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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 1997
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 OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 319-4657
------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.25 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant at March 17, 1998 was approximately $3,158,000.
The number of shares outstanding of the registrant's common stock at March 17,
1998 was 4,263,036.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement to be issued in connection with its
1998 Annual Meeting of Stockholders (the "Proxy Statement") are incorporated by
reference into Part III. Only those portions of the Proxy Statement which are
specifically incorporated by reference are deemed filed as part of this report
on Form 10-K.
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LEXINGTON PRECISION CORPORATION
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business.......................................................................................1
Item 2. Properties.....................................................................................6
Item 3. Legal Proceedings..............................................................................6
Item 4. Submission of Matters to a Vote of Security Holders............................................6
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..........................7
Item 6. Selected Financial Data........................................................................8
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations..........................................................................9
Item 8. Financial Statements and Supplementary Data...................................................20
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..........................................................................45
PART III
Item 10. Directors and Executive Officers of the Registrant............................................46
Item 11. Executive Compensation........................................................................46
Item 12. Security Ownership of Certain Beneficial Owners and Management................................46
Item 13. Certain Relationships and Related Transactions................................................46
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .............................47
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PART I
ITEM 1. BUSINESS
Lexington Precision Corporation (the "Company") is a Delaware
corporation that was incorporated in 1966. The Company's business is conducted
primarily in the continental United States. Through its two business segments,
the Rubber Group and the Metals Group, the Company manufactures, to customer
specifications, rubber and metal component parts used primarily by manufacturers
of automobiles, automotive replacement parts, industrial equipment, and medical
devices. The Company has implemented a strategy of focusing each of its
manufacturing facilities on a particular product line with a well-defined
market. Operations are decentralized, with each operating company having a
management team that is responsible for all aspects of production, sales, and
customer service.
RUBBER GROUP
The Company's Rubber Group manufactures silicone and organic rubber
components. The Rubber Group consists of four operating companies: Lexington
Connector Seals, Lexington Insulators, Lexington Medical, and Lexington
Technologies. In 1997, net sales of the Rubber Group totaled $81,210,000, or
68.5% of the Company's consolidated net sales.
LEXINGTON CONNECTOR SEALS. Lexington Connector Seals manufactures molded
rubber seals used in automotive wiring systems. The seals are designed to ensure
the electrical integrity of the many connections required throughout the wiring
system. The seals typically are generic in nature and can be used in a variety
of car and truck models.
LEXINGTON INSULATORS. Lexington Insulators manufactures molded rubber
insulators used in ignition wire sets for automobiles and light trucks.
Insulators are used to shield the electrical connections made by the ignition
wire at the distributor and at the spark plug. In 1997, net sales of insulators
to original equipment manufacturers, or their tier-one suppliers, represented
42.7% of net sales, and net sales of insulators to manufacturers of aftermarket
ignition wire sets represented 57.3% of net sales. The Company believes that
Lexington Insulators is the largest manufacturer of insulators for ignition wire
sets in North America.
LEXINGTON MEDICAL. Lexington Medical manufactures molded rubber
components used in a variety of medical devices, such as intravenous feeding
systems, syringes, laparoscopic instruments, and catheters.
LEXINGTON TECHNOLOGIES. Lexington Technologies manufactures molds that
are sold to customers of the other operating companies of the Rubber Group. The
molds are used by the Rubber Group to produce component parts. Lexington
Technologies also provides specialized engineering and design services to the
other operating companies of the Rubber Group.
METALS GROUP
The Company's Metals Group manufactures aluminum, magnesium, and zinc
die castings and machines aluminum, brass, and steel components. The Metals
Group consists of three operating companies: Lexington Die Casting, Lexington
Machining, and Lexington Safety Components. In 1997, net sales of the Metals
Group totaled $37,421,000, or 31.5% of the Company's consolidated net sales.
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LEXINGTON DIE CASTING. Lexington Die Casting manufactures aluminum,
magnesium, and zinc die castings used primarily by manufacturers of industrial
equipment, computers and office equipment, and automobiles.
LEXINGTON MACHINING. Lexington Machining manufactures machined aluminum,
brass, and steel components used primarily by manufacturers of industrial
equipment, automobiles, recreational equipment, and home appliances.
LEXINGTON SAFETY COMPONENTS. Lexington Safety Components currently
manufactures machined metal components used by manufacturers of initiators and
inflators for automotive airbag systems. The Company has recently decided to
expand the focus of Lexington Safety Components with the goal of obtaining
high-quality, high-volume production business from automotive and industrial
customers who manufacture other products.
PRINCIPAL END USES FOR THE COMPANY'S PRODUCTS
The following table summarizes net sales of the Company during 1997,
1996, and 1995 by the type of product in which the Company's component parts
were utilized (dollar amounts in thousands):
YEARS ENDED DECEMBER 31
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1997 1996 1995
------------------- ------------------ ------------------
Automobiles and light trucks $ 88,961 75.0% $ 79,832 69.5% $ 68,083 65.3%
Industrial equipment 9,860 8.3 11,870 10.3 10,916 10.5
Medical devices 7,623 6.4 8,371 7.3 6,973 6.7
Computers and office equipment 5,636 4.8 6,016 5.2 8,670 8.3
Recreational equipment and
home appliances 4,038 3.4 4,693 4.1 6,154 5.9
Other 2,513 2.1 4,090 3.6 3,502 3.3
--------- ------- --------- ------ --------- ------
$ 118,631 100.0% $ 114,872 100.0% $ 104,298 100.0%
========= ======= ========= ====== ========= ======
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The following table summarizes net sales of the Rubber Group and the
Metals Group during 1997, 1996, and 1995 by the type of product in which each
Group's component parts were utilized (dollar amounts in thousands):
YEARS ENDED DECEMBER 31
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1997 1996 1995
------------------ ------------------ ------------------
Rubber Group:
Automobiles and light trucks $ 72,929 89.8% $ 65,420 87.1% $ 53,734 86.2%
Medical devices 7,620 9.4 8,077 10.7 6,577 10.6
Other 661 .8 1,625 2.2 1,991 3.2
-------- ------- -------- ------- -------- -------
$ 81,210 100.0% $ 75,122 100.0% $ 62,302 100.0%
======== ======= ======== ======= ======== =======
Metals Group:
Automobiles and light trucks $ 16,032 42.8% $ 14,412 36.3% $ 14,349 34.2%
Industrial equipment 9,789 26.2 11,723 29.5 10,581 25.2
Computers and office equipment 5,636 15.1 6,016 15.1 8,655 20.6
Recreational equipment and
home appliances 4,038 10.8 4,693 11.8 5,733 13.6
Other 1,926 5.1 2,906 7.3 2,678 6.4
-------- ------- -------- ------- -------- -------
$ 37,421 100.0% $ 39,750 100.0% $ 41,996 100.0%
======== ======= ======== ======= ======== =======
(For additional information concerning the Rubber Group and the Metals
Group, see Part II, Item 7, and Note 10 to the consolidated financial statements
in Part II, Item 8.)
MAJOR CUSTOMERS
During 1997, 1996, and 1995, net sales to Delphi Packard Electric
Systems, a division of General Motors Corporation ("Delphi Packard Electric"),
represented 22.3%, 21.8%, and 22.5%, respectively, of the Company's net sales
and 32.6%, 33.4%, and 37.6%, respectively, of the Rubber Group's net sales. No
other customer accounted for more than 10% of the Company's net sales during
1997, 1996, or 1995. Loss of a significant amount of business from Delphi
Packard Electric or any of the Company's other large customers could have a
material adverse effect on the business of the Company if such business were not
replaced by additional business from existing or new customers.
During the first quarter of 1997, the Company and Delphi Packard
Electric entered into an agreement that will govern, through 2001, the purchase
of substantially all of the component parts that the Company currently sells to
Delphi Packard Electric. Under the terms of the agreement, (i) the Company
agreed to sell and Delphi Packard Electric agreed to purchase approximately 100%
of Delphi Packard Electric's requirements for all specified component parts,
(ii) the Company warranted that the specified components will remain competitive
in terms of technology, design, and quality, (iii) the selling prices of the
specified components will be adjusted to reflect increases or decreases in
material costs, and (iv) the selling prices of the specified components will be
reduced by certain specified amounts in each of the five years covered by the
agreement. Although no assurance can be given, the Company currently believes
that it will be able to offset a portion of the price reductions granted to
Delphi Packard Electric through reductions in direct
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manufacturing costs and that a portion of the price reductions will be offset by
greater absorption of manufacturing overhead as a result of volume increases.
As a result of its performance as a supplier of rubber components, the
Company has received General Motors Corporation's "GM Supplier of the Year"
award for each of the past three years.
MARKETING AND SALES
The Company's marketing and sales effort is carried out by management
personnel and internal sales personnel.
During 1997, the Company established a wholly-owned German subsidiary,
Lexington Precision GmbH, to market products of the Rubber Group in Europe.
RAW MATERIALS
Each of the principal raw materials used by the Company is available at
competitive prices from several major manufacturers. All raw materials have been
readily available, and the Company does not foresee any significant shortages.
PATENTS AND TRADEMARKS
The Company does not currently hold any patents, trademarks, or licenses
that it considers to be material to the success or operation of its business.
SEASONAL VARIATIONS
The Company's business generally is not subject to significant seasonal
variations.
BACKLOG
Sales of the Company's products are made pursuant to a variety of
purchasing arrangements and practices. Customers typically reserve the right to,
and frequently do, revise purchase orders and release schedules so that
deliveries correspond with their own production requirements. The Company
believes that the aggregate value of scheduled releases outstanding on its books
at any time cannot be considered firm backlog since they may be subject to
postponement or cancellation at any time. The Company also believes that
increases or decreases in the aggregate value of scheduled releases are not
necessarily indicative of any trend in the Company's net sales.
COMPETITION
The Company competes for business primarily on the basis of quality,
service, engineering capability, and price. The Rubber Group and the Metals
Group encounter substantial competition from a large number of manufacturing
companies. Competitors range from small and medium-sized specialized firms to
large diversified companies, many of which have resources substantially greater
than those of the Company. Additionally, some of the Company's customers have
internal manufacturing operations that compete with the Company.
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PRODUCT LIABILITY RISKS
The Company is subject to potential product liability risks inherent in
the manufacture and sale of component parts. Although there exist no claims
against the Company that the Company believes will have a significant adverse
effect upon its business, financial position, or results of operations, there
can be no assurance that any existing claims or any claims made in the future
will not have a material adverse effect upon the business, financial position,
or results of operations of the Company. Although the Company maintains
insurance coverage for product liability, there can be no assurance that, in the
event of a claim, such insurance coverage would automatically apply or that, in
the event of an award arising out of a claim, the amount of such insurance
coverage would be sufficient to satisfy the award.
ENVIRONMENTAL COMPLIANCE
The Company's operations are subject to numerous federal, state, and
local laws and regulations controlling the discharge of materials into the
environment or otherwise relating to the protection of the environment. Although
the Company continues to make expenditures for the protection of the
environment, compliance with federal, state, and local laws and environmental
regulations has not had a significant impact on the capital spending
requirements, earnings, or competitive position of the Company. There can be no
assurance that changes in environmental laws and regulations, or the
interpretation or enforcement thereof, will not require material expenditures by
the Company in the future. (See also Part I, Item 3.)
EMPLOYEES
At December 31, 1997, the Company employed 1,236 individuals. The Rubber
Group and the Metals Group employed 755 and 477 individuals, respectively, and
the Company's corporate office employed four individuals. At December 31, 1997,
56 hourly workers at one plant location within the Rubber Group were subject to
a collective bargaining agreement. The Company believes that its employee
relations are generally good.
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ITEM 2. PROPERTIES
The following table shows the location and square footage of each of the
manufacturing facilities of the Rubber Group and the Metals Group at December
31, 1997:
SQUARE
LOCATION FEET
--------------------- ---------
Rubber Group:
Lexington Connector Seals Vienna, OH 60,000(1)
Lexington Connector Seals LaGrange, GA 77,000(1)
Lexington Insulators Jasper, GA 97,000
Lexington Medical Rock Hill, SC 60,000(1)
Lexington Technologies North Canton, OH 41,000(1)
---------
335,000
---------
Metals Group:
Lexington Die Casting Lakewood, NY 99,000(1) (2)
Lexington Die Casting Manchester, NY 21,000
Lexington Machining Rochester, NY 60,000
Lexington Safety Components Casa Grande, AZ 64,000(1)
---------
244,000
---------
579,000
=========
- --------------------------
(1) Encumbered by a mortgage.
(2) Leased from an industrial development authority pursuant to a lease that
expires in 2006 and provides the Company with an option to purchase the
facility for nominal consideration.
All of the plants are general manufacturing facilities suitable for the
Company's operations. The Company believes that the facilities are adequate to
meet the Company's current operating needs.
The Company occupies, in the aggregate, 6,000 square feet of office
space for corporate administrative purposes. The Company leases an office in
Cleveland, Ohio, and reimburses an affiliate for a portion of the cost of
leasing an office in New York City.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to various claims and legal proceedings covering
a wide range of matters that arise in the ordinary course of its business
activities, including actions naming the Company as one of numerous potentially
responsible parties under applicable environmental laws for restoration costs at
waste-disposal sites, as a third-party defendant in cost-recovery actions
pursuant to applicable environmental laws, and as a defendant or potential
defendant in various other matters. It is the Company's policy to record
accruals for such matters when a loss is deemed probable and the amount of such
loss can be reasonably estimated. The various actions to which the Company is or
may be a party in the future are at various stages of completion. Although there
can be no assurance as to the outcome of existing or potential litigation, in
the event such litigation were commenced, based upon the information currently
available to the Company, the Company currently believes that the outcome of
such actions would not have a material adverse effect upon its financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1997.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded in the over-the-counter market. At
February 27, 1998, there were approximately 1,000 holders of record of the
Company's common stock. Trading in shares of the Company's common stock is
limited. During 1997 and 1996, trading data for the Company's stock was
available on the OTC Bulletin Board operated by the National Association of
Securities Dealers, Inc. (NASD). The following table sets forth prices at which
trades in the Company's common stock were reported on the OTC Bulletin Board:
YEARS ENDED DECEMBER 31
-------------------------------------------------
1997 1996
------------------------ --------------------
HIGH LOW HIGH LOW
--------- ---------- ------- --------
First quarter $2.25 $1.875 $2.75 $2.00
Second quarter $2.125 $1.625 $3.00 $2.375
Third quarter $3.75 $1.9375 $2.75 $2.125
Fourth quarter $3.625 $2.25 $2.50 $2.125
The Company is not able to determine whether retail markups, markdowns,
or commissions were included in the above prices. The Company believes that
eight brokerage firms currently make a market in the Company's common stock,
although both bid and asked quotations may at times be limited.
No dividends have been paid on the Company's common stock since 1979,
and the Company has no current plans to reinstate payment of dividends. The
future payment of dividends is dependent upon, among other things, the earnings
and capital requirements of the Company. The agreements pursuant to which
certain of the Company's indebtedness is outstanding and the terms of the
Company's preferred stock contain provisions limiting the Company's ability to
make dividend payments on its common stock.
On October 27, 1997, the Company issued to an institutional investor
its 10.5% Senior Note due February 1, 2000 (the "Note") in the principal amount
of $7,500,000, for a cash purchase price equal to the principal amount thereof.
The Note was issued by the Company in a transaction not involving a public
offering, pursuant to an exemption from the registration requirements available
under Section 4(2) of the Securities Act of 1933, as amended. The purchaser of
the Note is an accredited investor within the meaning of Rule 501 of the
Securities and Exchange Commission and had adequate access to information about
the Company. Appropriate legends regarding the restriction or transfer of the
Note were placed on the Note.
