Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE PERIOD ENDED JUNE 30,
2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE NUMBER 0-3252
LEXINGTON PRECISION CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 22-1830121
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
767 THIRD AVENUE, NEW YORK, NY 10017
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
(212) 319-4657
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS, AND FORMER FISCAL YEAR, IF CHANGED
SINCE LAST REPORT DATE)
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_
COMMON STOCK, $0.25 PAR VALUE, 4,828,036 SHARES AS OF AUGUST 12, 2002
(INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE)
LEXINGTON PRECISION CORPORATION
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements............................................................................ 1
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................................................... 16
Item 3. Quantitative and Qualitative Disclosures about Market Risk..................................... 31
PART II. OTHER INFORMATION
Item 3. Defaults on Senior Securities.................................................................. 33
Item 4. Submission of Matters to a Vote of Security Holders............................................ 33
Item 6. Exhibits and Reports on Form 8-K............................................................... 34
-i-
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LEXINGTON PRECISION CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
--------------------------------------------------
2002 2001 2002 2001
---------------------- -----------------------
Net sales $ 32,996 $ 33,831 $ 63,240 $ 66,799
Cost of sales 28,356 28,193 55,632 56,742
--------- -------- --------- ---------
Gross profit 4,640 5,638 7,608 10,057
Selling and administrative expenses 2,349 2,651 4,604 5,126
Plant closure costs 87 - 609 -
--------- -------- --------- ---------
Income from operations 2,204 2,987 2,395 4,931
Interest expense 1,967 2,152 3,763 4,477
--------- -------- --------- ---------
Income (loss) before income taxes 237 835 (1,368) 454
Income tax provision 30 80 51 80
--------- -------- --------- ---------
Net income (loss) $ 207 $ 755 $ (1,419) $ 374
========= ======== ========= =========
Per share data:
Basic and diluted net income (loss) applicable to
common stockholders $ 0.04 $ 0.16 $ (0.29) $ 0.08
========= ======== ========= =========
See notes to consolidated financial statements.
-1-
LEXINGTON PRECISION CORPORATION
CONSOLIDATED BALANCE SHEET
(THOUSANDS OF DOLLARS)
(UNAUDITED)
JUNE 30, DECEMBER 31,
2002 2001
----------- -----------
ASSETS:
Current assets:
Cash $ 82 $ 189
Marketable securities 1,647 1,274
Accounts receivable 21,440 18,753
Inventories 8,779 8,493
Prepaid expenses and other current assets 2,714 3,523
Deferred income taxes 1,914 1,914
----------- -----------
Total current assets 36,576 34,146
Property, plant, and equipment, net 51,148 55,324
Excess of cost over net assets of businesses acquired 7,831 7,831
Other assets 2,750 2,576
----------- -----------
Total assets $ 98,305 $ 99,877
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT:
Current liabilities:
Accounts payable $ 10,542 $ 12,077
Accrued expenses 17,972 14,586
Short-term debt 76,517 77,794
Current portion of long-term debt 2,181 2,617
----------- -----------
Total current liabilities 107,212 107,074
----------- -----------
Long-term debt, excluding current portion 1,294 2,000
----------- -----------
Deferred income taxes and other long-term liabilities 2,160 2,132
----------- -----------
Series B preferred stock 330 330
----------- -----------
Stockholders' deficit:
Common stock, $0.25 par value, 10,000,000 shares
authorized, 4,828,036 shares issued 1,207 1,207
Additional paid-in-capital 12,960 12,960
Accumulated deficit (27,231) (25,826)
Accumulated other comprehensive income 373 -
----------- -----------
Total stockholders' deficit (12,691) (11,659)
----------- -----------
Total liabilities and stockholders' deficit $ 98,305 $ 99,877
=========== ===========
See notes to consolidated financial statements
-2-
LEXINGTON PRECISION CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30
---------------------------
2002 2001
--------- ---------
OPERATING ACTIVITIES:
Net income (loss) $ (1,419) $ 374
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 5,635 6,031
Amortization included in operating expense 394 600
Amortization included in interest expense 161 94
Changes in operating assets and liabilities that
provided (used) cash:
Accounts receivable (2,687) (4,602)
Inventories (286) 1,138
Prepaid expenses and other current assets 819 (76)
Accounts payable (1,368) (3,398)
Accrued expenses 3,386 2,583
Other 497 (13)
--------- ---------
Net cash provided by operating activities 5,132 2,731
--------- ---------
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (1,873) (2,001)
Net decrease (increase) in equipment deposits 39 (593)
Expenditures for tooling owned by customers (518) (242)
Other (10) 44
--------- ---------
Net cash used by investing activities (2,362) (2,792)
--------- ---------
FINANCING ACTIVITIES:
Net increase in loans under revolving line of credit 2,431 2,646
Proceeds from issuance of long-term debt - 2,000
Repayment of long-term debt (5,069) (4,386)
Other (239) (123)
--------- ---------
Net cash provided (used) by financing activities (2,877) 137
--------- ---------
Net increase (decrease) in cash (107) 76
Cash at beginning of period 189 65
--------- ---------
Cash at end of period $ 82 $ 141
========= =========
See notes to consolidated financial statements.
-3-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The unaudited interim consolidated financial statements include the
accounts of Lexington Precision Corporation and its subsidiaries (collectively,
the "Company"). The consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Accordingly, the consolidated financial statements do not include all the
information and footnotes included in the Company's annual consolidated
financial statements. Significant accounting policies followed by the Company
are set forth in Note 1 to the consolidated financial statements in the
Company's annual report on Form 10-K for the year ended December 31, 2001.
Subject to the Company's ability to successfully restructure its
indebtedness as discussed below, in the opinion of management, the unaudited
interim consolidated financial statements contain all adjustments necessary to
present fairly the financial position of the Company at June 30, 2002, and the
Company's results of operations and cash flows for the three-month and six-month
periods ended June 30, 2002 and 2001. All such adjustments were of a normal,
recurring nature.
The results of operations for the three-month and six-month periods
ended June, 2002, are not necessarily indicative of the results to be expected
for the full year or for any succeeding quarter.
Certain amounts in the prior year financial statements have been
reclassified to conform to the current year's presentation.
The Company's consolidated financial statements have been presented on
a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company's
ability to refinance, extend, amend, or exchange approximately $80,000,000 of
short-term debt, as more fully described below, is subject to risks and
uncertainties. As a result, there is substantial doubt about the Company's
ability to continue as a going concern. The consolidated financial statements do
not include any adjustments to the amounts or classification of assets or
liabilities to reflect this uncertainty.
The Company has been in default on its 12-3/4% senior subordinated
notes since February 1, 2000, when it did not make the payments of principal, in
the amount of $27,412,000, and interest, in the amount of $1,748,000, that were
due on that date. On July 10, 2002, the Company commenced an exchange offer for
the 12-3/4% senior subordinated notes. If the exchange offer is consummated, at
least 99% of the 12-3/4% senior subordinated notes will be exchanged for new
11-1/2% senior subordinated notes due August 1, 2007, in a principal amount
equal to the principal amount of the 12-3/4% senior subordinated notes being
exchanged plus the accrued and unpaid interest thereon through April 30, 2002,
which accrued interest totals $350.625 for each $1,000 principal amount of
12-3/4% senior subordinated notes. Interest on the 11-1/2% senior subordinated
notes will accrue from May 1, 2002, and will be payable on each August 1,
November 1, February 1, and May 1. Each $1,000 principal amount of 11-1/2%
senior subordinated notes will be issued with warrants to purchase ten shares of
common stock at a price of $3.50 per share at any time from January 1, 2004,
through August 1, 2007. If the exchange offer is consummated, the Company will
pay a participation fee of 3% of the principal amount of 12-3/4% senior
subordinated notes that are exchanged. The consummation of the exchange offer is
conditioned upon, among other things, the valid tender for exchange of at least
99% of the senior subordinated notes. The company's senior, secured lenders have
waived the cross-default provisions with respect to the default on the senior
subordinated notes through September 2 or October 31, 2002, and the holder of
the junior subordinated notes has
-4-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
waived the cross-default provisions with respect to the default on the senior
subordinated notes through November 1, 2002. The current expiration date of the
exchange offer is August 30, 2002. As of August 9, 2002, the Company had
received valid tenders of 12-3/4% senior subordinated notes in the principal
amount of $27,098,000 or 98.9% of the notes.
The Company has also reached an agreement with the holders of its 14%
junior subordinated notes on the terms of a restructuring of those notes. If the
restructuring is completed, the Company will exchange new 12-1/2% junior
subordinated notes due November 1, 2007, for the $347,000 principal amount of
existing 14% junior subordinated notes and the accrued interest thereon for the
period November 1, 1999, through April 30, 2002, which totals $156,000. Interest
on the 12-1/2% junior subordinated notes will accrue from May 1, 2002, and will
be payable on each August 1, November 1, February 1, and May 1. Each $1,000
principal amount of 12-1/2% junior subordinated notes will be issued together
with warrants to purchase ten shares of common stock at a price of $3.50 per
share at any time from January 1, 2004, through November 1, 2007. If the
restructuring is completed, the Company also will pay a participation fee of 3%
of the principal amount of 14% junior subordinated notes.
