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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 SEPTEMBER 30, 2003
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
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12b-2 of the Exchange Act). Yes No X
--- ---
AS OF NOVEMBER 12, 2003, THERE WERE 4,828,036 SHARES OF COMMON STOCK
OF THE REGISTRANT OUTSTANDING.
(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.....................................30
Item 4. Controls and Procedures........................................................................31
PART II. OTHER INFORMATION
Item 3. Defaults on Senior Securities..................................................................32
Item 6. Exhibits and Reports on Form 8-K...............................................................32
-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 NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------ ------------------------
2003 2002 2003 2002
---- ---- ---- ----
Net sales $ 28,294 $ 32,342 $ 91,550 $ 95,582
Cost of sales 26,278 28,130 82,518 83,761
-------- -------- -------- --------
Gross profit 2,016 4,212 9,032 11,821
Selling and administrative expenses 2,010 2,128 6,275 6,733
Plant closure costs -- -- -- 609
-------- -------- -------- --------
Income from operations 6 2,084 2,757 4,479
Interest expense 1,715 1,978 5,255 5,741
-------- -------- -------- --------
Income (loss) before income taxes (1,709) 106 (2,498) (1,262)
Income tax provision (credit) 7 (121) 61 (70)
-------- -------- -------- --------
Net income (loss) before cumulative effect of change in
accounting principle (1,716) 227 (2,559) (1,192)
Cumulative effect of change in accounting principle 247 -- 247 --
-------- -------- -------- --------
Net income (loss) $ (1,963) $ 227 $ (2,806) $ (1,192)
======== ======== ======== ========
Per share data:
Basic and diluted net income (loss) before cumulative
effect of change in accounting principle $ (0.36) $ 0.05 $ (0.53) $ (0.25)
Cumulative effect of change in accounting principle (0.05) -- (0.05) --
-------- -------- -------- --------
Basic and diluted net income (loss) applicable to
common stockholders $ (0.41) $ 0.05 $ (0.58) $ (0.25)
======== ======== ======== ========
See notes to consolidated financial statements.
-1-
LEXINGTON PRECISION CORPORATION
CONSOLIDATED BALANCE SHEET
(THOUSANDS OF DOLLARS)
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
2003 2002
------------- -------------
ASSETS:
Current assets:
Cash $ 1,128 $ 1,753
Accounts receivable, net 18,664 16,411
Inventories, net 9,032 8,841
Prepaid expenses and other current assets 2,414 3,682
Deferred income taxes 2,304 2,304
--------- ---------
Total current assets 33,542 32,991
Property, plant, and equipment, net 46,090 49,029
Goodwill 7,831 7,831
Other assets, net 2,585 2,294
--------- ---------
Total assets $ 90,048 $ 92,145
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT:
Current liabilities:
Accounts payable $ 11,838 $ 10,798
Accrued expenses, excluding accrued interest 6,755 6,256
Accrued interest expense 16,226 12,875
Short-term debt 65,854 69,665
Current portion of long-term debt 1,267 1,647
--------- ---------
Total current liabilities 101,940 101,241
--------- ---------
Long-term debt, excluding current portion 1,208 1,267
--------- ---------
Deferred income taxes and other long-term liabilities 2,884 2,836
--------- ---------
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 (30,151) (27,366)
--------- ---------
Total stockholders' deficit (15,984) (13,199)
--------- ---------
Total liabilities and stockholders' deficit $ 90,048 $ 92,145
========= =========
See notes to consolidated financial statements
-2-
LEXINGTON PRECISION CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30
-------------------------
2003 2002
-------- --------
OPERATING ACTIVITIES:
Net loss $ (2,806) $ (1,192)
Cumulative effect of change in accounting principle 247 --
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation 7,499 8,304
Amortization included in operating expense 360 595
Amortization included in interest expense 394 294
Changes in operating assets and liabilities that
provided (used) cash:
Accounts receivable, net (2,253) (1,197)
Inventories, net (191) 188
Prepaid expenses and other current assets 860 1,026
Accounts payable 1,040 (907)
Accrued expenses, excluding interest expense 499 741
Accrued interest expense 3,351 3,343
Other long-term liabilities 48 296
Other 57 21
-------- --------
Net cash provided by operating activities 9,105 11,512
-------- --------
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (3,844) (3,390)
Net decrease (increase) in equipment deposits (80) 128
Expenditures for tooling owned by customers (90) (725)
Other 372 253
-------- --------
Net cash used by investing activities (3,642) (3,734)
-------- --------
FINANCING ACTIVITIES:
Net increase in loans under revolving line of credit 1,308 190
Repayment of term notes and other debt (6,534) (7,621)
Deferred financing charges (862) (453)
-------- --------
Net cash used by financing activities (6,088) (7,884)
-------- --------
Net decrease in cash (625) (106)
Cash at beginning of period 1,753 189
-------- --------
Cash at end of period $ 1,128 $ 83
======== ========
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, 2002, and
below in this Note 1.
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 September 30, 2003, the
Company's results of operations for the three-month and nine-month periods ended
September 30, 2003 and 2002, and the Company's cash flows for the nine-month
periods ended September 30, 2003 and 2002. All such adjustments were of a
normal, recurring nature.
The results of operations for the three-month and nine-month periods
ended September 30, 2003, are not necessarily indicative of the results to be
expected for the full year or for any succeeding quarter.
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 substantially all of its
outstanding 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. The exchange offer was amended on March
7, 2003, and further amended on September 18, 2003, and is scheduled to expire
on November 18, 2003, unless extended by the Company. If the amended exchange
offer is consummated, at least 99% of the 12 3/4% senior subordinated notes will
be exchanged for new 12% senior subordinated notes due August 1, 2009, 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 the day before the date the amended exchange offer is consummated, which
accrued interest will total $548.958 for each $1,000 principal amount of 12 3/4%
senior subordinated notes if the amended exchange offer is consummated on
November 21, 2003. Interest on the 12% senior subordinated notes will accrue
from the date the amended exchange offer is consummated, and will be payable on
each February 1, May 1, August 1, and November 1. Each $1,000 principal amount
of 12% 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 August 1,
2005, through August 1, 2009. The Company's senior, secured lenders have waived
the cross-default provisions with respect to the default on the senior
subordinated notes through November 21, 2003, and the holders of the junior
subordinated notes have waived such cross-default provisions through February 1,
2004. One of the conditions to the consummation of the amended exchange offer is
the tender for exchange of at least 99%
-4-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
of the senior subordinated notes. As of November 10, 2003, the Company had
received tenders of $27,279,000 principal amount of 12 3/4% senior subordinated
notes, or 99.5% of the outstanding notes. There are additional conditions to the
consummation of the amended exchange offer that may not be satisfied by the
expiration date.
The Company has 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 13% junior
subordinated notes due November 1, 2009, for the existing 14% junior
subordinated notes, and the accrued interest on the 14% junior subordinated
notes for the period November 1, 1999, through the day before the date the
restructuring is consummated, which will total $232,000 if the restructuring is
consummated on November 21, 2003, will be converted into shares of the Company's
common stock at a price of $2.27 per share. Interest on the 13% junior
subordinated notes will accrue from the date the restructuring is consummated,
and will be payable on each February 1, May 1, August 1, and November 1. Each
$1,000 principal amount of 13% junior 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 August 1, 2005, through November 1, 2009.
The Company has been in default on its senior, unsecured note, since
April 30, 2002, when it did not make the payments of principal, in the amount of
$7,500,000, and interest, in the amount of $78,000, that were due on that date.
If the other aspects of the financial restructuring program are completed, the
Company has proposed to repurchase the senior, unsecured note for $5,550,000,
plus interest from November 1, 2002, to the date the amended exchange offer is
consummated, at the prime rate. The Company's senior, secured lenders have
waived the cross-default provisions with respect to the default on the senior,
unsecured note through November 21, 2003, and the holders of the junior
subordinated notes have waived such cross-default provisions through February 1,
2004.
