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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED SEPTEMBER 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-3252
LEXINGTON PRECISION CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 22-1830121
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
767 THIRD AVENUE, NEW YORK, NY 10017
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
(212) 319-4657
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS, AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT DATE)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No_
COMMON STOCK, $0.25 PAR VALUE, 4,828,036 SHARES AS OF NOVEMBER 12, 2002
(INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE)
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LEXINGTON PRECISION CORPORATION
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements...............................................1
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................16
Item 3. Quantitative and Qualitative Disclosures about Market Risk........28
Item 4. Controls and Procedures...........................................29
PART II. OTHER INFORMATION
Item 3. Defaults on Senior Securities.....................................30
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..................................30
-i-
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LEXINGTON PRECISION CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
---------------------- ----------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Net sales $ 32,342 $ 30,070 $ 95,582 $ 96,869
Cost of sales 28,130 26,325 83,761 83,067
--------- --------- --------- ---------
Gross profit 4,212 3,745 11,821 13,802
Selling and administrative expenses 2,128 2,194 6,733 7,320
Plant closure costs -- -- 609 --
--------- --------- --------- ---------
Income from operations 2,084 1,551 4,479 6,482
Interest expense 1,978 2,102 5,741 6,579
--------- --------- --------- ---------
Income (loss) before income taxes 106 (551) (1,262) (97)
Income tax provision (benefit) (121) (19) (70) 61
--------- --------- --------- ---------
Net income (loss) $ 227 $ (532) $ (1,192) $ (158)
========= ========= ========= =========
Per share data:
Basic and diluted net income (loss) applicable to
common stockholders $ 0.05 $ (0.11) $ (0.25) $ (0.03)
========= ========= ========= =========
See notes to consolidated financial statements.
-1-
LEXINGTON PRECISION CORPORATION
CONSOLIDATED BALANCE SHEET
(THOUSANDS OF DOLLARS)
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------- ------------
ASSETS:
Current assets:
Cash $ 83 $ 189
Marketable securities 1,391 1,274
Accounts receivable 19,950 18,753
Inventories 8,305 8,493
Prepaid expenses and other current assets 2,519 3,523
Deferred income taxes 1,914 1,914
---------- ----------
Total current assets 34,162 34,146
Property, plant, and equipment, net 50,370 55,324
Excess of cost over net assets of businesses acquired 7,831 7,831
Other assets 2,689 2,576
---------- ----------
Total assets $ 95,052 $ 99,877
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT:
Current liabilities:
Accounts payable $ 10,757 $ 12,077
Accrued expenses, excluding interest 6,589 5,848
Accrued interest expense 12,081 8,738
Short-term debt 72,411 77,794
Current portion of long-term debt 1,985 2,617
---------- ----------
Total current liabilities 103,823 107,074
---------- ----------
Long-term debt, excluding current portion 1,184 2,000
---------- ----------
Deferred income taxes and other long-term liabilities 2,428 2,132
---------- ----------
Series B preferred stock 330 330
---------- ----------
Stockholders' deficit:
Common stock, $0.25 par value, 10,000,000 shares
authorized, 4,828,036 shares issued 1,207 1,207
Additional paid-in-capital 12,960 12,960
Accumulated deficit (26,997) (25,826)
Accumulated other comprehensive income 117 --
---------- ----------
Total stockholders' deficit (12,713) (11,659)
---------- ----------
Total liabilities and stockholders' deficit $ 95,052 $ 99,877
========== ==========
See notes to consolidated financial statements
-2-
LEXINGTON PRECISION CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30
--------------------------
2002 2001
---------- ----------
OPERATING ACTIVITIES:
Net loss $ (1,192) $ (158)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 8,304 8,951
Amortization included in operating expense 595 877
Amortization included in interest expense 294 142
Changes in operating assets and liabilities that
provided (used) cash:
Accounts receivable (1,197) (2,943)
Inventories 188 785
Prepaid expenses and other current assets 1,026 (249)
Accounts payable (907) (1,053)
Accrued expenses, excluding interest 741 853
Accrued interest expense 3,343 2,620
Other long-term liabilities 296 34
Other 21 (14)
---------- ----------
Net cash provided by operating activities 11,512 9,845
---------- ----------
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (3,390) (4,914)
Net decrease (increase) in equipment deposits 128 (155)
Expenditures for tooling owned by customers (725) (423)
Other 253 (129)
---------- ----------
Net cash used by investing activities (3,734) (5,621)
---------- ----------
FINANCING ACTIVITIES:
Net increase in loans under revolving line of credit 190 754
Proceeds from issuance of amortizing term debt -- 2,000
Repayment of amortizing term debt (7,621) (6,604)
Other (453) (323)
---------- ----------
Net cash used by financing activities (7,884) (4,173)
---------- ----------
Net increase (decrease) in cash (106) 51
Cash at beginning of period 189 65
---------- ----------
Cash at end of period $ 83 $ 116
========== ==========
See notes to consolidated financial statements.
-3-
NOTE 1 -- BASIS OF PRESENTATION
The unaudited interim consolidated financial statements include the
accounts of Lexington Precision Corporation and its subsidiaries (collectively,
the "Company"). The consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Accordingly, the consolidated financial statements do not include all the
information and footnotes included in the Company's annual consolidated
financial statements. Significant accounting policies followed by the Company
are set forth in Note 1 to the consolidated financial statements in the
Company's annual report on Form 10-K for the year ended December 31, 2001.
Subject to the Company's ability to successfully restructure its
indebtedness as discussed below, in the opinion of management, the unaudited
interim consolidated financial statements contain all adjustments necessary to
present fairly the financial position of the Company at September 30, 2002, and
the Company's results of operations for the three-month and nine-month periods
ended September 30, 2002 and 2001, and the Company's cash flows for the nine
month periods ended September 30, 2002 and 2001. All such adjustments were of a
normal, recurring nature.
The results of operations for the three-month and nine-month periods
ended September 30, 2002, are not necessarily indicative of the results to be
expected for the full year or for any succeeding quarter.
Certain amounts in the prior year financial statements have been
reclassified to conform to the current year's presentation.
The Company's consolidated financial statements have been presented on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company's
ability to refinance, extend, amend, or exchange substantially all of its
outstanding debt, as more fully described below, is subject to risks and
uncertainties. As a result, there is substantial doubt about the Company's
ability to continue as a going concern. The consolidated financial statements do
not include any adjustments to the amounts or classification of assets or
liabilities to reflect this uncertainty.
The Company has been in default on its 12 3/4% senior subordinated notes
since February 1, 2000, when it did not make the payments of principal, in the
amount of $27,412,000, and interest, in the amount of $1,748,000, that were due
on that date. On July 10, 2002, the Company commenced an exchange offer for the
12 3/4% senior subordinated notes. If the exchange offer is consummated, at
least 99% of the 12 3/4% senior subordinated notes will be exchanged for new 11
1/2% senior subordinated notes due August 1, 2007, in a principal amount equal
to the principal amount of the 12 3/4% senior subordinated notes being exchanged
plus the accrued and unpaid interest thereon through April 30, 2002, which
accrued interest totals $350.625 for each $1,000 principal amount of 12 3/4%
senior subordinated notes. Interest on the 11 1/2% senior subordinated notes
will accrue from May 1, 2002, and will be payable on each August 1, November 1,
February 1, and May 1. Each $1,000 principal amount of 11 1/2% senior
subordinated notes will be issued with warrants to purchase ten shares of common
stock at a price of $3.50 per share at any time from January 1, 2004, through
August 1, 2007. If the exchange offer is consummated, the Company will pay a
participation fee of 3% of the principal amount of 12 3/4% senior subordinated
notes that are exchanged. The company's senior, secured lenders have waived the
cross-default provisions with respect to the default on the senior subordinated
notes through January 3 or January 31, 2003, and the holder of the junior
subordinated notes has waived the cross-default provisions with respect to the
default on the
-4-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
senior subordinated notes through January 31, 2003. The current expiration date
of the exchange offer is December 4, 2002. One of the conditions of the
consummation of the exchange offer is the tender for exchange of at least 99% of
the senior subordinated notes. As of November 12, 2002, the Company had received
tenders of $27,209,000 principal amount of 12 3/4% senior subordinated notes, or
99.3% of the notes. However, there are additional conditions to the consummation
of the exchange offer, which may not be satisfied by the expiration date.
The Company has reached an agreement with the holder of its 14% junior
subordinated notes on the terms of a restructuring of those notes. If the
restructuring is completed, the Company will exchange new 12 1/2% junior
subordinated notes due November 1, 2007, for the existing 14% junior
subordinated notes. The accrued interest on the 14% junior subordinated notes
for the period November 1, 1999, through April 30, 2002, which totals $156,000,
will be converted into shares of the Company's common stock at a price of $2.27
per share. Interest on the 12 1/2% junior subordinated notes will accrue from
May 1, 2002, and will be payable on each August 1, November 1, February 1, and
May 1. Each $1,000 principal amount of 12 1/2% junior subordinated notes will be
issued with warrants to purchase ten shares of common stock at a price of $3.50
per share at any time from January 1, 2004, through November 1, 2007. If the
restructuring is completed, the Company also will pay a participation fee of 3%
of the principal amount of 14% junior subordinated notes, which fee will be
payable in shares of the Company's common stock at a price of $2.27 per share.