The completion of the proposed restructuring of the 12-3/4% senior
subordinated notes and the 14% junior subordinated notes is subject to a number
of conditions precedent, including the restructuring of the Company's
outstanding $7,500,000 senior, unsecured note on satisfactory terms. The Company
has proposed that the senior, unsecured note be restructured to provide for
twenty quarterly principal payments of $375,000 beginning on November 1, 2002,
with a final maturity date of August 1, 2007, interest at the rate of 10-1/2%
per annum, payable quarterly, and a 2% participation fee. On April 30, 2002, the
maturity date of the senior, unsecured note, the holder of the note rejected the
Company's proposal for a restructuring and the Company's request for an interim,
three-month extension. The Company did not pay the principal of the note or the
monthly interest payment of $78,000 on April 30, 2002, and the Company has not
made any interest payments on the note since that date. The Company's senior,
secured lenders have waived the cross-default provisions with respect to the
default on the senior, unsecured note through September 2 or October 31, 2002,
and the holder of the junior subordinated notes has waived the cross-default
provisions with respect to the default on the senior, unsecured note through
November 1, 2002.
Another condition of the proposed restructuring of the 12-3/4% senior
subordinated notes and the 14% junior subordinated notes is the refinancing of
the Company's senior, secured debt on satisfactory terms. The Company is
currently in discussions with several lenders regarding a refinancing of its
senior, secured credit facilities.
The Company can give no assurance that it will be able to consummate
the exchange offer, restructure the senior, unsecured note, or refinance its
senior, secured financing arrangements on terms satisfactory to the Company. If
the Company is unable to do so, it may file a petition under the federal
bankruptcy code in order to carry out a debt restructuring plan on terms
substantially similar to those discussed above or on other terms. Although the
Company believes that such a restructuring could be accomplished without
material disruption to its operations, any such proceeding involves considerable
risks and uncertainties and could have a material adverse effect on the
Company's operations and financial position.
-5-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 -- INVENTORIES
Inventories at June 30, 2002, and December 31, 2001, are set forth
below (dollar amounts in thousands):
JUNE 30, DECEMBER 31,
2002 2001
---------- ----------
Finished goods $ 2,923 $ 3,727
Work in process 2,908 2,060
Raw materials and purchased parts 2,948 2,706
---------- ----------
$ 8,779 $ 8,493
========== ==========
NOTE 3 -- PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at June 30, 2002, and December 31, 2001,
are set forth below (dollar amounts in thousands):
JUNE 30, DECEMBER 31,
2002 2001
Land $ 2,309 $ 2,309
Buildings 22,745 22,601
Equipment 110,260 111,206
---------- ----------
135,314 136,116
Accumulated depreciation 84,166 80,792
---------- ----------
Property, plant, and equipment, net $ 51,148 $ 55,324
========== ==========
NOTE 4 -- ACCRUED EXPENSES
At June 30, 2002, and December 31, 2001, accrued expenses included
accrued interest expense of $10,771,000 and $8,738,000, respectively. Of those
amounts, $10,321,000 and $8,446,000, respectively, was accrued interest on the
12-3/4% senior subordinated notes.
-6-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 -- DEBT
Debt at June 30, 2002, and December 31, 2001, is set forth below
(dollar amounts in thousands):
JUNE 30, DECEMBER 31,
2002 2001
-------- ---------
Short-term debt:
Revolving line of credit $ 18,616 $ 16,185
Secured, amortizing term loans 22,642 26,350
Senior, unsecured note 7,500 7,500
Senior subordinated notes 27,412 27,412
Junior subordinated notes 347 347
-------- ---------
Subtotal 76,517 77,794
Current portion of long-term debt 2,181 2,617
-------- ---------
Total short-term debt $ 78,698 $ 80,411
======== =========
Long-term debt:
12% secured term note $ 1,231 $ 1,336
Unsecured, amortizing term notes 1,839 2,868
Other 405 413
-------- ---------
Subtotal 3,475 4,617
Less current portion (2,181) (2,617)
-------- ---------
Total long-term debt $ 1,294 $ 2,000
======== =========
REVOLVING LINE OF CREDIT
On June 28, 2002, the Company and the lenders providing loans under the
Company's revolving line of credit agreed to extend the expiration date of the
revolving line of credit from July 1, 2002, to September 2, 2002. The Company
intends to replace the revolving line of credit with a line of credit provided
by a new lender or to negotiate an extension of the September 2 expiration date
with its existing lender. The Company can give no assurance that it will be able
to replace or extend the line of credit.
At June 30, 2002, availability under the revolving line of credit
totaled $1,197,000, before outstanding checks of $1,083,000 were deducted. At
June 30, 2002, the interest rates on loans outstanding under the revolving line
of credit were the London Interbank Offered Rate (LIBOR) plus 2.5% and the prime
rate.
The loans outstanding under the Company's revolving line of credit are
collateralized by substantially all of the assets of the Company, including
accounts receivable, inventories, equipment, certain real estate, and the stock
of Lexington Rubber Group, Inc., a subsidiary of the Company.
The lenders providing loans under the Company's revolving line of
credit and the lenders providing secured, amortizing term loans have waived the
cross-default provisions with respect to the defaults on the senior subordinated
notes and the senior, unsecured note through September 2 or October 31, 2002.
-7-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SECURED, AMORTIZING TERM LOANS
Secured, amortizing term loans outstanding at June 30, 2002, and
December 31, 2001, are set forth below (dollar amounts in thousands):
JUNE 30, DECEMBER 31,
2002 2001
--------- ----------
Term loans payable in equal monthly principal installments based on
a 180-month amortization schedule, final maturities in 2002, 8.37% $ 2,104 $ 2,221
Term loans payable in equal monthly principal installments, final
maturities in 2002, LIBOR plus 2-3/4% 56 344
Term loan payable in equal monthly principal installments based on
a 180-month amortization schedule, final maturity in 2002, 9.37% 1,031 1,084
Term loan payable in equal monthly principal installments based on
a 180-month amortization schedule, final maturity in 2002, 9.0% 2,028 2,128
Term loans payable in equal monthly principal installments, final
maturities in 2002, prime rate and LIBOR plus 2-1/2% -0-(1) 305(1)
Term loan payable in equal monthly principal installments, final
maturity in 2003, prime rate 136 227
Term loans payable in equal monthly principal installments, final
maturities in 2003, prime rate and LIBOR plus 2-1/2% 71(1) 131(1)
Term loan payable in equal monthly principal installments, final
maturity in 2003, LIBOR plus 2-3/4% 267 427
Term loans payable in equal monthly principal installments, final
maturities in 2004, LIBOR plus 2-3/4% 643 810
Term loan payable in equal monthly principal installments, final
maturity in 2004, prime rate and LIBOR plus 2-1/2% 521 657
Term loans payable in equal monthly principal installments, final
maturities in 2004, prime rate and LIBOR plus 2-1/2% 5,252(1) 6,325(1)
Term loan payable in equal monthly principal installments, final
maturity in 2005, LIBOR plus 2-1/2% 691 802
Term loan payable in equal monthly principal installments, final
maturity in 2005, prime rate and LIBOR plus 2-1/2% 730(1) 852(1)
Term loan payable in equal monthly principal installments, final
maturity in 2006, prime rate 311 352
Term loans payable in equal monthly principal installments, final
maturities in 2006, prime rate and LIBOR plus 2-1/2% 5,550(1) 6,086(1)
Term loans payable in equal monthly installments, final maturities in
2007, prime rate and LIBOR plus 2-1/2% 3,251(1) 3,599(1)
--------- ----------
$ 22,642 $ 26,350
========= ==========
(1) Maturity date can be accelerated by the lender if the Company's
revolving line of credit expires prior to the stated maturity date
of the term loan. The revolving line of credit is currently
scheduled to mature on September 2, 2002.
-8-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Those portions of the secured, amortizing term loans that are due more
than one year after the date of the consolidated financial statements have been
classified as short-term debt at June 30, 2002, and December 31, 2002, because
the Company's lenders granted waivers, for periods of less than one year, of the
cross-default provisions of such term loans with respect to the default on the
senior subordinated notes and, as of June 30, 2002, the senior, unsecured note,
and because the revolving line of credit was scheduled to expire in less than
one year.
The secured, amortizing term loans are collateralized by substantially
all of the assets of the Company, including accounts receivable, inventories,
equipment, certain real estate, and the stock of Lexington Rubber Group, Inc.
SENIOR, UNSECURED NOTE
The senior, unsecured note, which matured on April 30, 2002, is senior
in right of payment to the senior subordinated notes and the junior subordinated
notes. The senior, unsecured note bore interest at 10-1/2% per annum until
August 1, 2000, when the effective interest rate increased to 12-1/2%. The
Company did not pay the principal of the note or the monthly interest payment of
$78,000 on April 30, 2002, and the Company has not made any interest payments
since that date. For a more detailed discussion of the status of the senior,
unsecured note, refer to Note 1, "Basis of Presentation."