The Company is currently working with its primary secured lenders on
the documents for a new senior, secured credit facility.
The Company can give no assurance that it will be able to consummate
the amended exchange offer, repurchase the senior, unsecured note, or refinance
its senior, secured credit facility on satisfactory terms. If the Company is
unable to do so, it may choose to file a voluntary petition under the federal
bankruptcy code in order to effect a debt restructuring on terms substantially
similar to those discussed above, or on other terms. Representatives of the four
largest holders of the 12 3/4% senior subordinated notes, who hold in the
aggregate approximately 75% of the notes, have indicated that, if the
documentation for the new senior, secured credit facility cannot be completed
promptly, they may demand that the Company file a voluntary petition under the
federal bankruptcy code or, in the alternative, they may choose to file an
involuntary petition against the Company in order to accomplish a debt
restructuring, in which case the Company would have twenty days to respond by
filing a voluntary petition or seeking the withdrawal or dismissal of such
involuntary petition. Although the Company believes that such a debt
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)
RECENTLY ISSUED ACCOUNTING STANDARDS
STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 150, ACCOUNTING FOR
CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES
AND EQUITY
On July 1, 2003, the Company adopted Statement of Financial Accounting
Standard No. 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity" ("FAS 150"). FAS 150 establishes
standards for classifying and measuring as liabilities certain financial
instruments that embody obligations of the issuer and have characteristics of
both liabilities and equity. In connection with the adoption of FAS 150, during
the three months ended September 30, 2003, the Company recognized a charge of
$247,000 to increase the carrying value of its $8 cumulative convertible
preferred stock, series B (the "Series B Preferred Stock"), from $330,000 to its
estimated fair value of $577,000. The charge is shown in the Company's
consolidated statement of operations on the line entitled "Cumulative effect of
change in accounting principle." In addition, during the three months ended
September 30, 2003, the Company recorded $9,000 of interest expense, which
increased the carrying value of the Series B Preferred Stock from $577,000 to
$586,000. If FAS 150 had been in effect during the three-month and nine-month
periods ended September 30, 2002, and for the entire nine-month period ended
September 30, 2003, the interest expense that would have been recorded and the
related increase in the carrying value of the Series B Preferred Stock would
have totaled $10,000 and $32,000, during the three-month and nine-month periods
ended September 30, 2002, respectively, and $27,000 during the nine-month period
ended September 30, 2003. At September 30, 2003, the Series B Preferred Stock
was classified as debt on the Company's consolidated balance sheet. The Series B
Preferred Stock outstanding at December 31, 2002, has been reclassified as debt
to conform to the current period presentation. For more information about the
Series B Preferred Stock, refer to Note 5.
NOTE 2 -- INVENTORIES
Inventories at September 30, 2003, and December 31, 2002, are set forth
below (dollar amounts in thousands):
SEPTEMBER 30, DECEMBER 31,
2003 2002
------ ------
Finished goods $3,494 $3,580
Work in process 2,867 2,493
Raw materials 2,671 2,768
------ ------
$9,032 $8,841
====== ======
-6-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 -- PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at September 30, 2003, and December 31,
2002, are set forth below (dollar amounts in thousands):
SEPTEMBER 30, DECEMBER 31,
2003 2002
------------- ------------
Land $ 2,350 $ 2,314
Buildings 23,103 22,935
Equipment 117,440 113,291
-------- --------
142,893 138,540
Accumulated depreciation 96,803 89,511
-------- --------
Property, plant, and equipment, net $ 46,090 $ 49,029
======== ========
NOTE 4 -- ACCRUED INTEREST EXPENSE
Accrued interest expense at September 30, 2003, and December 31, 2002,
is set forth below. (dollar amount in thousands):
SEPTEMBER 30, DECEMBER 31,
2003 2002
------------- ------------
12 3/4% senior subordinated notes $14,563 $11,941
Senior, unsecured note 1,406 703
Junior subordinated notes 225 189
All other debt 32 42
------- -------
Property, plant, and equipment, net $16,226 $12,875
======= =======
-7-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 -- DEBT
Debt at September 30, 2003, and December 31, 2002, is set forth below
(dollar amounts in thousands):
SEPTEMBER 30, DECEMBER 31,
2003 2002
------------- ------------
Short-term debt:
Revolving line of credit $ 16,743 $ 15,435
Secured, amortizing term notes 13,852 18,971
Senior, unsecured note 7,500 7,500
Senior subordinated notes 27,412 27,412
Junior subordinated notes 347 347
-------- --------
Subtotal 65,854 69,665
Current portion of long-term debt 1,267 1,647
-------- --------
Total short-term debt 67,121 71,312
-------- --------
Long-term debt:
12% secured term note 939 1,119
Unsecured, amortizing term notes -- 643
Capital lease obligations 710 485
Series B Preferred Stock 586 330
Other 240 337
-------- --------
Subtotal 2,475 2,914
Less current portion (1,267) (1,647)
-------- --------
Total long-term debt 1,208 1,267
-------- --------
Total debt $ 68,329 $ 72,579
======== ========
REVOLVING LINE OF CREDIT
The Company's revolving line of credit is currently scheduled to expire
on November 21, 2003. The Company is currently working with its primary secured
lenders on the documents for a new secured credit facility, which includes an
extension of its revolving line of credit until June 30, 2006. The Company can
give no assurance that it will be able to refinance the revolving line of
credit.
At September 30, 2003, availability under the revolving line of credit
totaled $1,655,000, before outstanding checks of $1,671,000 were deducted. At
September 30, 2003, loans outstanding under the revolving line of credit accrued
interest at one percent over the prime rate, which equated to 5%.
The loans outstanding under the revolving line of credit are
collateralized by substantially all of the assets of the Company and its
principal subsidiary, Lexington Rubber Group, Inc. ("LRGI"), including accounts
receivable, inventories, equipment, certain real estate, and the common stock of
LRGI.
-8-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The lenders providing loans under the revolving line of credit have
waived the cross-default provisions with respect to the defaults on the senior
subordinated notes and the senior, unsecured note through November 21, 2003.
SECURED, AMORTIZING TERM LOANS
Secured, amortizing term loans outstanding at September 30, 2003, and
December 31, 2002, are set forth below (dollar amounts in thousands):
SEPTEMBER 30, DECEMBER 31,
2003 2002
------------- ------------
Term notes payable in equal monthly principal installments based on a 180-month
amortization schedules, final maturities in 2003, prime
rate plus3/4% $ 4,488 $ 4,893
Term note payable in equal monthly principal installments, final
maturity in 2003, prime rate -- 45
Term note payable in equal monthly principal installments, final
maturity in 2003, prime rate plus 1% -- 10
Term note payable in equal monthly principal installments, final
maturity in 2003, LIBOR plus 2 3/4% -- 107
Term notes payable in equal monthly principal installments, final
maturities in 2004, LIBOR plus 2 3/4% 226 476
Term note payable in equal monthly principal installments, final
maturity in 2004, prime rate and LIBOR plus 2 1/2% 182 386
Term notes payable in equal monthly principal installments, final
maturities in 2004, prime rate plus 1% 1,738(1) 3,846(1)
Term note payable in equal monthly principal installments, final
maturity in 2005, LIBOR plus 2 1/2% 411 579
Term note payable in equal monthly principal installments, final
maturity in 2005, prime rate plus 1% 427(1) 609(1)
Term note payable in equal monthly principal installments, final
maturity in 2006, prime rate 207 270
Term notes payable in equal monthly principal installments, final
maturities in 2006, prime rate plus 1% 3,791(1) 4,847(1)
Term notes payable in equal monthly principal installments, final
maturities in 2007, prime rate plus 1% 2,382(1) 2,903(1)
-------- --------
$ 13,852 $ 18,971
======== ========
(1) Maturity date can be accelerated by the lender if the 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 November
21, 2003.
