 2002. In December 2002, the Company issued approximately $9.9 million of the secured
second lien term loan to a partnership owned by certain stockholders of the
Company (see Note 7). -76-




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The Company had outstanding the following amounts owed to related parties (in
thousands): December 31,2003
    
    2002Hidden Creek
    
    $
    897
    
    
    $
    1,397Onex
    
    
    5
    
    
    
    104
 15. Commitments and Contingencies The Company is involved in various legal proceedings. Due to their nature,
such legal proceedings involve inherent uncertainties, including, but not
limited to, court rulings, negotiations between affected parties and
governmental intervention. Management assesses the probability of loss for
such contingencies and accrues a liability and/or discloses the relevant
circumstances, as appropriate. Management believes that any liability to the
Company that may arise as a result of currently pending legal proceedings will
not have a material adverse effect on the financial condition or results of
operations of the Company taken as a whole. 16. Geographic and Product Line Information The Company designs and manufactures aluminum die cast components and
assemblies for the global automotive industry and operates in a single
reportable business segment, automotive products. The Company internally
evaluates its business principally based upon critical performance measures
established by the Company. Because of similar economic characteristics of the
operations, including the nature of products, production process and customers,
those operations have been aggregated following the provisions of SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, for
segment reporting purposes. The following is a summary of sales, based on location of production, and
long-lived assets by geographic location (in thousands): Years Ended December 31,2003
    
    2002
    
    2001Long-
    
    
    
    
    
    Long-
    
    
    
    
    
    Long-Lived
    
    
    
    
    
    Lived
    
    
    
    
    
    LivedSales
    
    Assets
    
    Sales
    
    Assets
    
    Sales
    
    AssetsUnited States
    
    $
    394,734
    
    
    $
    134,757
    
    
    $
    443,320
    
    
    $
    140,720
    
    
    $
    420,524
    
    
    $
    175,534Mexico
    
    
    2,991
    
    
    
    336
    
    
    
    4,985
    
    
    
    7,522
    
    
    
    5,064
    
    
    
    9,477United Kingdom
    
    
    81,403
    
    
    
    75,624
    
    
    
    78,211
    
    
    
    73,413
    
    
    
    59,910
    
    
    
    69,779Spain
    
    
    41,955
    
    
    
    41,276
    
    
    
    23,931
    
    
    
    29,314
    
    
    
    20,211
    
    
    
    20,352$
    521,083
    
    
    $
    251,993
    
    
    $
    550,447
    
    
    $
    250,969
    
    
    $
    505,709
    
    
    $
    275,142
 Sales to customers in various geographic locations, based on location of
production, were as follows (in thousands): Years Ended December 31,2003
    
    2002
    
    2001North America
    
    $
    386,137
    
    
    $
    424,580
    
    
    $
    406,541Europe
    
    
    116,376
    
    
    
    125,071
    
    
    
    94,233Other foreign locations
    
    
    18,570
    
    
    
    796
    
    
    
    4,935$
    521,083
    
    
    $
    550,447
    
    
    $
    505,709
 The following is a summary of the approximate composition by product category
of the Companys sales (in thousands): -77-




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##### Table of Contents



Years Ended December 31,2003
    
    2002
    
    2001Medium to large automotive aluminum die castings:Oil pans
    
    $
    142,001
    
    
    $
    174,696
    
    
    $
    155,525Engine front covers
    
    
    51,412
    
    
    
    54,356
    
    
    
    46,038Transmission cases
    
    
    65,775
    
    
    
    73,745
    
    
    
    62,697Bedplates
    
    
    41,563
    
    
    
    47,967
    
    
    
    42,947Other medium to large die castings
    
    
    134,916
    
    
    
    113,164
    
    
    
    116,174Small automotive aluminum die castings
    
    
    76,701
    
    
    
    81,328
    
    
    
    72,653Other products
    
    
    8,715
    
    
    
    5,191
    
    
    
    9,675Total
    
    $
    521,083
    
    
    $
    550,447
    
    
    $
    505,709
 The Company sells its products directly to automobile manufacturers. Customers
that accounted for a significant portion of consolidated sales were as follows: Years Ended December 31,2003
    
    2002
    
    2001Ford
    
    
    51
    %
    
    
    53
    %
    
    
    52
    %General Motors
    
    
    30
    %
    
    
    33
    %
    
    
    36
    %
 At December 31, 2003 and 2002, receivables from these customers represented
approximately 40% and 61% of total accounts receivable, respectively. 17. Supplemental Cash Flow Information The following table presents a reconciliation of cash paid for interest in each
year to the components of interest expense recorded in the accompanying
consolidated statements of operations (in thousands): Years Ended December 31,2003
    
    2002
    
    2001Cash paid for interest
    
    $
    59,791
    
    
    $
    49,641
    
    
    $
    55,326Change in accrued interest
    
    
    421
    
    
    
    (786
    )
    