SENIOR SUBORDINATED NOTES
The senior subordinated notes, which matured on February 1, 2000, are
unsecured obligations of the Company that are subordinated in right of payment
to all of the Company's existing and future secured debt and to the payment of
the senior, unsecured note. The senior subordinated notes currently bear
interest at 12-3/4% per annum. On February 1, 2000, the Company did not make the
payments of interest and principal then due on the senior subordinated notes in
the amounts of $1,748,000 and $27,412,000, respectively. For a more detailed
discussion of the status of the senior subordinated notes, refer to Note 1,
"Basis of Presentation."
JUNIOR SUBORDINATED NOTES
The junior subordinated notes are unsecured obligations of the Company.
The junior subordinated notes are due on November 1, 2002, and are subordinated
in right of payment to all existing and future secured debt of the Company, to
the senior, unsecured note, and to the senior subordinated notes. The junior
subordinated notes currently bear interest at 14% per annum. The holder of the
junior subordinated notes has deferred until November 1, 2002, all interest
payments that were due on or after February 1, 2000, and has waived the
cross-default provisions with respect to the defaults on the senior subordinated
notes and the senior, unsecured note through November 1, 2002.
12% SECURED TERM NOTE
The 12% secured term note is payable in sixty equal, monthly
installments of principal and interest that commenced on November 30, 2001. The
12% secured term note has no cross-default provision with respect to the default
on the senior subordinated notes or the senior, unsecured note.
-9-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
UNSECURED, AMORTIZING TERM NOTES
The unsecured, amortizing term notes mature in 2003, and are a series
of notes that are payable in seventeen equal monthly principal installments,
with interest at the prime rate in effect on the day each note was issued.
RESTRICTIVE COVENANTS
Certain of the Company's financing arrangements contain covenants that
set minimum levels of working capital, net worth, and cash flow coverage. The
covenants also place certain restrictions and limitations on the Company's
business and operations, including the incurrence or assumption of additional
debt, the level of past-due accounts payable, the sale of all or substantially
all of the Company's assets, the purchase of plant and equipment, the purchase
of common stock, the redemption of preferred stock, and the payment of cash
dividends. In addition, substantially all of the Company's financing agreements
include cross-default provisions.
From time to time, the Company's lenders have agreed to waive or amend
certain of the financial covenants contained in its various note agreements in
order to maintain or otherwise ensure the Company's current or future
compliance. In the event that the Company is not in compliance with any of its
covenants in the future and its lenders do not agree to amend or waive those
covenants, the lenders would have the right to declare the borrowings under
their note agreements to be due and payable.
NOTE 6 -- SERIES B PREFERRED STOCK
At June 30, 2002, there were outstanding 3,300 shares of the
Company's $8 cumulative convertible preferred stock, series B, par value $100
per share. As a result of the default on the senior subordinated notes, the
Company has been prohibited from making any dividend payments on, or redemptions
of, the series B preferred stock since February 2000. At June 30, 2002, the
Company was in arrears in the payment of ten dividends on the series B preferred
stock in the aggregate amount of $66,000 and in the redemption of 900 shares of
series B preferred stock for $180,000.
NOTE 7 -- INCOME TAXES
At June 30, 2002, and December 31, 2001, the Company's net deferred
income tax assets were fully offset by a valuation allowance.
-10-
NOTE 8 -- NET INCOME (LOSS) PER COMMON SHARE
The calculations of basic and diluted net income or loss per common
share for the three-month and six-month periods ended June 30, 2002 and 2001,
are set forth below (in thousands, except per share amounts). The calculations
of diluted net income or loss per common share do not reflect any pro forma
conversion of the Company's $8 cumulative convertible preferred stock, series B,
because the conversion would not have been dilutive for any of the periods.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
----------------------------------------------
2002 2001 2002 2001
-------------------- ---------------------
Numerator -- income (loss) applicable to common
stockholders $ 207 $ 755 $ (1,419) $ 374
======== ======== ======== =========
Denominator -- weighted average common shares 4,828 4,828 4,828 4,828
======== ======== ======== =========
Basic and diluted net income (loss) per common share $ 0.04 $ 0.16 $ (0.29) $ 0.08
======== ======== ======== =========
-11-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 9 -- SEGMENTS
Information relating to the Company's operating segments and its
corporate office for the three-month and six-month periods ended June 30, 2002
and 2001, is summarized below (dollar amounts in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------------- -------------------------
2002 2001 2002 2001
---------- ----------- ----------- ----------
<
NET SALES:
Rubber Group $ 26,161 $ 24,923 $ 50,114 $ 47,855
Metals Group 6,835 8,908 13,126 18,944
---------- ----------- ----------- ----------
Total net sales $ 32,996 $ 33,831 $ 63,240 $ 66,799
========== =========== =========== ==========
INCOME (LOSS) FROM OPERATIONS:
Rubber Group $ 3,449 $ 3,321 $ 5,939 $ 5,190
Metals Group (492) 328 (2,208) 898
---------- ----------- ----------- ----------
Subtotal 2,957 3,649 3,731 6,088
Corporate office (753) (662) (1,336) (1,157)
---------- ----------- ----------- ----------
Total income from operations $ 2,204 $ 2,987 $ 2,395 $ 4,931
========== =========== =========== ==========
ASSETs:
Rubber Group $ 68,723 $ 74,859 $ 68,723 $ 74,859
Metals Group 24,843 31,894 24,843 31,894
---------- ----------- ----------- ----------
Subtotal 93,566 106,753 93,566 106,753
Corporate office 4,739 3,392 4,739 3,392
---------- ----------- ----------- ----------
Total assets $ 98,305 $ 110,145 $ 98,305 $ 110,145
========== =========== =========== ==========
DEPRECIATION AND AMORTIZATION:
Rubber Group $ 1,947 $ 2,103 $ 3,947 $ 4,304
Metals Group 1,022 1,135 2,050 2,284
---------- ----------- ----------- ----------
Subtotal 2,969 3,238 5,997 6,588
Corporate office 11 21 32 43
---------- ----------- ----------- ----------
Total depreciation and amortization $ 2,980 $ 3,259 $ 6,029 $ 6,631
========== =========== =========== ==========
CAPITAL EXPENDITURES:
Rubber Group $ 903 $ 709 $ 1,566 $ 1,776
Metals Group 244 63 359 222
---------- ----------- ----------- ----------
Subtotal 1,147 772 1,925 1,998
Corporate office - 3 - 3
---------- ----------- ----------- ----------
Total capital expenditures $ 1,147 $ 775 $ 1,925 $ 2,001
========== =========== =========== ==========
The amortization and depreciation set forth in the preceding table does
not include amortization of deferred financing expenses, which totaled $125,000
and $49,000 during the three-month periods ended June 30, 2002 and 2001,
respectively, and $161,000 and $94,000 during the six-month periods ended June
30, 2002 and 2001, respectively. Amortization of deferred financing expense is
included in interest expense in the consolidated financial statements.
-12-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 10 -- PLANT CLOSURE
During the fourth quarter of 2001, the Company was notified that the
Metal Group's largest customer would cease purchasing components from the Metals
Group after December 31, 2001. During 2001, the customer purchased $5,937,000 of
machined metal components that were manufactured primarily at the Company's Casa
Grande, Arizona, facility. As a result of the reduction in sales at the Arizona
facility, the Company closed the facility during the first quarter of 2002 and
recorded, as of December 31, 2001, an impairment charge of $2,047,000 to reduce
to fair market value the carrying value of the Arizona facility's land and
building and certain metal machining equipment currently idled by the loss of
this business. The idled assets are currently classified in property, plant, and
equipment and are being depreciated at the rate of approximately $36,000 per
month. These assets will be reclassified as assets held for sale if and when
they meet the criteria set forth in Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which
the Company adopted on January 1, 2002. At June 30, 2002, the Company had a
reserve of $43,000 for the closure of the Arizona facility, primarily for unpaid
severance benefits.
The following table sets forth certain operating data of the Arizona
facility for the three-month and six-month periods ended June 30, 2002 and 2001
(dollar amounts in thousands).
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
----------- -------- ---------------------
2002 2001 2002 2001
-------- -------- -------- --------
Net sales $ - $ 2,320 $ 332 $ 5,178
======== ======== ======== ========
Operating profit (loss) before plant closure costs $ (235) $ 66 $ (936) $ 318
-------- -------- -------- --------
Plant closure costs:
Severance and other employee termination costs - - 246 -
Asset relocation costs 43 - 209 -
Other costs 44 - 154 -
-------- -------- -------- --------
87 - 609 -
-------- -------- -------- --------
Operating profit (loss) $ (322) $ 66 $ (1,545) $ 318
======== ======== ======== ========
During 2002, operating losses other than plant closure costs resulted
primarily from the underabsorption of operating costs incurred due to minimal
sales and poor operating efficiencies while the facility was being shut down,
and, to a lesser extent, from the cost of maintaining, insuring, protecting, and
depreciating the facility and the equipment remaining in the facility.