At September 30, 2003, and December 31, 2002, the secured, amortizing
term notes were classified as short-term debt because the Company's lenders had
granted waivers, for a period of less than one year, of the cross-default
provisions of such term notes with respect to the defaults on the senior
subordinated notes and the senior, unsecured note and because the revolving line
of credit was scheduled to expire in less than one year.
-9-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The secured, amortizing term notes are collateralized by substantially
all of the assets of the Company and LRGI, including accounts receivable,
inventories, equipment, certain real estate, and the common stock of LRGI.
The lenders providing secured, amortizing term notes have waived the
cross-default provisions with respect to the defaults on the senior subordinated
notes and the senior, unsecured note through November 21, 2003.
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 currently bears interest at 12 1/2% per annum.
On April 30, 2002, the Company did not make the payments of principal and
interest then due on the senior, unsecured note in the amounts of $7,500,000 and
$78,000, respectively, and the Company has not made any payments on the senior,
unsecured note since that date. At September 30, 2003, the accrued and unpaid
interest on the senior, unsecured note totaled $1,406,000. For more information
about the senior, unsecured note, refer to Note 1.
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 principal and interest then due on the senior subordinated notes in
the amounts of $27,412,000 and $1,748,000, respectively, and the Company has not
made any payments on the senior subordinated notes since that date. At September
30, 2003, the accrued and unpaid interest on the senior subordinated notes
totaled $14,563,000. For more information about the senior subordinated notes,
refer to Note 1.
JUNIOR SUBORDINATED NOTES
The junior subordinated notes are due on February 1, 2004, and are
subordinated in right of payment to all existing and future secured debt of the
Company, the senior, unsecured note, and the senior subordinated notes. The
junior subordinated notes bear interest at 14% per annum. The holders of the
junior subordinated notes have deferred until February 1, 2004, the interest
payments that were due on or after February 1, 2000, and have waived the
cross-default provisions with respect to the default on the senior, unsecured
note and the senior subordinated notes. At September 30, 2003, the accrued and
unpaid interest on the junior subordinated notes totaled $225,000. For more
information on the junior subordinated notes, refer to Note 1.
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 defaults on
any of the Company's other debt.
-10-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SERIES B PREFERRED STOCK
At September 30, 2003, there were outstanding 3,300 shares of the
Series B Preferred Stock having an aggregate carrying value of $586,000. The
Series B Preferred Stock has a par value of $100 per share and a redemption
value of $200 per share. Dividends of $8 per share are due on each March 15,
June 15, September 15, and December 15. Redemptions of 450 shares are scheduled
for November 30 of each year. The Series B Preferred Stock is convertible into
common stock at $13.50 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 September 30, 2003, the Company was in arrears in the payment of
fifteen quarterly dividends on the Series B Preferred Stock in the aggregate
amount of $99,000 and in the redemption of 1,350 shares of Series B Preferred
Stock for an aggregate redemption value of $270,000. For more information about
the Series B Preferred Stock and the impact of the adoption by the Company of
FAS 150 on July 1, 2003, refer to Note 1.
RESTRICTIVE COVENANTS
Certain of the Company's financing arrangements contain covenants that
require the Company to maintain minimum levels of 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 trade accounts payable, the sale of all
or substantially all of the Company's assets, the purchase of property, plant,
and equipment, the purchase of common stock, the redemption of preferred stock,
and the payment of cash dividends. In addition, most of the Company's financing
agreements include cross-default provisions.
From time to time, the Company's lenders have agreed to waive, amend,
or eliminate 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. During 2003, covenants requiring minimum levels of net worth
were amended twice in two of the Company's three financing agreements. 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, waive, or eliminate those
covenants, the lenders would have the right to declare the borrowings owed to
them to be due and payable. For a more detailed discussion of recent amendments
to and waivers under the Company's various debt obligations, refer to Note 1.
CASH INTEREST PAID
Cash interest paid during the nine months ended September 30, 2003 and
2002, totaled $1,498,000 and $1,730,000, respectively.
NOTE 6 -- INCOME TAXES
At September 30, 2003, and December 31, 2002, the Company's net
deferred income tax assets were fully offset by a valuation allowance. The
income tax provisions recorded during the three-month and nine-month periods
ended September 30, 2003 and 2002, consisted of estimated state income taxes
payable. Cash income taxes paid during the nine months ended September 30, 2003
and 2002, totaled $77,000 and $58,000, respectively.
-11-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 7 -- NET INCOME (LOSS) PER COMMON SHARE
The pro forma conversion of the Series B Preferred Stock was not
dilutive for the three-month or nine-month periods ended September 30, 2003 and
2002. For purposes of the basic and fully diluted earnings per share
calculations for the three-month and nine-month periods ended September 30, 2003
and 2002, the weighted average number of common shares outstanding totaled
4,828,036.
-12-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8 -- SEGMENTS
Information relating to the Company's operating segments and its
corporate office for the three-month and nine-month periods ended September 30,
2003 and 2002, is summarized below (dollar amounts in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------- -------------------------
2003 2002 2003 2002
-------- -------- -------- --------
NET SALES:
Rubber Group $ 24,665 $ 25,617 $ 78,032 $ 75,731
Metals Group 3,629 6,725 13,518 19,851
-------- -------- -------- --------
Total net sales $ 28,294 $ 32,342 $ 91,550 $ 95,582
======== ======== ======== ========
INCOME (LOSS) FROM OPERATIONS:
Rubber Group $ 1,602 $ 3,099 $ 7,441 $ 9,038
Metals Group (976) (424) (2,818) (2,632)
-------- -------- -------- --------
Subtotal 626 2,675 4,623 6,406
Corporate Office (620) (591) (1,866) (1,927)
-------- -------- -------- --------
Total income from operations $ 6 $ 2,084 $ 2,757 $ 4,479
======== ======== ======== ========
ASSETs:
Rubber Group $ 64,352 $ 66,744 $ 64,352 $ 66,744
Metals Group 21,297 24,431 21,297 24,431
-------- -------- -------- --------
Subtotal 85,649 91,175 85,649 91,175
Corporate Office 4,399 3,877 4,399 3,877
-------- -------- -------- --------
Total assets $ 90,048 $ 95,052 $ 90,048 $ 95,052
======== ======== ======== ========
DEPRECIATION AND AMORTIZATION (1):
Rubber Group $ 1,732 $ 1,892 $ 5,412 $ 5,839
Metals Group 715 966 2,418 3,016
-------- -------- -------- --------
Subtotal 2,447 2,858 7,830 8,855
Corporate Office 10 12 29 44
-------- -------- -------- --------
Total depreciation and amortization $ 2,457 $ 2,870 $ 7,859 $ 8,899
======== ======== ======== ========
CAPITAL EXPENDITURES (2):
Rubber Group $ 1,651 $ 920 $ 3,870 $ 2,486
Metals Group 64 974 683 1,333
-------- -------- -------- --------
Subtotal 1,715 1,894 4,553 3,819
Corporate Office 9 4 11 4
-------- -------- -------- --------
Total capital expenditures $ 1,724 $ 1,898 $ 4,564 $ 3,823
======== ======== ======== ========
(1) Does not include amortization of deferred financing expenses, which
totaled $121,000 and $133,000 during the three-month periods ended
September 30, 2003 and 2002, respectively, and $394,000 and $294,000
during the nine-month periods ended September 30, 2003 and 2002,
respectively, which is included in interest expense in the consolidated
financial statements.
-13-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(2) Includes equipment financed with capital leases, which totaled $614,000
and $390,000 during the three-month periods ended September 30, 2003
and 2002, respectively, and $720,000 and $433,000 during the nine-month
periods ended September 30, 2003 and 2002, respectively.