On April 30, 2002, the maturity date of the senior, unsecured note, the
holder of the note rejected the Company's proposal for a restructuring and the
Company's request for an interim, three-month extension. The Company did not pay
the principal, in the amount of $7,500,000, and interest, in the amount of
$78,000 on April 30, 2002, and the Company has not made any payments on the note
since that date. More recently, the Company proposed that the senior, unsecured
note be restructured to provide for twenty quarterly principal payments of
$375,000 beginning on November 1, 2002, with a final maturity date of August 1,
2007, interest at the rate of 10 1/2% per annum, payable quarterly, and a 2%
participation fee. The holder of the note has rejected this proposal. As an
alternative to the proposed restructuring of the senior, unsecured note, the
Company proposed to purchase the note for $5,550,000 in cash. The Company's
senior, secured lenders have waived the cross-default provisions with respect to
the default on the senior, unsecured note through January 3 or January 31, 2003,
and the holder of the junior subordinated notes has waived the cross-default
provisions with respect to the default on the senior, unsecured note through
January 31, 2003.
The Company is currently in discussions with several lenders regarding a
refinancing of its senior, secured credit facilities.
The Company can give no assurance that it will be able to consummate the
exchange offer, restructure the senior, unsecured note, or refinance its senior,
secured financing arrangements on terms satisfactory to the Company. If the
Company is unable to do so, it may file a petition under the federal bankruptcy
code in order to carry out a debt restructuring plan on terms substantially
similar to those discussed above or on other terms. Although the Company
believes that such a restructuring could be accomplished without material
disruption to its operations, any such proceeding involves considerable risks
and uncertainties and could have a material adverse effect on the Company's
operations and financial position.
-5-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 -- INVENTORIES
Inventories at September 30, 2002, and December 31, 2001, are set forth
below (dollar amounts in thousands):
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------- ------------
Finished goods $ 2,748 $ 3,727
Work in process 2,766 2,060
Raw materials and purchased parts 2,791 2,706
---------- ----------
$ 8,305 $ 8,493
========== ==========
NOTE 3 -- PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at September 30, 2002, and December 31,
2001, are set forth below (dollar amounts in thousands):
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------ ------------
Land $ 2,309 $ 2,309
Buildings 22,768 22,601
Equipment 112,117 111,206
------------ ------------
137,194 136,116
Accumulated depreciation 86,824 80,792
------------ ------------
Property, plant, and equipment, net $ 50,370 $ 55,324
============ ============
NOTE 4 -- ACCRUED INTEREST EXPENSE
At September 30, 2002, and December 31, 2001, accrued interest expense
included $11,385,000 and $8,446,000, respectively, of accrued interest expense
on the 12 3/4% senior subordinated notes.
-6-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 -- DEBT
Debt at September 30, 2002, and December 31, 2001, is set forth below
(dollar amounts in thousands):
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------ ------------
Short-term debt:
Revolving line of credit $ 16,375 $ 16,185
Secured, amortizing term loans 20,777 26,350
Senior, unsecured note 7,500 7,500
Senior subordinated notes 27,412 27,412
Junior subordinated notes 347 347
------------ ------------
Subtotal 72,411 77,794
Current portion of long-term debt 1,985 2,617
------------ ------------
Total short-term debt 74,396 80,411
------------ ------------
Long-term debt:
12% secured term note $ 1,176 $ 1,336
Unsecured, amortizing term notes 1,237 2,868
Other 756 413
------------ ------------
Subtotal 3,169 4,617
Less current portion (1,985) (2,617)
------------ ------------
Total long-term debt 1,184 2,000
------------ ------------
Total debt $ 75,580 $ 82,411
============ ============
REVOLVING LINE OF CREDIT
On November 1, 2002, the Company and the lenders providing loans under
the Company's revolving line of credit agreed to extend the expiration date of
the revolving line of credit from November 1, 2002, to January 3, 2003. The
Company intends to replace the revolving line of credit with a line of credit
provided by a new lender or to negotiate an extension of the January 3, 2003,
expiration date with its existing lender. The Company can give no assurance that
it will be able to replace or extend the line of credit.
At September 30, 2002, availability under the revolving line of credit
totaled $1,932,000, before outstanding checks of $1,397,000 were deducted. At
September 30, 2002, the interest rates on loans outstanding under the revolving
line of credit were the London Interbank Offered Rate (LIBOR) plus 2.5% and the
prime rate. During the period November 1, 2002 through January 3, 2003, the
interest rate on loans under the revolving line of credit will be the prime rate
plus 1%.
The loans outstanding under the Company's revolving line of credit are
collateralized by substantially all of the assets of the Company, including
accounts receivable, inventories, equipment, certain real estate, and the stock
of Lexington Rubber Group, Inc., a subsidiary of the Company.
-7-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The lenders providing loans under the Company's revolving line of credit
have waived the cross-default provisions with respect to the defaults on the
senior subordinated notes and the senior, unsecured note through January 3,
2003.
SECURED, AMORTIZING TERM LOANS
Secured, amortizing term loans outstanding at September 30, 2002, and
December 31, 2001, are set forth below (dollar amounts in thousands):
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------ ------------
Term loans payable in equal monthly principal installments based on
a 180-month amortization schedule, final maturities in 2002, prime plus 3/4% $ 2,045 $ 2,221
Term loans payable in equal monthly principal installments, final
maturities in 2002, LIBOR plus 2 3/4% -- 344
Term loan payable in equal monthly principal installments based on
a 180-month amortization schedule, final maturity in 2002, prime plus 3/4% 1,004 1,084
Term loan payable in equal monthly principal installments based on
a 180-month amortization schedule, final maturity in 2002, prime plus 3/4% 1,978 2,128
Term loans payable in equal monthly principal installments, final
maturities in 2002, prime rate and LIBOR plus 2 1/2% -- 305(1)
Term loan payable in equal monthly principal installments, final
maturity in 2003, prime rate 91 227
Term loans payable in equal monthly principal installments, final
maturities in 2003, prime rate and LIBOR plus 2 1/2% 40(1) 131(1)
Term loan payable in equal monthly principal installments, final
maturity in 2003, LIBOR plus 2 3/4% 187 427
Term loans payable in equal monthly principal installments, final
maturities in 2004, LIBOR plus 2 3/4% 559 810
Term loan payable in equal monthly principal installments, final
maturity in 2004, prime rate and LIBOR plus 2 1/2% 454 657
Term loans payable in equal monthly principal installments, final
maturities in 2004, prime rate and LIBOR plus 2 1/2% 4,549(1) 6,325(1)
Term loan payable in equal monthly principal installments, final
maturity in 2005, LIBOR plus 2 1/2% 635 802
Term loan payable in equal monthly principal installments, final
maturity in 2005, prime rate and LIBOR plus 2 1/2% 670(1) 852(1)
Term loan payable in equal monthly principal installments, final
maturity in 2006, prime rate 290 352
Term loans payable in equal monthly principal installments, final
maturities in 2006, prime rate and LIBOR plus 2 1/2% 5,198(1) 6,086(1)
Term loans payable in equal monthly installments, final maturities in
2007, prime rate and LIBOR plus 2 1/2% 3,077(1) 3,599(1)
------------ ------------
Total $ 20,777 $ 26,350
============ ============
-8-
(1) Maturity date can be accelerated by the lender if the Company's
revolving line of credit expires prior to the stated maturity date of
the term loan. The revolving line of credit is currently scheduled to
mature on January 3, 2003. During the period November 1, 2002, through
January 3, 2003, the interest rate will be the prime rate plus 1%.
At September 30, 2002, and December 31, 2001, the secured, amortizing
term loans were classified as short-term debt because the Company's lenders had
granted waivers for periods of less than one year of the cross-default
provisions with respect to the default on the senior subordinated notes and, as
of September 30, 2002, the senior, unsecured note, and in certain cases, because
the revolving line of credit was scheduled to expire in less than one year.
The secured, amortizing term loans are collateralized by substantially
all of the assets of the Company, including accounts receivable, inventories,
equipment, certain real estate, and the stock of Lexington Rubber Group, Inc.
The lenders providing secured, amortizing term loans have waived the
cross-default provision with respect to the default on the senior subordinated
notes and the senior, unsecured note through January 3, and January 31, 2003.