-13-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 11 -- COMPREHENSIVE INCOME
During the three-month and six-month periods ended June 30, 2002, the
Company's comprehensive income, other than net income, consisted of unrealized
gains on its marketable securities of $303,000 and $373,000, respectively. No
income tax expense is currently allocable to these unrealized gains.
Comprehensive income for the three-month and six-month periods ended June 30,
2002 and 2001, is set forth below:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------- ---------------------
2002 2001 2002 2001
-------- -------- -------- --------
Net income (loss) $ 207 $ 755 $ (1,419) $ 374
Other comprehensive income:
Unrealized gain on marketable securities 303 - 373 -
-------- -------- -------- --------
Comprehensive income $ 510 $ 755 $ (1,046) $ 374
======== ======== ======== ========
NOTE 12 -- EXCESS OF COST OVER NET ASSETS OF BUSINESS ACQUIRED (GOODWILL)
On January 1, 2002, the Company adopted Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("FAS 142"). The standard, among other things, prohibits the
amortization of goodwill and other intangible assets with indefinite useful
lives, and requires that goodwill and other intangible assets with indefinite
useful lives be reviewed for impairment at least annually and written down to
fair value if found to be impaired. The Company does not possess any intangible
assets with indefinite lives other than goodwill. Prior to the adoption of FAS
No. 142, goodwill was amortized over forty years.
During June 2002, the Company completed the transitional impairment test
of its January 1, 2002, unamortized goodwill balance as required by FAS 142. On
January 1, 2002, $7,831,000 of unamortized goodwill existed on the Company's
books, including $7,623,000 related to the Rubber Group and $208,000 related to
the Metals Group. As a result of the Company's transitional impairment tests,
none of the Company's unamortized goodwill was deemed to be impaired as of
January 1, 2002. The Company will test its goodwill for impairment in the fourth
quarter of 2002 unless there are significant indicators of impairment prior to
that time.
(continued on next page)
-14-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(continued from previous page)
The following table shows the pro forma effect on net income and net
income per share in 2001 if FAS 142 were effective for 2001 and goodwill had not
been amortized.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------- ---------------------
2002 2001 2002 2001
-------- -------- -------- ---------
Net income (loss), as reported $ 207 $ 755 $ (1,419) $ 374
Add back amortization of goodwill, net of income taxes - 79 - 158
-------- -------- -------- ---------
Adjusted net income (loss) $ 207 $ 834 $ (1,419) $ 532
======== ======== ======== =========
Per share data:
Net income (loss) per common share, as reported $ 0.04 $ 0.16 $ (0.29) $ 0.08
Add back amortization of goodwill, net of
income taxes - 0.01 - 0.03
-------- -------- -------- ---------
Adjusted net income (loss) per common share $ 0.04 $ 0.17 $ (0.29) $ 0.11
======== ======== ======== =========
-15-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Some of our statements in this Form 10-Q, including this item, are
"forward-looking statements," as that term is defined in the Private Securities
Litigation Reform Act of 1995. Forward-looking statements usually can be
identified by our use of words like "believes," "expects," "may," "will,"
"should," "anticipates," "estimates," "projects," or the negative thereof. They
may be used when we discuss strategy, which typically involves risk and
uncertainty, and they generally are based upon projections and estimates rather
than historical facts and events.
Forward-looking statements are subject to a number of risks and
uncertainties that could cause our actual results or performance to be
materially different from the future results or performance expressed in or
implied by those statements. Some of those risks and uncertainties are:
- increases and decreases in business awarded to us by our
customers,
- unanticipated price reductions for our products as a result of
competition,
- unanticipated operating results and cash flows,
- increases or decreases in capital expenditures,
- changes in economic conditions,
- strength or weakness in the North American automotive market,
- changes in the competitive environment,
- changes in interest rates and the credit and securities
market,
- the possibility of product warranty claims,
- labor interruptions at our facilities or at our customers'
facilities,
- the impact on our operations of the defaults on our
indebtedness and the delays in paying our accounts payable,
and
- our inability to obtain additional borrowings or to refinance
our existing indebtedness.
Because we have substantial borrowings for a company our size and
because those borrowings require us to make substantial interest and principal
payments, any negative event may have a greater adverse effect upon us than it
would have upon a company of the same size that has less debt.
Our results of operations for any particular period are not necessarily
indicative of the results to be expected for any one or more succeeding periods.
The use of forward-looking statements should not be regarded as a representation
that any of the projections or estimates expressed in or implied by those
forward-looking statements will be realized, and actual results may vary
materially. We cannot assure you that any of the forward-looking statements
contained herein will prove to be accurate. All forward-looking statements are
expressly qualified by the discussion above.
Our consolidated financial statements have been presented on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business.
-16-
Our ability to refinance, extend, amend, or exchange approximately $80,000,000
of short-term debt, as more fully described below, is subject to risks and
uncertainties. As a result, there is substantial doubt about our ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments to the amounts or classification of assets or
liabilities to reflect this uncertainty.
RESULTS OF OPERATIONS -- SECOND QUARTER OF 2002 VERSUS SECOND QUARTER OF 2001
The following table sets forth our consolidated operating results for
the second quarters of 2002 and 2001 (dollar amounts in thousands):
THREE MONTHS ENDED JUNE 30
-------------------- ------------------
2002 2001
------------------ ------------------
Net sales $32,996 100.0% $33,831 100.0%
Cost of sales 28,356 85.9 28,193 83.3
------- ---- ------- ---
Gross profit 4,640 14.1 5,638 16.7
Selling and administrative expenses 2,349 7.1 2,651 7.8
Plant closure costs (1) 87 0.3 -- --
------- ---- ------- ---
Income from operations 2,204 6.7 2,987 8.9
Add back depreciation and amortization (2) 2,980 9.0 3,259 9.6
------- ---- ------- ---
Earnings before interest, taxes, depreciation,
and amortization (EBITDA) (3) 5,184 15.7 6,246 18.5
Proforma adjustments for certain nonrecurring expenses:
Plant closure costs (1) 87 0.3 -- --
------- ---- ------- ---
Adjusted EBITDA (3) $ 5,271 16.0% $ 6,246 18.5%
======= ==== ======= ===
Net cash provided by operating
activities (4) $ 3,522 10.7% $ 1,635 4.8%
======= ==== ======= ===
(1) During the first quarter of 2002, we closed our metal machining facility
in Casa Grande, Arizona. As of December 31, 2001, we recorded a provision
of $2,047,000 to write down the value of certain of the facility's assets
to fair value, and during the second quarter of 2002, we incurred charges
of $87,000 to close the facility. For more information, refer to the
discussion of the results of operations of the Metals Group in this
section.
(2) Does not include amortization of deferred financing expenses, which
totaled $125,000 and $49,000 during the second quarters of 2002 and 2001,
respectively, and which is included in interest expense in the
consolidated financial statements.
-17-
(3) Earnings before interest, taxes, depreciation, and amortization, which is
commonly referred to as EBITDA, is not a measure of performance under
accounting principles generally accepted in the United States and should
not be considered in isolation or used as a substitute for income from
operations, net income, net cash provided by operating activities, or
other operating or cash flow statement data prepared in accordance with
generally accepted accounting principles. We use the term adjusted EBITDA
to refer to EBITDA adjusted to exclude nonrecurring items of expense.
During the second quarter of 2002, adjusted EBITDA excluded the
nonrecurring charges incurred to close the Company's facility in Casa
Grande, Arizona. We have presented EBITDA and adjusted EBITDA here and
elsewhere in this Form 10-Q because we believe that these measures are
used by investors as supplemental information to evaluate the operating
performance of a business, including its ability to incur and to service
debt. In addition, our definition of EBITDA and adjusted EBITDA may not be
the same as the definition of EBITDA and adjusted EBITDA used by other
companies.
(4) The calculation of net cash provided by operating activities is detailed
in the consolidated statement of cash flows that is part of our
consolidated financial statements in Part I, Item 1.
Our net sales for the second quarter of 2002 were $32,996,000, compared
to net sales of $33,831,000 for the second quarter of 2001, a decrease of
$835,000, or 2.5%. The decrease in second quarter net sales was principally a
result of a $2,320,000 reduction in sales at our Arizona facility, which we
closed during the first quarter of 2002. EBITDA, excluding the $87,000 of plant
closure costs, for the second quarter of 2002 was $5,271,000, or 16.0% of net
sales, compared to $6,246,000, or 18.5% of net sales, for the second quarter of
2001. This reduction resulted primarily from the closing of the Arizona
facility.
The discussion that follows sets forth our analysis of the operating
results of the Rubber Group, the Metals Group, and the corporate office for the
three-month periods ended June 30, 2002 and 2001.