NOTE 9 -- 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. As a result of the subsequent reduction in sales
at the Arizona facility due to the loss of this customer, the Company closed the
facility in 2002. At September 30, 2003, the book value of the remaining Arizona
assets totaled $1,941,000, including $1,615,000 for the land and building.
The following table sets forth certain operating data of the Arizona
facility for the three-month and nine-month periods ended September 30, 2003 and
2002 (dollar amounts in thousands).
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
----------------------- -----------------------
2003 2002 2003 2002
------- ------- ------- -------
Net sales $ -- $ -- $ -- $ 332
======= ======= ======= =======
Operating loss before nonrecurring costs $ (159) $ (176) $ (470) $(1,111)
------- ------- ------- -------
Nonrecurring plant closure costs:
Severance and other employee termination costs -- -- -- 246
Asset relocation costs -- -- -- 209
Other costs -- -- -- 154
------- ------- ------- -------
Subtotal -- -- -- 609
------- ------- ------- -------
Operating loss $ (159) $ (176) $ (470) $(1,720)
======= ======= ======= =======
Depreciation included in operating loss $ 49 $ 95 $ 152 $ 461
======= ======= ======= =======
The operating loss recorded during the three-month and nine-month
periods ended September 30, 2003, and the three-month period ended September 30,
2002, resulted primarily from the ongoing cost of maintaining, insuring,
protecting, and depreciating the building and the equipment remaining in the
facility. During the nine-month period ended September 30, 2002, the operating
loss, excluding the plant closure costs, resulted primarily from the
underabsorption of operating costs 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
building and the remaining equipment.
-14-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 10 -- COMPREHENSIVE NET LOSS
Comprehensive net loss for the three-month and nine-month periods ended
September 30, 2003 and 2002, is set forth below (dollar amounts in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
----------------------- -----------------------
2003 2002 2003 2002
------- ------- ------- -------
Net income (loss) $(1,963) $ 227 $(2,806) $(1,192)
Other comprehensive income-- unrealized gain (loss)
on marketable securities -- (256) -- 117
------- ------- ------- -------
Comprehensive net loss $(1,963) $ (29) $(2,806) $(1,075)
======= ======= ======= =======
-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,
- changes in the cost of raw materials,
- 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
markets,
- labor interruptions at our facilities or at our customers'
facilities,
- the impact on our operations of the defaults on our
indebtedness, 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. Our ability to refinance,
extend, amend, or exchange substantially all of our outstanding debt, as more
-16-
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 -- THIRD QUARTER OF 2003 VERSUS THIRD QUARTER OF 2002
The following table sets forth our consolidated operating results for
the three-month periods ended September 30, 2003 and 2002, and the
reconciliation of income from operations to earnings before interest, taxes,
depreciation, and amortization, which is commonly referred to as EBITDA (dollar
amounts in thousands):
THREE MONTHS ENDED SEPTEMBER 30
------------------------------------
2003 2002
---- ----
Net sales $28,294 100.0% $32,342 100.0%
Cost of sales 26,278 92.9 28,130 87.0
------- ------ ------- ------
Gross profit 2,016 7.1 4,212 13.0
Selling and administrative expenses 2,010 7.1 2,128 6.6
------- ------ ------- ------
Income from operations 6 0.0 2,084 6.4
Add back depreciation and amortization (1) 2,457 8.7 2,870 8.9
------- ------ ------- ------
EBITDA (2) $ 2,463 8.7% $ 4,954 15.3%
======= ====== ======= ======
Net cash provided by operating activities (3) $ 4,248 15.0% $ 6,380 19.7%
======= ====== ======= ======
(1) Does not include amortization of deferred financing expenses,
which totaled $121,000 and $133,000 during the third quarters
of 2003 and 2002, respectively, and which is included in
interest expense in the consolidated financial statements.
(2) 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 have presented EBITDA here and
elsewhere in this Form 10-Q because this measure is used by
investors, as well as our own management, to evaluate the
operating performance of our business, including its ability
to incur and to service debt. Our definition of EBITDA may not
be the same as the definition of EBITDA used by other
companies.
(3) The calculation of net cash provided by operating activities
is detailed in the consolidated statement of cash flows that
is part of our consolidated financial statements in Part I,
Item 1.
-17-
Our net sales for the third quarter of 2003 were $28,294,000, compared
to net sales of $32,342,000 for the third quarter of 2002, a decrease of
$4,048,000, or 12.5%. The decrease in net sales was principally the result of
decreased net sales of diecast components and machined metal components, and, to
a lesser extent, from decreased sales of rubber components. EBITDA for the third
quarter of 2003 was $2,463,000, or 8.7% of net sales, compared to EBITDA of
$4,954,000, or 15.3% of net sales, for 2002. The decrease in EBITDA was the
result of a $1,657,000 decrease in EBITDA at the Rubber Group and a $803,000
decrease in EBITDA at the Metals Group, which are discussed in detail below.
Net cash provided by operating activities during the third quarter of
2003 totaled $4,248,000, compared to $6,380,000 for the third quarter of 2002.
For more information about our operating activities, please refer to the
Consolidated Statement of Cash Flows in Part I, Item 1, and to our discussion of
operating activities under the caption "Liquidity and Capital Resources" in this
Part I, Item 2.
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 September 30, 2003 and 2002.
RUBBER GROUP
The Rubber Group manufactures silicone and organic rubber components
primarily for automotive industry customers. Any significant reduction in the
level of activity in the automotive industry may have a material adverse effect
on the results of operations and cash flow 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 three-month periods ended September 30, 2003 and 2002, and the
reconciliation of the Rubber Group's income from operations to its EBITDA
(dollar amounts in thousands):
THREE MONTHS ENDED SEPTEMBER 30
-------------------------------------
2003 2002
----------------- -----------------
Net sales $24,665 100.0% $25,617 100.0%
Cost of sales 21,951 89.0 21,331 83.3
------- ------ ------- ------
Gross profit 2,714 11.0 4,286 16.7
Selling and administrative expenses 1,112 4.5 1,187 4.6
------- ------ ------- ------
Income from operations 1,602 6.5 3,099 12.1
Add back depreciation and amortization 1,732 7.0 1,892 7.4
------- ------ ------- ------
EBITDA $ 3,334 13.5% $ 4,991 19.5%
======= ====== ======= ======
During the third quarter of 2003, net sales of the Rubber Group
decreased by $952,000, or 3.7%, compared to the third quarter of 2002. This
decrease was primarily due to decreased unit sales of
-18-
connector seals for automotive wiring systems and medical components, and by
price reductions on certain automotive components.
Cost of sales as a percentage of net sales increased during the third
quarter of 2003 to 89.0% of net sales from 83.3% of net sales during the third
quarter of 2002, primarily due to operational problems at our connector seals
division. To a lesser extent, cost of sales as a percentage of net sales
increased during the third quarter of 2003 because of increased operating losses
at our captive tool-making operation due primarily to reduced tooling orders
from our customers. These increased costs were offset, in part, by reduced
depreciation and amortization expenses.
The problems at the connector seals division included:
- increased costs for scrap, sorting, and repair, relating to a
particular type of connector seal,
- increased freight costs, which resulted from delivery issues
related to those quality problems,
- costs related to the continued start-up of our operations to
mold seals from liquid silicone rubber, and
- costs incurred due to the general disruption to our operations
as we attempted to cope with those problems.
During the third quarter, we initiated a plan to reduce or eliminate these
operating problems. The plan includes:
- upgrading management and supervisory personnel,
- installing and utilizing improved process controllers and
centralized data acquisition capabilities on all molding
presses,
- implementing improved manufacturing procedures throughout the
operation,
- installing automated visual inspection and repair equipment,
and
- improved utilization of the division's enterprise resource
planning software systems.
Based on operating performance in the month of October 2003, we believe that the
operating improvement plan will yield positive results, during the fourth
quarter of 2003 and thereafter, as key components of the plan are rolled out.