    
    (1,697
    )Cash interest expense
    
    
    60,212
    
    
    
    48,855
    
    
    
    53,629Non-cashSecured second lien term loan
deferred interest
    
    
    7,033
    
    
    
    74
    
    
    
    Debt issuance cost amortization
    
    
    3,327
    
    
    
    2,415
    
    
    
    2,308Exit and anniversary fee accruals
    
    
    2,286
    
    
    
    25
    
    
    
    Secured second lien term loan
discount amortization
    
    
    486
    
    
    
    5
    
    
    
    Interest rate swap prepaid interest
amortization
    
    
    2,992
    
    
    
    
    
    
    
    Capitalized interest
    
    
    (1,417
    )
    
    
    (484
    )
    
    
    (1,211
    )Other
    
    
    (80
    )
    
    
    257
    
    
    
    1,200Non-cash interest expense
    
    
    14,627
    
    
    
    2,292
    
    
    
    2,297Interest expense
    
    $
    74,839
    
    
    $
    51,147
    
    
    $
    55,926
 -78-




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##### Table of Contents



18. Quarterly Financial Data (Unaudited) The following is a condensed summary of quarterly results of operations for
2003 and 2002 (in thousands): Net Income (Loss)Before CumulativeGross
    
    Operating
    
    Effect of Change inSales
    
    Profit
    
    Income (Loss)
    
    Accounting Principle
    
    Net Income (Loss)2003:First
    
    $
    143,621
    
    
    $
    18,660
    
    
    $
    14,582
    
    
    $
    (5,560
    )
    
    $
    (5,560
    )Second
    
    
    132,963
    
    
    
    16,510
    
    
    
    12,810
    
    
    
    (3,716
    )
    
    
    (3,716
    )Third
    
    
    114,237
    
    
    
    10,604
    
    
    
    (97,439
    )
    
    
    (116,387
    )
    
    
    (116,387
    )Fourth
    
    
    130,262
    
    
    
    22,682
    
    
    
    12,895
    
    
    
    (7,026
    )
    
    
    (7,026
    )$
    521,083
    
    
    $
    68,456
    
    
    $
    (57,152
    )
    
    $
    (132,689
    )
    
    $
    (132,689
    )2002:First
    
    $
    134,714
    
    
    $
    16,507
    
    
    $
    12,815
    
    
    $
    (105
    )
    
    $
    (202,727
    )Second
    
    
    146,421
    
    
    
    21,235
    
    
    
    16,630
    
    
    
    2,752
    
    
    
    2,752Third
    
    
    132,604
    
    
    
    13,125
    
    
    
    10,870
    
    
    
    (1,626
    )
    
    
    (1,626
    )Fourth
    
    
    136,708
    
    
    
    18,272
    
    
    
    (20,131
    )
    
    
    (70,512
    )
    
    
    (70,512
    )$
    550,447
    
    
    $
    69,139
    
    
    $
    20,184
    
    
    $
    (69,491
    )
    
    $
    (272,113
    )
 During the fourth quarter of 2003, the Company recorded an impairment charge of
$2.2 million related to its U.K. operations (see Note 13), a $1.8 million
reversal of an original third quarter 2003 asset impairment charge of $6.7
million related to its Saltillo, Mexico operations (see Note 13), a settlement
gain of
$5.9 million related to its Grandville postretirement medical plan (see Note
12), an additional pension expense of $1.7 million related to its U.K. pension
scheme, an income tax charge of $1.9 million related to the true-up of deferred
income taxes at JLF UK, and a reversal of $1.0 million of restructuring
reserves  primarily related to the extension of leases (see Note 13). During the third quarter of 2003, the Company recorded an impairment charge of
$96.3 million related to goodwill at the Sheboygan and Ansola reporting units
(see Note 5) and an impairment charge of
$6.7 million related to long-lived assets at its Saltillo, Mexico facility (see
Note 13). During the fourth quarter of 2002, the Company recorded a restructuring charge
of $21.3 million related to the closing of the Grandville facility (see Note
13) and a valuation allowance of $79.9 million against its deferred tax assets
(see Note 11). -79-




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##### Table of Contents



19. Consolidating Guarantor and Non-Guarantor Financial Information The following consolidating financial information presents balance sheet,
statement of operations and cash flow information related to the Companys
business. Each Guarantor is a direct, wholly owned domestic subsidiary of the
Company and has fully and unconditionally guaranteed the 111⁄2% senior
subordinated notes issued by J.L. French Automotive Castings, Inc., on a joint
and several basis. The Non-Guarantor Companies are the Companys foreign
subsidiaries, which include JLF UK, Ansola and JLF Mexico. Separate financial
statements and other disclosures concerning the Guarantors have not been
presented because management believes that such information is not material to
investors. -80-




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##### Table of Contents



19. Consolidating guarantor and non-guarantor financial information
(continued): J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
Consolidating Balance Sheets as of December 31, 2003
(In thousands) J.L. FrenchAutomotive
    
    
    
    
    
    Non-Castings,
    
    Guarantor
    
    GuarantorInc.
    