SENIOR, UNSECURED NOTE
The senior, unsecured note, which matured on April 30, 2002, is senior
in right of payment to the senior subordinated notes and the junior subordinated
notes. The senior, unsecured note bore interest at 10 1/2% per annum until
August 1, 2000, when the effective interest rate increased to 12 1/2%. The
Company did not pay the principal of the note or the monthly interest payment of
$78,000 on April 30, 2002, and the Company has not made any payments on the
senior, unsecured note since that date. For a more detailed discussion of the
status of the senior, unsecured note, refer to Note 1, "Basis of Presentation."
SENIOR SUBORDINATED NOTES
The senior subordinated notes, which matured on February 1, 2000, are
unsecured obligations of the Company that are subordinated in right of payment
to all of the Company's existing and future secured debt and to the payment of
the senior, unsecured note. The senior subordinated notes currently bear
interest at 12 3/4% per annum. On February 1, 2000, the Company did not make the
payments of interest and principal then due on the senior subordinated notes in
the amounts of $1,748,000 and $27,412,000, respectively, and the Company has not
made any payments on the senior subordinated notes since that date. For a more
detailed discussion of the status of the senior subordinated notes, refer to
Note 1, "Basis of Presentation."
JUNIOR SUBORDINATED NOTES
The junior subordinated notes are unsecured obligations of the Company.
The junior subordinated notes are due on February 1, 2003, and are subordinated
in right of payment to all existing and future secured debt of the Company, to
the senior, unsecured note, and to the senior subordinated notes. The junior
subordinated notes currently bear interest at 14% per annum. The holder of the
junior subordinated notes has deferred until February 1, 2003, all interest
payments that were due on or after
-9-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
February 1, 2000, and has waived the cross-default provisions with respect to
the defaults on the senior subordinated notes and the senior, unsecured note
through February 1, 2003.
12% SECURED TERM NOTE
The 12% secured term note is payable in sixty equal, monthly
installments of principal and interest that commenced on November 30, 2001. The
12% secured term note has no cross-default provision with respect to the default
on the senior subordinated notes or the senior, unsecured note.
UNSECURED, AMORTIZING TERM NOTES
The unsecured, amortizing term notes mature in 2003, and are a series of
notes that are payable in seventeen equal monthly principal installments, with
interest at the prime rate in effect on the day each note was issued. At
September 30, 2002, the weighted average interest rate on the notes was 5.6%.
RESTRICTIVE COVENANTS
Certain of the Company's financing arrangements contain covenants that
set minimum levels of net worth and cash flow coverage. The covenants also place
certain restrictions and limitations on the Company's business and operations,
including the incurrence or assumption of additional debt, the level of past-due
accounts payable, the sale of all or substantially all of the Company's assets,
the purchase of plant and equipment, the purchase of common stock, the
redemption of preferred stock, and the payment of cash dividends. In addition,
substantially all of the Company's financing agreements include cross-default
provisions.
From time to time, the Company's lenders have agreed to waive, amend, or
eliminate certain of the financial covenants contained in its various note
agreements in order to maintain or otherwise ensure the Company's current or
future compliance. During the three months ended September 30, 2002, covenants
requiring minimum levels of working capital were eliminated from three of our
financing agreements. In the event that the Company is not in compliance with
any of its covenants in the future and its lenders do not agree to amend, waive,
or eliminate those covenants, the lenders would have the right to declare the
borrowings under their note agreements to be due and payable.
NOTE 6 -- SERIES B PREFERRED STOCK
At September 30, 2002, there were outstanding 3,300 shares of the
Company's $8 cumulative convertible preferred stock, series B, par value $100
per share. As a result of the default on the senior subordinated notes, the
Company has been prohibited from making any dividend payments on, or redemptions
of, the series B preferred stock since February 2000. At September 30, 2002, the
Company was in arrears in the payment of eleven dividends on the series B
preferred stock in the aggregate amount of $73,000 and in the redemption of 900
shares of series B preferred stock for $180,000.
NOTE 7 -- INCOME TAXES
At September 30, 2002, and December 31, 2001, the Company's net deferred
income tax assets were fully offset by a valuation allowance. The income tax
benefit recorded during the three-month and
-10-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
nine-month periods ended September 30, 2002, results from a refund of federal
alternative minimum taxes paid in earlier periods.
NOTE 8 -- NET INCOME OR LOSS PER COMMON SHARE
The calculations of basic and diluted net income or loss per common
share for the three-month and nine-month periods ended September 30, 2002 and
2001, are set forth below (in thousands, except per share amounts). The
calculations of diluted net income or loss per common share do not reflect any
pro forma conversion of the Company's $8 cumulative convertible preferred stock,
series B, because the conversion would not have been dilutive for any of the
periods.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
--------------------------- ----------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Numerator -- income (loss) applicable to common
stockholders $ 227 $ (532) $ (1,192) $ (158)
=========== =========== =========== ===========
Denominator -- weighted average common shares 4,828 4,828 4,828 4,828
=========== =========== =========== ===========
Basic and diluted net income (loss) per common share $ 0.05 $ (0.11) $ (0.25) $ (0.03)
=========== =========== =========== ===========
-11-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 9 -- SEGMENTS
Information relating to the Company's operating segments and its
corporate office for the three-month and nine-month periods ended September 30,
2002 and 2001, is summarized below (dollar amounts in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------------- --------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
NET SALES:
Rubber Group $ 25,617 $ 22,242 $ 75,731 $ 70,097
Metals Group 6,725 7,828 19,851 26,772
---------- ---------- ---------- ----------
Total net sales $ 32,342 $ 30,070 $ 95,582 $ 96,869
========== ========== ========== ==========
INCOME (LOSS) FROM OPERATIONS:
Rubber Group $ 3,099 $ 2,636 $ 9,038 $ 7,826
Metals Group (424) (655) (2,632) 243
---------- ---------- ---------- ----------
Subtotal 2,675 1,981 6,406 8,069
Corporate office (591) (430) (1,927) (1,587)
---------- ---------- ---------- ----------
Total income from operations $ 2,084 $ 1,551 $ 4,479 $ 6,482
========== ========== ========== ==========
ASSETS:
Rubber Group $ 66,744 $ 74,902 $ 66,744 $ 74,902
Metals Group 24,431 31,193 24,431 31,193
---------- ---------- ---------- ----------
Subtotal 91,175 106,095 91,175 106,095
Corporate office 3,877 2,653 3,877 2,653
---------- ---------- ---------- ----------
Total assets $ 95,052 $ 108,748 $ 95,052 $ 108,748
========== ========== ========== ==========
DEPRECIATION AND AMORTIZATION:
Rubber Group $ 1,892 $ 2,069 $ 5,839 $ 6,373
Metals Group 966 1,105 3,016 3,389
---------- ---------- ---------- ----------
Subtotal 2,858 3,174 8,855 9,762
Corporate office 12 23 44 66
---------- ---------- ---------- ----------
Total depreciation and amortization $ 2,870 $ 3,197 $ 8,899 $ 9,828
========== ========== ========== ==========
CAPITAL EXPENDITURES:
Rubber Group $ 920 $ 2,068 $ 2,486 $ 3,844
Metals Group 974 845 1,333 1,067
---------- ---------- ---------- ----------
Subtotal 1,894 2,913 3,819 4,911
Corporate office 4 -- 4 3
---------- ---------- ---------- ----------
Total capital expenditures $ 1,898 $ 2,913 $ 3,823 $ 4,914
========== ========== ========== ==========
The depreciation and amortization set forth in the preceding table does
not include amortization of deferred financing expenses, which totaled $133,000
and $48,000 during the three-month periods
-12-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
ended September 30, 2002 and 2001, respectively, and $294,000 and $142,000
during the nine-month periods ended September 30, 2002 and 2001, respectively.
Amortization of deferred financing expense is included in interest expense in
the consolidated financial statements.
NOTE 10 -- PLANT CLOSURE
During the fourth quarter of 2001, the Company was notified that the
Metal Group's largest customer would cease purchasing components from the Metals
Group after December 31, 2001. During 2001, the customer purchased $5,937,000 of
machined metal components that were manufactured primarily at the Metals Group's
Casa Grande, Arizona, facility. As a result of the reduction in sales at the
Arizona facility, the Company closed the facility during the first quarter of
2002 and recorded, as of December 31, 2001, an impairment charge of $2,047,000
to reduce to fair market value the carrying value of the Arizona facility's land
and building and certain metal machining equipment idled by the loss of this
business. The idled assets are currently classified in property, plant, and
equipment and are being depreciated at the rate of approximately $36,000 per
month. These assets will be reclassified as assets held for sale if and when
they meet the criteria set forth in Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which
the Company adopted on January 1, 2002.
The following table sets forth certain operating data of the Arizona
facility for the three-month and nine-month periods ended September 30, 2002 and
2001 (dollar amounts in thousands).