Selling and administrative expenses as a percentage of net sales were
essentially unchanged during the third quarter of 2003, compared to the third
quarter of 2002.
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 and cash flow of the Metals Group and on our company taken as a
whole.
-19-
The following table sets forth the operating results of the Metals
Group for the three-month periods ended September 30, 2003 and 2002, and the
reconciliation of the Metals Group's income from operations to its EBITDA
(dollar amounts in thousands):
THREE MONTHS ENDED SEPTEMBER 30
----------------------------------------
2003 2002
------------------ ------------------
Net sales $ 3,629 100.0% $ 6,725 100.0%
Cost of sales 4,327 119.2 6,799 101.1
------- ------ ------- ------
Gross profit (loss) (698) (19.2) (74) (1.1)
Selling and administrative expenses 278 7.7 350 5.2
------- ------ ------- ------
Loss from operations (976) (26.9) (424) (6.3)
Add back depreciation and amortization 715 19.7 966 14.4
------- ------ ------- ------
EBITDA $ (261) (7.2)% $ 542 8.1%
======= ====== ======= ======
During the third quarter of 2003, net sales of the Metals Group
decreased by $3,096,000, or 46.0%, compared to the third quarter of 2002. The
decrease resulted from reduced sales of diecast and machined metal components,
primarily due to:
- a reduction in sales of diecast components to a large customer
resulting from low overall demand, the end of product life for
certain components, and to a lesser extent, the offshore
sourcing of certain diecast components,
- the loss of a high-volume machined metal component because the
customer converted the part to a stamped metal component,
- a general reduction in orders resulting from a slowdown in the
automotive business during the summer months, and
- the insourcing of certain components formerly manufactured by
us.
Cost of sales, as a percentage of net sales increased to 119.2% of net
sales during the third quarter of 2003 from 101.1% of net sales during the third
quarter of 2002, primarily because of the effect of fixed, or partially fixed,
manufacturing expenses during a period of low sales volume. During the third
quarter of 2003, the impact of the fixed, or partially fixed, manufacturing
costs was offset, in part, by reduced depreciation and amortization expenses.
Selling and administrative expenses were reduced by 20.6% during the
third quarter of 2003 compared to the third quarter of 2002, but increased as a
percentage of net sales, primarily because of the reduced sales levels.
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. As a result of the reduction in sales at the Arizona
facility caused by the loss of this customer, we closed the facility in 2002. At
September 30, 2003, the book value of the remaining Arizona assets totaled
$1,941,000, including $1,615,000 for the land and building.
-20-
During the three-month periods ended September 30, 2003 and 2002, the
Arizona facility incurred operating losses of $159,000 and $176,000,
respectively, which resulted primarily from the ongoing costs to maintain,
insure, protect, and depreciate the building and the remaining equipment in the
facility. The depreciation included in the operating losses incurred during the
three-month periods ended September 30, 2003 and 2002, totaled $49,000 and
$95,000, respectively.
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 three-month periods ended September 30, 2003 and 2002, and the
reconciliation of the loss from operations to EBITDA (dollar amounts in
thousands):
THREE MONTHS ENDED
SEPTEMBER 30
2003 2002
---- ----
Loss from operations $(620) (591)
Add back depreciation and amortization 10 12
----- -----
EBITDA $(610) $(579)
===== =====
INTEREST EXPENSE
During the third quarters of 2003 and 2002, interest expense totaled
$1,715,000 and $1,978,000, respectively, which included amortization of deferred
financing expenses of $121,000 and $133,000, respectively.
INCOME TAX PROVISION
At September 30, 2003, and December 31, 2002, our net deferred income
tax assets were fully offset by a valuation allowance. The income tax provisions
recorded during the three-month periods ended September 30, 2003 and 2002,
consisted of estimated state income taxes payable.
-21-
RESULTS OF OPERATIONS -- FIRST NINE MONTHS OF 2003 VERSUS FIRST NINE MONTHS OF
2002
The following table sets forth our consolidated operating results for
the nine-month periods ended September 30, 2003 and 2002, and the reconciliation
of income from operations to earnings before interest, taxes, depreciation, and
amortization, which is commonly referred to as EBITDA (dollar amounts in
thousands):
NINE MONTHS ENDED SEPTEMBER 30
-------------------------------------
2003 2002
----------------- -----------------
Net sales $91,550 100.0% $95,582 100.0%
Cost of sales 82,518 90.1 83,761 87.6
------- ------ ------- ------
Gross profit 9,032 9.9 11,821 12.4
Selling and administrative expenses 6,275 6.9 6,733 7.0
Plant closure costs (1) -- -- 609 0.6
------- ------ ------- ------
Income from operations 2,757 3.0 4,479 4.7
Add back depreciation and amortization (2) 7,859 8.6 8,899 9.3
------- ------ ------- ------
EBITDA (3) $10,616 11.6% $13,378 14.0%
======= ====== ======= ======
Net cash provided by operating activities (4) $ 9,105 10.0% $11,512 12.0%
======= ====== ======= ======
(1) During the first quarter of 2002, we closed our metal
machining facility in Casa Grande, Arizona. During the first
nine 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 $273,000 and $161,000 during the first nine
months of 2003 and 2002, respectively, and which is included
in interest expense in the consolidated financial statements.
(3) 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 have presented EBITDA here and
elsewhere in this Form 10-Q because this measure is used by
investors, as well as our own management, to evaluate the
operating performance of our business, including its ability
to incur and to service debt. Our definition of EBITDA may not
be the same as the definition of 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.
-22-
Our net sales for the first nine months of 2003 were $91,550,000,
compared to net sales of $95,582,000 for the first nine months of 2002, a
decrease of $4,032,000. The decrease in net sales was principally the result of
decreased sales of diecast and machined metal components, offset, in part, by
increased sales of rubber components. EBITDA for the first nine months of 2003
was $10,616,000, or 11.6% of net sales, compared to $13,378,000, or 14.0% of net
sales, for the first nine months of 2002. The decrease in EBITDA was the result
of a $2,024,000 decrease in EBITDA at the Rubber Group and a $784,000 decrease
in EBITDA at the Metals Group, which are discussed in detail below.
Net cash provided by operating activities for the first nine months of
2003 totaled $9,105,000, compared to $11,512,000 for the first nine months of
2002. For more information about our operating activities, please refer to the
Consolidated Statement of Cash Flows in Part I, Item 1 and to our discussion of
operating activities under the caption "Liquidity and Capital Resources" in this
Part I, Item 2.
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
nine-month periods ended September 30, 2003 and 2002.
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 and cash flow 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 nine-month periods ended September 30, 2003 and 2002, and the
reconciliation of the Rubber Group's income from operations to its EBITDA
(dollar amounts in thousands):
NINE MONTHS ENDED SEPTEMBER 30
------------------------------------
2003 2002
----------------- ----------------
Net sales $78,032 100.0% $75,731 100.0%
Cost of sales 67,192 86.1 63,182 83.4
------- ------ ------- ------
Gross profit 10,840 13.9 12,549 16.6
Selling and administrative expenses 3,399 4.4 3,511 4.6
------- ------ ------- ------
Income from operations 7,441 9.5 9,038 11.9
Add back depreciation and amortization 5,412 7.0 5,839 7.7
------- ------ ------- ------
EBITDA $12,853 16.5% $14,877 19.6%
======= ====== ======= ======
During the first nine months of 2003, net sales of the Rubber Group
increased by $2,301,000, or 3.0%, compared to the first nine months of 2002.
This increase was primarily due to increased unit sales of insulators for
automotive ignition wire sets and components for medical devices, offset, in
part, by price reductions on certain automotive components.
-23-
Cost of sales as a percentage of net sales increased during the first
nine months of 2003 to 86.1% of net sales from 83.4% of net sales for the first
nine months of 2002, primarily due to operational problems at our connector
seals division. These increased costs were offset, in part, by reduced
depreciation and amortization expenses.