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data of
the Company for each of the years in the five-year period ended December 31,
1997 (dollar amounts in thousands, except per share amounts). The financial data
has been taken from the consolidated financial statements of the Company, which
have been audited by Ernst & Young LLP, independent certified public
accountants. The information set forth below is not necessarily indicative of
the results of future operations; it should be read in conjunction with, and is
qualified by, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in Part II, Item 7, and the consolidated financial
statements in Part II, Item 8.
YEARS ENDED DECEMBER 31
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1997 1996 1995 1994 1993
---- ---- ---- ---- ----
SUMMARY OF OPERATIONS:
Net sales $ 118,631 $ 114,872 $ 104,298 $ 88,532 $ 74,976
========= ======== ======== ========= =========
Income from operations $ 7,784 $ 8,565 $ 9,657 $ 8,102 $ 6,347
Interest expense 9,065 8,542 7,585 6,272 5,496
Other income, net 425 - 641 536 -
Provision for income taxes 672 40 425 34 -
--------- -------- -------- --------- ---------
Net income/(loss) $ (1,528) $ (17) $ 2,288 $ 2,332 $ 851
========= ======== ======== ========= =========
Net income/(loss) per common share
assuming dilution where appropriate $ (0.38) $ (0.02) $ 0.49 $ 0.51 $ 0.13
========= ======== ======== ========= =========
OTHER DATA:
Average number of employees 1,220 1,166 1,147 968 860
Depreciation and amortization $ 10,009 $ 8,696 $ 6,449 $ 5,060 $ 4,297
Capital expenditures $ 15,790 $ 15,708 $ 17,902 $ 15,319 $ 6,288
DECEMBER 31
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1997 1996 1995 1994 1993
---- ---- ---- ---- ----
FINANCIAL POSITION:
Current assets $ 31,828 $ 30,845 $ 24,478 $ 22,752 $ 15,715
Current liabilities 36,003 35,167 29,253 24,330 12,733
--------- -------- -------- --------- ---------
Net working capital/(deficit) $ (4,175) $ (4,322) $ (4,775) $ (1,578) $ 2,982
========= ======== ======== ========= =========
Total assets $ 104,124 $ 97,030 $ 81,876 $ 67,396 $ 49,983
Long-term debt, excluding current
portion $ 72,622 $ 65,148 $ 56,033 $ 49,627 $ 46,273
Redeemable preferred stock at par value $ 420 $ 465 $ 510 $ 555 $ 600
Total stockholders' deficit $ (6,667) $ (5,057) $ (4,976) $ (7,215) $ (9,623)
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Various statements in this Item 7 are based upon projections and
estimates, as distinct from past or historical facts and events. These
forward-looking statements are subject to a number of risks, uncertainties,
contingencies, and other factors that could cause the actual results or
performance of the Company to be materially different from the future results or
performance expressed in or implied by such statements. Such risks and
uncertainties include increases and decreases in business awarded to the Company
by its various customers, unanticipated price reductions for the Company's
products as a result of competition, unanticipated operating results and cash
flows, increases or decreases in capital expenditures, unforeseen product
liability claims, changes in economic conditions, changes in the competitive
environment, changes in the capital markets, labor interruptions at the Company
or at its customers, and a number of other factors. Because the Company operates
with substantial financial leverage and limited liquidity, the impact of any
negative event may have a greater adverse effect upon the Company than if the
Company operated with lower financial leverage and greater liquidity. The
results of operations for any particular fiscal period of the Company are not
necessarily indicative of the results to be expected for any one or more
succeeding fiscal periods. All forward-looking statements attributable to the
Company are expressly qualified by the foregoing cautionary statements.
RESULTS OF OPERATIONS -- COMPARISON OF 1997, 1996, AND 1995
The Company manufactures, to customer specifications, component parts
through two business segments, the Rubber Group and the Metals Group.
RUBBER GROUP
The Rubber Group manufactures silicone and organic rubber components.
During 1997, 1996, and 1995, automotive industry customers of the Rubber Group
represented 89.8%, 87.1%, and 86.2%, respectively, of the Rubber Group's net
sales. 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 the Company.
The three largest customers of the Rubber Group accounted for 53.0%,
53.4%, and 56.7% of the Rubber Group's net sales during 1997, 1996, and 1995,
respectively. The largest customer of the Rubber Group, Delphi Packard Electric,
accounted for 32.6%, 33.4%, and 37.6% of the Rubber Group's net sales during the
same respective periods. Loss of a significant amount of business from any of
the Rubber Group's large customers could have a material adverse effect upon the
Rubber Group and the Company as a whole if such business were not replaced by
additional business from existing or new customers.
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The following table sets forth the operating results of the Rubber Group
for 1997, 1996, and 1995 (dollar amounts in thousands):
YEARS ENDED DECEMBER 31
---------------------------------------------------------------
1997 1996 1995
----------------- ---------------- ----------------
Net sales $ 81,210 100.0% $ 75,122 100.0% $ 62,302 100.0%
Cost of sales 64,696 79.7 59,515 79.2 50,623 81.3
-------- ------ ------- ------ ------- ------
Gross profit 16,514 20.3 15,607 20.8 11,679 18.7
Selling and administrative expenses 5,055 6.2 4,785 6.4 4,175 6.7
-------- ------ ------- ------ ------- ------
Income from operations $ 11,459 14.1% $ 10,822 14.4% $ 7,504 12.0%
======== ====== ======= ====== ======= ======
During 1997, net sales of the Rubber Group increased by $6,088,000, or
8.1%, compared to 1996. This increase was primarily due to increased unit sales
of connector seals and insulators for automotive wiring systems and, to a lesser
extent, increased sales of tooling, offset, in part, by reduced sales of medical
components and price reductions on certain automotive components.
During 1997, income from operations totaled $11,459,000, an increase of
$637,000, or 5.9%, compared to 1996. Cost of sales as a percentage of net sales
increased during 1997, primarily due to (i) increased depreciation and
amortization, which totaled $6,257,000, or 7.7% of net sales, during 1997,
compared to $5,183,000, or 6.9% of net sales, during 1996, and (ii) increased
indirect labor expense resulting primarily from (a) the hiring of technical and
supervisory personnel in conjunction with the engineering and start-up of
production of a new style of connector seal and (b) continuing start-up expenses
incurred at Lexington Technologies, the Rubber Group's new mold manufacturing
and engineering operation. Selling and administrative expenses as a percentage
of net sales decreased during 1997 compared to 1996 primarily because such
expenses are partially fixed in nature. During 1997 and 1996, selling and
administrative expenses included deprecation and amortization of $419,000 and
$413,000, respectively.
During 1996, net sales of the Rubber Group increased by $12,820,000, or
20.6%, compared to 1995. This increase was primarily due to increased unit sales
of connector seals and insulators for automotive wiring systems and, to a lesser
extent, increased sales of medical components and tooling.
During 1996, income from operations totaled $10,822,000, an increase of
$3,318,000, or 44.2%, compared to 1995. Cost of sales as a percentage of net
sales decreased during 1996 compared to 1995, primarily due to the reduced cost
of certain materials, the sale of the company's Extruded and Lathe-Cut Products
division, which recorded operating losses during 1995 until its sale on June 30,
1995, and lower factory overhead expense as a percentage of net sales. Factory
overhead expense as a percentage of net sales was lower in 1996 primarily
because such expenses are partially fixed in nature. The improvement in factory
overhead expense as a percentage of net sales was offset by increased
depreciation and amortization, which totaled $5,183,000, or 6.9% of net sales,
during 1996, compared to $3,731,000, or 6.0% of net sales, during 1995, and by
start-up expenses incurred at Lexington Technologies. Selling and administrative
expenses as a percentage of net sales decreased to 6.4% in 1996 from 6.7% in
1995 primarily because such expenses are partially fixed in nature. During 1996
and 1995, selling and administrative expenses included depreciation and
amortization of $413,000 and $375,000, respectively.
During the first quarter of 1997, the Company and Delphi Packard
Electric entered into an agreement that will govern, through 2001, the purchase
of substantially all of the component parts that the Company
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currently sells to Delphi Packard Electric. Under the terms of the agreement,
(i) the Company agreed to sell and Delphi Packard Electric agreed to purchase
approximately 100% of Delphi Packard Electric's requirements for all specified
component parts, (ii) the Company warranted that the specified components will
remain competitive in terms of technology, design, and quality, (iii) the
selling prices of the specified components will be adjusted to reflect increases
or decreases in material costs, and (iv) the selling prices of the specified
components will be reduced by certain specified amounts in each of the five
years covered by the agreement. Although there can be no assurance given, the
Company currently believes that it will be able to offset a portion of the price
reductions granted to Delphi Packard Electric through reductions in direct
manufacturing costs and that a portion of such price reductions will be offset
by greater absorption of manufacturing overhead as a result of volume increases.
METALS GROUP
The Metals Group manufactures aluminum, magnesium, and zinc die castings
and machines aluminum, brass, and steel components. During 1997, 1996, and 1995,
net sales to automotive industry customers represented 42.8%, 36.3%, and 34.2%,
respectively, of the Metals Group's net sales. The majority of the net sales to
automotive industry customers represented sales of components for airbag
initiators and inflators. The three largest customers of the Metals Group
accounted for 23.5%, 20.4%, and 32.1% of the Metals Group's net sales during
1997, 1996, and 1995, respectively. Loss of a significant amount of business
from any of the Metals Group's large customers could have a material adverse
effect upon the Metals Group and the Company as a whole if such business were
not replaced by additional business from existing or new customers.
The following table sets forth the operating results of the Metals Group
for 1997, 1996, and 1995 (dollar amounts in thousands):
YEARS ENDED DECEMBER 31
----------------------------------------------------------------
1997 1996 1995
----------------- ----------------- -----------------
Net sales $ 37,421 100.0% $ 39,750 100.0% $ 41,996 100.0%
Cost of sales 34,726 92.8 35,536 89.4 34,138 81.3
-------- ------ -------- ------ -------- ------
Gross profit 2,695 7.2 4,214 10.6 7,858 18.7
Selling and administrative expenses 4,275 11.4 4,433 11.2 3,712 8.8
-------- ------ -------- ------ -------- ------
Income/(loss) from operations $ (1,580) (4.2)% $ (219) (0.6)% $ 4,146 9.9%
======== ====== ======== ====== ======== ======
During 1997, net sales of the Metals Group decreased by $2,329,000, or
5.9%, compared to 1996. This reduction resulted primarily from lower net sales
of a variety of components at Lexington Machining and Lexington Die Casting
caused, in part, by the Company's planned elimination of certain customers who
generated short-run production and a $1,400,000 reduction in sales to a customer
who decided to manufacture internally most of the components previously
manufactured for it by Lexington Machining. These reductions were offset, in
part, by an increase in net sales of airbag components by Lexington Safety
Components.
During 1997, the Metals Group incurred a loss from operations of
$1,580,000, compared to a loss from operations of $219,000 during 1996. While
material and direct labor costs as a percentage of net sales decreased during
1997, manufacturing overhead as a percentage of net sales increased, primarily
due to (i) underabsorption of fixed overhead caused by reduced sales at
Lexington Machining and Lexington Die
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Casting and lower-than-anticipated net sales at Lexington Safety Components,
(ii) start-up expenses related to the production of new airbag components and
the installation of new metal machining equipment at Lexington Safety
Components, (iii) increased depreciation, which totaled $2,969,000, or 7.9% of
net sales, during 1997, compared to $2,534,000, or 6.4% of net sales, during
1996, (iv) increased indirect labor costs resulting, in part, from the hiring of
additional technical and professional staff, and (v) the write-down of certain
equipment held for sale. Reduced selling and administrative expenses resulted
primarily from a reduction in commissions paid to sales representatives who were
terminated during the last quarter of 1996 and the first quarter of 1997,
offset, in part, by increased personnel expense and the accrual of certain
litigation expenses. During 1997 and 1996, selling and administrative expenses
included depreciation and amortization of $172,000 and $104,000, respectively.
During 1996, net sales of the Metals Group decreased by $2,246,000, or
5.3%, compared to 1995. This reduction resulted from lower sales at Lexington
Die Casting, primarily due to reduced sales of components for computers and
business machines. An increase in the net sales of a variety of components at
Lexington Machining and Lexington Safety Components was substantially offset by
a $3,860,000 decline in net sales of a single automotive airbag component to TRW
Vehicle Safety Systems, Inc., which resulted from the planned phaseout during
1995 and 1996 of the inflator system in which the component was used.
During 1996, the Metals Group incurred a loss from operations of
$219,000, compared to income from operations of $4,146,000 in 1995. The loss
from operations resulted primarily from (i) loss of profits as a result of lower
sales of die castings and the single airbag component, (ii) increased cost of
sales because of start-up expenses related to the production of new airbag
components, (iii) increased depreciation, which totaled $2,534,000, or 6.4% of
net sales, during 1996, compared to $1,970,000, or 4.7% of net sales, during
1995, and (iv) increases in a variety of other factory overhead expenses caused,
in part, by the installation of new equipment and the hiring and relocation of
additional technical and professional staff. Selling and administrative expenses
increased by $721,000, or 19.4%, during 1996, primarily as a result of increased
legal costs and increased personnel costs resulting, in part, from the hiring of
additional professional staff. During 1996 and 1995, selling and administrative
expenses included depreciation and amortization of $104,000 and $75,000,
respectively.
During 1996, the Company commenced a program to try to increase net
sales, profitability, and operating cash flow of the Metals Group. Actions taken
included (i) hiring of new technical and professional staff with the goal of
improving the Metals Group's manufacturing processes, quality systems, and
administrative capabilities, (ii) formation of Lexington Safety Components as a
separate business unit with its own management team, (iii) elimination of sales
representatives and hiring of additional in-house sales personnel,
(iv) purchases of additional equipment and construction of an additional 44,000
square feet of manufacturing and office space at Lexington Safety Components,
(v) reduction of low-volume production, (vi) focus on higher-volume business in
target markets, and (vii) enhancement of quality systems at a number of
facilities in order to obtain QS 9000 certification.
The Company's efforts to improve the operating profit and cash flow of
the Metals Group by eliminating short-run business and by repositioning the
operating companies in the Metals Group so that they can compete effectively for
high-volume components in target markets adversely affected the operating profit
and cash flow of the Metals Group during 1997. The Company believes that, even
though the Metals Group is expected to obtain new higher-volume customer orders
during the second half of 1998, the repositioning of the Metals Group will
continue to adversely affect the profitability of the Metals Group throughout
much of 1998.
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15
CORPORATE OFFICE
Corporate office expenses, which are consolidated with selling and
administrative expenses of the Rubber Group and the Metals Group in the
Company's consolidated financial statements, totaled $2,095,000, $2,038,000, and
$1,993,000 during 1997, 1996, and 1995, respectively.
INTEREST EXPENSE
During 1997, 1996, and 1995, interest expense totaled $9,065,000,
$8,542,000, and $7,585,000, respectively. The increases in 1997 and 1996 were
caused primarily by increases in average borrowings outstanding in both years.
OTHER INCOME
In December 1997, the Company received a payment in the amount of
$425,000 in settlement of litigation between certain stockholders of ComFed
Bancorp, Inc., including the Company, and ComFed Bancorp, Inc. and certain of
its officers and directors.
On June 30, 1995, the Company sold the Extruded and Lathe-Cut Products
Division of the Rubber Group for cash and the assumption by the purchaser of
certain liabilities, which resulted in a pretax gain of $578,000.