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
---------------------------- ----------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Net sales $ -- $ 1,867 $ 332 $ 7,045
=========== =========== =========== ===========
Operating profit (loss) before plant closure costs $ (176) $ (177) $ (1,112) $ 141
----------- ----------- ----------- -----------
Plant closure costs:
Severance and other employee termination costs -- -- 246 --
Asset relocation costs -- -- 209 --
Other costs -- -- 154 --
----------- ----------- ----------- -----------
-- -- 609 --
----------- ----------- ----------- -----------
Operating profit (loss) $ (176) $ (177) $ (1,721) $ 141
=========== =========== =========== ===========
During 2002, operating losses other than plant closure costs resulted
primarily from the underabsorption of operating costs incurred due to minimal
sales and poor operating efficiencies while the facility was being shut down,
and, to a lesser extent, from the cost of maintaining, insuring, protecting, and
depreciating the facility and the equipment remaining in the facility.
-13-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 11 -- COMPREHENSIVE INCOME OR LOSS
The Company's comprehensive income, other than net income, consisted of
unrealized gains and losses on marketable securities. No income tax provision or
benefit was recognized as a result of these unrealized gains or losses.
Comprehensive income for the three-month and nine-month periods ended September
30, 2002 and 2001, is set forth below:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------ ------------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Net income (loss) $ 227 $ (532) $ (1,192) $ (158)
Other comprehensive income -- unrealized gain (loss)
on marketable securities (256) -- 117 --
--------- --------- --------- ---------
Comprehensive income (loss) $ (29) $ (532) $ (1,075) $ (158)
========= ========= ========= =========
NOTE 12 -- EXCESS OF COST OVER NET ASSETS OF BUSINESS ACQUIRED (GOODWILL)
On January 1, 2002, the Company adopted Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("FAS 142"). The standard, among other things, prohibits the
amortization of goodwill and other intangible assets with indefinite useful
lives, and requires that goodwill and other intangible assets with indefinite
useful lives be reviewed for impairment at least annually and written down to
fair value if found to be impaired. The Company does not possess any intangible
assets with indefinite lives other than goodwill. Prior to the adoption of FAS
No. 142, goodwill was amortized over forty years.
During June 2002, the Company completed the transitional impairment test
of its January 1, 2002, unamortized goodwill balance as required by FAS 142. On
January 1, 2002, $7,831,000 of unamortized goodwill existed on the Company's
books, including $7,623,000 related to the Rubber Group and $208,000 related to
the Metals Group. As a result of the Company's transitional impairment tests,
none of the Company's unamortized goodwill was deemed to be impaired as of
January 1, 2002. The Company will test its goodwill for impairment again during
the fourth quarter of 2002.
-14-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table shows the pro forma effect on net income and net
income per share for the three-month and nine-month periods ended September 30,
2001, if FAS 142 were effective for those periods and goodwill had not been
amortized.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------- --------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Net income (loss), as reported $ 227 $ (532) $ (1,192) $ (158)
Add back amortization of goodwill, net of
applicable income taxes -- 80 -- 238
---------- ---------- ---------- ----------
Adjusted net income (loss) $ 227 $ (452) $ (1,192) $ 80
========== ========== ========== ==========
Per share data:
Net income (loss) per common share, as reported $ 0.05 $ (0.11) $ (0.25) $ (0.03)
Add back amortization of goodwill, net of
applicable income taxes -- 0.02 -- 0.05
---------- ---------- ---------- ----------
Adjusted net income (loss) per common share $ 0.05 $ (0.09) $ (0.25) $ 0.02
========== ========== ========== ==========
-15-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Some of our statements in this Form 10-Q, including this item, are
"forward-looking statements," as that term is defined in the Private Securities
Litigation Reform Act of 1995. Forward-looking statements usually can be
identified by our use of words like "believes," "expects," "may," "will,"
"should," "anticipates," "estimates," "projects," or the negative thereof. They
may be used when we discuss strategy, which typically involves risk and
uncertainty, and they generally are based upon projections and estimates rather
than historical facts and events.
Forward-looking statements are subject to a number of risks and
uncertainties that could cause our actual results or performance to be
materially different from the future results or performance expressed in or
implied by those statements. Some of those risks and uncertainties are:
- increases and decreases in business awarded to us by our
customers,
- unanticipated price reductions for our products as a result of
competition,
- unanticipated operating results and cash flows,
- increases or decreases in capital expenditures,
- changes in economic conditions,
- strength or weakness in the North American automotive market,
- changes in the competitive environment,
- changes in interest rates and the credit and securities markets,
- the possibility of product warranty claims,
- labor interruptions at our facilities or at our customers'
facilities,
- the impact on our operations of the defaults on our indebtedness,
and
- our inability to obtain additional borrowings or to refinance our
existing indebtedness.
Because a substantial percentage of our sales are to automotive industry
customers, any material reduction in the level of production in the North
American automotive industry may have a material adverse effect on our results
of operations.
Because we have substantial borrowings for a company our size and
because those borrowings require us to make substantial interest and principal
payments, any negative event may have a greater adverse effect upon us than it
would have upon a similar company that has less debt.
Our results of operations for any particular period are not necessarily
indicative of the results to be expected for any one or more succeeding periods.
The use of forward-looking statements should not be regarded as a representation
that any of the projections or estimates expressed in or implied by those
forward-looking statements will be realized, and actual results may vary
materially. We cannot assure you that any of the forward-looking statements
contained herein will prove to be accurate. All forward-looking statements are
expressly qualified by the discussion above.
-16-
Our consolidated financial statements have been presented on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. Our ability to refinance,
extend, amend, or exchange substantially all of our debt, as more fully
described below, is subject to risks and uncertainties. As a result, there is
substantial doubt about our ability to continue as a going concern. The
consolidated financial statements do not include any adjustments to the amounts
or classification of assets or liabilities to reflect this uncertainty.
RESULTS OF OPERATIONS -- THIRD QUARTER OF 2002 VERSUS THIRD QUARTER OF 2001
The following table sets forth our consolidated operating results for
the third quarters of 2002 and 2001 (dollar amounts in thousands):
THREE MONTHS ENDED SEPTEMBER 30
---------------------------------------------------
2002 2001
----------------------- ----------------------
Net sales $ 32,342 100.0% $ 30,070 100.0%
Cost of sales 28,130 87.0 26,325 87.5
--------- --------- --------- ---------
Gross profit 4,212 13.0 3,745 12.5
Selling and administrative expenses 2,128 6.6 2,194 7.3
--------- --------- --------- ---------
Income from operations 2,084 6.4 1,551 5.2
Add back depreciation and amortization (1) 2,870 8.9 3,197 10.6
--------- --------- --------- ---------
Earnings before interest, taxes, depreciation,
and amortization (EBITDA) (2) $ 4,954 15.3% $ 4,748 15.8%
========= ========= ========= =========
Net cash provided by operating activities (3) $ 6,380 19.7% $ 7,114 23.7%
========= ========= ========= =========
(1) Does not include amortization of deferred financing expenses,
which totaled $133,000 and $48,000 during the third quarters of
2002 and 2001, respectively, and which is included in interest
expense in the consolidated financial statements.
(2) Earnings before interest, taxes, depreciation, and amortization,
which is commonly referred to as EBITDA, is not a measure of
performance under accounting principles generally accepted in the
United States and should not be considered in isolation or used
as a substitute for income from operations, net income, net cash
provided by operating activities, or other operating or cash flow
statement data prepared in accordance with generally accepted
accounting principles. We have presented EBITDA here and
elsewhere in this Form 10-Q because we believe that EBITDA and
various financial ratios that relate to EBITDA are used by
investors as supplemental information to evaluate the operating
performance of a business, including its ability to incur and to
service debt. In addition, our definition of EBITDA may not be
the same as the definition of EBITDA used by other companies.
(3) The calculation of net cash provided by operating activities is
detailed in the consolidated statement of cash flows that is part
of our consolidated financial statements in Part I, Item 1.
-17-
Our net sales for the third quarter of 2002 were $32,342,000, compared
to net sales of $30,070,000 for the third quarter of 2001, an increase of
$2,272,000, or 7.6%. The increase in third quarter net sales was the result of
increased sales at the Rubber Group offset, in part, by reduced sales at the
Metals Group. The reduction in sales at the Metals Group resulted from a
$1,867,000 decline in sales at our Arizona facility, which we closed during the
first quarter of 2002. For more information on the closing of the Arizona
facility, please refer to our discussion of the Metals Group's results of
operations set forth in this Part 1, Item 2 under the caption "Results of
Operations -- First Nine Months of 2002 Versus First Nine Months of 2001."
EBITDA for the third quarter of 2002 was $4,954,000, or 15.3% of net sales,
compared to $4,748,000, or 15.8% of net sales, for the third quarter of 2001.
The discussion that follows sets forth our analysis of the operating
results of the Rubber Group, the Metals Group, and the corporate office for the
three-month periods ended September 30, 2002 and 2001.