The problems at the connector seals division included:
- increased costs for scrap, sorting, and repair, relating to a
particular type of connector seal,
- increased freight costs, which resulted from delivery issues
related to those quality problems,
- costs related to the continued start-up of our operations to
mold seals from liquid silicone rubber, and
- costs incurred due to the general disruption to our operations
as we attempted to cope with those problems.
During the third quarter, we initiated a plan to reduce or eliminate these
operating problems. The plan includes:
- upgrading management and supervisory personnel,
- installing and utilizing improved process controllers and
centralized data acquisition capabilities on all molding
presses,
- implementing improved manufacturing procedures throughout the
operation,
- installing automated visual inspection and repair equipment,
and
- improved utilization of the division's resource planning
software systems.
Based on operating performance in the month of October 2003, we believe that the
operating improvement plan will yield positive results, during the fourth
quarter of 2003 and thereafter, as key components of the plan are rolled out.
Selling and administrative expenses as a percentage of net sales
decreased during the first nine months of 2003, compared to the first nine
months of 2002, primarily because these expenses are fixed, or partially fixed,
in nature.
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 and cash flow of the Metals Group and on our company taken as a
whole.
-24-
The following table sets forth the operating results of the Metals Group for the
nine-month periods ended September 30, 2003 and 2002, and the reconciliation of
the Metals Group's income from operations to its EBITDA (dollar amounts in
thousands):
NINE MONTHS ENDED SEPTEMBER 30
------------------------------------------
2003 2002
------------------- -------------------
Net sales $ 13,518 100.0% $ 19,851 100.0%
Cost of sales 15,326 113.4 20,579 103.7
-------- ------ -------- ------
Gross profit (loss) (1,808) (13.4) (728) (3.7)
Selling and administrative expenses 1,010 7.5 1,295 6.5
Plant closure costs -- -- 609 3.1
-------- ------ -------- ------
Income (loss) from operations (2,818) (20.9) (2,632) (13.3)
Add back depreciation and amortization 2,418 17.9 3,016 15.2
-------- ------ -------- ------
EBITDA $ (400) (3.0)% $ 384 1.9%
======== ====== ======== ======
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. As a result of the
reduction in sales at the Arizona facility caused by the loss of this customer,
we closed the facility in 2002.
The following table sets forth certain operating data of the Arizona
facility for the first nine months of 2003 and 2002 (dollar amounts in
thousands):
NINE MONTHS ENDED
SEPTEMBER 30
------------------
2003 2002
---- ----
Net sales $ -- $ 332
======= =======
Operating loss before plant closure costs $ (470) $(1,111)
------- -------
Plant closure costs:
Severance and other employee termination costs -- 246
Asset relocation costs -- 209
Other costs -- 154
------- -------
-- 609
------- -------
Operating loss (470) (1,720)
Add back depreciation and amortization 152 461
------- -------
EBITDA $ (318) $(1,259)
======= =======
-25-
During 2002, operating losses other than plant closure costs at the
Arizona facility 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. The operating loss during the first nine months of 2003,
resulted primarily from the ongoing cost to maintain, insure, protect, and
depreciate the building and the remaining equipment.
During the first nine months of 2003, net sales of the Metals Group
decreased by $6,333,000, or 31.9%, compared to the first nine months of 2002.
The decrease resulted from reduced sales of diecast and machined metal
components, primarily due to (1) a reduction in sales of diecast components to a
large customer resulting from the offshore sourcing of certain diecast
components and the loss of certain automotive programs by that customer, and the
end of product life for certain components, and (2) the loss of a high-volume
machined metal component because the customer converted the part to a stamped
metal component.
Cost of sales as a percentage of net sales increased during the first
nine months of 2003 to 113.4% of net sales from 103.7% of net sales during the
first nine months of 2002, primarily due to the affect of fixed, or partially
fixed, manufacturing expenses during a period of low sales volume. During the
first nine months of 2003, the impact of fixed, or partially fixed,
manufacturing costs was offset, in part, by reduced depreciation and
amortization expenses.
Selling and administrative expenses were reduced by 22.0% during the
first nine months of 2003 compared to the first nine months of 2002, but
increased as a percentage of net sales because of the reduced sales level.
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 nine-month periods ended September 30, 2003 and 2002, and the
reconciliation of the loss from operations to EBITDA (dollar amounts in
thousands):
NINE MONTHS ENDED
SEPTEMBER 30
------------------
2003 2002
---- ----
Loss from operations $(1,866) $(1,927)
Add back depreciation and amortization 29 44
------- -------
EBITDA $(1,837) $(1,883)
======= =======
INTEREST EXPENSE
During the first nine months of 2003 and 2002, interest expense totaled
$5,255,000 and $5,741,000, respectively, which included amortization of deferred
financing expenses of $394,000 and
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$294,000, 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 September 30, 2003, and December 31, 2002, our net deferred income
tax assets were fully offset by a valuation allowance. The income tax provision
recorded during the nine-month periods ended September 30, 2003 and 2002,
consisted of estimated state income taxes payable.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
During the first nine months of 2003, our operating activities provided
$9,105,000 of cash. Accounts receivable increased by $2,253,000. The increase
was caused primarily by an increase in net sales during August and September
2003 compared to November and December 2002, and, at December 31, 2002, the
payment by one customer of approximately $450,000 of invoices in advance of
their scheduled due dates. Prepaid expenses and other current assets decreased
by $860,000, primarily because of a reduction in the amount of unbilled tooling
being manufactured or purchased by us for sale to our customers. Accounts
payable increased by $1,040,000, which resulted from increased levels of
production activity and a slight extension in the timing of payments to certain
suppliers. Accrued interest expense increased by $3,351,000, reflecting
additional interest accrued during the first nine months of 2003 on our senior,
unsecured note, our senior subordinated notes, and our junior subordinated
notes.
INVESTING ACTIVITIES
During the first nine months of 2003, our investing activities used
$3,642,000 of cash, primarily for capital expenditures. Capital expenditures
attributable to the Rubber Group, the Metals Group, and the Corporate Office
totaled $3,150,000, $683,000, and $11,000, respectively, primarily for the
purchase of equipment. In addition, during the first nine months of 2003, the
Rubber Group acquired $720,000 of production equipment that was financed under
capital lease obligations. We presently project that capital expenditures during
2003, including equipment financed under capital lease obligations, will total
approximately $6,198,000, substantially all of which will be for the purchase of
equipment. Capital expenditures, including equipment financed under capital
lease obligations, for the Rubber Group, the Metals Group, and the Corporate
Office are projected to total approximately $5,340,000, $847,000, and $11,000,
respectively, during 2003. At September 30, 2003, we had outstanding commitments
to purchase property, plant, and equipment of approximately $764,000.
FINANCING ACTIVITIES
During the first nine months of 2003, our financing activities used
$6,088,000 of cash. During the first nine months of 2003, we made payments on
our amortizing term notes totaling $6,534,000, and we increased the net
borrowings under our revolving line of credit by $1,308,000. We also incurred
$862,000 of deferred financing expenses, primarily related to our efforts to
restructure substantially all of our outstanding debt, and amortized $394,000 of
deferred financing expenses.
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
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under our revolving line of credit is subject to certain availability formulas
based on the levels of our accounts receivable and inventories. Our revolving
line of credit is currently scheduled to expire on November 21, 2003. At
November 12, 2003, the aggregate principal amount outstanding under the
revolving line of credit was $18,512,000. We are currently working with our
primary secured lenders on the documentation for a new secured credit facility,
which includes an extension of the revolving line of credit until June 30, 2006.
We can give no assurance, however, that we will be able to refinance the
revolving line of credit on favorable terms, or at all. At September 30, 2003,
availability under the revolving line of credit totaled $1,655,000 before
outstanding checks of $1,671,000 were deducted.