-18-
RUBBER GROUP
The Rubber Group manufactures silicone and organic rubber components
primarily for automotive industry customers. Any material reduction in the level
of activity in the automotive industry may have a material adverse effect on the
results of operations of the Rubber Group and on our company taken as a whole.
The following table sets forth the operating results of the Rubber
Group for the second quarters of 2002 and 2001 (dollar amounts in thousands):
THREE MONTHS ENDED JUNE 30
-----------------------------------------
2002 2001
------------------ ------------------
Net sales $ 26,161 100.0% $ 24,923 100.0%
Cost of sales 21,515 82.2 20,214 81.1
-------- ---- -------- ----
Gross profit 4,646 17.8 4,709 18.9
Selling and administrative expenses 1,197 4.6 1,388 5.6
-------- ---- -------- ----
Income from operations 3,449 13.2 3,321 13.3
Add back depreciation and amortization 1,947 7.4 2,103 8.5
-------- ---- -------- ----
EBITDA $ 5,396 20.6% $ 5,424 21.8%
======== ==== ======== ====
During the second quarter of 2002, net sales of the Rubber Group
increased by $1,238,000, or 5.0%, compared to the second quarter of 2001. This
increase was primarily due to increased unit sales of connector seals for
automotive wiring systems, insulators for automotive ignition wire sets, and
components for medical devices, offset, in part, by price reductions on certain
automotive components.
Cost of sales as a percentage of net sales increased during the second
quarter of 2002 to 82.2% of net sales from 81.1% of net sales during the second
quarter of 2001, due, in part, to higher maintenance expenses and reduced
efficiencies associated with repairs initiated on certain tooling.
Selling and administrative expenses as a percentage of net sales
decreased during the second quarter of 2002, compared to the second quarter of
2001, primarily because of reduced international selling expenses, and the
elimination of the amortization of goodwill as required by Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets,"
which we adopted on January 1, 2002.
During the second quarter of 2002, income from operations totaled
$3,449,000, an increase of $128,000, or 3.9%, compared to the second quarter of
2001. EBITDA for the second quarter of 2002 was $5,396,000, or 20.6% of net
sales, compared to $5,424,000, or 21.8% of net sales, for the second quarter of
2001.
-19-
METALS GROUP
The Metals Group manufactures aluminum die castings and machines
components from aluminum, brass, and steel bars, primarily for automotive
industry customers. Any material reduction in the level of activity in the
automotive industry may have a material adverse effect on the results of
operations of the Metals Group and on our company taken as a whole.
The following table sets forth the operating results of the Metals
Group for the second quarters of 2002 and 2001 (dollar amounts in thousands):
THREE MONTHS ENDED JUNE 30
-----------------------------------------
2002 2001
------------------- ------------------
Net sales $ 6,835 100.0% $ 8,908 100.0%
Cost of sales 6,841 100.1 7,979 89.6
------- ----- ------- -----
Gross profit (loss) (6) (0.1) 929 10.4
Selling and administrative expenses 399 5.8 601 6.7
Plant closure costs 87 1.3 -- --
------- ----- ------- -----
Income (loss) from operations (492) (7.2) 328 3.7
Add back depreciation and amortization 1,022 14.9 1,135 12.7
------- ----- ------- -----
EBITDA 530 7.7 1,463 16.4
Proforma adjustments for certain nonrecurring expenses:
Plant closure costs 87 1.3 -- --
------- ----- ------- ----
Adjusted EBITDA $ 617 9.0% $ 1,463 16.4%
======= ===== ======= =====
During the fourth quarter of 2001, we were notified that the Metal
Group's largest customer would cease purchasing components from the Metals Group
after December 31, 2001. During 2001, this customer purchased $5,937,000 of
machined metal components, which were manufactured primarily at our Casa Grande,
Arizona, facility. As a result of the reduction in sales at the Arizona
facility, we closed the facility during the first quarter of 2002 and recorded,
as of December 31, 2001, an impairment charge of $2,047,000 to reduce to fair
market value the carrying value of the Arizona facility's land and building and
certain metal machining equipment currently idled by the loss of this business.
The land, building, and equipment idled by the loss of business is currently
classified in property, plant, and equipment and is being depreciated at the
rate of approximately $36,000 per month. These assets will be reclassified as
assets held for sale if and when they meet the criteria set forth in Statement
of Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," which we adopted on January 1, 2002.
-20-
The following table sets forth certain operating data of the Arizona
facility for the second quarters of 2002 and 2001 (dollar amounts in thousands):
THREE MONTHS ENDED
JUNE 30
--------------------
2002 2001
-------- --------
Net sales $ - $ 2,320
======== ========
Operating profit (loss) before plant closure costs $ (235) $ 66
-------- --------
Plant closure costs:
Asset relocation costs 43 -
Other costs 44 -
-------- --------
87 -
-------- --------
Operating profit (loss) (322) 66
Add back depreciation and amortization 101 418
-------- --------
EBITDA $ (221) $ 484
======== ========
During 2002, operating losses other than plant closure costs resulted
primarily from the underabsorption of operating costs incurred due to minimal
sales and poor operating efficiencies while the facility was being shut down,
and, to a lesser extent, from the cost of maintaining, insuring, protecting, and
depreciating the facility and the equipment remaining in the facility.
During the second quarter of 2002, net sales of the Metals Group
decreased by $2,073,000, or 23.3%, compared to the second quarter of 2001. The
decrease resulted from reduced sales of machined metal components due to the
loss, effective December 31, 2001, of the Metals Group's largest customer.
Cost of sales, as a percentage of net sales increased during the second
quarter of 2002 to 100.1% of net sales from 89.6% of net sales during the second
quarter of 2001, primarily due to the second quarter operating loss incurred at
the Arizona facility, which was closed during the first quarter of 2002, excess
costs and production inefficiencies caused by the transfer of certain business
and equipment from Arizona to the Rochester, New York, facility, and higher
material costs resulting from the delayed pass-through of increased aluminum
prices to customers.
Selling and administrative expenses as a percentage of net sales
decreased during the second quarter of 2002 compared to the second quarter of
2001, primarily because of the closing of the Arizona facility.
During the second quarter of 2002, the loss from operations was
$492,000 compared to income from operations of $328,000 during the second
quarter of 2001. Excluding the $87,000 of plant closure costs, the loss from
operations during the second quarter of 2002, was $405,000. EBITDA, excluding
the $87,000 of plant closure costs, for the second quarter of 2002 was $617,000,
or 9.0% of net sales, compared to $1,463,000, or 16.4% of net sales, for the
second quarter of 2001.
-21-
CORPORATE OFFICE
Corporate office expenses, which are not included in the operating
results of the Rubber Group or the Metals Group, represent administrative
expenses incurred primarily at our New York and Cleveland offices. Corporate
office expenses are consolidated with the selling and administrative expenses of
the Rubber Group and the Metals Group in our consolidated financial statements.
The following table sets forth the operating results of the corporate
office for the second quarters of 2002 and 2001 (dollar amounts in thousands):
THREE MONTHS ENDED
JUNE 30
--------------------
2002 2001
------- --------
Loss from operations $ (753) $ (662)
Add back depreciation and amortization 11 21
------- --------
EBITDA $ (742) $ (641)
======= ========
During the second quarter of 2002, corporate office expenses increased
compared to the second quarter of 2001, primarily because of accruals for
incentive compensation.
INTEREST EXPENSE
During the second quarters of 2002 and 2001, interest expense totaled
$1,967,000 and $2,152,000, respectively, which included amortization of deferred
financing expenses of $125,000 and $49,000, respectively. The decrease in
interest expense was caused primarily by lower rates of interest on our floating
rate indebtedness.
INCOME TAX PROVISION
At June 30, 2002, and December 31, 2001, our net deferred income tax
assets were fully offset by a valuation allowance.
-22-
RESULTS OF OPERATIONS -- FIRST SIX MONTHS OF 2002 VERSUS FIRST SIX MONTHS OF
2001
The following table sets forth our consolidated operating results for
the first six months of 2002 and 2001 (dollar amounts in thousands):
SIX MONTHS ENDED JUNE 30
---------------------------------------
2002 2001
------------------ ------------------
Net sales $63,240 100.0% $66,799 100.0%
Cost of sales 55,632 88.0 56,742 84.9
------- ----- ------- ---
Gross profit 7,608 12.0 10,057 15.1
Selling and administrative expenses 4,604 7.3 5,126 7.7
Plant closure costs (1) 609 0.9 -- --
------- ----- ------- ---
Income from operations 2,395 3.8 4,931 7.4
Add back depreciation and amortization (2) 6,029 9.5 6,631 9.9
------- ----- ------- ---
EBITDA (3) 8,424 13.3 11,562 17.3
Proforma adjustments for certain nonrecurring expenses:
Plant closure costs (1) 609 0.9 -- --
------- ----- ------- ---
Adjusted EBITDA (3) $ 9,033 14.2% $11,562 17.3%
======= ===== ======= ===
Net cash provided by operating activities (4) $ 5,132 8.1% $ 2,731 4.1%
======= ===== ======= ===
(1) During the first quarter of 2002, we closed our metal machining
facility in Casa Grande, Arizona. As of December 31, 2001, we
recorded a provision of $2,047,000 to write down the value of
certain of the facility's assets to fair value, and during the first
six months of 2002, we incurred charges of $609,000 to close the
facility. For more information, refer to the discussion of the
results of operations of the Metals Group in this section.