    Companies
    
    Companies
    
    Eliminations
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    19
    
    
    $
    292
    
    
    $
    1,186
    
    
    $
    
    
    
    $
    1,497Accounts receivable, net
    
    
    128,024
    
    
    
    75,038
    
    
    
    29,447
    
    
    
    (185,959
    )
    
    
    46,550Inventories
    
    
    
    
    
    
    23,456
    
    
    
    9,167
    
    
    
    
    
    
    
    32,623Assets held for sale
    
    
    
    
    
    
    3,291
    
    
    
    1,386
    
    
    
    
    
    
    
    4,677Other current assets
    
    
    33
    
    
    
    6,015
    
    
    
    6,694
    
    
    
    
    
    
    
    12,742Total current assets
    
    
    128,076
    
    
    
    108,092
    
    
    
    47,880
    
    
    
    (185,959
    )
    
    
    98,089Property, plant and equipment, net
    
    
    
    
    
    
    134,757
    
    
    
    117,236
    
    
    
    
    
    
    
    251,993Investment in subsidiaries
    
    
    (12,928
    )
    
    
    
    
    
    
    
    
    
    
    12,928
    
    
    
    Intangibles and other assets
    
    
    13,609
    
    
    
    862
    
    
    
    2,128
    
    
    
    
    
    
    
    16,599$
    128,757
    
    
    $
    243,711
    
    
    $
    167,244
    
    
    $
    (173,031
    )
    
    $
    366,681LIABILITIES AND STOCKHOLDERS
INVESTMENT (DEFICIT)Current liabilities:Accounts payable
    
    $
    1,430
    
    
    $
    31,320
    
    
    $
    19,582
    
    
    $
    
    
    
    $
    52,332Accrued liabilities
    
    
    5,399
    
    
    
    18,004
    
    
    
    10,082
    
    
    
    
    
    
    
    33,485Current portion of long-term debt
    
    
    
    
    
    
    568
    
    
    
    22,765
    
    
    
    
    
    
    
    23,333Total current liabilities
    
    
    6,829
    
    
    
    49,892
    
    
    
    52,429
    
    
    
    
    
    
    
    109,150Long-term debt
    
    
    462,995
    
    
    
    42,510
    
    
    
    88,687
    
    
    
    
    
    
    
    594,192Other non-current liabilities
    
    
    3,500
    
    
    
    997
    
    
    
    17,183
    
    
    
    
    
    
    
    21,680Intercompany
    
    
    11,828
    
    
    
    140,343
    
    
    
    33,788
    
    
    
    (185,959
    )
    
    
    Total liabilities
    
    
    485,152
    
    
    
    233,742
    
    
    
    192,087
    
    
    
    (185,959
    )
    
    
    725,022Class P redeemable common stock
    
    
    60,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60,000Stockholders investment (deficit):Common stock
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Additional paid-in capital
    
    
    87,144
    
    
    
    259,808
    
    
    
    71,449
    
    
    
    (331,257
    )
    
    
    87,144Retained earnings (accumulated deficit)
    
    
    (504,022
    )
    
    
    (248,742
    )
    
    
    (95,443
    )
    
    
    344,185
    
    
    
    (504,022
    )Accumulated other comprehensive income
(loss)
    
    
    482
    
    
    
    (1,097
    )
    
    
    (849
    )
    
    
    
    
    
    
    (1,464
    )Total stockholders investment (deficit)
    
    
    (416,395
    )
    
    
    9,969
    
    
    
    (24,843
    )
    
    
    12,928
    
    
    
    (418,341
    )$
    128,757
    
    
    $
    243,711
    
    
    $
    167,244
    
    
    $
    (173,031
    )
    
    $
    366,681
 -81-




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##### Table of Contents



19. Consolidating guarantor and non-guarantor financial information (continued): J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
Consolidating Statements of Operations for the Year Ended December 31, 2003
(In thousands) J.L. FrenchAutomotive
    
    
    
    
    
    Non-Castings,
    
    Guarantor
    
    GuarantorInc.
    
    Companies
    
    Companies
    
    Eliminations
    
    ConsolidatedSales
    
    $
    
    
    
    $
    394,830
    
    
    $
    126,774
    
    
    $
    (521
    )
    
    $
    521,083Cost of sales
    
    
    513
    
    
    
    330,297
    
    
    
    122,338
    
    
    
    (521
    )
    
    
    452,627Gross profit (loss)
    
    
    (513
    )
    
    
    64,533
    
    
    
    4,436
    
    
    
    
    
    
    
    68,456Selling, general and administrative
expenses
    
    
    (74,142
    )
    
    
    87,038
    
    
    
    5,445
    
    
    
    
    
    
    
    18,341Restructuring and impairment charges
    
    
    692
    
    
    
    86,826
    
    
    
    19,704
    
    
    