Substantially all of our assets are pledged as collateral for various
of our borrowings. A number of our financing arrangements contain covenants that
require us to maintain minimum levels of 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 property, 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 secured lenders have agreed to waive, amend, or
eliminate certain of the financial covenants contained in our various financing
agreements in order to maintain or otherwise ensure our current or future
compliance. During 2003, covenants requiring minimum levels of net worth were
amended twice in two of our three financing agreements. In the event that we are
not in compliance with any of our covenants in the future and our lenders do not
agree to amend, waive, or eliminate 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, which have outstanding principal amounts of
$27,412,000 and $7,500,000, respectively, and accrued interest, as of September
30, 2003, of $14,563,000 and $1,406,000, respectively. In addition, the
revolving line of credit is currently scheduled to expire on November 21, 2003,
we have $347,000 of junior subordinated notes that are scheduled to mature on
February 1, 2004, and we have $9,283,000 of scheduled principal payments on our
secured, amortizing term notes during the twelve months ending September 30,
2004. We estimate that, at existing contractual and market rates, the interest
expense on all of our debt during 2003 will be approximately $7,000,000. Cash
interest paid during the first nine months of 2003 and 2002 totaled $1,498,000
and $1,730,000, respectively.
We had a net working capital deficit of $68,389,000 at September 30,
2003, compared to a net working capital deficit of $68,070,000 at December 31,
2002. The net working capital deficit exists primarily because the majority of
our debt is in default or subject to short-term waivers of cross-defaults. As
discussed in more detail below, we are in the process of negotiating extensions
or refinancings of all of our matured and maturing debt, although there can be
no assurance that we will be successful in this effort. If our debt were
refinanced on the terms that are set forth below, we estimate that our monthly
cash interest expense would be approximately $640,000.
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. The exchange offer was amended on March 7, 2003, and further
amended on September 18, 2003, and is scheduled to expire on November 18, 2003,
unless extended by us. If the amended exchange offer is consummated, at least
99% of the 12 3/4% senior subordinated notes
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will be exchanged for new 12% senior subordinated notes due August 1, 2009, 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 the day before the date the amended exchange offer is consummated, which
accrued interest will total $548.958 for each $1,000 principal amount of 12 3/4%
senior subordinated notes, if the amended exchange offer is consummated on
November 21, 2003. Interest on the 12% senior subordinated notes will accrue
from the date the amended exchange offer is consummated, and will be payable on
each February 1, May 1, August 1, and November 1. Each $1,000 principal amount
of 12% 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 August 1, 2005, through August 1, 2009. Our senior, secured lenders have
waived the cross-default provisions with respect to the default on the senior
subordinated notes through November 21, 2003, and the holders of the junior
subordinated notes have waived such cross-default provisions through February 1,
2004. One of the conditions to the consummation of the amended exchange offer is
the tender for exchange of at least 99% of the senior subordinated notes. As of
November 10, 2003, we had received tenders of $27,279,000 principal amount of 12
3/4% senior subordinated notes, or 99.5% of the outstanding notes. There are
additional conditions to the consummation of the amended exchange offer that may
not be satisfied by the expiration date.
We have 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 13% junior subordinated notes
due November 1, 2009, for the existing 14% junior subordinated notes, and the
accrued interest on the 14% junior subordinated notes for the period November 1,
1999, through the day before the date the restructuring is consummated, which
will total $232,000, if the restructuring is consummated on November 21, 2003,
will be converted into shares of our common stock at a price of $2.27 per share.
Interest on the 13% junior subordinated notes will accrue from the date the
restructuring is consummated, and will be payable on each February 1, May 1,
August 1, and November 1. Each $1,000 principal amount of 13% junior
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 August 1, 2005, through
November 1, 2009.
We have been in default on our senior, unsecured note since April 30,
2002, when we did not make the payments of principal, in the amount of
$7,500,000, and the interest, in the amount of $78,000, that were due on that
date. If the other aspects of the financial restructuring program are completed,
we have proposed to repurchase the senior, unsecured note for $5,550,000 in cash
plus interest on that amount from November 1, 2002, to the date the amended
exchange offer is consummated, at the prime rate. Our senior, secured lenders
have waived the cross-default provisions with respect to the default on the
senior, unsecured note through November 21, 2003, and the holders of the junior
subordinated notes have waived such cross-default provisions through February 1,
2004.
We are currently working with our primary secured lenders on the
documents for a new senior, secured credit facility.
We can give no assurance that we will be able to consummate the amended
exchange offer, repurchase the senior, unsecured note, or refinance our senior,
secured credit facility on satisfactory terms. If we are unable to do so, we may
choose to file a voluntary petition under the federal bankruptcy code in order
to effect a debt restructuring on terms substantially similar to those discussed
above, or on other terms. Representatives of the four largest holders of the 12
3/4% senior subordinated notes, who hold in the aggregate approximately 75% of
the notes, have indicated that, if the documentation for the new senior, secured
credit facility cannot be completed promptly, they may demand that we file a
voluntary petition under the federal bankruptcy code or, in the alternative,
they may choose to file an involuntary petition against us in order to
accomplish a debt restructuring, in which case we would have twenty days
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to respond by filing a voluntary petition or seeking the withdrawal or dismissal
of such involuntary petition. Although we believe that such a debt 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 business, results of operations, cash flows, 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.
RECENTLY ISSUED ACCOUNTING STANDARDS
STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 150, ACCOUNTING FOR
CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES
AND EQUITY
On July 1, 2003, we adopted Statement of Financial Accounting Standard
No. 150, "Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity" ("FAS 150"). FAS 150 establishes standards for
classifying and measuring as liabilities certain financial instruments that
embody obligations of the issuer and have characteristics of both liabilities
and equity. In connection with the adoption of FAS 150, during the three months
ended September 30, 2003, we recognized a charge of $247,000 to increase the
carrying value of our Series B Preferred Stock from $330,000 to its estimated
fair value of $577,000. The charge is shown in our consolidated statement of
operations on the line entitled "Cumulative effect of a change in accounting
principle." In addition, during the three months ended September 30, 2003, we
recorded $9,000 of interest expense, which increased the carrying fair value of
the Series B Preferred Stock from $577,000 to $586,000. If FAS 150 had been in
effect during the three-month and nine-month periods ended September 30, 2002,
and for the entire nine-month period ended September 30, 2003, the interest
expense that would have been recorded and the related increase in the carrying
value of the Series B Preferred Stock would have totaled $10,000 and $32,000,
during the three-month and nine-month periods ended September 30, 2002,
respectively, and $27,000 during the nine-month period ended September 30, 2003.
At September 30, 2003, the Series B Preferred Stock was classified as a debt in
our consolidated balance sheet. The Series B Preferred Stock outstanding at
December 31, 2002, has been reclassified as debt to conform to the current
period presentation. For more information about the Series B Preferred Stock,
refer to Note 5 of the consolidated financial statements in Part 1, Item 1.
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 September 30, 2003, we had $30,595,000 of outstanding floating-rate
debt at interest rates equal to either LIBOR plus 2 1/2%, LIBOR plus 2 3/4%, the
prime rate, the prime rate plus 3/4%, or the prime rate plus 1%. 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 September 30, 2003, we had $37,734,000 of outstanding fixed-rate,
long-term debt with a weighted-average interest rate of 12.6%, of which
$34,912,000 had matured. We have received tenders of over 99% of our 12 3/4%
senior subordinated notes in exchange for new 12% senior subordinated notes due
August 1, 2009, 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 the day before the date the exchange offer is
consummated, which accrued interest will total $548.958 for each $1,000
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principal amount of 12 3/4% senior subordinated notes exchanged, if the exchange
offer is consummated on November 21, 2003. The holders of our 14% junior
subordinated notes have agreed to exchange the $347,000 principal amount of
those notes for new 13% junior subordinated notes due November 1, 2009, and to
convert the accrued interest on the notes into shares of common stock. If the
other aspects of the financial restructuring are completed, we have proposed to
repurchase our $7,500,000 senior, unsecured note for $5,550,000 plus interest on
that amount from November 1, 2002, to the date of repurchase, at the prime rate.