PROVISION FOR INCOME TAXES
During 1997, the provision for income taxes consisted primarily of
(i) federal alternative minimum taxes and (ii) the reversal of a tax credit
recorded in 1996 based on the projected utilization of federal net operating
loss carryforwards in 1997.
During 1996, the provision for income taxes consisted of (i) federal
alternative minimum taxes, (ii) state income taxes, (iii) the reversal of a tax
credit recorded in 1995, and (iv) the recognition of a tax credit based on the
projected utilization of federal net operating loss carryforwards in 1997.
The income tax provision otherwise recognizable during 1995 was reduced
by (i) the utilization of portions of the Company's tax loss carryforwards and
tax credit carryforwards and (ii) a $265,000 reduction in the Company's
valuation allowance to recognize the portion of its federal net operating loss
carryforwards that the Company expected to utilize during 1996.
(For additional information concerning income taxes and related matters,
see Note 9 to the consolidated financial statements in Part II, Item 8.)
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
During 1997, the operating activities of the Company provided $7,529,000
of cash.
Trade receivables decreased by $759,000, primarily because in January
1997 the Company received a payment of $1,612,000 that was due in December 1996
from its largest customer. Trade accounts payable decreased by $1,706,000,
primarily because trade accounts payable related to the purchase of plant,
equipment, and customer-owned tooling decreased by $849,000 during 1997, from
$4,305,000 at December 31, 1996, to $3,456,000 at December 31, 1997, and because
the Company reduced all other accounts payable balances at December 31, 1996, to
levels that the Company believes are customary in the
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16
industries in which it operates. Deferred income taxes decreased by $585,000
primarily because of the elimination of a net deferred tax asset.
INVESTING ACTIVITIES
During 1997, the investing activities of the Company used $16,726,000 of
cash, primarily for capital expenditures.
The following table sets forth capital expenditures for the Rubber
Group, the Metals Group, and the corporate office during 1997, 1996, and 1995
(dollar amounts in thousands):
YEARS ENDED DECEMBER 31
-----------------------------------
1997 1996 1995 TOTAL
---- ---- ---- -----
Rubber Group:
Equipment $ 6,632 $ 5,869 $ 8,487 $ 20,988
Land and buildings 203 2,959 4,097 7,259
-------- ------- -------- --------
6,835 8,828 12,584 28,247
-------- ------- -------- --------
Metals Group:
Equipment 5,542 6,012 3,384 14,938
Land and buildings 3,393 840 1,918 6,151
-------- ------- -------- --------
8,935 6,852 5,302 21,089
-------- ------- -------- --------
Corporate offices:
Equipment 20 28 16 64
Land and buildings - - - -
-------- ------- -------- --------
20 28 16 64
-------- ------- -------- --------
Total company:
Equipment 12,194 11,909 11,887 35,990
Land and buildings 3,596 3,799 6,015 13,410
-------- ------ ------- ---------
$15,790 $ 15,708 $ 17,902 $ 49,400
========= ======= ======= =========
The Company estimates that approximately $6,000,000 of capital
expenditures are required annually to rebuild or replace existing equipment or
to effect cost reductions and that the balance of capital expenditures is for
the expansion of facilities and the purchase of production equipment to meet
increased demand for component parts.
The Company presently projects that capital expenditures will total
approximately $13,679,000 during 1998, including $13,044,000 for equipment and
$635,000 for buildings. Capital expenditures for the Rubber Group, the Metals
Group, and the corporate office are projected to total $7,714,000, $5,945,000,
and $20,000, respectively. At December 31, 1997, the Company had commitments
outstanding for capital expenditures totaling approximately $3,081,000. The
Company anticipates that, although no assurance can be given, the funds needed
for capital expenditures in 1998 will be provided by cash flows from operations,
borrowings available to the Company under existing financing agreements, and
additional borrowings that the Company believes it will be able to obtain. (See
also "Liquidity" in this Item 7.)
During 1997, $791,000 of funds was used to pay for a portion of the cost
of certain tooling that was purchased by customers and is being used by the
Company to produce component parts. An additional
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17
$192,000 of funds was used to manufacture or purchase tooling that was sold to
customers with payment terms exceeding one year.
FINANCING ACTIVITIES
During 1997, the financing activities of the Company provided $9,218,000
of cash.
During 1997, the Company obtained new term loans in the aggregate amount
of $43,492,000. Proceeds from the new term loans financed $2,473,000 of capital
expenditures and refinanced $22,790,000 of existing term loans and $18,229,000
of loans outstanding under the Company's revolving line of credit.
Borrowings under the Company's revolving line of credit decreased by
$5,342,000 during 1997, primarily due to the refinancings described above. At
December 31, 1996, $6,856,000 of loans outstanding under the revolving line of
credit were classified as long-term debt because they were refinanced under
long-term agreements before the consolidated financial statements for the year
ended December 31, 1996, were issued.
LIQUIDITY
The Company finances its operations with cash from operating activities
and a variety of financing arrangements, including term loans and loans under
the Company's revolving line of credit. The ability of the Company to borrow
under its revolving line of credit is subject to, among other things, covenant
compliance and certain availability formulas based on the levels of trade
receivables and inventories of the Company. From time to time, the Company has
amended financial covenants contained in the various loan agreements to which it
is a party in order to maintain or otherwise ensure compliance with such
covenants, including amendments effected during 1997 and the first quarter of
1998. Such amendments may continue to be required to the extent, if any, that
the Company's financial results or performance vary from expectations, and there
can be no assurance that the Company will be successful in obtaining such
amendments. The failure to obtain such amendments could adversely affect the
Company's ability to obtain continued borrowings under such agreements.
The Company operates with substantial financial leverage and limited
liquidity. As a result of increased borrowings during 1997, aggregate
indebtedness of the Company, excluding trade accounts payable, increased by
$9,803,000 to $87,502,000. During 1997, interest and scheduled principal
payments totaled $8,684,000 and $5,560,000, respectively. During 1998, interest
and principal payments are projected to be approximately $9,500,000 and
$6,500,000, respectively.
The Company had a net working capital deficit of $4,175,000 at December
31, 1997. Loans of $8,840,000 outstanding under the revolving line of credit
were classified as short-term debt at December 31, 1997. Although the expiration
date of the revolving line of credit is April 1, 2000, these loans are
classified as current liabilities because the Company's cash receipts are
automatically used to reduce such loans on a daily basis, by means of a lock-box
sweep arrangement, and the lender has the ability to modify certain terms of the
revolving line of credit without the prior approval of the Company.
At March 25, 1998, availability under the Company's revolving line of
credit totaled $2,227,000 before outstanding checks of $1,417,000 were deducted.
The Company currently has equipment lines of credit in the aggregate amount of
$5,765,000 that can be used to finance all or a portion of the cost of certain
equipment.
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18
During 1998, the Company anticipates that, in addition to its projected
cash flow from operations, new borrowings in the amount of approximately
$5,800,000 will be required to meet the Company's projected working capital and
debt service requirements and to fund capital expenditures currently anticipated
by the Company. Although no assurance can be given, the Company currently
believes that cash flows from operations, borrowings available to the Company
under existing financing agreements, and additional borrowings that the Company
believes it will be able to obtain should be adequate to meet its projected
working capital and debt service requirements and to fund capital expenditures
currently anticipated by the Company during 1998 and thereafter. If cash flows
from operations or availability under existing and new financing agreements fall
below expectations, the Company may be forced to delay planned capital
expenditures, reduce operating expenses, and/or extend trade accounts payable
balances beyond terms that the Company believes are customary in the industries
in which it operates or to consider other alternatives designed to enhance the
Company's liquidity or to obtain relief from its obligations. Any such actions
could have an adverse effect upon the Company.
The Company's 12.75% senior subordinated notes, 10.5% senior note, and
14% junior subordinated notes, which have an aggregate principal balance of
$40,567,000 mature on February 1, 2000, and the Company's revolving line of
credit expires on April 1, 2000. Although the Company currently believes that it
has or will have the ability to refinance these obligations on or before their
maturity or expiration dates, there are many factors that will affect the
Company's ability to do so. Accordingly, there can be no assurance that the
Company will be successful in refinancing such obligations. (For information
concerning the scheduled maturities of all of the Company's long-term debt, see
Note 5 to the consolidated financial statements in Part II, Item 8.)
Certain of the Company's financing arrangements, which are secured by
substantially all of the Company's assets and the stock of one of its
subsidiaries, contain covenants with respect to the maintenance of minimum
levels of working capital, net worth, and cash flow coverage and impose
limitations on the Company's ratio of debt to equity. The covenants also place
certain restrictions on the Company's business and operations, including the
incurrence or assumption of additional debt, the sale of all or substantially
all of the Company's assets, the funding of capital expenditures, 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.
ACQUISITIONS
The Company is seeking to acquire assets and businesses related to its
current operations in order to expand its existing operations. Depending on the
size, terms, and other aspects of such acquisitions, the Company may be required
to obtain additional financing and, in some cases, the consents of its existing
lenders. The Company's ability to effect acquisitions may be dependent upon its
ability to obtain such financing and, to the extent applicable, consents.
INFLATION
Many customers of the Company will not accept price increases from the
Company to compensate for increases in labor and overhead expenses that result
from inflation. Fluctuations in material costs generally are passed through to
customers. In certain cases in which the Company commits to a fixed material
cost for a specified time period, the Company generally obtains a similar
offsetting commitment from its material supplier. To offset inflationary costs
that the Company cannot pass through to its customers and to maintain or improve
its operating margins, the Company attempts to improve its production
efficiencies and manufacturing processes.
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19
ENVIRONMENTAL MATTERS
The Company has been named from time to time as one of numerous
potentially responsible parties under applicable environmental laws for
restoration costs at waste-disposal sites, as a third-party defendant in
cost-recovery actions pursuant to applicable environmental laws, and as a
defendant or potential defendant in various other environmental law matters. It
is the Company's policy to record accruals for such matters when a loss is
deemed probable and the amount of such loss can be reasonably estimated. The
various actions to which the Company is or may be a party in the future are at
various stages of completion; although there can be no assurance as to the
outcome of existing or potential environmental litigation, in the event such
litigation were commenced, based upon the information currently available to the
Company, the Company believes that the outcome of such actions will not have a
material adverse effect upon its financial position. (For information concerning
certain other commitments and contingencies of the Company, see Note 13 to the
consolidated financial statements in Part II, Item 8.)
RECENTLY ISSUED ACCOUNTING STANDARDS
STATEMENT OF POSITION NO. 96-1, ENVIRONMENTAL REMEDIATION LIABILITIES
During 1997, the Company adopted "Statement of Position No. 96-1,
Environmental Remediation Liabilities" ("SOP 96-1"), issued by the Accounting
Standards Executive Committee of the American Institute of Certified Public
Accountants. Adoption of SOP 96-1, which clarified the recording of loss
contingencies for environmental liabilities, did not have a material effect on
the Company's consolidated financial position or results of operations.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128, EARNINGS PER SHARE
During 1997, the Company adopted "Statement of Financial Accounting
Standards No. 128, Earnings per Share" ("FAS 128"). FAS 128 requires the
presentation of basic and diluted earnings per share. Basic earnings per share
is based on the weighted-average number of common shares outstanding. Diluted
earnings per share reflects the dilutive effect of stock options, convertible
securities, and other potentially dilutive securities. All previously reported
earnings per share amounts have been restated to conform to the FAS 128
requirements. The recalculated earnings per share data is the same as the
earnings per share data previously reported by the Company.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 130, REPORTING
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued "Statement
of Financial Accounting Standards No. 130, Reporting Comprehensive Income" ("FAS
130"), which is effective for fiscal periods beginning after December 15, 1997.
This statement established standards for reporting and display of comprehensive
income and its components (revenues, gains, and losses) in a full set of
general-purpose financial statements. The adoption of FAS 130 by the Company
during the first quarter of 1998 will not have a material effect on the
Company's consolidated financial position or results of operation.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 131, DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
In June 1997, the Financial Accounting Standards Board issued "Statement
of Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information" ("FAS 131"), which is effective for fiscal
periods beginning after December 15, 1997. FAS 131 established standards for
-17-
20
the way public enterprises report information about operating segments in annual
and interim financial statements, including related disclosures about products,
geographic areas, and major customers. FAS 131 requires financial information to
be reported on the basis that is used internally for evaluating segment
performance and deciding how to allocate resources to segments. The adoption of
FAS 131 by the Company during the fourth quarter of 1998 will not have a
material effect on the Company's consolidated financial position or results of
operations.
YEAR 2000 CONVERSION
The Company recognizes the need to ensure that its operations will not
be adversely affected by Year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the Year 2000 date
are a known risk. The Company is addressing this risk to the availability and
integrity of financial systems and the reliability of operational systems. Based
upon a review of its technology and software, the Company has concluded that
there are no material issues regarding its Year 2000 compliance that will not be
resolved through normal equipment and software upgrades and replacements that
will be made through 1999. While the Company believes its planning efforts are
adequate to address its Year 2000 concerns, there can be no assurance that the
systems of other companies on which the Company's systems and operations rely
will be converted on a timely basis and will not have a material adverse effect
on the Company.
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THIS PAGE INTENTIONALLY LEFT BLANK
-19-
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TABLE OF CONTENTS
Page
Report of Independent Auditors.........................................................21
Consolidated Balance Sheet at December 31, 1997 and 1996...............................22
Consolidated Statement of Operations for the Years Ended
December 31, 1997, 1996, and 1995....................................................24
Consolidated Statement of Stockholders' Deficit for
the Years Ended December 31, 1997, 1996, and 1995....................................25
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1997, 1996, and 1995....................................................26
Notes to Consolidated Financial Statements.............................................27
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REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Lexington Precision Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheet of Lexington
Precision Corporation and subsidiaries at December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' deficit, and cash
flows for each of the years in the three-year period ended December 31, 1997.
Our audits also included the financial statement schedule listed in the table of
contents in Part IV, Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Lexington Precision Corporation and subsidiaries at December 31, 1997 and 1996,
and the consolidated results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 1997, in conformity
with generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Cleveland, Ohio
March 25, 1998
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24
LEXINGTON PRECISION CORPORATION
CONSOLIDATED BALANCE SHEET
(THOUSANDS OF DOLLARS)
DECEMBER 31
------------------------------
1997 1996
---- ----
ASSETS:
Current assets:
Cash $ 208 $ 187
Trade receivables 17,579 16,820
Inventories 9,031 8,899
Prepaid expenses and other assets 3,438 3,211
Deferred income taxes 1,572 1,728
--------- --------
Total current assets 31,828 30,845
--------- --------
Plant and equipment:
Land 1,533 1,533
Buildings 23,426 19,915
Equipment 78,922 68,232
--------- --------
103,881 89,680
Accumulated depreciation 44,451 36,380
--------- --------
Plant and equipment, net 59,430 53,300
--------- --------
Excess of cost over net assets of businesses acquired, net 9,094 9,410
--------- --------
Other assets, net 3,772 3,475
--------- --------
$ 104,124 $ 97,030
========= ========
See notes to consolidated financial statements. (continued on next page)
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LEXINGTON PRECISION CORPORATION
CONSOLIDATED BALANCE SHEET (CONTINUED)
(THOUSANDS OF DOLLARS)
DECEMBER 31
------------------------------
1997 1996
---- ----
LIABILITIES AND STOCKHOLDERS' DEFICIT:
Current liabilities:
Trade accounts payable $ 12,628 $ 14,334
Accrued expenses 8,495 8,282
Short-term debt 8,840 7,326
Current portion of long-term debt 6,040 5,225
--------- --------
Total current liabilities 36,003 35,167
--------- --------
Long-term debt, excluding current portion 72,622 65,148
--------- --------
Deferred income taxes and other long-term liabilities 1,746 1,307
--------- --------
Redeemable preferred stock, $100 par value,
at redemption value 840 930
Excess of redemption value over par value (420) (465)
--------- --------
Redeemable preferred stock at par value 420 465
--------- --------
Stockholders' deficit:
Common stock, $.25 par value, 10,000,000
shares authorized, 4,348,951 shares issued 1,087 1,087
Additional paid-in-capital 12,313 12,395
Accumulated deficit (19,850) (18,322)
Cost of common stock in treasury, 85,915 shares (217) (217)
--------- --------
Total stockholders' deficit (6,667) (5,057)
--------- --------
$ 104,124 $ 97,030
========= ========
See notes to consolidated financial statements.