    
    
    
    
    107,222Amortization of intangible assets
    
    
    
    
    
    
    
    
    
    
    45
    
    
    
    
    
    
    
    45Operating income (loss)
    
    
    72,937
    
    
    
    (109,331
    )
    
    
    (20,758
    )
    
    
    
    
    
    
    (57,152
    )Cash interest expense
    
    
    56,813
    
    
    
    80
    
    
    
    3,319
    
    
    
    
    
    
    
    60,212Non-cash interest expense (income)
    
    
    16,124
    
    
    
    (1,046
    )
    
    
    (451
    )
    
    
    
    
    
    
    14,627Other expense (income)
    
    
    
    
    
    
    
    
    
    
    (617
    )
    
    
    
    
    
    
    (617
    )Loss before income taxes
    
    
    
    
    
    
    (108,365
    )
    
    
    (23,009
    )
    
    
    
    
    
    
    (131,374
    )Provision (benefit) for income taxes
    
    
    (778
    )
    
    
    468
    
    
    
    1,625
    
    
    
    
    
    
    
    1,315Equity in losses of subsidiaries
    
    
    (133,467
    )
    
    
    
    
    
    
    
    
    
    
    133,467
    
    
    
    Net loss
    
    $
    (132,689
    )
    
    $
    (108,833
    )
    
    $
    (24,634
    )
    
    $
    133,467
    
    
    $
    (132,689
    )
 -82-




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##### Table of Contents



19. Consolidating guarantor and non-guarantor financial information (continued): J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
Consolidating Statement of Cash Flows for the Year Ended December 31, 2003
(In thousands) J.L. FrenchAutomotive
    
    
    
    
    
    Non-Castings,
    
    Guarantor
    
    GuarantorInc.
    
    Companies
    
    Companies
    
    Eliminations
    
    ConsolidatedOPERATING ACTIVITIESNet loss
    
    $
    (132,689
    )
    
    $
    (108,833
    )
    
    $
    (24,635
    )
    
    $
    133,468
    
    
    $
    (132,689
    )Adjustments to reconcile net loss to
net cash provided by (used for)
operating activities -Restructuring and impairment charges
    
    
    267
    
    
    
    84,459
    
    
    
    18,993
    
    
    
    
    
    
    
    103,719Non-cash interest
    
    
    16,124
    
    
    
    (1,045
    )
    
    
    (452
    )
    
    
    
    
    
    
    14,627Depreciation and amortization
    
    
    
    
    
    
    31,948
    
    
    
    13,790
    
    
    
    
    
    
    
    45,738Losses of subsidiaries
    
    
    133,468
    
    
    
    
    
    
    
    
    
    
    
    (133,468
    )
    
    
    Deferred income taxes
    
    
    (381
    )
    
    
    
    
    
    
    2,658
    
    
    
    
    
    
    
    2,277Changes in other operating items
    
    
    (21,840
    )
    
    
    21,156
    
    
    
    (3,129
    )
    
    
    
    
    
    
    (3,813
    )Net cash provided by (used for)
operating activities
    
    
    (5,051
    )
    
    
    27,685
    
    
    
    7,225
    
    
    
    
    
    
    
    29,859INVESTING ACTIVITIES:Capital expenditures
    
    
    
    
    
    
    (27,280
    )
    
    
    (7,755
    )
    
    
    
    
    
    
    (35,035
    )FINANCING ACTIVITIES:Borrowings on revolving credit
facilities
    
    
    51,700
    
    
    
    
    
    
    
    30,582
    
    
    
    (25,471
    )
    
    
    56,811Repayments on revolving credit
facilities
    
    
    (45,820
    )
    
    
    
    
    
    
    (4,775
    )
    
    
    25,471
    
    
    
    (25,124
    )Long-term borrowings
    
    
    
    
    
    
    
    
    
    
    13,768
    
    
    
    
    
    
    
    13,768Repayment of long-term borrowings
    
    
    
    
    
    
    (287
    )
    
    
    (41,101
    )
    
    
    
    
    
    
    (41,388
    )Repurchase of common stock
    
    
    (393
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (393
    )Debt issuance costs
    
    
    (442
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (442
    )Net cash provided by (used for)
financing activities
    
    
    5,045
    
    
    
    (287
    )
    
    
    (1,526
    )
    
    
    
    
    
    
    3,232EFFECT OF EXCHANGE
RATE CHANGES ON CASH
AND CASH EQUIVALENTS
    
    
    
    
    
    
    
    
    
    
    104
    
    
    
    
    
    
    
    104NET CHANGE IN CASH
AND CASH EQUIVALENTS
    
    
    (6
    )
    
    
    118
    
    
    
    (1,952
    )
    
    
    
    
    
    
    (1,840
    )CASH AND CASH EQUIVALENTS:Beginning of year
    
    
    25
    
    
    
    174
    
    
    
    3,138
    
    
    
    
    
    
    
    3,337End of year
    
    $
    19
    
    
    $
    292
    
    
    $
    1,186
    
    
    $
    
    
    
    $
    1,497
 -83-




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##### Table of Contents



19. Condensed consolidating guarantor and non-guarantor financial information
(continued): J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
Consolidating Balance Sheets as of December 31, 2002
(In thousands) J.L. FrenchAutomotive
    
    
    
    
    
    Non-Castings,
    
    Guarantor
    
    GuarantorInc.
    