If the financial restructuring is completed on the terms currently
negotiated, we estimate that our monthly cash interest expense will be
approximately $640,000 and that a one percentage point increase or decrease in
the applicable short-term rate would increase or decrease our monthly cash
interest expense by approximately $33,000.
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.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation was performed under the supervision, and with the
participation, of our management, including one of our co-principal executive
officers and our chief financial officer, of the effectiveness of the design and
operation of our disclosure controls and procedures as of September 30, 2003.
Based on that evaluation, the co-principal executive officer and our chief
financial officer concluded that our disclosure controls and procedures provide
management with timely notice of material information that is required to be
disclosed in periodic reports filed with the U.S. Securities and Exchange
Commission. We also reviewed our internal controls, and there have been no
significant changes in our internal controls, or in other factors that could
significantly affect our internal controls, subsequent to the date of our
previous evaluation.
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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 herein by reference.
We are in default in respect of our senior, unsecured note because we
did not make the payments 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 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
herein by reference.
(b) We did not pay dividends on our $8 cumulative convertible preferred
stock, series B, during the three-month or nine-month periods ended September
30, 2003, in the aggregate amount of $6,600 and $19,800, respectively. As of
November 13, 2003, the Company was in arrears in the payment of dividends in the
amount of $99,000 and in the making of mandatory redemptions in the amount of
$270,000.
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 October 31, 2003, between Lexington Precision
Corporation ("LPC") and Michael A. Lubin
10-2 Agreement relating to Junior Subordinated Convertible
Increasing Rate Note dated as of October 31, 2003, among
LPC, Michael A. Lubin, and Warren Delano
10-3 Agreement dated as of September 15, 2003, between LPC and
Congress Financial Corporation ("Congress")
10-4 Agreement dated as of September 15, 2003, between Lexington
Rubber Group, Inc. ("LRGI") and Congress
10-5 Agreement dated as of September 15, 2003 among LPC, LRGI,
and Congress
10-6 Agreement dated as of October 15, 2003, between LPC and
Congress
10-7 Agreement dated as of October 15, 2003, between LRGI and
Congress
10-8 Agreement dated as of October 15, 2003 among LPC, LRGI, and
Congress
10-9 Agreement dated as of November 5, 2003, between LPC and
Congress
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10-10 Agreement dated as of November 5, 2003, between LRGI and
Congress
10-11 Agreement dated as of November 7, 2003 among LPC, LRGI, and
Congress
10-12 Sixteenth Amendment Agreement dated as of September 15,
2003, between LPC, LRGI, and Bank One, NA ("Bank One")
10-13 Agreement dated as of September 15, 2003, between LPC,
LRGI, and Bank One
10-14 Seventeenth Amendment Agreement dated as of October 15,
2003, between LPC, LRGI, and Bank One
10-15 Agreement dated as of October 15, 2003, between LPC, LRGI,
and Bank One
10-16 Eighteenth Amendment Agreement dated as of November 7,
2003, between LPC, LRGI, and Bank One
10-17 Agreement dated as of November 7, 2003, between LPC, LRGI,
and Bank One
10-18 Agreement dated October 31, 2003, between LPC and CIT
Group/Equipment Financing, Inc. ("CIT")
10-19 Amendment No. 10 to Loan and Security Agreement dated as of
August 31, 2003, between LPC and CIT
31-1 Certification of Michael A. Lubin, Chairman of the Board
and Co-Principal Executive Officer of the registrant,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31-2 Certification of Warren Delano, President and Co-Principal
Executive Officer of the registrant, pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
31-3 Certification of Dennis J. Welhouse, Chief Financial
Officer and Principal Financial Officer of the registrant,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32-1 Certification of Michael A. Lubin, Chairman of the Board
and Co-Principal Executive Officer of the registrant,
furnished pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32-2 Certification of Warren Delano, President and Co-Principal
Executive Officer of the registrant, furnished pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
32-3 Certification of Dennis J. Welhouse, Chief Financial
Officer and Principal Financial Officer of the registrant,
furnished pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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(b) REPORTS ON FORM 8-K
On July 11, 2003, we filed a report on Form 8-K that included a
press release dated July 11, 2003, stating that we were extending the expiration
date of our offer to exchange our senior subordinated notes from July 11, 2003,
to 12 midnight, New York City Time on July 31, 2003, unless further extended.
On July 31, 2003, we filed a report on Form 8-K that included a
press release dated July 31, 2003, stating that we were extending the expiration
date of our offer to exchange our senior subordinated notes from July 31, 2003,
to 12 midnight, New York City Time on August 14, 2003, unless further extended.
On August 14, 2003, we filed a report on Form 8-K that included a
press release dated August 14, 2003, stating that we were extending the
expiration date of our offer to exchange our senior subordinated notes from
August 14, 2003, to 12 midnight, New York City Time on August 28, 2003, unless
further extended.
On August 18, 2003, we filed a report on Form 8-K that included a
press release dated August 18, 2003, announcing financial results for the
three-month and six-month periods ended June 30, 2003.
On August 28, 2003, we filed a report on Form 8-K that included a
press release dated August 28, 2003, stating that we were extending the
expiration date of our offer to exchange our senior subordinated notes from
August 28, 2003, to 12 midnight, New York City Time on September 11, 2003,
unless further extended.
On September 11, 2003, we filed a report on Form 8-K that included
a press release dated September 11, 2003, stating that we were extending the
expiration date of our offer to exchange our senior subordinated notes from
September 11, 2003, to 12 midnight, New York City Time on September 30, 2003,
unless further extended.
On September 18, 2003, we filed a report on Form 8-K that included
a press release dated September 18, 2003, stating that we were further amending
our exchange offer to holders of our senior subordinated notes and extending the
expiration date of our offer to exchange our senior subordinated notes from
September 30, 2003, to 5:00 p.m., New York City Time on October 7, 2003, unless
further extended.
On October 7, 2003, we filed a report on Form 8-K that included a
press release dated October 7, 2003, stating that we were extending the
expiration date of our offer to exchange our senior subordinated notes from
October 7, 2003, to 5:00 p.m., New York City Time on October 21, 2003, unless
further extended.
On October 21, 2003, we filed a report on Form 8-K that included a
press release dated October 21 2003, stating that we were extending the
expiration date of our offer to exchange our senior subordinated notes from
October 21, 2003, to 5:00 p.m., New York City Time on November 4, 2003, unless
further extended.
On November 4, 2003, we filed a report on Form 8-K that included a
press release dated November 4, 2003, stating that we were extending the
expiration date of our offer to exchange our senior
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subordinated notes from November 4, 2003, to 5:00 p.m., New York City Time on
November 11, 2003, unless further extended.
On November 12, 2003, we filed a report on Form 8-K that included
a press release dated November 11, 2003, stating that we were extending the
expiration date of our offer to exchange our senior subordinated notes from
November 11, 2003, to 5:00 p.m., New York City Time on November 18, 2003, unless
further extended.
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LEXINGTON PRECISION CORPORATION
FORM 10-Q
SEPTEMBER 30, 2003
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)
November 13, 2003 By: /s/ Michael A. Lubin
- ----------------- ------------------------------
Date Michael A. Lubin
Chairman of the Board
November 13, 2003 By: /s/ Warren Delano
- ----------------- ---------------------
Date Warren Delano
President
November 13, 2003 By: /s/ Dennis J. Welhouse
- ----------------- ------------------------------
Date Dennis J. Welhouse
Senior Vice President and
Chief Financial Officer
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