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LEXINGTON PRECISION CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31
----------------------------------------
1997 1996 1995
---- ---- ----
Net sales $ 118,631 $ 114,872 $ 104,298
Cost of sales 99,422 95,051 84,761
--------- --------- ---------
Gross profit 19,209 19,821 19,537
Selling and administrative expenses 11,425 11,256 9,880
--------- --------- ---------
Income from operations 7,784 8,565 9,657
Interest expense 9,065 8,542 7,585
Other income 425 - 641
--------- --------- ---------
Income/(loss) before income taxes (856) 23 2,713
Provision for income taxes 672 40 425
--------- --------- ---------
Net income/(loss) (1,528) (17) 2,288
Preferred stock dividends 37 41 44
Excess of redemption value over par value of preferred
stock redeemed during year 45 45 45
--------- --------- ---------
Net income/(loss) attributable to common
stockholders $ (1,610) $ (103) $ 2,199
========= ========= =========
Net income/(loss) per common share:
Basic $ (0.38) $ (0.02) $ 0.52
========= ========= =========
Diluted $ (0.38) $ (0.02) $ 0.49
========= ========= =========
See notes to consolidated financial statements.
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27
LEXINGTON PRECISION CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(THOUSANDS OF DOLLARS)
ADDITIONAL TOTAL
COMMON PAID-IN- ACCUMULATED TREASURY STOCKHOLDERS'
STOCK CAPITAL DEFICIT STOCK DEFICIT
Balance at December 31, 1994 $ 1,087 $ 12,659 $ (20,593) $ (368) $ (7,215)
======== ======== ========= ======== ========
Net income - - 2,288 - 2,288
Preferred stock dividends
and redemptions - (89) - - (89)
Issuance of common shares - (23) - 63 40
-------- -------- --------- -------- --------
Balance at December 31, 1995 $ 1,087 $ 12,547 $ (18,305) $ (305) $ (4,976)
======== ======== ========= ======== ========
Net loss - - (17) - (17)
Preferred stock dividends
and redemptions - (86) - - (86)
Issuance of common shares - (66) - 88 22
-------- -------- --------- -------- --------
Balance at December 31, 1996 $ 1,087 $ 12,395 $ (18,322) $ (217) $ (5,057)
======== ======== ========= ======== ========
Net loss - - (1,528) - (1,528)
Preferred stock dividends
and redemptions - (82) - - (82)
Issuance of common shares - - - - -
-------- -------- --------- -------- --------
Balance at December 31, 1997 $ 1,087 $ 12,313 $ (19,850) $ (217) $ (6,667)
======== ======== ========= ======== ========
See notes to consolidated financial statements.
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LEXINGTON PRECISION CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(THOUSANDS OF DOLLARS)
YEARS ENDED DECEMBER 31
----------------------------------
1997 1996 1995
---- ---- ----
OPERATING ACTIVITIES:
Net income/(loss) $ (1,528) $ (17) $ 2,288
Adjustments to reconcile net income/(loss) to net cash provided by
operating activities:
Depreciation 8,558 7,129 5,228
Amortization included in operating expense 1,280 1,138 941
Amortization included in interest expense 171 429 280
Deferred income taxes 585 (320) (265)
Changes in operating assets and liabilities that provided/(used) cash:
Trade receivables (759) (3,861) (481)
Inventories (132) (794) 81
Prepaid expenses and other assets 462 (971) (55)
Trade accounts payable (1,706) 3,706 139
Accrued expenses 213 1,710 382
Other 385 44 (641)
-------- -------- --------
Net cash provided by operating activities 7,529 8,193 7,897
-------- -------- --------
INVESTING ACTIVITIES:
Purchases of plant and equipment (15,790) (15,708) (17,902)
Decrease/(increase) in equipment deposits (147) 37 20
Proceeds from sales of equipment 142 211 998
Expenditures for tooling owned by customers (791) (949) (958)
Other (140) (851) (192)
-------- -------- --------
Net cash used by investing activities (16,726) (17,260) (18,034)
-------- -------- --------
FINANCING ACTIVITIES:
Net increase/(decrease) in short-term debt 1,514 (196) 2,470
Proceeds from issuance of long-term debt 43,492 22,031 15,566
Repayment of long-term debt (35,206) (12,257) (7,263)
Other (582) (442) (597)
-------- -------- --------
Net cash provided by financing activities 9,218 9,136 10,176
-------- -------- --------
Net increase in cash 21 69 39
Cash at beginning of year 187 118 79
-------- -------- --------
Cash at end of year $ 208 $ 187 $ 118
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 8,684 $ 8,167 $ 7,299
Income taxes paid $ 689 $ 381 $ 99
-26-
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Lexington
Precision Corporation and its subsidiaries (collectively, the "Company"). All
significant intercompany accounts and transactions have been eliminated.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent liabilities at the date of the
consolidated financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities at
the time of purchase of less than three months to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out method)
or market. Inventory levels by principal classification are set forth below
(dollar amounts in thousands):
DECEMBER 31
-------------------
1997 1996
---- ----
Finished goods $ 3,654 $ 3,615
Work in process 1,658 2,360
Raw materials and purchased parts 3,719 2,924
------ ------
$ 9,031 $ 8,899
====== ======
PLANT AND EQUIPMENT
Plant and equipment are carried at cost less accumulated depreciation.
Depreciation is calculated principally on the straight-line method over the
estimated useful lives of the various assets (15 to 32 years for buildings and 3
to 10 years for equipment). When property is retired or otherwise disposed of,
the related cost and accumulated depreciation are eliminated. Maintenance and
repair expenses were $3,766,000, $3,612,000, and $3,167,000 for 1997, 1996, and
1995, respectively. Maintenance and repair expenses are charged against income
as incurred, while major improvements that increase the useful life of plant and
equipment are capitalized.
-27-
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EXCESS OF COST OVER NET ASSETS OF BUSINESSES ACQUIRED
Excess of cost over net assets of businesses acquired (goodwill) is
amortized on the straight-line method, principally over 40 years. At December
31, 1997 and 1996, accumulated amortization of goodwill was $2,896,000 and
$2,580,000, respectively. During each of 1997, 1996, and 1995, amortization of
goodwill totaled $316,000. In accordance with "Financial Accounting Standard No.
121, Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to
Be Disposed of," the carrying value of goodwill is reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. Based upon such review, the Company believes that no
impairment of goodwill existed at December 31, 1997.
DEFERRED FINANCING COSTS
Deferred financing costs are amortized over the lives of the related
debt instruments.
NET INCOME OR LOSS PER COMMON SHARE
During 1997, the Company adopted "Financial Accounting Standard No. 128,
Earnings per Share" ("FAS 128"), which sets forth the procedures for reporting
basic and diluted income or loss per share. The recalculation of income or loss
per share data for 1996 and 1995, using FAS 128 procedures, did not require a
restatement of the income or loss per share data for either of those years.
Basic net income or loss per common share is computed using the
weighted-average number of common shares outstanding. Diluted net income or loss
per share is calculated after giving effect to all potential common shares that
were dilutive and outstanding, using the treasury stock method. Potential common
shares are securities (such as stock options, convertible debt securities, and
convertible preferred stock) that do not have a current right to participate in
earnings but could do so in the future by virtue of their option or conversion
rights. For purposes of the net income or loss per common share calculations,
net income or loss has been reduced by preferred stock dividends and the amount
by which payments made to redeem shares of preferred stock exceeded the par
value of such shares.
REVENUE RECOGNITION
Substantially all of the Company's revenues result from the sale of
rubber and metal component parts. The Company recognizes revenue from product
sales upon shipment and passage of title to customers according to shipping
schedules and terms of sale mutually agreed to by the Company and its customers.
REPORTING COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued "Statement
of Financial Accounting Standards No. 130, Reporting Comprehensive Income" ("FAS
130"), which is effective for fiscal periods beginning after December 15, 1997.
This statement established standards for reporting and display of comprehensive
income and its components (revenues, gains, and losses) in a full set of
general-purpose financial statements. The adoption of FAS 130 by the Company
during the first quarter of 1998 will not have a material effect on the
Company's consolidated financial position or results of operations.
-28-
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RECLASSIFICATIONS
Certain amounts in the consolidated financial statements for 1996 and
1995 have been reclassified to conform to the 1997 presentation.
NOTE 2 -- PREPAID EXPENSES AND OTHER ASSETS
At December 31, 1997 and 1996, other current assets included $2,379,000
and $2,249,000, respectively, of tooling manufactured or purchased by the
Company pursuant to purchase orders issued by customers of the Company. Upon
customer approval of the components produced by such tooling, which normally
takes less than 90 days, the customer pays for the tooling in accordance with
previously agreed-upon terms.
NOTE 3 -- OTHER NONCURRENT ASSETS
The Company has paid for a portion of the cost of certain tooling that
was purchased by customers and is being used by the Company to produce component
parts. The payments have been recorded as a noncurrent asset and are amortized
on a straight-line basis over three years or, if shorter, the period during
which the tooling is expected to produce components. At December 31, 1997 and
1996, other noncurrent assets of the Company included $1,395,000 and $1,449,000,
respectively, representing the unamortized portion of such capitalized payments.
During 1997, 1996, and 1995, the Company amortized $964,000, $822,000, and
$626,000, respectively, of such capitalized payments.
NOTE 4 -- ACCRUED EXPENSES
Accrued expenses at December 31, 1997 and 1996, are summarized below
(dollar amounts in thousands):
DECEMBER 31
------------------
1997 1996
---- ----
Employee fringe benefits $ 2,763 $ 2,366
Interest 1,964 1,754
Salaries and wages 1,580 1,938
Taxes 1,040 968
Other 1,148 1,256
------ ------
$ 8,495 $ 8,282
======= =======
NOTE 5 -- DEBT
At December 31, 1997 and 1996, short-term debt consisted of loans
outstanding under the Company's revolving line of credit. At December 31, 1997,
availability under the revolving line of credit totaled $6,753,000, before
outstanding checks of $1,935,000 and debt service payments of $729,000 due on
January 1, 1998, were deducted. At December 31, 1996, $6,856,000 of loans
outstanding under the revolving line of credit were classified as long-term debt
because they were refinanced under long-term agreements before the consolidated
financial statements for 1996 were issued. At December 31, 1997, loans
outstanding under the revolving line of credit accrued interest at the prime
rate plus 0.25% and the London Interbank Offered Rate ("LIBOR") plus 2.75%. At
December 31, 1997, 1996, and 1995, the weighted-average interest rates on
borrowings under the revolving line of credit were 8.74%, 9.04%, and 9.06%,
respectively.
-29-
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Long-term debt at December 31, 1997 and 1996, is set forth below (dollar
amounts in thousands):
DECEMBER 31
--------------------------------
1997 1996
---- ----
Long-term secured debt:
Revolving line of credit, prime rate plus 1% and LIBOR plus 3.25%
(9.04% at December 31, 1996) $ - $ 6,856(1)
Term loan payable in equal monthly principal installments, final
maturity in 2000, 75% of prime rate (6.19% at December 31, 1996) - 398(1)
Term loans payable in equal monthly principal installments, final
maturities in 2000, LIBOR plus 3.0% (8.69% at December 31, 1996) - 4,369(1)
Term loan payable in increasing monthly principal installments,
final maturity in 2000, 12% 1,573 2,136
Term loans payable in equal monthly principal installments based on
a 180-month amortization schedule, final maturities in 2001, 8.37% 3,153 3,389
Term loan payable in equal monthly principal installments, final
maturity in 2004, prime rate plus 0.25% and LIBOR plus 2.75% at December
31, 1997, prime rate plus 0.75% and LIBOR plus 3.00% at
December 31, 1996 (8.73% at December 31, 1997) 1,742 1,560
Term loans payable in equal monthly principal installments, final
maturities in 2002, LIBOR plus 2.75% (8.53% at December 31, 1997) 3,330 -
Term loan payable in equal monthly principal installments based on
a 180-month amortization schedule, final maturity in 2002, 9.37% 1,511 -
Term loan payable in equal monthly principal installments based on
a 180-month amortization schedule, final maturity in 2002, 9% 2,933 -
Term loans payable in equal monthly principal installments, final
maturities in 2002 and 2003, prime rate plus 1% and LIBOR plus
3.25% (8.83% at December 31, 1996) - 17,626(1)
Term loan, interest only until March 1, 1998, then payable in
60 equal monthly installments, final maturity in 2003, prime rate
plus 0.75% (9.25% at December 31, 1997) 468 -
Term loans payable in equal monthly principal installments, final
maturity in 2003, prime rate plus 0.25% and LIBOR plus 2.75% at December
31, 1997, prime rate plus 1% and LIBOR plus 3.25% at
December 31, 1996 (8.72% at December 31, 1997) 613(2) 734(2)
Term loans payable in equal monthly principal installments, final
maturity in 2004, prime rate plus 0.25% and LIBOR plus 2.75%
(8.72% at December 31, 1997) 22,580(2) -
------- --------
Total long-term secured debt 37,903 37,068
------- --------
(continued on next page)
-30-
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31
--------------------------------
1997 1996
---- ----
Long-term unsecured debt:
10.5% senior note, due 2000 $ 7,500 $ -
12.75% senior subordinated notes, due 2000 31,720 31,717
14% junior subordinated convertible notes, due 2000, convertible
into 440,000 shares of common stock 1,000 1,000
14% junior subordinated nonconvertible notes, due 2000 347 347
Other unsecured obligations 192 241
------- --------
Total long-term unsecured debt 40,759 33,305
------- --------
Total long-term debt 78,662 70,373
Less current portion 6,040 5,225
------- --------
Total long-term debt, excluding current portion $ 72,622 $ 65,148
======= ========
- ------------------------------
(1)Refinanced under long-term agreements before the consolidated
financial statements for the period were issued. Amounts
classified as secured or unsecured and amounts reflected in
current portion are based upon the terms of the new
borrowings.
(2)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 loans outstanding under the Company's revolving line of credit and
the secured term loans listed above are collateralized by substantially all of
the assets of the Company, including trade receivables, inventories, equipment,
certain real estate, and the stock of one of the Company's subsidiaries.
SCHEDULED MATURITIES OF LONG-TERM DEBT
Scheduled maturities of long-term debt for the years ending December 31
are listed below (dollar amounts in thousands):
1998 $ 6,040
1999 6,128
2000 46,189
2001 7,619
2002 and future years 12,686
---------
$ 78,662
=========
RESTRICTIVE COVENANTS
Certain of the Company's financing arrangements contain covenants with
respect to the maintenance of minimum levels of working capital, net worth, and
cash flow coverage and impose limitations on the Company's ratio of debt to
equity. The covenants also place certain restrictions on the Company's business
and operations, including the incurrence or assumption of additional debt, the
sale of all or substantially all
-31-
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of the Company's assets, the funding of capital expenditures, 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.