    Companies
    
    Companies
    
    Eliminations
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    25
    
    
    $
    174
    
    
    $
    3,138
    
    
    $
    
    
    
    $
    3,337Accounts receivable, net
    
    
    258,815
    
    
    
    212,070
    
    
    
    24,709
    
    
    
    (446,020
    )
    
    
    49,574Inventories
    
    
    
    
    
    
    27,417
    
    
    
    7,940
    
    
    
    
    
    
    
    35,357Other current assets
    
    
    3,119
    
    
    
    4,635
    
    
    
    5,683
    
    
    
    
    
    
    
    13,437Total current assets
    
    
    261,959
    
    
    
    244,296
    
    
    
    41,470
    
    
    
    (446,020
    )
    
    
    101,705Property, plant and equipment, net
    
    
    
    
    
    
    140,720
    
    
    
    110,249
    
    
    
    
    
    
    
    250,969Investment in subsidiaries
    
    
    120,540
    
    
    
    
    
    
    
    
    
    
    
    (120,540
    )
    
    
    Goodwill
    
    
    267
    
    
    
    84,647
    
    
    
    10,257
    
    
    
    
    
    
    
    95,171Other intangibles and other assets
    
    
    16,494
    
    
    
    232
    
    
    
    368
    
    
    
    
    
    
    
    17,094$
    399,260
    
    
    $
    469,895
    
    
    $
    162,344
    
    
    $
    (566,560
    )
    
    $
    464,939LIABILITIES AND STOCKHOLDERS
INVESTMENT (DEFICIT)Current liabilities:Accounts payable
    
    $
    8,952
    
    
    $
    30,562
    
    
    $
    16,673
    
    
    $
    
    
    
    $
    56,187Accrued liabilities
    
    
    4,108
    
    
    
    18,884
    
    
    
    8,115
    
    
    
    
    
    
    
    31,107Current portion of long-term debt
    
    
    
    
    
    
    241
    
    
    
    12,101
    
    
    
    
    
    
    
    12,342Total current liabilities
    
    
    13,060
    
    
    
    49,687
    
    
    
    36,889
    
    
    
    
    
    
    
    99,636Long-term debt
    
    
    447,211
    
    
    
    41,585
    
    
    
    84,425
    
    
    
    
    
    
    
    573,221Other non-current liabilities
    
    
    4,674
    
    
    
    9,032
    
    
    
    12,887
    
    
    
    
    
    
    
    26,593Intercompany
    
    
    161,220
    
    
    
    250,944
    
    
    
    33,856
    
    
    
    (446,020
    )
    
    
    Total liabilities
    
    
    626,165
    
    
    
    351,248
    
    
    
    168,057
    
    
    
    (446,020
    )
    
    
    699,450Class P redeemable common stock
    
    
    60,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60,000Stockholders investment (deficit):Common stock
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Additional paid-in capital
    
    
    87,537
    
    
    
    259,808
    
    
    
    71,449
    
    
    
    (331,257
    )
    
    
    87,537Retained earnings (accumulated deficit)
    
    
    (371,333
    )
    
    
    (139,909
    )
    
    
    (70,808
    )
    
    
    210,717
    
    
    
    (371,333
    )Accumulated other comprehensive loss
    
    
    (3,110
    )
    
    
    (1,252
    )
    
    
    (6,354
    )
    
    
    
    
    
    
    (10,716
    )Total stockholders investment (deficit)
    
    
    (286,905
    )
    
    
    118,647
    
    
    
    (5,713
    )
    
    
    (120,540
    )
    
    
    (294,511
    )$
    399,260
    
    
    $
    469,895
    
    
    $
    162,344
    
    
    $
    (566,560
    )
    
    $
    464,939
 -84-




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##### Table of Contents



19. Consolidating guarantor and non-guarantor financial information (continued): J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
Consolidating Statements of Operations for the Year Ended December 31, 2002
(In thousands) J.L. FrenchAutomotive
    
    
    
    
    
    Non-Castings,
    
    Guarantor
    
    GuarantorInc.
    