RUBBER GROUP
The Rubber Group manufactures silicone and organic rubber components
primarily for automotive industry customers. The following table sets forth the
operating results of the Rubber Group for the third quarters of 2002 and 2001
(dollar amounts in thousands):
THREE MONTHS ENDED SEPTEMBER 30
----------------------------------------------------
2002 2001
----------------------- -----------------------
Net sales $ 25,617 100.0% $ 22,242 100.0%
Cost of sales 21,331 83.3 18,409 82.8
--------- --------- --------- ---------
Gross profit 4,286 16.7 3,833 17.2
Selling and administrative expenses 1,187 4.6 1,197 5.4
--------- --------- --------- ---------
Income from operations 3,099 12.1 2,636 11.9
Add back depreciation and amortization 1,892 7.4 2,069 9.3
--------- --------- --------- ---------
EBITDA $ 4,991 19.5% $ 4,705 21.2%
========= ========= ========= =========
During the third quarter of 2002, net sales of the Rubber Group
increased by $3,375,000, or 15.2%, compared to the third quarter of 2001. This
increase was primarily due to increased unit sales of connector seals for
automotive wiring systems, insulators for automotive ignition wire sets, and
components for medical devices, offset, in part, by price reductions on certain
automotive components.
Cost of sales as a percentage of net sales increased during the third
quarter of 2002 to 83.3% of net sales from 82.8% of net sales during the second
quarter of 2001, primarily due to reduced production efficiencies in
manufacturing connector seals for automotive wiring systems and reduced tooling
orders from our customers, which resulted in increased operating losses at our
captive tool-making operations.
Selling and administrative expenses as a percentage of net sales
decreased during the third quarter of 2002, compared to the third quarter of
2001, primarily because of reduced European selling
-18-
expenses and the elimination of the amortization of goodwill as required by
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets," which we adopted on January 1, 2002, and because certain
selling and administrative expenses are partially fixed in nature.
During the third quarter of 2002, income from operations totaled
$3,099,000, an increase of $463,000, or 17.6%, compared to the third quarter of
2001. EBITDA for the third quarter of 2002 was $4,991,000, or 19.5% of net
sales, compared to $4,705,000, or 21.1% of net sales, for the third quarter of
2001.
METALS GROUP
The Metals Group manufactures aluminum die castings and machines
components from aluminum, brass, and steel bars primarily for automotive
industry customers. The following table sets forth the operating results of the
Metals Group for the third quarters of 2002 and 2001 (dollar amounts in
thousands):
THREE MONTHS ENDED SEPTEMBER 30
------------------------------------------------------
2002 2001
------------------------ -----------------------
Net sales $ 6,725 100.0% $ 7,828 100.0%
Cost of sales 6,799 101.1 7,916 101.1
--------- --------- --------- ---------
Gross profit (loss) (74) (1.1) (88) (1.1)
Selling and administrative expenses 350 5.2 567 7.2
--------- --------- --------- ---------
Loss from operations (424) (6.3) (655) (8.4)
Add back depreciation and amortization 966 14.4 1,105 14.1
--------- --------- --------- ---------
EBITDA $ 542 8.1% $ 450 5.7%
========= ========= ========= =========
During the third quarter of 2002, net sales of the Metals Group
decreased by $1,103,000, or 14.1%, compared to the third quarter of 2001. The
decrease resulted from a $1,867,000 decline in sales at our Arizona facility,
which we closed during the first quarter of 2002, offset, in part, by increased
sales to other customers of the Metals Group, including sales to customers
transferred from the Arizona facility to our Rochester, New York facility. For
more information on the closing of the Arizona facility, please refer to our
discussion of the Metals Group's results of operations set forth in this Part 1,
Item 2 under the caption "Results of Operations -- First Nine Months of 2002
Versus First Nine Months of 2001."
Cost of sales as a percentage of net sales during the third quarter of
2002 was unchanged compared to the third quarter of 2001. Cost of sales as a
percentage of net sales during the third quarter of 2002 was adversely affected
by costs of $175,000 that were incurred to maintain, protect, and depreciate our
Arizona facility and the equipment remaining in the facility.
Selling and administrative expenses as a percentage of net sales
decreased during the third quarter of 2002 compared to the third quarter of
2001, primarily because of the closing of the Arizona facility.
-19-
During the third quarter of 2002, the loss from operations was $424,000
compared to the loss from operations of $655,000 during the third quarter of
2001. EBITDA for the third quarter of 2002 was $542,000, or 8.1% of net sales,
compared to $450,000, or 5.7% of net sales, for the third quarter of 2001.
CORPORATE OFFICE
Corporate office expenses, which are not included in the operating
results of the Rubber Group or the Metals Group, represent administrative
expenses incurred primarily at our New York and Cleveland offices. Corporate
office expenses are consolidated with the selling and administrative expenses of
the Rubber Group and the Metals Group in our consolidated financial statements.
The following table sets forth the operating results of the corporate
office for the third quarters of 2002 and 2001 (dollar amounts in thousands):
THREE MONTHS ENDED
SEPTEMBER 30
-----------------------
2002 2001
--------- ---------
Loss from operations $ (591) $ (430)
Add back depreciation and amortization 12 23
--------- ---------
EBITDA $ (579) $ (407)
========= =========
During the third quarter of 2002, corporate office expenses increased
compared to the third quarter of 2001, primarily because of increased accruals
for incentive compensation.
INTEREST EXPENSE
During the third quarters of 2002 and 2001, interest expense totaled
$1,978,000 and $2,102,000, respectively, which included amortization of deferred
financing expenses of $133,000 and $48,000, respectively. The decrease in
interest expense was caused primarily by lower rates of interest on our floating
rate indebtedness.
INCOME TAX PROVISION
At September 30, 2002, and December 31, 2001, our net deferred income
tax assets were fully offset by a valuation allowance. The income tax benefit
recorded during the three-month period ended September 30, 2002, resulted from a
refund of federal alternative minimum taxes paid in earlier periods, offset, in
part, by state income tax expense.
-20-
RESULTS OF OPERATIONS -- FIRST NINE MONTHS OF 2002 VERSUS FIRST NINE MONTHS OF
2001
The following table sets forth our consolidated operating results for
the first nine months of 2002 and 2001 (dollar amounts in thousands):
NINE MONTHS ENDED SEPTEMBER 30
----------------------------------------------------
2002 2001
----------------------- -----------------------
Net sales $ 95,582 100.0% $ 96,869 100.0%
Cost of sales 83,761 87.6 83,067 85.8
--------- --------- --------- ---------
Gross profit 11,821 12.4 13,802 14.2
Selling and administrative expenses 6,733 7.0 7,320 7.6
Plant closure costs(1) 609 0.6 -- --
--------- --------- --------- ---------
Income from operations 4,479 4.7 6,482 6.7
Add back depreciation and amortization(2) 8,899 9.3 9,828 10.1
--------- --------- --------- ---------
EBITDA(3) 13,378 14.0 16,310 16.8
Proforma adjustments for certain nonrecurring
expenses -- plant closure costs(1) 609 0.6 -- --
--------- --------- --------- ---------
Adjusted EBITDA(3) $ 13,987 14.6% $ 16,310 16.8%
========= ========= ========= =========
Net cash provided by operating activities(4) $ 11,512 12.0% $ 9,845 10.2%
========= ========= ========= =========
(1) During the first quarter of 2002, we closed our metal machining
facility in Casa Grande, Arizona. As of December 31, 2001, we
recorded a provision of $2,047,000 to write down the value of
certain of the facility's assets to fair value, and during the
first nine months of 2002, we incurred charges of $609,000 to
close the facility. For more information, refer to the discussion
of the results of operations of the Metals Group in this section.
(2) Does not include amortization of deferred financing expenses,
which totaled $294,000 and $142,000 during the first nine months
of 2002 and 2001, respectively, and which is included in interest
expense in the consolidated financial statements.
(3) Earnings before interest, taxes, depreciation, and amortization,
which is commonly referred to as EBITDA, is not a measure of
performance under accounting principles generally accepted in the
United States and should not be considered in isolation or used
as a substitute for income from operations, net income, net cash
provided by operating activities, or other operating or cash
flow statement data prepared in accordance with generally
accepted accounting principles. We use the term adjusted EBITDA
to refer to EBITDA adjusted to exclude nonrecurring items of
expense. During the first nine-months of 2002, adjusted EBITDA
excluded the nonrecurring charges incurred to close the Metals
-21-
Group's facility in Casa Grande, Arizona. We have presented
EBITDA and adjusted EBITDA here and elsewhere in this Form 10-Q
because we believe that EBITDA and various financial ratios that
relate to EBITDA are used by investors as supplemental
information to evaluate the operating performance of a business,
including its ability to incur and to service debt. In addition,
our definition of EBITDA and adjusted EBITDA may not be the same
as the definition of EBITDA and adjusted EBITDA used by other
companies.
(4) The calculation of net cash provided by operating activities is
detailed in the consolidated statement of cash flows that is part
of our consolidated financial statements in Part I, Item 1.