(2) Does not include amortization of deferred financing expenses, which
totaled $161,000 and $94,000 during the first six months of 2002 and
2001, respectively, and which is included in interest expense in the
consolidated financial statements.
(3) Earnings before interest, taxes, depreciation, and amortization,
which is commonly referred to as EBITDA, is not a measure of
performance under accounting principles generally accepted in the
United States and should not be considered in isolation or used as a
substitute for income from operations, net income, net cash provided
by operating activities, or other operating or cash flow statement
data prepared in accordance with generally accepted accounting
principles. We use the term adjusted EBITDA to refer to
-23-
EBITDA adjusted to exclude nonrecurring items of expense. During the
first six-months of 2002, adjusted EBITDA excluded the nonrecurring
charges incurred to close the Company's facility in Casa Grande,
Arizona. We have presented EBITDA and adjusted EBITDA here and
elsewhere in this Form 10-Q because we believe that these measures
are used by investors as supplemental information to evaluate the
operating performance of a business, including its ability to incur
and to service debt. In addition, our definition of EBITDA and
adjusted EBITDA may not be the same as the definition of EBITDA and
adjusted EBITDA used by other companies.
(4) The calculation of net cash provided by operating activities is
detailed in the consolidated statement of cash flows that is part of
our consolidated financial statements in Part I, Item 1.
Our net sales for the first six months of 2002 were $63,240,000,
compared to net sales of $66,799,000 for the first six months of 2001, a
decrease of $3,559,000, or 5.3%. The decrease in net sales was principally a
result of a $4,846,000 reduction in sales at our Arizona facility, which we
closed during the first quarter of 2002. EBITDA, excluding the $609,000 of plant
closure costs, for the first six months of 2002 was $9,033,000, or 14.2% of net
sales, compared to $11,562,000, or 17.3% of net sales, for the first six months
of 2001. This reduction was principally a result of the expenses related to the
closing of the Arizona facility and the transfer of certain equipment and
business to our Rochester, New York, facility.
The discussion that follows sets forth our analysis of the operating
results of the Rubber Group, the Metals Group, and the corporate office for the
six-month periods ended June 30, 2002 and 2001.
-24-
RUBBER GROUP
The Rubber Group manufactures silicone and organic rubber components
primarily for automotive industry customers. Any material reduction in the level
of activity in the automotive industry may have a material adverse effect on the
results of operations of the Rubber Group and on our company taken as a whole.
The following table sets forth the operating results of the Rubber
Group for the first six months of 2002 and 2001 (dollar amounts in thousands):
SIX MONTHS ENDED JUNE 30
-----------------------------------------
2002 2001
------------------ ------------------
Net sales $ 50,114 100.0% $ 47,855 100.0%
Cost of sales 41,851 83.5 39,964 83.5
-------- ----- -------- -----
Gross profit 8,263 16.5 7,891 16.5
Selling and administrative expenses 2,324 4.6 2,701 5.7
-------- ----- -------- -----
Income from operations 5,939 11.9 5,190 10.8
Add back depreciation and amortization 3,947 7.8 4,304 9.0
-------- ----- -------- -----
EBITDA $ 9,886 19.7% $ 9,494 19.8%
======== ===== ======== =====
During the first six months of 2002, net sales of the Rubber Group
increased by $2,259,000, or 4.7%, compared to the first six months of 2001. This
increase was primarily due to increased unit sales of connector seals for
automotive wiring systems and components for medical devices, offset, in part,
by price reductions on certain automotive components.
Cost of sales as a percentage of net sales during the first six months
of 2002 was 83.5% of net sales, unchanged from the first six months of 2001.
Selling and administrative expenses as a percentage of net sales
decreased during the first six months of 2002, compared to the first six months
of 2001, primarily because of reduced international selling expenses, and the
elimination of the amortization of goodwill as required by Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets,"
which we adopted January 1, 2002.
For the reasons stated above, during the first six months of 2002,
income from operations totaled $5,939,000, an increase of $749,000, or 14.4%,
compared to the first six months of 2001. EBITDA for the first six months of
2002 was $9,886,000, or 19.7% of net sales, compared to $9,494,000, or 19.8% of
net sales, for the first six months of 2001.
-25-
METALS GROUP
The Metals Group manufactures aluminum die castings and machines
components from aluminum, brass, and steel bars, primarily for automotive
industry customers. Any material reduction in the level of activity in the
automotive industry may have a material adverse effect on the results of
operations of the Metals Group and on our company taken as a whole.
The following table sets forth the operating results of the Metals
Group for the first six months of 2002 and 2001 (dollar amounts in thousands):
SIX MONTHS ENDED JUNE 30
-----------------------------------------
2002 2001
------------------ ------------------
Net sales $ 13,126 100.0% $ 18,944 100.0%
Cost of sales 13,781 105.0 16,778 88.6
--------- ----- --------- -----
Gross profit (loss) (655) (5.0) 2,166 11.4
Selling and administrative expenses 944 7.2 1,268 6.7
Plant closure costs 609 4.6 - -
--------- ----- --------- -----
Income (loss) from operations (2,208) (16.8) 898 4.7
Add back depreciation and amortization 2,050 15.6 2,284 12.1
--------- ----- --------- -----
EBITDA (158) (1.2) 3,182 16.8
Proforma adjustments for certain nonrecurring expenses:
expenses:
Plant closure costs 609 4.6 - -
--------- ----- --------- -----
Adjusted EBITDA $ 451 3.4% $ 3,182 16.8%
========= ===== ========= =====
As previously discussed, during the fourth quarter of 2001, we were
notified that the Metal Group's largest customer would cease purchasing
components from the Metals Group after December 31, 2001. During 2001, the
customer purchased $5,937,000 of machined metal components that were
manufactured primarily at the Company's Casa Grande, Arizona, facility. As a
result of the reduction in sales at the Arizona facility, we closed the facility
during the first quarter of 2002 and recorded, as of December 31, 2001, an
impairment charge of $2,047,000 to reduce to fair market value the carrying
value of the Arizona facility's land and building and certain metal machining
equipment currently idled by the loss of this business. The idled assets are
currently classified in property, plant, and equipment and are being depreciated
at the rate of approximately $36,000 per month. These assets will be
reclassified as assets held for sale if and when they meet the criteria set
forth in Statement of Financial Accounting Standards No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets," which we adopted on January 1,
2002. At June 30, 2002, we had a reserve of $43,000 for the closure of the
Arizona facility, primarily for unpaid severance benefits.
-26-
The following table sets forth certain operating data of the Arizona
facility for the first six months of 2002 and 2001 (dollar amounts in
thousands):
SIX MONTHS ENDED
JUNE 30
-------
2002 2001
---- ----
Net sales $ 332 $5,178
====== ======
Operating profit (loss) before plant $ (936) $ 318
closure costs ------ ------
Plant closure costs:
Severance and other employee 246
termination costs
Asset relocation costs 209 --
Other costs 154 --
------ ------
609 --
------ ------
Operating profit (loss) (1,545) 318
Add back depreciation and amortization 366 841
------ ------
EBITDA $(1,179) $1,159
====== ======
During 2002, operating losses other than plant closure costs resulted
primarily from the underabsorption of operating costs incurred due to minimal
sales and poor operating efficiencies while the facility was being shut down,
and, to a lesser extent, from the cost of maintaining, insuring, protecting, and
depreciating the facility and the equipment remaining in the facility.
During the first six months of 2002, net sales of the Metals Group
decreased by $5,818,000, or 30.7%, compared to the first six months of 2001. The
decrease resulted from reduced sales of machined metal components due to the
departure, effective December 31, 2001, of the Metals Group's largest customer
and reduced sales to certain customers who had accumulated excess amounts of
inventory in prior periods.
Cost of sales as a percentage of net sales increased during the first six
months of 2002 to 105.0% of net sales from 88.6% of net sales during the first
six months of 2001, primarily due to the first six months operating loss
incurred at the Arizona facility, which resulted primarily from minimal sales
and poor operating efficiencies while the facility was being closed, excess
costs and production inefficiencies caused by the transfer of certain business
and equipment from Arizona to the Rochester, New York, facility, and the cost of
maintaining, insuring, protecting, and depreciating the facility and equipment
remaining in the Arizona facility.
Selling and administrative expenses as a percentage of net sales increased
during the first six months of 2002 compared to the first six months of 2001,
primarily because of the dramatically reduced sales level.