    Companies
    
    Companies
    
    Eliminations
    
    ConsolidatedSales
    
    $
    
    
    
    $
    443,384
    
    
    $
    107,127
    
    
    $
    (64
    )
    
    $
    550,447Cost of sales
    
    
    31
    
    
    
    381,030
    
    
    
    100,311
    
    
    
    (64
    )
    
    
    481,308Gross profit (loss)
    
    
    (31
    )
    
    
    62,354
    
    
    
    6,816
    
    
    
    
    
    
    
    69,139Selling, general and administrative
expenses
    
    
    1,469
    
    
    
    10,060
    
    
    
    2,554
    
    
    
    
    
    
    
    14,083Restructuring and impairment charges
    
    
    
    
    
    
    21,308
    
    
    
    
    
    
    
    
    
    
    
    21,308Loss on early retirement of debt
    
    
    13,507
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,507Amortization of intangible assets
    
    
    
    
    
    
    
    
    
    
    57
    
    
    
    
    
    
    
    57Operating income (loss)
    
    
    (15,007
    )
    
    
    30,986
    
    
    
    4,205
    
    
    
    
    
    
    
    20,184Cash interest expense
    
    
    232
    
    
    
    42,524
    
    
    
    6,099
    
    
    
    
    
    
    
    48,855Non-cash interest expense (income)
    
    
    2,520
    
    
    
    (309
    )
    
    
    81
    
    
    
    
    
    
    
    2,292Income (loss) before income taxes and
equity in losses of subsidiaries and
cumulative effect of change in
accounting principle and extraordinary loss
    
    
    (17,759
    )
    
    
    (11,229
    )
    
    
    (1,975
    )
    
    
    
    
    
    
    (30,963
    )Provision (benefit) for income taxes
    
    
    49,723
    
    
    
    (11,953
    )
    
    
    758
    
    
    
    
    
    
    
    38,528Equity in losses of subsidiaries
    
    
    (200,726
    )
    
    
    
    
    
    
    
    
    
    
    200,726
    
    
    
    Income (loss) before cumulative effect
of change in accounting principle
    
    
    (268,208
    )
    
    
    724
    
    
    
    (2,733
    )
    
    
    200,726
    
    
    
    (69,491
    )Cumulative effect of change in accounting
principle
    
    
    3,905
    
    
    
    150,040
    
    
    
    48,677
    
    
    
    
    
    
    
    202,622Net loss
    
    $
    (272,113
    )
    
    $
    (149,316
    )
    
    $
    (51,410
    )
    
    $
    200,726
    
    
    $
    (272,113
    )
 -85-




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##### Table of Contents



19. Consolidating guarantor and non-guarantor financial information (continued): J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
Consolidating Statement of Cash Flows for the Year Ended December 31, 2002
(In thousands) J.L. FrenchAutomotive
    
    
    
    
    
    Non-Castings,
    
    Guarantor
    
    GuarantorInc.
    
    Companies
    
    Companies
    
    Eliminations
    
    ConsolidatedOPERATING ACTIVITIES:Net loss
    
    $
    (272,113
    )
    
    $
    (149,316
    )
    
    $
    (51,410
    )
    
    $
    200,726
    
    
    $
    (272,113
    )Adjustments to reconcile net loss to
net cash provided by (used for)
operating activities -Cumulative effect of change in
accounting principle
    
    
    3,906
    
    
    
    150,039
    
    
    
    48,678
    
    
    
    
    
    
    
    202,622Loss on early retirement of debt
    
    
    13,506
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,507Restructuring and impairment charges
    
    
    
    
    
    
    21,308
    
    
    
    
    
    
    
    
    
    
    
    21,308Non-cash interest
    
    
    2,520
    
    
    
    (309
    )
    
    
    81
    
    
    
    
    
    
    
    2,292Depreciation and amortization
    
    
    
    
    
    
    35,024
    
    
    
    11,204
    
    
    
    
    
    
    
    46,228Losses of subsidiaries
    
    
    200,726
    
    
    
    
    
    
    
    
    
    
    
    (200,726
    )
    
    
    Deferred income taxes
    
    
    37,211
    
    
    
    
    
    
    
    836
    
    
    
    
    
    
    
    38,047Changes in other operating items
    
    
    19
    
    
    
    (39,059
    )
    
    
    (702
    )
    
    
    
    
    
    
    (39,742
    )Net cash provided by (used for)
operating activities
    
    
    (14,225
    )
    
    
    17,687
    
    
    
    8,687
    
    
    
    
    
    
    
    12,149INVESTING ACTIVITIES:Capital expenditures
    
    
    
    
    
    
    (17,320
    )
    
    
    (5,061
    )
    
    
    
    
    
    
    (22,381
    )FINANCING ACTIVITIES:Borrowings on revolving credit
facilities
    
    
    52,100
    
    
    
    
    
    
    
    6,113
    
    
    
    
    
    
    
    58,213Repayments on revolving credit
facilities
    
    
    (41,051
    )
    
    
    
    
    
    
    (17,945
    )
    
    
    
    
    
    
    (58,996
    )Long-term borrowings
    
    
    191,405
    
    
    
    
    
    
    
    31,754
    
    
    
    
    
    
    
    223,159Repayment of long-term borrowings
    
    
    (183,718
    )
    
    
    (225
    )
    
    
    (21,608
    )
    