Our net sales for the first nine months of 2002 were $95,582,000,
compared to net sales of $96,869,000 for the first nine months of 2001, a
decrease of $1,287,000, or 1.3%. The decrease in net sales was principally a
result of a $6,713,000 reduction in sales at our Arizona facility, which we
closed during the first quarter of 2002. EBITDA, excluding the $609,000 of plant
closure costs, for the first nine months of 2002 was $13,987,000, or 14.6% of
net sales, compared to $16,310,000, or 16.8% of net sales, for the first nine
months of 2001. This reduction was principally a result of the expenses related
to the closing of the Arizona facility and the transfer of certain equipment and
business to our Rochester, New York, facility.
The discussion that follows sets forth our analysis of the operating
results of the Rubber Group, the Metals Group, and the corporate office for the
nine-month periods ended September 30, 2002 and 2001.
RUBBER GROUP
The Rubber Group manufactures silicone and organic rubber components
primarily for automotive industry customers. The following table sets forth the
operating results of the Rubber Group for the first nine months of 2002 and 2001
(dollar amounts in thousands):
NINE MONTHS ENDED SEPTEMBER 30
----------------------------------------------------
2002 2001
----------------------- -----------------------
Net sales $ 75,731 100.0% $ 70,097 100.0%
Cost of sales 63,182 83.4 58,373 83.3
--------- --------- --------- ---------
Gross profit 12,549 16.6 11,724 16.7
Selling and administrative expenses 3,511 4.6 3,898 5.6
--------- --------- --------- ---------
Income from operations 9,038 11.9 7,826 11.2
Add back depreciation and amortization 5,839 7.7 6,373 9.1
--------- --------- --------- ---------
EBITDA $ 14,877 19.6% $ 14,199 20.3%
========= ========= ========= =========
During the first nine months of 2002, net sales of the Rubber Group
increased by $5,634,000, or 8.0%, compared to the first nine months of 2001.
This increase was primarily due to increased unit sales
-22-
of connector seals for automotive wiring systems, insulators for automotive
ignition sets, and components for medical devices, offset, in part, by price
reductions on certain automotive components.
Cost of sales as a percentage of net sales during the first nine months
of 2002 was 83.4% of net sales compared to 83.3% of net sales during the first
nine months of 2001.
Selling and administrative expenses as a percentage of net sales
decreased during the first nine months of 2002, compared to the first nine
months of 2001, primarily because of reduced European selling expenses, and the
elimination of the amortization of goodwill as required by Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets,"
which we adopted January 1, 2002.
During the first nine months of 2002, income from operations totaled
$9,038,000, an increase of $1,212,000, or 15.5%, compared to the first nine
months of 2001. EBITDA for the first nine months of 2002 was $14,877,000, or
19.6% of net sales, compared to $14,199,000, or 20.3% of net sales, for the
first nine months of 2001.
METALS GROUP
The Metals Group manufactures aluminum die castings and machines
components from aluminum, brass, and steel bars primarily for automotive
industry customers. The following table sets forth the operating results of the
Metals Group for the first nine months of 2002 and 2001 (dollar amounts in
thousands):
NINE MONTHS ENDED SEPTEMBER 30
------------------------------------------------------
2002 2001
------------------------ -----------------------
Net sales $ 19,851 100.0% $ 26,772 100.0%
Cost of sales 20,579 103.7 24,694 92.2
--------- --------- --------- ---------
Gross profit (loss) (728) (3.7) 2,078 7.8
Selling and administrative expenses 1,295 6.5 1,835 6.9
Plant closure costs 609 3.1 -- --
--------- --------- --------- ---------
Income (loss) from operations (2,632) (13.3) 243 0.9
Add back depreciation and amortization 3,016 15.2 3,389 12.7
--------- --------- --------- ---------
EBITDA 384 1.9 3,632 13.6
Proforma adjustments for certain nonrecurring
expenses -- plant closure costs 609 3.1 -- --
--------- --------- --------- ---------
Adjusted EBITDA $ 993 5.0% $ 3,632 13.6%
========= ========= ========= =========
-23-
During the fourth quarter of 2001, we were notified that the Metal
Group's largest customer would cease purchasing components from the Metals Group
after December 31, 2001. During 2001, the customer purchased $5,937,000 of
machined metal components that were manufactured primarily at the Metals Group's
Arizona facility. As a result of the reduction in sales at the Arizona facility,
we closed the facility during the first quarter of 2002 and recorded, as of
December 31, 2001, an impairment charge of $2,047,000 to reduce to fair market
value the carrying value of the Arizona facility's land and building and certain
metal machining equipment idled by the loss of this business. The idled assets
are currently classified in property, plant, and equipment and are being
depreciated at the rate of approximately $36,000 per month. These assets will be
reclassified as assets held for sale if and when they meet the criteria set
forth in Statement of Financial Accounting Standards No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets," which we adopted on January 1,
2002.
The following table sets forth certain operating data of the Arizona
facility for the first nine months of 2002 and 2001 (dollar amounts in
thousands):
NINE MONTHS ENDED
SEPTEMBER 30
------------------------
2002 2001
--------- ---------
Net sales $ 332 $ 7,045
========= =========
Operating profit (loss) before plant closure costs $ (1,111) $ 141
--------- ---------
Plant closure costs:
Severance and other employee termination costs 246 --
Asset relocation costs 209 --
Other costs 154 --
--------- ---------
609 --
--------- ---------
Operating profit (loss) (1,720) 141
Add back depreciation and amortization 461 1,250
--------- ---------
EBITDA $ (1,259) $ 1,391
========= =========
During 2002, operating losses other than plant closure costs at our
Arizona facility resulted primarily from the underabsorption of operating costs
incurred due to minimal sales and poor operating efficiencies while the facility
was being shut down, and, to a lesser extent, from the cost of maintaining,
insuring, protecting, and depreciating the facility and the equipment remaining
in the facility.
During the first nine months of 2002, net sales of the Metals Group
decreased by $6,921,000, or 25.9%, compared to the first nine months of 2001.
The decrease resulted primarily from a $6,713,000 reduction in sales at the
Arizona facility.
Cost of sales as a percentage of net sales increased during the first
nine months of 2002 to 103.7% of net sales from 92.2% of net sales during the
first nine months of 2001, primarily due to minimal sales and operating
inefficiencies incurred at the Arizona facility while the facility was being
closed, excess costs and production inefficiencies caused by the transfer of
certain business and equipment from Arizona to the Rochester, New York,
facility, and the cost of maintaining, insuring, protecting, and depreciating
the Arizona facility and the equipment remaining in the facility.
-24-
Selling and administrative expenses as a percentage of net sales
decreased during the first nine months of 2002 compared to the first nine months
of 2001, primarily because of the closing of the Arizona facility.
During the first nine months of 2002, the loss from operations was
$2,632,000, compared to income from operations of $243,000 during the first nine
months of 2001. Excluding the $609,000 of plant closure costs, the loss from
operations during the first nine months of 2002 was $2,023,000. Excluding the
entire loss incurred at the Arizona facility during the first nine months of
2002, the loss from operations during the first nine months of 2002 was
$912,000. Adjusted EBITDA was $993,000, or 5.0% of net sales, compared to
$3,632,000, or 13.6% of net sales for the first nine months of 2001.
CORPORATE OFFICE
Corporate office expenses, which are not included in the operating
results of the Rubber Group or the Metals Group, represent administrative
expenses incurred primarily at our New York and Cleveland offices. Corporate
office expenses are consolidated with the selling and administrative expenses of
the Rubber Group and the Metals Group in our consolidated financial statements.
The following table sets forth the operating results of the corporate
office for the first nine months of 2002 and 2001 (dollar amounts in thousands):
NINE MONTHS ENDED
SEPTEMBER 30
------------------------
2002 2001
--------- ---------
Loss from operations $ (1,927) $ (1,587)
Add back depreciation and amortization 44 66
--------- ---------
EBITDA $ (1,883) $ (1,521)
========= =========
During the first nine months of 2002, corporate office expenses
increased compared to the first nine months of 2001, primarily because of
increased accruals for incentive compensation.
INTEREST EXPENSE
During the first nine months of 2002 and 2001, interest expense totaled
$5,741,000 and $6,579,000, respectively, which included amortization of deferred
financing expenses of $294,000 and $142,000, respectively. The decrease in
interest expense was caused primarily by lower rates of interest on our floating
rate indebtedness and a reduction in the average amount of outstanding
indebtedness.
INCOME TAX PROVISION
At September 30, 2002, and December 31, 2001, our net deferred income
tax assets were fully offset by a valuation allowance. The income tax benefit
recorded during the nine-month period ended September 30, 2002, results from a
refund of federal alternative minimum tax, offset, in part, by state income tax
expense.
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LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
During the first nine months of 2002, our operating activities provided
$11,512,000 of cash.
Accounts receivable increased by $1,197,000. The increase was caused
primarily by an increase in net sales during August and September 2002 compared
to November and December 2001.