Effective December 31, 1997, the Company and one of its lenders amended
two financial covenants in the financing agreement between the Company and the
lender. In the absence of the amendment, the Company would have failed to meet
such covenants at December 31, 1997. In addition, effective January 31, 1998,
the Company and the lender amended one of the previously amended financial
covenants because, based on the Company's current business plan, the Company
might have failed to meet such covenant during 1998.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company believes that, at December 31, 1997, the fair value of the
secured term loans and the loans outstanding under the revolving line of credit
approximately equaled the carrying value of such loans.
The Company believes that the 12.75% senior subordinated notes traded at
approximately par value, which equated to carrying value, during the fourth
quarter of 1997 and the first quarter of 1998.
The Company believes that, based on the market valuation of the 12.75%
senior subordinated notes, the 14% junior subordinated nonconvertible notes
would be valued at approximately par value, which equated to carrying value. The
Company believes that the 14% junior subordinated convertible notes would also
be valued at approximately par value, which equated to carrying value, or at a
slight premium above par value.
The Company believes that, at December 31, 1997, the 10.5% senior note
had a fair value of approximately par value, which equated to carrying value,
because the terms and conditions of the note, including the rate of interest,
were negotiated during the fourth quarter of 1997.
Estimates of the fair values of the Company's securities are subjective
in nature and involve uncertainties and matters of judgment and therefore cannot
be determined definitively. Any change in the market for similar securities, the
financial performance of the Company, or interest rates could materially affect
the fair value of all of the Company's securities.
FINANCIAL LEVERAGE AND LIQUIDITY
The Company operates with substantial financial leverage and limited
liquidity. As a result, the impact of any negative event may have a greater
adverse effect upon the Company than if the Company operated with lower
financial leverage and greater liquidity.
NOTE 6 -- PREFERRED STOCK
REDEEMABLE PREFERRED STOCK
At December 31, 1997, there were outstanding 4,200 shares of the
Company's $8 cumulative convertible redeemable preferred stock, series B, par
value $100 ("Redeemable Preferred Stock"). Each share of Redeemable Preferred
Stock is (i) entitled to one vote, (ii) redeemable for $200 plus accumulated and
-32-
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
unpaid dividends, (iii) convertible into 14.8148 shares of common stock (subject
to adjustment), and (iv) entitled, upon voluntary or involuntary liquidation and
after payment of the debts and other liabilities of the Company, to a
liquidation preference of $200 plus accumulated and unpaid dividends. On
November 30, 1997, 450 shares of Redeemable Preferred Stock were redeemed for
$90,000. Further redemptions of $90,000 are scheduled on November 30 of each
year in order to retire 450 shares of Redeemable Preferred Stock annually.
Scheduled redemptions for the years 1998 through 2002 aggregate $450,000. For
accounting purposes, when Redeemable Preferred Stock is redeemed, the redeemable
preferred stock account is reduced by the $100 par value of each share redeemed,
and paid-in-capital is charged for the $100 excess of redemption value over par
value of each share redeemed. Under the terms of the Redeemable Preferred Stock,
the Company may not declare any cash dividends on its common stock if there
exists a dividend arrearage on the Redeemable Preferred Stock. During 1997, the
Company paid dividends aggregating $37,000 on the Redeemable Preferred Stock. No
dividends were in arrears at December 31, 1997.
OTHER AUTHORIZED PREFERRED STOCK
The Company's restated certificate of incorporation provides that the
Company is authorized to issue 2,500 shares of 6% cumulative convertible
preferred stock, series A, $100 par value. At December 31, 1997 and 1996, no
shares of the series A preferred stock were issued or outstanding.
The Company's restated certificate of incorporation also provides that
the Company is authorized to issue 2,500,000 shares of preferred stock having a
par value of $1 per share. At December 31, 1997 and 1996, no shares of the $1
par value preferred stock were issued or outstanding.
NOTE 7 -- COMMON STOCK AND STOCK OPTIONS
COMMON STOCK, $.25 PAR VALUE
At December 31, 1997 and 1996, there were 4,263,036 shares of the
Company's common stock outstanding and 350,000 shares reserved for issuance
under the Company's Restricted Stock Award Plan.
During 1995, the Financial Accounting Standards Board issued "Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation" ("FAS 123"), which established new standards for the measurement
and recognition of stock-based compensation. FAS 123 allows entities to continue
using "Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees" ("APB 25") to account for the issuance of stock-based compensation
with disclosure of the pro forma effect of stock-based compensation on net
income and net income per share as if FAS 123 had been adopted. FAS 123 was
effective for 1996. The Company continues to use the provisions of APB 25 to
account for stock-based compensation.
RESTRICTED STOCK AWARD PLAN
The Company has a restricted stock award plan pursuant to which the
Company may award restricted shares of common stock to officers and key
employees. With respect to restricted shares, the Company recognizes
compensation expense on the date of grant equal to the then-current market value
of the Company's common shares. Plan participants are entitled to receive cash
dividends (if any) and to vote their respective shares. The restricted shares
vest at a rate set by the Compensation Committee of the Company's
-33-
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Board of Directors, which has generally set the rate at 25% per year on each of
the first four anniversaries of the award date. Unless otherwise amended, the
restricted stock award plan expires on December 31, 2001.
No compensation expense has been incurred for the Company's restricted
stock award plan during 1997, 1996, or 1995 because no restricted stock was
awarded during such years.
STOCK OPTION PLAN
Prior to 1997, the Company had an incentive stock option plan that
provided for grants to officers and key employees of incentive and nonqualified
stock options to purchase shares of the Company's common stock. The exercise
prices of options were established by the Compensation Committee of the
Company's Board of Directors at a price not less than the market price of the
Company's common stock at the date of grant. Options were last granted in 1990.
At December 31, 1996, the stock option plan was no longer in effect because no
options to purchase common stock were outstanding and no options were available
for future grant. The Company applied the intrinsic value method as set forth in
APB 25 and related interpretations to account for stock options. Under that
method, no compensation expense was recognized on the grant date because on that
date the option price equaled the market price of the underlying common stock.
Activity in the Company's incentive stock option plan during 1995, 1996,
and 1997 is summarized below:
WEIGHTED-AVERAGE SHARES
EXERCISE PRICE UNDER OPTION
--------------------- ----------------
Outstanding at December 31, 1994 $1.042 60,000
======== ==========
Granted - -
Exercised $1.625 25,000
Forfeited - -
-------- ----------
Outstanding at December 31, 1995 $0.625 35,000
======== ==========
Granted - -
Exercised $0.625 35,000
Forfeited - -
-------- ----------
Outstanding at December 31, 1996 - -
======== ==========
Granted - -
Exercised - -
Forfeited - -
-------- ----------
Outstanding at December 31, 1997 - -
======== ==========
-34-
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 -- EMPLOYEE BENEFIT PLANS
RETIREMENT AND SAVINGS PLAN
The Company maintains a retirement and savings plan (the "Plan")
pursuant to Section 401 of the Internal Revenue Code (a "401(k)" plan). All
employees of the Company are entitled to participate in the Plan after meeting
the eligibility requirements. Generally, employees may contribute up to 15% of
their annual compensation but not more than prescribed amounts as established by
the United States Secretary of the Treasury. Employee contributions, up to a
maximum of 6% of an employee's compensation, are matched 50% by the Company.
During 1997, 1996, and 1995, matching contributions made by the Company totaled
$474,000, $443,000, and $372,000, respectively. In addition, the Company has the
option to make a profit-sharing contribution to the Plan. The size of the
profit-sharing contribution is set annually at the end of each plan year by the
Company's Board of Directors and typically paid in March of the following year.
Provisions for profit-sharing contributions totaled $550,000, $489,000, and
$401,000 during 1997, 1996, and 1995, respectively. Company contributions to the
Plan vest at a rate of 20% per year commencing in the participant's third year
of service until the participant becomes fully vested after seven years of
service.
INCENTIVE COMPENSATION PLAN
The Company has incentive compensation plans that provide for the
payment of annual cash bonus awards to certain officers and key employees of the
Company. The Compensation Committee of the Company's Board of Directors, which
consists of two directors who are not employees of the Company, oversees the
administration of the plans and approves the cash bonus awards. Bonus awards for
eligible operating company employees are based upon the attainment of
predetermined profit targets at each operating company and the achievement of
other objectives. Bonus awards for corporate officers are based upon the
attainment of predetermined consolidated profit targets and the achievement of
other objectives. The provisions for bonuses totaled $387,000, $858,000, and
$560,000 during 1997, 1996, and 1995, respectively.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company maintains programs to fund certain costs related to a
prescription drug card program for retirees of one of its former divisions and
to fund insurance premiums for certain retirees of one of its divisions. At
December 31, 1997, the Company's accumulated postretirement benefit obligation
totaled $370,000. The Company is amortizing its transition obligation over the
remaining life expectancy of the participants (i.e., an annual rate of $57,000).
-35-
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The funded status of the postretirement benefits at December 31, 1997,
1996, and 1995 is set forth below (dollar amounts in thousands):
DECEMBER 31
--------------------------------
1997 1996 1995
---- ---- ----
Accumulated postretirement benefit obligation:
Retirees $ 316 $ 376 $ 500
Fully eligible active plan participants 17 17 16
Other active plan participants 37 54 48
----- ----- -----
370 447 564
Unrecognized net gain 230 181 83
Unrecognized transition obligation (407) (464) (521)
----- ----- -----
Accrued postretirement benefit cost $ 193 $ 164 $ 126
===== ===== =====
Net annual postretirement benefit costs for 1997, 1996, and 1995 are
summarized below (dollar amounts in thousands):
YEARS ENDED DECEMBER 31
--------------------------------
1997 1996 1995
---- ---- ----
Service cost $ 2 $ 1 $ 1
Interest cost 32 39 41
Net amortization and deferral 39 46 42
----- ----- -----
Net annual postretirement benefit cost $ 73 $ 86 $ 84
===== ===== =====
The weighted-average annual rate of increase in the per capita cost of
covered benefits for the prescription drug card program is assumed to be 8.5% in
1998 and is projected to decrease gradually thereafter until it reaches 5% in
2005. Changing the assumed rate of increase in the prescription drug cost by one
percentage point in each year would not have a significant effect on the
accumulated postretirement benefit obligation. The Company's program to fund
certain insurance premiums for retirees of one of its divisions has a defined
dollar benefit and is therefore unaffected by increases in health care costs.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation at December 31, 1997 and 1996, was 7.0% and
7.5%, respectively. The change in the discount rate at December 31, 1997,
reflects lower prevailing interest rates.
-36-
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 -- INCOME TAXES
PROVISION FOR INCOME TAXES
The components of the provisions for income taxes in 1997, 1996, and
1995 are set forth below (dollar amounts in thousands):
YEARS ENDED DECEMBER 31
-------------------------------
1997 1996 1995
---- ---- ----
Current:
Federal $ 104 $ 255 $ 537
State (17) 105 153
----- ----- ------
87 360 690
Deferred:
Federal 585 (320) (265)
----- ----- ------
Provision for income taxes $ 672 $ 40 $ 425
===== ===== ======
During 1997, the provision for income taxes consisted primarily of (i)
federal alternative minimum taxes and (ii) the reversal of a tax credit recorded
in 1996 based on the projected utilization of federal net operating loss
carryforwards in 1997.
PRO FORMA PROVISION FOR INCOME TAXES AT THE FEDERAL STATUTORY RATE
A reconciliation of the pro forma provision for income taxes at the
federal statutory rate to the Company's recorded provision for income taxes in
1997, 1996, and 1995 is set forth below (dollar amounts in thousands):
YEARS ENDED DECEMBER 31
----------------------------------
1997 1996 1995
---- ---- ----
Federal statutory income tax provision $ (291) $ 8 $ 922
Change in valuation allowance 1,216 53 (703)
Amortization of nondeductible goodwill 107 107 107
State income taxes, net of federal benefit (71) 105 99
Adjustment to deferred tax assets and
liabilities and other (289) (233) -
-------- -------- --------
Recorded income tax provision $ 672 $ 40 $ 425
======== ======== ========
-37-
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DEFERRED TAX ASSETS AND LIABILITIES
The following table sets forth the deferred tax assets and the deferred
tax liabilities of the Company at December 31, 1997 and 1996 (dollar amounts in
thousands):
DECEMBER 31
-------------------
1997 1996
----- -----
Deferred tax assets:
Tax carryforwards:
Federal net operating losses $ 3,308 $ 2,768
State net operating losses 951 600
Federal alternative minimum taxes 1,059 1,065
Investment tax credit 101 146
Other tax credit 81 81
------- -------
Total tax carryforwards 5,500 4,660
Asset loss reserves 250 192
Tax inventory over book 642 566
Deferred compensation liabilities 65 82
Vacation accruals 265 237
Non-economic performance accruals 397 206
Deferred financing costs 82 119
Other 18 13
------- -------
Total deferred tax assets 7,219 6,075
Valuation allowance (4,151) (2,935)
------- -------
Net deferred tax assets 3,068 3,140
Deferred tax liabilities - tax over book depreciation 3,068 2,555
------- -------
Net deferred taxes $ 0 $ 585
======= =======
During 1997, the Company's valuation allowance increased by $1,216,000,
primarily due to increased federal net operating loss carryforwards that the
Company fully reserved for at December 31, 1997. During 1996, the Company's
valuation allowance decreased by $2,124,000, primarily due to the expiration of
$2,177,000 of capital loss carryforwards that were fully offset by a valuation
allowance at December 31, 1995.
At December 31, 1997, the Company had net operating loss carryforwards
for federal income tax purposes of $9,729,000, which expire in the years 2005
through 2012, and alternative minimum tax credits of $1,059,000, which can be
used to offset future payments of regular federal income taxes, if any, without
any time limitations.
NOTE 10 -- INDUSTRY SEGMENTS
NATURE OF OPERATIONS
Through its two business segments, the Rubber Group and the Metals
Group, the Company manufactures, to customer specifications, rubber and metal
component parts used primarily by manufacturers
-38-
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of automobiles, automotive replacement parts, industrial equipment, and medical
devices. The Company's business is conducted primarily in the continental United
States.
INDUSTRY CONCENTRATION; RELIANCE ON LARGE CUSTOMERS
During 1997, 1996, and 1995, net sales to customers in the automotive
industry totaled $88,961,000, $79,832,000, and $68,083,000, respectively, which
represented 75.0%, 69.5%, and 65.3%, respectively, of the Company's net sales.
At December 31, 1997 and 1996, accounts receivable from automotive customers
totaled $13,649,000 and $12,206,000, respectively. The Company provides for
credit losses based upon historical experience and ongoing credit evaluations of
its customers' financial condition but does not generally require collateral
from its customers to support the extension of trade credit. At December 31,
1997 and 1996, the Company had reserves for credit losses of $211,000 and
$156,000, respectively.
During 1997, 1996, and 1995, net sales to Delphi Packard Electric
Systems, a division of General Motors Corporation, represented 22.3%, 21.8%, and
22.5%, respectively, of the Company's net sales and 32.6%, 33.4%, and 37.6%,
respectively, of the Rubber Group's net sales. No other customer of the Company
accounted for more than 10% of the Company's net sales during 1997. In 1997, the
three largest customers of the Rubber Group, including Delphi Packard Electric,
accounted for 53.0% of the Rubber Group's net sales. In 1997, the three largest
customers of the Metals Group accounted for 23.5% of the Metals Group's net
sales. At December 31, 1997, accounts receivable from the Company's three
largest customers totaled $5,867,000. The Company believes that there is limited
credit risk in the accounts receivable from the three largest customers of the
Company. Loss of a significant amount of business from Delphi Packard Electric
or any of the Company's other large customers could have a severe impact on the
Company if such business were not replaced by additional business from existing
or new customers.