    
    
    
    
    
    (205,551
    )Borrowings under receivables financing
    
    
    8,287
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,287Repayment of receivables financing
    
    
    (8,287
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,287
    )Proceeds from sale of common
stock and warrants
    
    
    1,050
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,050Repurchase of common stock and
subscription receivable payments
    
    
    (2,113
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,113
    )Debt issuance costs
    
    
    (3,431
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,431
    )Net cash provided by (used for)
financing activities
    
    
    14,242
    
    
    
    (225
    )
    
    
    (1,686
    )
    
    
    
    
    
    
    12,331EFFECT OF EXCHANGE
RATE CHANGES ON CASH
AND CASH EQUIVALENTS
    
    
    
    
    
    
    
    
    
    
    183
    
    
    
    
    
    
    
    183NET CHANGE IN CASH
AND CASH EQUIVALENTS
    
    
    17
    
    
    
    142
    
    
    
    2,123
    
    
    
    
    
    
    
    2,282CASH AND CASH EQUIVALENTS:Beginning of year
    
    
    8
    
    
    
    32
    
    
    
    1,015
    
    
    
    
    
    
    
    1,055End of year
    
    $
    25
    
    
    $
    174
    
    
    $
    3,138
    
    
    $
    
    
    
    $
    3,337
 -86-




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##### Table of Contents



19. Consolidating guarantor and non-guarantor financial information (continued): J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
Consolidating Statements of Operations for the Year Ended December 31, 2001
(In thousands) J.L. FrenchAutomotive
    
    
    
    
    
    Non-Castings,
    
    Guarantor
    
    GuarantorInc.
    
    Companies
    
    Companies
    
    Eliminations
    
    ConsolidatedSales
    
    $
    
    
    
    $
    420,554
    
    
    $
    85,185
    
    
    $
    (30
    )
    
    $
    505,709Cost of sales
    
    
    
    
    
    
    342,723
    
    
    
    82,667
    
    
    
    (30
    )
    
    
    425,360Gross profit
    
    
    
    
    
    
    77,831
    
    
    
    2,518
    
    
    
    
    
    
    
    80,349Selling, general and
administrative expenses
    
    
    1,729
    
    
    
    11,516
    
    
    
    3,118
    
    
    
    
    
    
    
    16,363Restructuring and impairment charges
    
    
    
    
    
    
    
    
    
    
    4,053
    
    
    
    
    
    
    
    4,053Amortization of intangible assets
    
    
    104
    
    
    
    6,960
    
    
    
    1,310
    
    
    
    
    
    
    
    8,374Operating income (loss)
    
    
    (1,833
    )
    
    
    59,355
    
    
    
    (5,963
    )
    
    
    
    
    
    
    51,559Cash interest expense (income)
    
    
    (8,083
    )
    
    
    55,826
    
    
    
    5,886
    
    
    
    
    
    
    
    53,629Non-cash interest expense (income)
    
    
    
    
    
    
    2,745
    
    
    
    (448
    )
    
    
    
    
    
    
    2,297Income (loss) before income
taxes and equity in losses of
subsidiaries
    
    
    6,250
    
    
    
    784
    
    
    
    (11,401
    )
    
    
    
    
    
    
    (4,367
    )Provision (benefit) for income taxes
    
    
    (5,439
    )
    
    
    7,971
    
    
    
    23
    
    
    
    
    
    
    
    2,555Equity in losses of subsidiaries
    
    
    (18,611
    )
    
    
    
    
    
    
    
    
    
    
    18,611
    
    
    
    Net loss
    
    $
    (6,922
    )
    
    $
    (7,187
    )
    
    $
    (11,424
    )
    
    $
    18,611
    
    
    $
    (6,922
    )
 -87-




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##### Table of Contents



19. Consolidating guarantor and non-guarantor financial information (continued): J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
Consolidating Statement of Cash Flows for the Year Ended December 31, 2001
(In thousands) J.L. FrenchAutomotive
    
    
    
    
    
    Non-Castings,
    
    Guarantor
    
    GuarantorInc.
    
    Companies
    
    Companies
    
    Eliminations
    
    ConsolidatedOPERATING ACTIVITIES:Net loss
    
    $
    (6,922
    )
    
    $
    (7,187
    )
    
    $
    (11,424
    )
    
    $
    18,611
    
    
    $
    (6,922
    )Adjustments to reconcile net loss to
net cash provided by operating
activities -Restructuring and impairment charges
    
    
    
    
    
    
    
    
    
    
    4,053
    
    
    
    
    
    
    
    4,053Non-cash interest
    
    
    
    
    
    
    2,745
    
    
    
    (448
    )
    
    
    
    
    
    
    2,297Depreciation and amortization
    
    
    104
    
    
    
    40,062
    
    
    
    10,320
    
    
    
    
    
    
    
    50,486Losses of subsidiaries
    
    
    18,611
    
    
    
    
    
    
    
    
    