Accounts payable decreased by $1,320,000, despite the fact that
purchases of goods and services increased during August and September 2002
compared to November and December 2001. During the first nine months of 2002, we
reduced our accounts payable balances outstanding beyond agreed upon payment
terms by $2,774,000, of which $167,000 was converted into unsecured, amortizing
term notes and $246,000 was eliminated through the return of a piece of
defective equipment purchased in a prior period.
Accrued interest expense increased by $3,343,000, reflecting the accrual
of interest on our senior, unsecured note, our senior subordinated notes, and
our junior subordinated notes.
INVESTING ACTIVITIES
During the first nine months of 2002, our investing activities used
$3,734,000 of cash, primarily for capital expenditures. Capital expenditures
attributable to the Rubber Group, the Metals Group, and the corporate office
totaled $2,486,000, $1,333,000, and $4,000, respectively. Capital expenditures
for the first nine months of 2002 included $3,749,000 for equipment and $74,000
for building improvements. We presently project that capital expenditures during
2002 will total approximately $4,900,000, substantially all of which will be for
the purchase of equipment. Capital expenditures for the Rubber Group and the
Metals Group are projected to total approximately $3,200,000 and $1,700,000,
respectively, during 2002. At September 30, 2002, we had outstanding commitments
to purchase equipment costing approximately $894,000.
FINANCING ACTIVITIES
During the first nine months of 2002, our financing activities used
$7,884,000 of cash.
During the first nine months of 2002, we made payments on our amortizing
term debt totaling $7,621,000, and we increased the net borrowings under our
revolving line of credit by $190,000.
LIQUIDITY
We finance our operations with cash from operating activities and a
variety of financing arrangements, including term loans and loans under our
revolving line of credit. Our ability to borrow under our revolving line of
credit, which expires on January 3, 2003, is subject to certain availability
formulas based on the levels of our accounts receivable and inventories. At
November 12, 2002, availability under our revolving line of credit totaled
$2,213,000 before outstanding checks of $1,465,000 were deducted.
Substantially all of our assets are pledged as collateral for various of
our borrowings. A number of our financing arrangements contain covenants with
respect to the maintenance of minimum levels of net worth and cash flow coverage
and other covenants that place certain restrictions on our business and
-26-
operations, including covenants relating to the incurrence or assumption of
additional debt, the level of past-due trade accounts payable, the sale of all
or substantially all of our assets, the purchase of plant and equipment, the
purchase of common stock, the redemption of preferred stock, and the payment of
cash dividends. In addition, substantially all of our financing arrangements
include cross-default provisions.
From time to time, our lenders have agreed to waive, amend, or eliminate
certain of the financial covenants contained in our various financing agreements
in order to maintain or otherwise ensure our current or future compliance.
During the three months ended September 30, 2002, covenants requiring minimum
levels of working capital were eliminated from three of our financing
agreements. In the event that we are not in compliance with any of our covenants
in the future and our lenders do not agree to amend, waive, or eliminate those
covenants, the lenders would have the right to declare the borrowings under
their financing agreements to be due and payable.
We are in default in the payment of our senior subordinated notes and
our senior, unsecured note, which have outstanding principal amounts of
$27,412,000 and $7,500,000, respectively, and accrued interest thereon, as of
September 30, 2002, of $11,385,000 and $469,000, respectively. In addition, our
revolving line of credit is scheduled to expire on January 3, 2003, we have
$1,237,000 of unsecured, amortizing term notes and $347,000 of junior
subordinated notes that are scheduled to mature during the twelve months ending
September 30, 2003, and we have $11,681,000 of principal payments that are
scheduled to be made on our secured, amortizing term notes during the twelve
months ending September 30, 2003. We estimate that, at existing contractual and
market rates, the interest expense on all of our debt during 2002 will be
approximately $7,500,000.
We had a net working capital deficit of $69,661,000 at September 30,
2002, compared to a net working capital deficit of $72,928,000 at December 31,
2001. The net working capital deficit exists primarily because the majority of
our debt is in default or subject to short-term waivers of cross defaults. As
discussed in more detail below, we are in the process of negotiating extensions
or refinancings of all of our matured and maturing debt, although there can be
no assurance that we will be successful in this effort. If our debt were
refinanced on the terms that are set forth below, we estimate that our monthly
cash interest expense would be approximately $600,000.
We have been in default on our 12 3/4% senior subordinated notes since
February 1, 2000, when we did not make the payments of principal, in the amount
of $27,412,000, and interest, in the amount of $1,748,000, that were due on that
date. On July 10, 2002, we commenced an exchange offer for the 12 3/4% senior
subordinated notes. If the exchange offer is consummated, at least 99% of the 12
3/4% senior subordinated notes will be exchanged for new 11 1/2% senior
subordinated notes due August 1, 2007, in a principal amount equal to the
principal amount of the 12 3/4% senior subordinated notes being exchanged plus
the accrued and unpaid interest thereon through April 30, 2002, which accrued
interest totals $350.625 for each $1,000 principal amount of 12 3/4% senior
subordinated notes. Interest on the 11 1/2% senior subordinated notes will
accrue from May 1, 2002, and will be payable on each August 1, November 1,
February 1, and May 1. Each $1,000 principal amount of 11 1/2% senior
subordinated notes will be issued together with warrants to purchase ten shares
of common stock at a price of $3.50 per share at any time from January 1, 2004,
through August 1, 2007. If the exchange offer is consummated, we will pay a
participation fee of 3% of the principal amount of 12 3/4% senior subordinated
notes that are exchanged. Our senior, secured lenders have waived the
cross-default provisions with respect to the default on the senior subordinated
notes through January 3 or January 31, 2003, and the holder of the junior
subordinated notes has waived the cross-default provisions with respect to the
default on the senior subordinated notes through January 31, 2003. The current
expiration date of the exchange offer is December 4, 2002. One of the conditions
of the consummation of the exchange offer is the tender for exchange of at least
99% of the senior subordinated notes. As of November 12, 2002, we had received
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tenders of $27,209,000 principal amount of 12 3/4% senior subordinated notes, or
99.3% of the notes. However, there are additional conditions to the consummation
of the exchange offer, which may not be satisfied by the expiration date.
We have reached an agreement with the holder of our 14% junior
subordinated notes on the terms of a restructuring of those notes. If the
restructuring is completed, we will exchange new 12 1/2% junior subordinated
notes due November 1, 2007, for the existing 14% junior subordinated notes. The
accrued interest on the 14% junior subordinated notes for the period November 1,
1999, through April 30, 2002, which totals $156,000, will be converted into
shares of our common stock at a price of $2.27 per share. Interest on the 12
1/2% junior subordinated notes will accrue from May 1, 2002, and will be payable
on each August 1, November 1, February 1, and May 1. Each $1,000 principal
amount of 12 1/2% junior subordinated notes will be issued with warrants to
purchase ten shares of common stock at a price of $3.50 per share at any time
from January 1, 2004, through November 1, 2007. If the restructuring is
completed, we will also pay a participation fee of 3% of the principal amount of
14% junior subordinated notes, which fee will be payable in shares of our common
stock at a price of $2.27 per share.
On April 30, 2002, the maturity date of the senior, unsecured note, the
holder of the note rejected our proposal for a restructuring and our request for
an interim, three-month extension. We did not pay the principal, in the amount
of $7,500,000, and interest, in the amount of $78,000 on April 30, 2002, and we
have not made any payments on the senior, unsecured note since that date. More
recently, we proposed that the senior, unsecured note be restructured to provide
for twenty quarterly principal payments of $375,000 beginning on November 1,
2002, with a final maturity date of August 1, 2007, interest at the rate of 10
1/2% per annum, payable quarterly, and a 2% participation fee. The holder of the
note has rejected our proposal. As an alternative to the proposed restructuring
of the senior, unsecured note, we proposed to purchase the note for $5,550,000
in cash. Our senior, secured lenders have waived the cross-default provisions
with respect to the default on the senior, unsecured note through January 3 or
January 31, 2003, and the holder of the junior subordinated notes has waived the
cross-default provisions with respect to the default on the senior, unsecured
note through January 31, 2003.
We are currently in discussions with several lenders regarding a
refinancing of our senior, secured credit facilities.
We can give no assurance that we will be able to consummate the exchange
offer, restructure the senior, unsecured note, or refinance our senior, secured
financing arrangements on terms satisfactory to us. If we are unable to do so,
we may file a petition under the federal bankruptcy code in order to carry out a
debt restructuring plan on terms substantially similar to those discussed above
or on other terms. Although we believe that such a restructuring could be
accomplished without material disruption to our operations, any such proceeding
involves considerable risks and uncertainties and could have a material adverse
effect on our business, results of operations, cash flows, and financial
position. The consolidated financial statements do not include any adjustments
to the amounts or classifications of assets or liabilities to reflect those
risks and uncertainties.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not invest in or trade market risk sensitive instruments. We also
do not have any foreign operations or any significant amount of foreign sales
and, therefore, we believe that our exposure to foreign currency exchange rate
risk is minimal.