During the first quarter of 1997, the Company and Delphi Packard
Electric entered into an agreement that will govern, through 2001, the purchase
of substantially all of the component parts that the Company currently sells to
Delphi Packard Electric. Under the terms of the agreement, (i) the Company
agreed to sell and Delphi Packard Electric agreed to purchase approximately 100%
of Delphi Packard Electric's requirements for all specified component parts,
(ii) the Company agreed to warrant that the specified components will remain
competitive in terms of technology, design, and quality, (iii) the Company will
adjust selling prices of the specified components to reflect increases or
decreases in material costs, and (iv) the Company will reduce the selling prices
of the specified components by certain specified amounts in each of the five
years covered by the agreement. Although no assurance can be given, the Company
currently believes that it will be able to offset a portion of the price
reductions granted to Delphi Packard Electric through reductions in direct
manufacturing costs and that a portion of the price reductions will be offset by
greater absorption of manufacturing overhead as a result of volume increases.
-39-
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEGMENT FINANCIAL DATA
Information relating to the Company's industry segments for 1997, 1996,
and 1995 is summarized below (dollar amounts in thousands):
YEARS ENDED DECEMBER 31
-------------------------------------------
1997 1996 1995
---- ---- ----
NET SALES:
Rubber Group $ 81,210 $ 75,122 $ 62,302
Metals Group 37,421 39,750 41,996
--------- --------- ---------
Total net sales $ 118,631 $ 114,872 $ 104,298
========= ========= =========
INCOME/(LOSS) FROM OPERATIONS:
Rubber Group $ 11,459 $ 10,822 $ 7,504
Metals Group (1,580) (219) 4,146
--------- --------- ---------
Subtotal 9,879 10,603 11,650
Corporate expense (2,095) (2,038) (1,993)
--------- --------- ---------
Total income from operations $ 7,784 $ 8,565 $ 9,657
========= ========= =========
IDENTIFIABLE ASSETS:
Rubber Group $ 64,782 $ 63,008 $ 52,288
Metals Group 36,983 31,994 28,479
--------- --------- ---------
Subtotal 101,765 95,002 80,767
Corporate 2,359 2,028 1,109
--------- --------- ---------
Total identifiable assets $ 104,124 $ 97,030 $ 81,876
========= ========= =========
DEPRECIATION AND AMORTIZATION:
Rubber Group $ 6,676 $ 5,596 $ 4,106
Metals Group 3,141 2,638 2,045
--------- --------- ---------
Subtotal 9,817 8,234 6,151
Corporate 192 462 298
--------- --------- ---------
Total depreciation and amortization $ 10,009 $ 8,696 $ 6,449
========= ========= =========
CAPITAL EXPENDITURES:
Rubber Group $ 6,835 $ 8,828 $ 12,584
Metals Group 8,935 6,852 5,302
--------- --------- ---------
Subtotal 15,770 15,680 17,886
Corporate 20 28 16
--------- --------- ---------
Total capital expenditures $ 15,790 $ 15,708 $ 17,902
========= ========= =========
In June 1997, the Financial Accounting Standards Board issued
"Statement of Financial Accounting Standards No. 131, Disclosures about Segments
of an Enterprise and Related Information" ("FAS 131"),
-40-
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
which established new standards for reporting information about operating
segments in annual financial statements, including related disclosures about
products, geographic areas, and major customers. FAS 131 superseded "Statement
of Financial Accounting Standards No. 14, Financial Reporting for Segments of a
Business Enterprise" ("FAS 14"). The Company plans to adopt FAS 131 during the
fourth quarter of 1998. The information presented in the table above and related
disclosures in this footnote are presented in accordance with FAS 14.
NOTE 11 -- OTHER INCOME
In December 1997, the Company received a payment in the amount of
$425,000 in settlement of litigation between certain stockholders of ComFed
Bancorp, Inc., including the Company, and ComFed Bancorp, Inc. and certain of
its officers and directors.
On June 30, 1995, the Company sold the Extruded and Lathe-Cut Products
Division of the Rubber Group for cash and the assumption by the purchaser of
certain liabilities, which resulted in a pretax gain of $578,000.
-41-
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 -- NET INCOME OR NET LOSS PER COMMON SHARE
The calculations of basic and diluted net income or loss per common
share for 1997, 1996, and 1995 are set forth below (in thousands, except per
share amounts). Because the pro forma effect of the Company's dilutive
securities was calculated to be antidilutive for 1997 and 1996, the reported
diluted net loss per common share for 1997 and 1996 equals the basic net loss
per common share.
YEARS ENDED DECEMBER 31
-------------------------------
1997 1996 1995
---- ---- ----
NUMERATOR:
Net income/(loss) $ (1,528) $ (17) $ 2,288
Preferred stock dividends (37) (41) (44)
Excess of redemption value over par value of preferred stock
redeemed during year (45) (45) (45)
------- ------- -------
Numerator for basic income/(loss) per share - income available to
common stockholders (1,610) (103) 2,199
Effect of dilutive securities:
Pro forma elimination of interest expense on the 14% junior
subordinated convertible notes, net of applicable income taxes 104 108 104
------- ------- -------
Pro forma numerator for diluted income/(loss) per share - income
available to common stockholders after assumed conversion $ (1,506) $ 5 $ 2,303
======= ======= =======
DENOMINATOR:
Denominator for basic income/(loss) per share - weighted-average
common shares 4,263 4,250 4,219
Pro forma effect of dilutive securities:
Employee stock options - 13 35
14% junior subordinated convertible notes 440 440 440
Redeemable preferred stock - - -
------- ------- -------
Pro forma denominator for diluted income/(loss) per share - adjusted
weighted-average shares after assumed conversions 4,703 4,703 4,694
======= ======= =======
Basic income/(loss) per share $ (0.38) $ (0.02) $ 0.52
======= ======= =======
Diluted income/(loss) per share $ (0.38) $ (0.02) $ 0.49
======= ======= =======
NOTE 13 -- COMMITMENTS AND CONTINGENCIES
PURCHASE COMMITMENTS
At December 31, 1997, the Company had commitments for the purchase of
plant and equipment totaling approximately $3,081,000.
-42-
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LEASES
The Company is lessee under various operating leases relating to storage
and office space, temporary office units, and equipment. Total rent expense
under operating leases aggregated $298,000, $263,000, and $269,000 for 1997,
1996, and 1995, respectively. At December 31, 1997, future minimum lease
commitments under noncancelable operating leases were not significant for any
year or in the aggregate.
LEGAL ACTIONS
The Company is subject to various claims and legal proceedings covering
a wide range of matters that arise in the ordinary course of its business
activities, including actions naming the Company as one of numerous potentially
responsible parties under applicable environmental laws for restoration costs at
waste-disposal sites, as a third-party defendant in cost-recovery actions
pursuant to applicable environmental laws, and as a defendant or potential
defendant in various other matters. It is the Company's policy to record
accruals for such matters when a loss is deemed probable and the amount of such
loss can be reasonably estimated. The various actions to which the Company is or
may be a party in the future are at various stages of completion. Although there
can be no assurance as to the outcome of existing or potential litigation, in
the event such litigation were commenced, based upon the information currently
available to the Company, the Company believes that the outcome of such actions
would not have a material adverse effect upon its financial position.
LETTERS OF CREDIT
At December 31, 1997 and 1996, the Company had outstanding irrevocable
third-party letters of credit totaling $1,068,000 and $968,000, respectively.
The letters of credit guaranteed certain payments that may be required under the
Company's self-insured workers' compensation program.
OTHER
The Company maintains insurance coverage for certain aspects of its
business and operations. Based on the Company's evaluation of the various
insurable risks that it may potentially be exposed to, the Company has elected
to retain a portion of the potential losses that it could experience in the
future through the use of various deductibles, limits, retentions, and
self-insurance. Under certain circumstances, this situation may subject the
Company to future liability for which it is only partially insured, or
completely uninsured. Although there can be no assurance, the Company attempts
to limit future liability through, among other things, the ongoing training and
education of its employees, the use of safety programs, the ongoing testing and
evaluation of the safety and suitability of its workplace environments, the
development of sound business practices, and the exercise of care and judgment
in the negotiation and completion of contracts.
NOTE 14 -- RELATED PARTIES
The Chairman of the Board and the President of the Company are the two
largest holders of the Company's common stock, the holders of the 14% junior
subordinated notes, and the beneficial owners of $200,000 principal amount of
the 12.75% senior subordinated notes. In addition, the Chairman of the Board
-43-
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and certain of his affiliates hold an aggregate of $1,300,000 principal amount
of the 12.75% senior subordinated notes.
The Chairman of the Board and the President of the Company are partners
of an investment banking firm that is retained by the Company to provide
management and investment banking services for an annual fee of $400,000.
Additionally, the firm may receive incentive compensation tied to the Company's
operating performance and other compensation for specific transactions completed
by the Company with the assistance of the firm. The Company also has agreed to
reimburse the firm for certain expenses. During 1997, the Company paid the firm
fees of $400,000 and reimbursed it for direct and indirect expenses of $200,000.
During 1996, the Company paid the firm fees of $400,000 and incentive
compensation of $150,000 as a result of the Company's operating performance
during 1995 and reimbursed it for direct and indirect expenses of $208,000.
During 1995, the Company paid the firm fees of $600,000 and reimbursed it for
direct and indirect expenses of $97,000.
The Secretary of the Company, who is also a member of the Company's
Board of Directors, was a stockholder of a professional corporation that was,
until December 31, 1997, a partner in a law firm that serves as general counsel
to the Company. During 1997, 1996, and 1995, the Company made payments to the
law firm for legal services in the amounts of $395,000, $442,000, and $371,000,
respectively.
During 1995, a member of the Board of Directors of the Company was a
member of the board of directors of an insurance brokerage firm that specializes
in brokering commercial, life, and accident insurance coverage and providing
third-party administration of health claims. After competitive bidding, the
Company has from time to time secured large portions of its insurance coverage
through this firm and purchased third-party administrative services from this
firm. During 1995, the Company made cash payments to the brokerage firm for
insurance premiums, including commissions thereon, of $798,000 and for
administrative fees of $88,000 for services performed in connection with the
administration of the Company's hospital and medical plans.
-44-
47
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-45-
48
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by Item 10 is incorporated by reference to the
Company's proxy statement to be issued in connection with its 1998 Annual
Meeting of Stockholders and to be filed with the Securities and Exchange
Commission (the "Commission") not later than 120 days after December 31, 1997.
ITEM 11. EXECUTIVE COMPENSATION
Information required by Item 11 is incorporated by reference to the
Company's proxy statement to be issued in connection with its 1998 Annual
Meeting of Stockholders and to be filed with the Commission not later than 120
days after December 31, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information required by Item 12 is incorporated by reference to the
Company's proxy statement to be issued in connection with its 1998 Annual
Meeting of Stockholders and to be filed with the Commission not later than 120
days after December 31, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by Item 13 is incorporated by reference to the
Company's proxy statement to be issued in connection with its 1998 Annual
Meeting of Stockholders and to be filed with the Commission not later than 120
days after December 31, 1997.
-46-
49
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The consolidated financial statements of Lexington Precision
Corporation (the "Company") and its wholly owned subsidiaries,
Lexington Components, Inc. ("LCI") and Lexington Precision
GmbH, are included in Part II, Item 8.
2. FINANCIAL STATEMENT SCHEDULE
Schedule II, Valuation and Qualifying Accounts and Reserves,
is included in this Part IV, Item 14, on page 54. All other
schedules are omitted because the required information is not
applicable, not material, or included in the consolidated
financial statements or notes thereto.
3. EXHIBITS
3-1 Articles of Incorporation and Restatement thereof
3-2 By-Laws, as amended
3-3 Certificate of Correction dated September 21, 1976
3-4 Certificate of Ownership and Merger dated May 24,
1977
3-5 Certificate of Ownership and Merger dated May 31,
1977
3-6 Certificate of Reduction of Capital dated December
30, 1977
3-7 Certificate of Retirement of Preferred Shares dated
December 30, 1977
3-8 Certificate of Reduction of Capital dated December
28, 1978
3-9 Certificate of Retirement of Preferred Shares dated
December 28, 1978
3-10 Certificate of Reduction of Capital dated January 9,
1979
3-11 Certificate of Reduction of Capital dated December
20, 1979
3-12 Certificate of Retirement of Preferred Shares dated
December 20, 1979
3-13 Certificate of Reduction of Capital dated December
16, 1982
3-14 Certificate of Reduction of Capital dated December
17, 1982
-47-
50
3-15 Certificate of Amendment of Restated Certificate of
Incorporation dated September 26, 1984
3-16 Certificate of Retirement of Stock dated September
24, 1986
3-17 Certificate of Amendment of Restated Certificate of
Incorporation dated November 21, 1986
3-18 Certificate of Retirement of Stock dated January 15,
1987
3-19 Certificate of Retirement of Stock dated February 22,
1988
3-20 Certificate of Amendment of Restated Certificate of
Incorporation dated January 6, 1989
3-21 Certificate of Retirement of Stock dated August 17,
1989
3-22 Certificate of Retirement of Stock dated January 9,
1990
3-23 Certificate of the Designations, Preferences and
Relative Participating, Optional and Other Special
Rights of 12% Cumulative Convertible Exchangeable
Preferred Stock, Series C, and the Qualifications,
Limitations and Restrictions thereof dated January
10, 1990
3-24 Certificate of Ownership and Merger dated April 25,
1990
3-25 Certificate of Elimination of 12% Cumulative
Convertible Exchangeable Preferred Stock, Series C,
dated June 4, 1990
3-26 Certificate of Retirement of Stock dated March 6,
1991
3-27 Certificate of Retirement of Stock dated April 29,
1994
3-28 Certificate of Retirement of Stock dated January 6,
1995
3-29 Certificate of Retirement of Stock dated January 5,
1996
3-30 Certificate of Retirement of Stock dated January 6,
1997
3-31 Certificate of Retirement of Stock dated January 9,
1998
4-1 Certificate of Designations, Preferences, Rights and
Number of Shares of Redeemable Preferred Stock,
Series B
4-2 Purchase Agreement dated as of February 7, 1985,
between the Company and L&D Precision Limited
Partnership ("L&D Precision") and exhibits thereto
-48-
51
4-3 Amendment Agreement dated as of April 27, 1990,
between the Company and L&D Precision with respect to
Purchase Agreement dated as of February 7, 1985
4-4 Recapitalization Agreement dated as of April 27,
1990, between the Company and L&D Woolens Limited
Partnership ("L&D Woolens") and exhibits thereto
4-5 Specimen of Junior Subordinated Convertible
Increasing Rate Note, due May 1, 2000
4-6 Specimen of 14% Junior Subordinated Note, due May 1,
2000
4-7 Indenture dated as of August 1, 1993, between the
Company and IBJ Schroder Bank & Trust Company, as
Trustee
4-8 Specimen of 12.75% Senior Subordinated Note, due
February 1, 2000
4-9 Note Purchase Agreement dated October 27, 1997,
between the Company and Nomura Holding America, Inc.