For the reasons stated above, during the first six months of 2002, the
loss from operations was $2,208,000, compared to income from operations of
$898,000 during the first six months of 2001. Excluding the $609,000 of plant
closure costs, the loss from operations during the first six months of 2002 was
$1,599,000. Excluding the entire loss incurred at the Arizona facility during
the first six months of 2002, the loss from operations during the first six
months of 2002 was $663,000. Adjusted
-27-
EBITDA was $451,000, or 3.4% of net sales, compared to $3,182,000, or 16.8% of
net sales for the first six months of 2001.
CORPORATE OFFICE
Corporate office expenses, which are not included in the operating results
of the Rubber Group or the Metals Group, represent administrative expenses
incurred primarily at our New York and Cleveland offices. Corporate office
expenses are consolidated with the selling and administrative expenses of the
Rubber Group and the Metals Group in our consolidated financial statements.
The following table sets forth the operating results of the corporate
office for the first six months of 2002 and 2001 (dollar amounts in thousands):
SIX MONTHS ENDED
JUNE 30
-------
2002 2001
---- ----
Loss from operations $(1,336) $(1,157)
Add back depreciation and
amortization 32 43
------ ------
EBITDA $(1,304) $(1,114)
====== =======
During the first six months of 2002, corporate office expenses increased
compared to the first six months of 2001, primarily because of accruals for
incentive compensation.
INTEREST EXPENSE
During the first six months of 2002 and 2001, interest expense totaled
$3,763,000 and $4,477,000, respectively, which included amortization of deferred
financing expenses of $161,000 and $94,000, respectively. The decrease in
interest expense was caused primarily by lower rates of interest on our floating
rate indebtedness and a reduction in the average amount of outstanding
indebtedness.
INCOME TAX PROVISION
At June 30, 2002, and December 31, 2001, our net deferred income tax
assets were fully offset by a valuation allowance.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
During the first six months of 2002, our operating activities provided
$5,132,000 of cash.
Accounts receivable increased by $2,687,000. The increase was caused
primarily by an increase in net sales during May and June 2002 compared to
November and December 2001.
Accounts payable decreased by $1,368,000, primarily as a result of a
decrease in balances outstanding beyond agreed upon payment terms. In the first
quarter of 2002, we converted $167,000 of past due accounts payable into notes
payable in seventeen equal, monthly principal installments
-28-
commencing during the first quarter of 2002, and during the second quarter of
2002, improved cash flow from operations was used to reduce trade accounts
payable. We rely on our suppliers to provide us credit for our purchases. In
certain cases, we extend our accounts payable beyond their stated terms. If our
vendors were to reduce materially the amount of credit available to us, it could
have a material adverse effect on our results of operations and financial
position.
Accrued expenses increased by $3,386,000 during the first six months of
2002, primarily due to an increase in accrued interest of $2,033,000, reflecting
unpaid interest on our senior subordinated notes, senior, unsecured note, and
junior subordinated notes.
INVESTING ACTIVITIES
During the first six months of 2002, our investing activities used
$2,362,000 of cash, primarily for capital expenditures. Capital expenditures
attributable to the Rubber Group and the Metals Group totaled $1,566,000 and
$359,000, respectively. Capital expenditures for the first six months of 2002
included $1,882,000 for equipment and $43,000 for building improvements. We
presently project that capital expenditures during 2002 will total approximately
$4,900,000, substantially all of which will be for the purchase of equipment.
Capital expenditures for the Rubber Group and the Metals Group are projected to
total approximately $3,200,000 and $1,700,000, respectively, during 2002. At
June 30, 2002, we had outstanding commitments to purchase plant and equipment of
approximately $1,624,000.
FINANCING ACTIVITIES
During the first six months of 2002, our financing activities used
$2,877,000 of cash.
During the first six months of 2002, we made payments on our long-term
debt totaling $5,069,000, and we increased the net borrowings under our
revolving line of credit by $2,431,000.
LIQUIDITY
We finance our operations with cash from operating activities and a
variety of financing arrangements, including term loans and loans under our
revolving line of credit. Our ability to borrow under our revolving line of
credit, which expires on September 2, 2002, is subject to certain availability
formulas based on the levels of our accounts receivable and inventories. At
August 9, 2002, availability under our revolving line of credit totaled
$1,666,000 before outstanding checks of $1,233,000 were deducted.
Substantially all of our assets are pledged as collateral for various of
our borrowings. A number of our financing arrangements contain covenants with
respect to the maintenance of minimum levels of working capital, net worth, and
cash flow coverage and other covenants that place certain restrictions on our
business and operations, including covenants relating to the incurrence or
assumption of additional debt, the level of past-due trade accounts payable, the
sale of all or substantially all of our assets, the purchase of plant and
equipment, the purchase of common stock, the redemption of preferred stock, and
the payment of cash dividends. In addition, substantially all of our financing
arrangements include cross-default provisions.
From time to time, our lenders have agreed to waive or amend certain of
the financial covenants contained in our various financing agreements in order
to maintain or otherwise ensure our current or future compliance. In the event
that we are not in compliance with any of our covenants in the future and
-29-
our lenders do not agree to amend or waive those covenants, the lenders
would have the right to declare the borrowings under their financing agreements
to be due and payable.
We are in default in the payment of our senior subordinated notes and our
senior, unsecured note. In addition, during the last six months of 2002, we have
$5,028,000 of secured term notes and $347,000 of junior subordinated notes that
mature. During the last six months of 2002, we also have scheduled principal
payments of $3,536,000 on our amortizing term loans. We estimate that, at
existing contractual and market rates, the interest expense on all of our debt
during 2002 will be approximately $7,500,000.
We had a net working capital deficit of $70,636,000 at June 30, 2002,
compared to a net working capital deficit of $72,928,000 at December 31, 2001.
The net working capital deficit exists primarily because the majority of our
debt is in default or subject to cross defaults. As discussed in more detail
below, we are in the process of negotiating extensions of all of our matured and
maturing debt, although there can be no assurance that we will be successful in
this effort.
We have been in default on our 12-3/4% senior subordinated notes since
February 1, 2000, when we did not make the payments of principal, in the amount
of $27,412,000, and interest, in the amount of $1,748,000, that were due on that
date. On July 10, 2002, we commenced an exchange offer for the 12-3/4% senior
subordinated notes. If the exchange offer is consummated, at least 99% of the
12-3/4% senior subordinated notes will be exchanged for new 11-1/2% senior
subordinated notes due August 1, 2007, in a principal amount equal to the
principal amount of the 12-3/4% senior subordinated notes being exchanged plus
the accrued and unpaid interest thereon through April 30, 2002, which accrued
interest totals $350.625 for each $1,000 principal amount of 12-3/4% senior
subordinated notes. Interest on the 11-1/2% senior subordinated notes will
accrue from May 1, 2002, and will be payable on each August 1, November 1,
February 1, and May 1. Each $1,000 principal amount of 11-1/2% senior
subordinated notes will be issued together with warrants to purchase ten shares
of common stock at a price of $3.50 per share at any time from January 1, 2004,
through August 1, 2007. If the exchange offer is consummated, we will pay a
participation fee of 3% of the principal amount of 12-3/4% senior subordinated
notes that are exchanged. The consummation of the exchange offer is conditioned
upon, among other things, the valid tender for exchange of at least 99% of the
senior subordinated notes. Our senior, secured lenders have waived the
cross-default provisions with respect to the default on the senior subordinated
notes through September 2 or October 31, 2002, and the holder of the junior
subordinated notes has waived the cross-default provisions with respect to the
default on the senior subordinated notes through November 1, 2002. The current
expiration date of the exchange offer is August 30, 2002. As of August 9, 2002,
we had received valid tenders of 12-3/4% senior subordinated notes in the
principal amount of $27,098,000 or 98.9% of the notes.
We have also reached an agreement with the holders of our 14% junior
subordinated notes on the terms of a restructuring of those notes. If the
restructuring is completed, we will exchange new 12-1/2% junior subordinated
notes due November 1, 2007, for the $347,000 principal amount of existing 14%
junior subordinated notes and the accrued interest thereon for the period
November 1, 1999, through April 30, 2002, which totals $156,000. Interest on the
12-1/2% junior subordinated notes will accrue from May 1, 2002, and will be
payable on each August 1, November 1, February 1, and May 1. Each $1,000
principal amount of 12-1/2% junior subordinated notes will be issued together
with warrants to purchase ten shares of common stock at a price of $3.50 per
share at any time from January 1, 2004, through November 1, 2007. If the
restructuring is completed, we will also pay a participation fee of 3% of the
principal amount of 14% junior subordinated notes.
-30-
The completion of the proposed restructuring of the 12-3/4% senior
subordinated notes and the 14% junior subordinated notes is subject to a number
of conditions precedent, including the restructuring of our outstanding
$7,500,000 senior, unsecured note on satisfactory terms. We have proposed that
the senior, unsecured note be restructured to provide for twenty quarterly
principal payments of $375,000 beginning on November 1, 2002, with a final
maturity date of August 1, 2007, interest at the rate of 10-1/2% per annum,
payable quarterly, and a 2% participation fee. On April 30, 2002, the maturity
date of the senior, unsecured note, the holder of the note rejected our proposal
for a restructuring and our request for an interim, three-month extension. We
did not pay the principal of the note or the monthly interest payment of $78,000
on April 30, 2002, and we have not made any interest payments since that date.