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At September 30, 2002, we had $33,410,000 of outstanding floating rate
debt at interest rates equal to either LIBOR plus 2 1/2%, LIBOR plus 2 3/4%, or
the prime rate. Currently, we do not purchase derivative financial instruments
to hedge or reduce our interest rate risk. As a result, changes in either LIBOR
or the prime rate affect the rates at which we borrow funds under these
agreements.
At September 30, 2002, we had outstanding $42,218,000 of fixed-rate,
long-term debt with a weighted-average interest rate of 12.1%, of which
$40,286,000 had matured or was scheduled to mature during 2002. We have received
tenders of over 99% of our 12 3/4% senior subordinated notes in exchange for new
11 1/2% senior subordinated notes due August 1, 2007, in a principal amount
equal to the principal amount of the existing 12 3/4% senior subordinated notes
being exchanged plus the accrued and unpaid interest thereon through April 30,
2002, which accrued interest totals $350.625 for each $1,000 principal amount of
12 3/4% senior subordinated notes exchanged. The holder of our 14% junior
subordinated notes has agreed to exchange the $347,000 principal amount of those
notes for new 12 1/2% junior subordinated notes due November 1, 2007, and to
convert the accrued interest on the notes in the amount of $156,000 into shares
of common stock. With respect to our $7,500,000 senior, unsecured note, we
proposed to extend the maturity date from April 30, 2002, to August 1, 2007, pay
interest at the rate of 10 1/2% per annum, and repay the note in twenty
quarterly principal payments in the amount of $375,000 each beginning November
1, 2002. The holder of the note rejected our proposal. As an alternative to the
proposed restructuring of the senior, unsecured note, we proposed to purchase
the note for $5,550,000 in cash.
If we negotiated extensions of our matured and maturing debt on the
proposed terms discussed above and in "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity" in Part I, Item 2,
we estimate that our monthly cash interest expense would be approximately
$600,000.
For further information about our indebtedness, we recommend that you
also read Notes 1 and 5 of our consolidated financial statements in Part I, Item
1.
ITEM 4. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
During the 90-day period prior to the date of this report, an evaluation
was performed under the supervision and with the participation of our
management, including our principal executive officers and our chief financial
officer, of the effectiveness of the design and operation of our disclosure
controls and procedures. Based on that evaluation, our principal executive
officers and our chief financial officer concluded that our disclosure controls
and procedures are effective to provide us with timely notice of material
information required to be disclosed in periodic reports filed with the U.S.
Securities and Exchange Commission. We also reviewed our internal controls, and
there have been no significant changes in our internal controls or in other
factors that could significantly affect our internal controls subsequent to the
date of our previous evaluation.
-29-
PART II. OTHER INFORMATION
ITEM 3. DEFAULTS ON SENIOR SECURITIES
(a) We are in default in respect of our 12 3/4% senior subordinated
notes because we did not make the payments of principal, in the amount of
$27,412,000, and interest, in the amount of $1,748,000, that were due on
February 1, 2000. For more information regarding the default in respect of the
12 3/4% senior subordinated notes, refer to "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity," in Part
I, Item 2, which is incorporated by reference herein.
We are in default in respect of our 10 1/2% senior, unsecured note
because we did not make the payment of principal, in the amount of $7,500,000,
and interest, in the amount of $78,000, that were due on April 30, 2002. For
more information regarding the default in respect of the 10 1/2% senior,
unsecured note, refer to "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity," in Part I, Item 2, which is
incorporated by reference herein.
The lenders under our revolving line of credit and secured, amortizing
term loans have waived the cross-default provisions with respect to the defaults
on the senior subordinated notes and the senior, unsecured note through January
3 or January 31, 2003, and the holder of our junior subordinated notes has
waived the cross-default provisions with respect to the senior subordinated
notes and the senior, unsecured note through January 31, 2003.
(b) We did not pay dividends on our $8 cumulative convertible preferred
stock, series B, during the three-month or nine-month periods ended September
30, 2002, in the aggregate amount of $7,000 and $20,000, respectively. At
September 30, 2002, the Company was in arrears in the payment of eleven
dividends on the series B preferred stock in the aggregate amount of $73,000 and
in the redemption of 900 shares of series B preferred stock for $180,000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following exhibits are filed herewith:
10-1 Agreement relating to 14% Junior Subordinated Notes dated
as of October 31, 2002, between the registrant and Michael
A. Lubin
10-2 Agreement relating to Junior Subordinated Convertible
Increasing Rate Note dated as of October 31, 2002, among
the registrant, Michael A. Lubin, and Warren Delano
10-3 Agreement dated as of August 29, 2002, between the
registrant and Congress Financial Corporation
10-4 Agreement dated as of August 29, 2002, between Lexington
Rubber Group, Inc. ("LRGI") and Congress Financial
Corporation
10-5 Agreement dated as of September 2, 2002, among the
registrant, LRGI, and Congress Financial Corporation
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10-6 Agreement dated as of October 31, 2002, between the
registrant and Congress Financial Corporation
10-7 Agreement dated as of October 31, 2002, between LRGI and
Congress Financial Corporation
10-8 Agreement dated as of October 31, 2002, among the
registrant, LRGI, and Congress Financial Corporation
10-9 Amendment No. 16 to Credit Facility and Security Agreement
dated as of July 31, 2002, among the registrant, LRGI, and
Bank One, NA
10-10 Eighth Amendment Agreement dated September 20, 2002,
between the registrant, LRGI, and Bank One, NA
10-11 Agreement dated as of October 31, 2002, among the
registrant, LRGI, and Bank One, NA
10-12 Ninth Amendment Agreement dated November 1, 2002, between
the registrant, LRGI, and Bank One, NA
10-13 Amendment No. 8 to Loan and Security Agreement dated as of
August 31, 2002, between the registrant and CIT
10-14 Agreement dated as of October 31, 2002, between the
registrant and The CIT Group/Equipment Financing, Inc.
("CIT")
99-1 Certifications of Michael A. Lubin and Warren Delano, the
Chairman of the Board and President, respectively, of the
registrant, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99-2 Certification of Dennis J. Welhouse, the Chief Financial
Officer of the registrant, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) REPORTS ON FORM 8-K
On July 10, 2002, we filed a report on Form 8-K that included a press
release dated July 10, 2002, stating that we had commenced an exchange offer to
holders of record of our 12 3/4% Senior Subordinated Notes as of July 1, 2002.
The press release also outlined the details of the exchange offer, which was
scheduled to expire on August 7, 2002, at 12 midnight, New York City Time,
unless extended by us.
On August 7, 2002, we filed a report on Form 8-K that included a press
release dated August 7, 2002, stating that we were extending the expiration date
of our offer to exchange our senior subordinated notes from August 7, 2002, to
12 midnight, New York City Time on August 30, 2002, unless further extended.
On August 14, 2002, we filed a report on Form 8-K that included the
certifications of our co-chief executive officers and our chief financial
officer made in connection with the filing of our Form
-31-
10-Q for the quarter ended June 30, 2002 pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes--Oxley Act of 2002.
On August 30, 2002, we filed a report on Form 8-K that included a press
release dated August 30, 2002, stating that we were extending the expiration
date of our offer to exchange our senior subordinated notes from August 30,
2002, to 12 midnight, New York City Time on September 30, 2002, unless further
extended.
On September 30, 2002, we filed a report on Form 8-K that included a
press release dated September 30, 2002, stating that we were extending the
expiration date of our offer to exchange our senior subordinated notes from
September 30, 2002, to 12 midnight, New York City Time on October 18, 2002,
unless further extended.
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LEXINGTON PRECISION CORPORATION
FORM 10-Q
SEPTEMBER 30, 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LEXINGTON PRECISION CORPORATION
(Registrant)
November 13, 2002 By: /s/ Michael A. Lubin
- ----------------- ----------------------------
Date Michael A. Lubin
Chairman of the Board
November 13, 2002 By: /s/ Warren Delano
- ----------------- ----------------------------
Date Warren Delano
President
November 13, 2002 By: /s/ Dennis J. Welhouse
- ----------------- ----------------------------
Date Dennis J. Welhouse
Senior Vice President and
Chief Financial Officer
-33-
CERTIFICATIONS
I, Michael A. Lubin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Lexington
Precision Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during
the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the
"Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
/s/ Michael A. Lubin
-----------------------------
Michael A. Lubin
Chairman of the Board
-34-
I, Warren Delano, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Lexington
Precision Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during
the period in which this quarterly report is being
prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the
"Evaluation Date"); and
c. presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
/s/ Warren Delano
----------------------------
Warren Delano
President
-35-
I, Dennis J. Welhouse, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Lexington
Precision Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during
the period in which this quarterly report is being
prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the
"Evaluation Date"); and
c. presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
/s/ Dennis J. Welhouse
------------------------------
Dennis J. Welhouse
Senior Vice President and
Chief Financial Officer
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