("Nomura")
4-10 Specimen of 10.5% Senior Unsecured Note due February
1, 2000, from the Company to Nomura
10-1 Purchase Agreement dated as of February 7, 1985,
between the Company and L&D Precision and exhibits
thereto
10-2 Amendment Agreement dated as of April 27, 1990,
between the Company and L&D Precision with respect to
Purchase Agreement dated as of February 7, 1985
10-3 *Lexington Precision Corporation Flexible
Compensation Plan, as amended
10-4 *1986 Restricted Stock Award Plan, as amended
10-5 *Lexington Precision Corporation Retirement & Savings
Plan, as amended
10-6 *Description of 1997 Compensation Arrangements with
Lubin, Delano, & Company
10-7 *Corporate Office 1997 Management Cash Bonus Plan
10-8 Consent and Amendment Letter Agreement between
Chemical Bank of New Jersey and the Company dated as
of December 29, 1993
10-9 Promissory Note dated November 30, 1988, of LCI
payable to the order of Paul H. Pennell in the
original principal amount of $3,530,000
10-10 Guaranty dated as of November 30, 1988, from the
Company to Paul H. Pennell
-49-
52
10-11 Amendment Agreement dated as of November 30, 1991,
between LCI and Paul H. Pennell
10-12 Release and Notice Agreement dated as of March 31,
1993, between LCI and Paul H. Pennell
10-13 Recapitalization Agreement dated as of April 27,
1990, between the Company and L&D Woolens and
exhibits thereto
10-14 Accounts Financing Agreement [Security Agreement]
dated as of January 11, 1990, between Congress
Financial Corporation ("Congress") and the Company
10-15 Accounts Financing Agreement [Security Agreement]
dated as of January 11, 1990, between Congress and
LCI
10-16 Covenants Supplement to Accounts Financing Agreement
[Security Agreement] dated as of January 11, 1990,
between Congress and the Company
10-17 Covenants Supplement to Accounts Financing Agreement
[Security Agreement] dated as of January 11, 1990,
between Congress and LCI
10-18 Letter dated April 11, 1990, from the Company and
Wise Die Casting, Inc. to Congress
10-19 Letter Agreement dated February 28, 1991, between the
Company and Congress amending certain financing
agreements and consent thereto of LCI
10-20 Letter Agreement dated February 28, 1991, between LCI
and Congress amending certain financing agreements
and consent thereto of the Company
10-21 Letter Agreement dated January 14, 1994, between the
Company and Congress amending certain financing
agreements and consent thereto of LCI
10-22 Letter Agreement dated January 14, 1994, between LCI
and Congress amending certain financing agreements
and consent thereto of the Company
10-23 Letter Agreement dated March 25, 1994, between
Congress and the Company, and consent thereto of LCI
10-24 Letter Agreement dated March 25, 1994, between
Congress and LCI, and consent thereto of the Company
10-25 Letter Agreement dated as of August 1, 1994, between
the Company and Congress amending certain financing
agreements and consent thereto of LCI
10-26 Letter Agreement dated as of August 1, 1994, between
LCI and Congress amending certain financing
agreements and consent thereto of the Company
-50-
53
10-27 Trade Financing Agreement Supplement to Accounts
Financing Agreement [Security Agreement] dated as of
July 19, 1994, between the Company and Congress
10-28 Letter Agreement dated January 13, 1995, between LCI
and Congress amending certain financing agreements
and consent thereto of the Company
10-29 Letter Agreement dated January 31, 1995, between the
Company and Congress amending certain financing
agreements and consent thereto of LCI
10-30 Letter Agreement dated January 31, 1995, between LCI
and Congress amending certain financing agreements
and consent thereto of the Company
10-31 Amendment to Financing Agreements dated August 1,
1995, from the Company in favor of Congress
10-32 Amendment to Financing Agreements dated August
1,1995, from LCI in favor of Congress
10-33 Amendment to Financing Agreements dated January 16,
1996, from the Company in favor of Congress
10-34 Term Promissory Note dated January 16, 1996, in the
amount of $375,000 from the Company in favor of
Congress
10-35 Term Promissory Note dated January 16, 1996, in the
amount of $450,000 from the Company in favor of
Congress
10-36 Letter Agreement dated February 28, 1996, from the
Company in favor of Congress amending certain
financing agreements and consent thereto of Congress
10-37 Amendment to Financing Agreements and Consent dated
March 14, 1996, from the Company in favor of Congress
10-38 Amendment to Financing Agreements and Consent dated
March 14, 1996, from LCI in favor of Congress
10-39 Term Note dated May 31, 1996, from the Company in
favor of Congress
10-40 Amendment to Financing Agreements dated August 21,
1996, from LCI in favor of Congress
10-41 Amendment to Financing Agreements dated August 21,
1996, from the Company in favor of Congress
10-42 Amendment to Financing Agreements dated January 31,
1997, from the Company in favor of Congress
-51-
54
10-43 Amendment to Financing Agreements dated January 31,
1997, from LCI in favor of Congress
10-44 Credit Facility and Security Agreement and Rider A to
Credit Facility and Security Agreement dated January
31, 1997, from the Company and LCI in favor of Bank
One, Akron, NA ("Bank One")
10-45 Promissory Note (Equipment Term Loan) dated January
31, 1997, from the Company and LCI in favor of Bank
One
10-46 Promissory Note (North Canton Term Loan) dated
January 31, 1997, from the Company and LCI in favor
of Bank One
10-47 Promissory Note (Vienna Term Loan) dated January 31,
1997, from the Company and LCI in favor of Bank One
10-48 Promissory Note (Casa Grande Note) dated January 31,
1997, from the Company and LCI in favor of Bank One
10-49 Promissory Note (LaGrange Term Loan) dated January
31, 1997, from the Company and LCI in favor of Bank
One
10-50 Promissory Note (North Canton Equipment Loan) dated
January 31, 1997, from the Company and LCI in favor
of Bank One
10-51 Fourth Amended and Restated Promissory Note dated
March 11, 1997, from LCI in favor of Congress
10-52 Fourth Amended and Restated Promissory Note dated
March 11, 1997, from the Company in favor of Congress
10-53 Amendment to Financing Agreements dated March 11,
1997, from LCI in favor of Congress
10-54 Amendment to Financing Agreements dated March 11,
1997, from the Company in favor of Congress
10-55 Loan and Security Agreement and Rider A to Loan and
Security Agreement dated March 19, 1997, from the
Company in favor of The CIT Group/Equipment
Financing, Inc. ("CIT")
10-56 Promissory Note dated March 19, 1997, from the
Company in favor of CIT
10-57 **Additional Purchase Order Provisions Lifetime
Contract Between Delphi Packard Electric Systems and
Lexington Connector Seals
10-58 Amendment to Financing Agreements and Consent dated
April 17, 1997, between the Company and Congress
-52-
55
10-59 Amendment to Financing Agreements and Consent dated
April 17, 1997, between LCI and Congress
10-60 First Amendment Agreement dated April 17, 1997, among
the Company, LCI, and Bank One
10-61 Specimen of Amended and Restated Promissory Note
dated April 17, 1997, of the Company and LCI to Bank
One
10-62 Specimen of Promissory Note dated August 29, 1997,
from the Company to CIT
10-63 Note Purchase Agreement dated October 27, 1997,
between the Company and Nomura
10-64 Specimen of 10.5% Senior Unsecured Note due February
1, 2000, from the Company to Nomura
10-65 Amendment No. 1 to Credit Facility and Security
Agreement dated December 31, 1997, between the
Company, LCI, and Bank One
10-66 Amendment No. 2 to Credit Facility and Security
Agreement dated March 20, 1998, between the Company,
LCI, and Bank One
21-1 Subsidiary of Registrant
27-1 ***Financial Data Schedule
* Indicates a management contract or compensatory plan or
arrangement required to be filed as an exhibit pursuant to Item
14(a)(3).
** This Exhibit has been filed in redacted form pursuant to an
order granting confidential treatment, issued by the Securities
and Exchange Commission (the "Commission") dated October 6,
1997.
***Not deemed filed for purposes of Section 11 of the Securities
Act of 1933, Section 18 of the Securities Exchange Act of 1934,
and Section 323 of the Trust Indenture Act of 1939, or
otherwise subject to the liabilities of such sections and not
deemed part of any regulation statement to which such exhibit
relates.
Note: Pursuant to section (b)(4)(iii) of item 601 of Regulation
S-K, the Company agrees to furnish to the Commission upon
request documents defining the rights of other holders of
long-term debt.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended
December 31, 1997.
-53-
56
LEXINGTON PRECISION CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(THOUSANDS OF DOLLARS)
BALANCE AT CHARGED TO DEDUCTIONS BALANCE
BEGINNING COSTS AND FROM AT END
OF PERIOD EXPENSES RESERVES OF PERIOD
--------- -------- -------- ---------
ALLOWANCE FOR
DOUBTFUL ACCOUNTS
Year ended December 31, 1997 $ 156 $ 57 $ 2 $ 211
Year ended December 31, 1996 175 21 40 156
Year ended December 31, 1995 174 1 - 175
INVENTORY RESERVE
Year ended December 31, 1997 $ 321 $ 212 $ 83 $ 450
Year ended December 31, 1996 374 37 90 321
Year ended December 31, 1995 367 49 42 374
-54-
57
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
LEXINGTON PRECISION CORPORATION
(Registrant)
By: /s/ Warren Delano
---------------------------------
Warren Delano, President
March 27, 1998
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 27, 1998:
PRINCIPAL EXECUTIVE OFFICERS:
/s/ Michael A. Lubin
- ----------------------------------------------
Michael A. Lubin, Chairman of the Board
/s/ Warren Delano
- ----------------------------------------------
Warren Delano, President and Director
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
/s/ Dennis J. Welhouse
- ----------------------------------------------
Dennis J. Welhouse, Senior Vice President
and Chief Financial Officer
DIRECTORS:
/s/ William B. Conner
- ----------------------------------------------
William B. Conner, Director
/s/ Kenneth I. Greenstein
- ----------------------------------------------
Kenneth I. Greenstein, Secretary and
Director
/s/ Phillips E. Patton
- ----------------------------------------------
Phillips E. Patton, Director
-55-
58
EXHIBIT INDEX
Exhibit
Number Exhibit Location
- ------ ------- --------
3-1 Articles of Incorporation and Restatement Incorporated by reference from Exhibit 3-1 Lexington Precision Corporation's
thereof (the "Company") to the Company's Form 10-K for the year ended May 31, 1981
located under Securities and Exchange Commission File No. 0-3252 ("1981
10-K")
3-2 By-laws, as amended Incorporated by reference from Exhibit 3-2 to the Company's Form 10-K for the
year ended December 31, 1991 located under Securities and Exchange Commission
File No. 0-3252 ("1991 10-K")
3-3 Certificate of Correction dated Incorporated by reference from Exhibit 3-3 to the Company's Form 10-K for the
September 21, 1976 year ended May 31, 1983 located under Securities and Exchange Commission File
No. 0-3252 ("1983 10-K")
3-4 Certificate of Ownership and Merger Incorporated by reference from Exhibit 3-4 to 1983 10-K
dated May 24, 1977
3-5 Certificate of Ownership and Merger Incorporated by reference from Exhibit 3-5 to 1983 10-K
dated May 31, 1977
3-6 Certificate of Reduction of Capital dated Incorporated by reference from Exhibit 3-6 to 1983 10-K
December 30, 1977
3-7 Certificate of Retirement of Preferred Incorporated by reference from Exhibit 3-7 to 1983 10-K
Shares dated December 30, 1977
3-8 Certificate of Retirement of Preferred Incorporated by reference from Exhibit 3-8 to 1983 10-K
Shares dated December 28, 1978
3-9 Certificate of Reduction of Capital dated Incorporated by reference from Exhibit 3-9 to 1983 10-K
December 28, 1978
3-10 Certificate of Reduction of Capital dated Incorporated by reference from Exhibit 3-10 to 1983 10-K
January 9, 1979
3-11 Certificate of Reduction of Capital dated Incorporated by reference from Exhibit 3-11 to 1983 10-K
December 20, 1979
3-12 Certificate of Retirement of Preferred Incorporated by reference from Exhibit 3-12 to 1983 10-K
Shares dated December 20, 1979
3-13 Certificate of Reduction of Capital dated Incorporated by reference from Exhibit 3-13 to 1983 10-K
December 16, 1982
59
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3-14 Certificate of Reduction of Capital dated Incorporated by reference from Exhibit 3-14 to 1983
December 17, 1982 10-K
3-15 Certificate of Amendment of Restated Incorporated by reference from Exhibit 3-15 to the
Certificate of Incorporation dated Company's Form 10-K for the year ended May 31, 1985
September 26, 1984 located under Securities and Exchange Commission
File No. 0-3252
3-16 Certificate of Retirement of Stock dated Incorporated by reference from Exhibit 4-3 to the
September 24, 1986 Company's Registration Statement on Form S-2
located under Securities and Exchange Commission
File No. 33-9380 ("1933 Act Registration
Statement")
3-17 Certificate of Amendment of Restated Incorporated by reference from Exhibit 3-17 to the
Certificate of Incorporation dated Company's Form 10-K for the year ended May 31, 1987
November 21, 1986 located under Securities and Exchange
Commission File No. 0-3252
3-18 Certificate of Retirement of Stock dated Incorporated by reference from Exhibit 4-5 to
January 15, 1987 Amendment No. 1 to 1933 Act Registration
Statement
3-19 Certificate of Retirement of Stock dated Incorporated by reference from Exhibit 3-19 to
February 22, 1988 the Company's Form 10-K for the year ended
May 31, 1989 located under Securities and
Exchange Commission File No. 0-3252
("May 31, 1989 10-K")
3-20 Certificate of Amendment of Restated Incorporated by reference from Exhibit 3-20 to
Certificate of Incorporation dated May 31, 1989 10-K
January 6, 1989
3-21 Certificate of Retirement of Stock dated Incorporated by reference from Exhibit 3-21 to
August 17, 1989 May 31, 1989 10-K
3-22 Certificate of Retirement of Stock dated Incorporated by reference from Exhibit 3-22
January 9, 1990 to the Company's Form 10-K for the seven
months ended December 31, 1989 located
under Securities and Exchange Commission
File No. 0-3252 ("December 31, 1989 10-K")
3-23 Certificate of the Designations, Incorporated by reference from Exhibit
Preferences and Relative Participating, 3-1 to the Company's Form 10-Q for the
Optional and Other Special Rights of quarter ended November 30, 1989 located
12% Cumulative Convertible Exchangeable under Securities and Exchange Commission
Preferred Stock, Series C and the File No. 0-3252 ("November 30, 1989 10-Q")
Qualifications, Limitations and
Restrictions thereof dated
January 10, 1990
60
-3-
3-24 Certificate of Ownership and Merger Incorporated by reference from Exhibit 3-24 to
dated April 25, 1990 December 31, 1989 10-K
3-25 Certificate of Elimination of 12% Incorporated by reference from Exhibit 3-25 to the
Cumulative Convertible Exchangeable Company's Form 10-K for the year ended
Preferred Stock, Series C, dated December 31, 1990 located under Securities and
June 4, 1990 Exchange Commission File No. 0-3252 ("1990 10-K")
3-26 Certificate of Retirement of Stock dated Incorporated by reference from Exhibit 3-26 to 1990
March 6, 1991 10-K
3-27 Certificate of Retirement of Stock dated Incorporated by reference from Exhibit 3-27 to 1994
April 29, 1994 10-K
3-28 Certificate of Retirement of Stock dated Incorporated by reference from Exhibit 3-28 to 1994
January 6, 1995 10-K
3-29 Certificate of Retirement of Stock dated Incorporated by reference from Exhibit 3-29 to 1995
January 5, 1996 10-K
3-30 Certificate of Retirement of Stock dated Incorporated by reference from Exhibit 3-30 to 1996
January 6, 1997 10-K
3-31 Certificate of Retirement of Stock dated Filed with this Form 10-K
January 9, 1998
4-1 Certificate of Designations, Preferences, Incorporated by reference from Exhibit 3-3 to 1981
Rights and Number of Shares of 10-K
Preferred Stock, Series B
4-2 Purchase Agreement dated as of Incorporated by reference from Exhibit 4-1 to the
February 7, 1985 between the Company and Company's Form 8-K dated February 7, 1985 (date
L&D Precision Limited Partnership of earliest event reported) located under Securities
("L&D Precision") and exhibits thereto and Exchange Commission File No. 0-3252
4-3 Amendment Agreement dated as of Incorporated by reference from Exhibit 10-2 to 1990
April 27, 1990 between the Company and 10-K
L&D Precision with respect to Purchase
Agreement dated as of February 7, 1985
4-4 Recapitalization Agreement dated as of Incorporated by reference from Exhibit 4-10 to
April 27, 1990 between the Company and December 31, 1989 10-K
Woolens and exhibits thereto
4-5 Specimen of Junior Subordinated Incorporated by reference from Exhibit 4-11 to
Convertible Increasing Rate Note Due December 31, 1989 10-K
May 1, 2000
61
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4-6 Specimen of 14% Junior Subordinated Incorporated by reference from Exhibit 10-2 to the
Note due May 1, 2000 Company's Form 8-K dated December 10,1993
(date of earliest event reported) located under
Securities and Exchange Commission File
No. 0-3252
4-7 Indenture dated as of August 1, 1993 Incorporated by reference from Exhibit 4-2 to the
between the Company and IBJ Schroder Company's Form 8-K dated January 18, 1994 (date
Bank & Trust Company, as Trustee of earliest event reported) located under Securities
and Exchange Commission File No. 0-3252
4-8 Specimen of 12.75% Senior Subordinated Included in Exhibit 4-7 hereto
Note due February 1, 2000
4-9 Note Purchase Agreement dated Incorporated by reference from Exhibit 10-2 to the
October 27, 1997, between the Company Company's Form 10-Q for the quarter ended
and Nomura Holding America, Inc. June 30, 1997 located under Securities and
("Nomura") Exchange Commission File No. 0-3252 ("June 30,
1997 Form 10-Q")
4-10 Specimen of 10.5% Senior Unsecured Incorporated by reference from Exhibit 10-3 to
note due February 1, 2000 from the June 30, 1997 Form 10-Q
Company to Nomura
10-1 Purchase Agreement dated as of See Exhibit 4-2 hereto
February 7, 1985 between the Company
and L&D Precision and exhibits thereto
10-2 Amendment Agreement dated as of See Exhibit 4-3 hereto
April 27, 1990 between the Company and
L&D Precision with respect to Purchase
Agreement dated as of February 7, 1985
10-3 Lexington Precision Corporation Incorporated by reference from Exhibit 10-3 to 1991
Flexible Compensation Plan, as amended 10-K
10-4 1986 Restricted Stock Award Plan, as Incorporated by reference from Exhibit 10-38 to
amended December 31, 1989 10-K
10-5 Lexington Precision Corporation Incorporated by reference from Exhibit 10-9 to 1991
Retirement and Savings Plan, as amended 10-K
10-6 Description of 1997 Compensation Filed with this Form 10-K
Arrangements with Lubin, Delano &
Company
10-7 Lexington Precision Corporate Office Filed with this Form 10-K
1997 Management Cash Bonus Plan
62
-5-
10-8 Consent and Amendment Letter Incorporated by reference from Exhibit 10-1 to the
Agreement between Chemical Bank of Company's Form 8-K dated December 30, 1993
New Jersey and the Company dated as of (date of earliest event reported) located under
December 29, 1993 Securities and Exchange Commission File No.