    
    
    (18,611
    )
    
    
    Deferred income taxes
    
    
    
    
    
    
    5,406
    
    
    
    565
    
    
    
    
    
    
    
    5,971Changes in other operating items
    
    
    (3,930
    )
    
    
    (18,538
    )
    
    
    2,427
    
    
    
    
    
    
    
    (20,041
    )Net cash provided byNet cash
provided by operating activities
    
    
    7,863
    
    
    
    22,488
    
    
    
    5,493
    
    
    
    
    
    
    
    35,844INVESTING ACTIVITIES:Capital expenditures, net
    
    
    
    
    
    
    (22,111
    )
    
    
    (9,871
    )
    
    
    
    
    
    
    (31,982
    )FINANCING ACTIVITIES:Borrowings on revolving credit
facilities
    
    
    24,500
    
    
    
    
    
    
    
    5,716
    
    
    
    
    
    
    
    30,216Repayments on revolving credit
facilities
    
    
    (19,600
    )
    
    
    
    
    
    
    (2,140
    )
    
    
    
    
    
    
    (21,740
    )Long-term borrowings
    
    
    
    
    
    
    
    
    
    
    4,974
    
    
    
    
    
    
    
    4,974Repayment of long-term borrowings
    
    
    (10,689
    )
    
    
    (1,148
    )
    
    
    (7,433
    )
    
    
    
    
    
    
    (19,270
    )Repurchase of common stock and
subscription receivable payments
    
    
    (2,088
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,088
    )Net cash provided by (used for)
financing activities
    
    
    (7,877
    )
    
    
    (1,148
    )
    
    
    1,117
    
    
    
    
    
    
    
    (7,908
    )EFFECT OF EXCHANGE
RATE CHANGES ON CASH
AND CASH EQUIVALENTS
    
    
    
    
    
    
    
    
    
    
    (952
    )
    
    
    
    
    
    
    (952
    )NET CHANGE IN CASH
AND CASH EQUIVALENTS
    
    
    (14
    )
    
    
    (771
    )
    
    
    (4,213
    )
    
    
    
    
    
    
    (4,998
    )CASH AND CASH EQUIVALENTS:Beginning of year
    
    
    22
    
    
    
    803
    
    
    
    5,228
    
    
    
    
    
    
    
    6,053End of year
    
    $
    8
    
    
    $
    32
    
    
    $
    1,015
    
    
    $
    
    
    
    $
    1,055
 -88-




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##### Table of Contents



J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
Schedule II: Valuation and Qualifying Accounts
(In thousands) Years Ended December 31,2003
    
    2002
    
    2001ALLOWANCE FOR DOUBTFUL ACCOUNTS:Balance, at beginning of year
    
    $
    1,777
    
    
    $
    2,081
    
    
    $
    2,502Additions, charged to income
    
    
    789
    
    
    
    
    
    
    
    Write-offs, net of recoveries
    
    
    
    
    
    
    (304
    )
    
    
    (421
    )Balance, at end of year
    
    $
    2,566
    
    
    $
    1,777
    
    
    $
    2,081RESERVE FOR LOSS CONTRACTS(1):Balance, at beginning of year
    
    $
    2,797
    
    
    $
    8,870
    
    
    $
    36,490Additions, charged to income
    
    
    
    
    
    
    175
    
    
    
    1,825Other additions (reductions)
    
    
    
    
    
    
    (1,132
    )
    
    
    (8,306
    )Utilizations
    
    
    (2,216
    )
    
    
    (5,116
    )
    
    
    (21,139
    )Balance, at end of year
    
    $
    581
    
    
    $
    2,797
    
    
    $
    8,870RESTRUCTURING RESERVE:Balance, at beginning of year
    
    $
    3,355
    
    
    $
    
    
    
    $
    Additions, charged to income
    
    
    580
    
    
    
    3,355
    
    
    
    Other additions (reversals)
    
    
    (992
    )
    
    
    
    
    
    
    Utilizations
    
    
    (1,794
    )
    
    
    
    
    
    
    Balance, at end of year
    
    $
    1,149
    
    
    $
    3,355
    
    
    $
    
  (1)
    
    In certain instances, the Company is committed under existing agreements
to supply products to its customers at selling prices which are not
sufficient to cover the costs to produce such product. In such
situations, the Company records a liability for the estimated future
amount of losses. Such losses are recognized at the time that the loss is
probable and reasonably estimatable and are recorded at the minimum amount
necessary to fulfill the Companys obligation to the customer. Losses are
estimated based upon information available at the time of the estimate,
including future production volume estimates, length of the program and
selling price and product information, and adjusted as new facts are
determined. The remaining liability was approximately $0.6 million and
$2.8 million as of December 31, 2003 and 2002, respectively. Of these
amounts, $0.4 million and $1.2 million are included in other noncurrent
liabilities in the accompanying consolidated balance sheets as of December
31, 2003 and 2002, respectively. -89-