Our senior, secured lenders have waived the cross-default provisions with
respect to the default on the senior, unsecured note through September 2 or
October 31, 2002, and the holder of the junior subordinated notes has waived the
cross-default provisions with respect to the default on the senior, unsecured
note through November 1, 2002.
Another condition of the proposed restructuring of the 12-3/4% senior
subordinated notes and the 14% junior subordinated notes is the refinancing of
our senior, secured debt on satisfactory terms. We are currently in discussions
with several lenders regarding a refinancing of its senior, secured credit
facilities.
We can give no assurance that we will be able to consummate the exchange
offer, restructure the senior, unsecured note, or refinance our senior, secured
financing arrangements on terms satisfactory to us. If we are unable to do so,
we may file a petition under the federal bankruptcy code in order to carry out a
debt restructuring plan on terms substantially similar to those discussed above
or on other terms. Although we believe that such a restructuring could be
accomplished without material disruption to our operations, any such proceeding
involves considerable risks and uncertainties and could have a material adverse
effect on our operations and financial position. The consolidated financial
statements do not include any adjustments to the amounts or classifications of
assets or liabilities to reflect those risks and uncertainties.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not invest in or trade market risk sensitive instruments. We also do
not have any foreign operations or any significant amount of foreign sales and,
therefore, we believe that our exposure to foreign currency exchange rate risk
is minimal.
At June 30, 2002, we had $37,983,000 of outstanding floating-rate debt at
interest rates equal to either LIBOR plus 2-1/2%, LIBOR plus 2-3/4%, or the
prime rate. Currently, we do not purchase derivative financial instruments to
hedge or reduce our interest rate risk. As a result, changes in either LIBOR or
the prime rate affect the rates at which we borrow funds under these agreements.
At June 30, 2002, we had outstanding $42,009,000 of fixed-rate, long-term
debt with a weighted-average interest rate of 12.2%, of which $40,422,000 had
matured or was scheduled to mature during 2002. If we were able to refinance or
extend the matured or maturing debt, it might be at interest rates that are
significantly higher than the weighted-average interest rate on the matured or
maturing debt. We have reached an agreement in principle with the holders of
over 80% of our 12-3/4% senior subordinated notes, to exchange the 12-3/4%
senior subordinated notes for new 11-1/2% senior subordinated notes due August
1, 2007, in a principal amount equal to the principal amount of the existing
12-3/4% senior subordinated notes being exchanged plus the accrued and unpaid
interest thereon through April 30, 2002, which accrued interest totals $350.625
for each $1,000 principal amount of 12-3/4% senior subordinated notes exchanged.
With respect to our $7,500,000 senior, unsecured note, we have proposed to
extend the
-31-
maturity date from April 30, 2002, to August 1, 2007, pay interest at the rate
of 10-1/2% per annum, and repay the note in twenty quarterly principal payments
in the amount of $375,000 each beginning November 1, 2002. The holder of the
note has rejected our proposal.
If we negotiated extensions of our matured and maturing debt on the
proposed terms discussed above and in "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity" in Part I, Item 2, we
estimate that our monthly interest expense would increase by approximately
$61,000.
For further information about our indebtedness, we recommend that you also
read Notes 1 and 5 of our consolidated financial statements in Part I, Item 1.
-32-
PART II. OTHER INFORMATION
ITEM 3. DEFAULTS ON SENIOR SECURITIES
(a) We are in default in respect of our 12-3/4% senior subordinated notes
because we did not make the payments of principal, in the amount of $27,412,000,
and interest, in the amount of $1,748,000, that were due on February 1, 2000.
For more information regarding the default in respect of the 12-3/4% senior
subordinated notes, refer to "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity," in Part I, Item 2, which is
incorporated by reference herein.
We are in default in respect of our 10-1/2% senior, unsecured note because
we did not make the payment of principal, in the amount of $7,500,000, and
interest, in the amount of $78,000, that were due on April 30, 2002. For more
information regarding the default in respect of the 10-1/2% senior, unsecured
note, refer to "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity," in Part I, Item 2, which is incorporated by
reference herein.
The lenders under our revolving line of credit and secured, amortizing
term loans have waived the cross-default provisions with respect to the defaults
on the senior subordinated notes and the senior, unsecured note through
September 2 or October 31, 2002, and the holder of our junior subordinated notes
has waived the cross-default provisions with respect to the senior subordinated
notes and the senior, unsecured note through November 1, 2002.
(b) We did not pay dividends on our $8 cumulative convertible preferred
stock, series B, during the three-month or six-month periods ended June 30,
2002, in the aggregate amount of $6,600 and $13,200, respectively. At June 30,
2002, the Company was in arrears in the payment of ten dividends on the series B
preferred stock in the aggregate amount of $66,000 and in the redemption of 900
shares of series B preferred stock for $180,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company was held on June 12,
2002.
The matters voted upon at the Annual Meeting and the results of the voting
on each matter are set forth below:
o A proposal to elect six directors (Messrs. William B. Conner, Warren
Delano, Kenneth I. Greenstein, Michael A. Lubin, and Joseph A.
Pardo, and Ms. Elizabeth Ruml).
Mr. Conner:
Votes for Mr. Conner 3,053,808
Votes withheld from Mr. Conner 15,225
Mr. Delano:
Votes for Mr. Delano 3,047,554
Votes withheld from Mr. Delano 21,479
(continued on next page)
-33-
(continued from previous page)
Mr. Greenstein:
Votes for Mr. Greenstein 3,052,583
Votes withheld from Mr. Greenstein 16,450
Mr. Lubin:
Votes for Mr. Lubin 3,047,554
Votes withheld from Mr. Lubin 21,479
Mr. Pardo:
Votes for Mr. Pardo 3,052,125
Votes withheld from Mr. Pardo 16,908
Ms. Ruml:
Votes for Ms. Ruml 3,050,025
Votes withheld from Ms. Ruml 19,008
o The ratification of Ernst & Young LLP as independent auditors of the
Company for the year ending December 31, 2002.
Votes for Ernst & Young LLP 3,052,478
Votes against Ernst & Young LLP 5,306
Abstentions 11,249
There were no broker non-votes in respect of the foregoing matters.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following exhibits are filed herewith:
10-1 Agreement relating to 14% Junior Subordinated Notes dated as
of June 30, 2002, between Lexington Precision Corporation
("LPC") and Michael A. Lubin
10-2 Agreement relating to Junior Subordinated Convertible
Increasing Rate Note dated as of July 31, 2002, among LPC,
Michael A. Lubin, and Warren Delano
10-3 Agreement dated as of June 28, 2002, between LPC and Congress
Financial Corporation
10-4 Agreement dated as of June 28, 2002, between Lexington Rubber
Group, Inc. ("LRGI") and Congress Financial Corporation
10-5 Agreement dated as of April 30, 2002 among LPC, LRGI, and Bank
One, NA
10-6 Agreement dated July 31, 2002, among LPC, LRGI, and Bank One,
NA
10-7 Seventh Amendment Agreement dated June 26, 2002, between LPC,
LRGI, and Bank One, NA
-34-
10-8 Agreement dated as of April 30, 2002, between LPC and The CIT
Group/Equipment Financing, Inc.
10-9 Agreement dated as of July 31, 2002, between LPC and The CIT
Group/Equipment Financing, Inc.
(b) REPORTS ON FORM 8-K
On April 8, 2002, we filed a Form 8-K that included a press release dated
April 1, 2002, stating that we were extending the expiration date of our offer
to exchange our 12-3/4% senior subordinated notes from 5:00 p.m., New York City
time, on April 1, 2002, to 5:00 p.m., New York City time, April 30, 2002.
On May 2, 2002, we filed a Form 8-K that included a press release dated
May 1, 2002, stating that our exchange offer for our 12-3/4% senior subordinated
notes expired on April 30, 2002, and that we expected to commence a new exchange
offer for the 12-3/4% senior subordinated notes. We also announced that our
proposal to restructure our 10-1/2% senior, unsecured note to August 7, 2007,
was rejected by the holders of the 10-1/2 senior, unsecured note.
-35-
LEXINGTON PRECISION CORPORATION
FORM 10-Q
JUNE 30, 2002
SIGNATURES
Pursuant to the requirements 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.
LEXINGTON PRECISION CORPORATION
(Registrant)
August 13, 2002 By: /s/ Michael A. Lubin
- --------------- --------------------------------
Date Michael A. Lubin
Chairman of the Board
August 13, 2002 By: /s/ Warren Delano
- --------------- --------------------
Date Warren Delano
President
August 13, 2002 By: /s/ Dennis J. Welhouse
- --------------- --------------------------
Date Dennis J. Welhouse
Senior Vice President and
Chief Financial Officer
-36-