0-3252
10-9 Promissory Note dated November 30, Incorporated by reference from Exhibit 10-32 to
1988 of Lexington Components, Inc. May 31, 1989 10-K
("LCI") payable to the order of Paul H.
Pennell in the original principal amount
of $3,530,000
10-10 Guaranty dated as of November 30, 1988 Incorporated by reference from Exhibit 10-33 to
from the Company to Paul H. Pennell May 31, 1989 10-K
10-11 Amendment Agreement dated as of Incorporated by reference from Exhibit 10-28 to
November 30, 1991 between LCI and 1991 10-K
Paul H. Pennell
10-12 Release and Notice Agreement dated as Incorporated by reference from Exhibit 10-40 to the
of March 31, 1993 between LCI and Paul Company's Form 10-K for the year ended
H. Pennell December 31, 1992 located under Securities and
Exchange Commission File No. 0-3252
10-13 Recapitalization Agreement dated as of See Exhibit 4-4 hereto
April 27, 1990 between the Company and
Woolens and exhibits thereto
10-14 Accounts Financing Agreement [Security Incorporated by reference from Exhibit 4-2 to
Agreement] dated as of January 11, 1990 November 30, 1989 10-Q
between Congress Financial Corporation
("Congress") and the Company
10-15 Accounts Financing Agreement [Security Incorporated by reference from Exhibit 4-3 to November
Agreement] dated as of January 11, 1990 30, 1989 10-Q
between Congress and LCI
10-16 Covenants Supplement to Accounts Incorporated by reference from Exhibit 10-49 to
Financing Agreement [Security 1990 10-K
Agreement] dated as of January 11, 1990
between Congress and the Company
10-17 Covenants Supplement to Accounts Incorporated by reference from Exhibit 10-50 to
Financing Agreement [Security 1990 10-K
Agreement] dated as of January 11, 1990
between Congress and the Company
10-18 Letter dated April 11, 1990 from the Incorporated by reference from Exhibit 10-51 to
Company and Wise to Congress 1990 10-K
63
-6-
10-19 Letter Agreement dated February 28, Incorporated by reference from Exhibit 10-54
1991 between the Company and Congress to 1990 10-K
amending certain financing agreements
and consent thereto of LCI
10-20 Letter Agreement dated February 28, Incorporated by reference from Exhibit 10-56 to
1991 between LCI and Congress amending 1990 10-K
certain financing agreements
and consent thereto of the Company
10-21 Letter Agreement dated January 14, 1994 Incorporated by reference from Exhibit 10-26 to the
between the Company and Congress Company's Form 10-K for the year ended
amending certain financing agreements December 31, 1993 located under Securities and
and consent thereto of LCI Exchange Commission File No. 0-3252 ("1993
10-K")
10-22 Letter Agreement dated January 14, 1994 Incorporated by reference from Exhibit 10-27 to
between LCI and Congress amending 1993 10-K
certain financing agreements and
consent thereto of the Company
10-23 Letter Agreement dated March 25, 1994 Incorporated by reference from Exhibit 10-30 to
between Congress and the Company, and 1993 10-K
consent thereto of LCI
10-24 Letter Agreement dated March 25, 1994 Incorporated by reference from Exhibit 10-31 to
between Congress and LCI, and consent 1993 10-K
thereto of the Company
10-25 Letter Agreement dated as of Incorporated by reference from Exhibit 10-1 to the
August 1, 1994 between the Company Company's Form 10-Q for the quarter ended
and Congress amending certain financing September 30, 1994 located under Securities and
agreements and consent thereto of LCI Exchange Commission File No. 0-3252
("September 30, 1994 10-Q")
10-26 Letter Agreement dated as of Incorporated by reference from Exhibit 10-2 to
August 1, 1994 between LCI and September 30, 1994 10-Q
Congress amending certain financing
agreements and consent thereto of the
Company
10-27 Trade Financing Agreement Supplement Incorporated by reference from Exhibit 10-3 to
to Accounts Financing Agreement September 30, 1994 10-Q
[Security Agreement] dated as of July 19,
1994 between the Company and Congress
10-28 Letter Agreement dated January 13, 1995 Incorporated by reference from Exhibit 10-32 to
between LCI and Congress amending 1994 Form 10-K
certain financing agreements and consent
thereto of the Company
64
-7-
10-29 Letter Agreement dated January 31, 1995 Incorporated by reference from Exhibit 10-34 to
between the Company and Congress 1994 Form 10-K
amending certain financing agreements
and consent thereto of LCI
10-30 Letter Agreement dated January 31, 1995 Incorporated by reference from Exhibit 10-36 to
between LCI and Congress amending 1994 Form 10-K
certain financing agreements
and consent thereto of the Company
10-31 Amendment to Financing Agreements Incorporated by reference from Exhibit 10-1 to the
dated August 1, 1995 from the Company Company's Form 10-Q for the quarter ended
in favor of Congress September 30, 1995 located under Securities and
Exchange Commission File No. 0-3252
("September 30, 1995 Form 10-Q")
10-32 Amendment to Financing Agreements Incorporated by reference from Exhibit 10-2 to
dated August 1,1995 from LCI in favor September 30, 1995 Form 10-Q
of Congress
10-33 Amendment to Financing Agreements Incorporated by reference from Exhibit 10-49 to the
dated January 16, 1996 from the Company's Form 10-K for the year ended
Company in favor of Congress December 31, 1995 located under Securities and
Exchange Commission File No.0-3252 ("1995
Form 10-K")
10-34 Term Promissory Note dated Incorporated by reference from Exhibit 10-50 to
January 16, 1996 in the amount of 1995 Form 10-K
$375,000 from the Company in favor of
Congress
10-35 Term Promissory Note dated Incorporated by reference from Exhibit 10-51 to
January 16, 1996 in the amount of 1995 Form 10-K
$450,000 from the Company in favor of
Congress
10-36 Letter Agreement re Amendment to Incorporated by reference from Exhibit 10-62 to
Financing Agreements and Consent dated 1995 Form 10-K
February 28, 1996 from the Company in
favor of Congress
10-37 Amendment to Financing Agreements Incorporated by reference from Exhibit 10-63 to
and Consent dated March 14, 1996 from 1995 Form 10-K
the Company in favor of Congress
10-38 Amendment to Financing Agreements Incorporated by reference from Exhibit 10-64 to
and Consent dated March 14, 1996 from 1995 Form 10-K
LCI in favor of Congress
65
-8-
10-39 Term Note dated May 31, 1996 from the Incorporated by reference from Exhibit 10-1 to the
Company in favor of Congress Company's Form 10-Q for the quarter ended
June 30, 1996 located under Securities and
Exchange Commission File No. 0-3252
10-40 Amendment to Financing Agreements Incorporated by reference from Exhibit 10-3 to the
dated August 21, 1996 from LCI in favor Company's Form 10-Q for the quarter ended
of Congress September 30, 1996 located under Securities and
Exchange Commission File No. 0-3252
("September 30, 1996 Form 10-Q")
10-41 Amendment to Financing Agreements Incorporated by reference from Exhibit 10-4 to
dated August 21, 1996 from the September 30, 1996 Form 10-Q
Company in favor of Congress
10-42 Amendment to Financing Agreements Incorporated by reference from Exhibit 10-42 to the
dated January 31, 1997 from the Company's Form 10-K for the year ended
Company in favor of Congress December 31, 1996 located under Securities and
Exchange Commission File No. 0-3252 ("1996
Form 10-K")
10-43 Amendment to Financing Agreements Incorporated by reference from Exhibit 10-43 to
dated January 31, 1997 from LCI in favor 1996 Form 10-K
of Congress
10-44 Credit Facility and Security Agreement Incorporated by reference from Exhibit 10-44 to
and Rider A to Credit Facility and 1996 Form 10-K
Security Agreement dated January 31,
1997 from the Company and LCI in favor
of Bank One, Akron., NA ("Bank One")
10-45 Promissory Note (Equipment Term Loan) Incorporated by reference from Exhibit 10-45 to
dated January 31, 1997 from the Company 1996 Form 10-K
and LCI in favor of Bank One
10-46 Promissory Note (North Canton Term Incorporated by reference from Exhibit 10-46 to
Loan) dated January 31, 1997 from the 1996 Form 10-K
Company and LCI in favor of Bank One
10-47 Promissory Note (Vienna Term Loan) Incorporated by reference from Exhibit 10-47 to
dated January 31, 1997 from the Company and 1996 Form 10-K
LCI in favor of Bank One
10-48 Promissory Note (Casa Grande Note) Incorporated by reference from Exhibit 10-48 to
dated January 31, 1997 from the Company and 1996 Form 10-K
LCI in favor of Bank One
10-49 Promissory Note (LaGrange Term Loan) Incorporated by reference from Exhibit 10-49 to
dated January 31, 1997 from the Company and 1996 Form 10-K
LCI in favor of Bank One
66
-9-
10-50 Promissory Note (North Canton Incorporated by reference from Exhibit 10-50 to
Equipment Loan) dated January 31, 1997 1996 Form 10-K
from the Company and LCI in favor of Bank One
10-51 Fourth Amended and Restated Promissory Incorporated by reference from Exhibit 10-51 to
Note dated March 11, 1997 from LCI in 1996 Form 10-K
favor of Congress
10-52 Fourth Amended and Restated Promissory Incorporated by reference from Exhibit 10-52 to
Note dated March 11, 1997 from the 1996 Form 10-K
Company in favor of Congress
10-53 Amendment to Financing Agreements Incorporated by reference from Exhibit 10-53 to
dated March 11, 1997 from LCI in favor 1996 Form 10-K
of Congress
10-54 Amendment to Financing Agreements Incorporated by reference from Exhibit 10-54 to
dated March 11, 1997 from the Company 1996 Form 10-K
in favor of Congress
10-55 Loan and Security Agreement and Rider Incorporated by reference from Exhibit 10-55 to
A to Loan and Security Agreement dated 1996 Form 10-K
March 19, 1997 from the Company in
favor of The CIT Group/Equipment
Financing, Inc. ("CIT")
10-56 Promissory Note dated March 19, 1997 Incorporated by reference from Exhibit 10-56 to
from the Company in favor of CIT 1996 Form 10-K
10-57 Additional Purchase Order Provisions Incorporated by reference in redacted form pursuant to
Lifetime Contract Between Delphi Rule 24b-2 from Exhibit 10-57 to 1996 Form
Packard Electric Systems and Lexington 10-K
Connector Seals
10-58 Amendment to Financing Agreements Incorporated by reference from Exhibit 10-1 to the
and Consent dated April 17, 1997 Company's Form 10-Q for the quarter ended
between the Company and Congress March 31, 1997 located under Securities and
Exchange Commission File No. 0-3252 ("March 31,
1997 Form 10-Q")
10-59 Amendment to Financing Agreements Incorporated by reference from Exhibit 10-2 to
and Consent dated April 17, 1997 March 31, 1997 Form 10-Q
between LCI and Congress
10-60 First Amendment Agreement dated Incorporated by reference from Exhibit 10-3 to
April 17, 1997 among the Company, LCI March 31, 1997 Form 10-Q
and Bank One
67
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10-61 Specimen of Amended and Restated Incorporated by reference from Exhibit 10-4
Promissory Note dated April 17, 1997 of March 31, 1997 Form 10-Q
the Company and LCI to Bank One
10-62 Specimen of Promissory Note dated Incorporated by reference from Exhibit 10-1 to the
August 29, 1997, from the Company to Company's Form 10-Q for the quarter ended
CIT June 30, 1997 located under Securities and
Exchange Commission File No. 0-3252 ("June 30,
1997 Form 10-Q")
10-63 Note Purchase Agreement dated Incorporated by reference from Exhibit 10-2 to
October 27, 1997, between the Company June 30, 1997 Form 10-Q
and Nomura
10-64 Specimen of 10.5% Senior Unsecured Incorporated by reference from Exhibit 10-3 to
Note due February 1, 2000, from the June 30, 1997 Form 10-Q
Company to Nomura
10-65 Amended No. 1 to Credit Facility and Filed with this Form 10-K
Security Agreement dated December 31,
1997 between the Company, LCI and
Bank One
10-66 Amendment No. 2 to Credit Facility and Filed with this Form 10-K
Security Agreement dated March 20,
1998 between the Company, LCI and
Bank One
21-1 Subsidiary of Registrant Incorporated by reference from Exhibit 22-1 to 1991
10-K
27-1 Financial Data Schedule Filed with this Form 10-K