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FORM 10-K/A
(AMENDMENT NO. 1)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 2004
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.)
40 EAST 52ND STREET, NEW YORK, NY 10022
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 319-4657
---------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.25 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 12b-2 of the Act). [ ]
The aggregate market value of the registrant's Common Stock, $0.25 par value per
share, held by non-affiliates of the registrant, as of March 18, 2005, was
approximately $996,000.
The number of shares of common stock outstanding as of March 18, 2005, was
4,931,767.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement to be issued in connection with its
2005 Annual Meeting of Stockholders (the "Proxy Statement") are incorporated by
reference into Part III. Only those portions of the Proxy Statement which are
specifically incorporated by reference are deemed filed as part of this report
on Form 10-K.
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EXPLANATORY NOTE
Lexington Precision Corporation is filing this Amendment No. 1 on Form
10-K/A to our Annual Report on Form 10-K for the year ended December 31, 2004,
filed with the Securities and Exchange Commission on March 31, 2005, to correct
clerical errors contained in the table included in Note 15, "Quarterly Financial
Data (unaudited)," to our consolidated financial statements in Part II, Item 8,
of the Form 10-K.
Except for the modification of Note 15, this Form 10-K/A does not modify
or update other disclosures in the Form 10-K, including the nature and character
of those disclosures, to reflect events occurring after the filing date of the
Form 10-K. The entirety of Part II, Item 8, as amended, is included in this Form
10-K/A, as are new Exhibits 31.1, 31.2, 31.3, 32.1, 32.2 and 32.3, dated as of
the date of the filing of this Form 10-K/A.
- 1 -
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TABLE OF CONTENTS
Page
----
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm............... 3
Consolidated Statements of Operations for the Years Ended
December 31, 2004, 2003, and 2002..................................................... 4
Consolidated Balance Sheets at December 31, 2004 and 2003................................ 5
Consolidated Statements of Stockholders' Deficit for
the Years Ended December 31, 2004, 2003, and 2002...................................... 7
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2004, 2003, and 2002...................................................... 8
Notes to Consolidated Financial Statements............................................... 9
- 2 -
REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Lexington Precision Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of Lexington
Precision Corporation and subsidiaries at December 31, 2004 and 2003, and the
related consolidated statements of operations, stockholders' deficit, and cash
flows for each of the three years in the period ended December 31, 2004. Our
audits also included the financial statement schedule contained in Part IV, Item
15 (a) 2, of the Company's report on Form 10-K. These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and schedule
based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. We were not engaged to
perform an audit of the Company's internal control over financial reporting. Our
audit included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Lexington Precision Corporation and its subsidiaries at December 31, 2004 and
2003, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 2004, in conformity
with U.S. generally accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
As discussed in Note 5 to the consolidated financial statements, effective
July 1, 2003, the Company changed its method of accounting for its $8 Cumulative
Convertible Preferred Stock, Series B, in accordance with the adoption of
Statement of Financial Accounting Standards No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity."
/s/ Ernst & Young LLP
Cleveland, Ohio
March 29, 2005
- 3 -
LEXINGTON PRECISION CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31
----------------------------------------
2004 2003 2002
---------- ---------- ----------
Net sales $ 110,353 $ 113,231 $ 112,363
Cost of sales 98,304 99,773 97,571
---------- ---------- ----------
Gross profit 12,049 13,458 14,792
Selling and administrative expenses 7,383 7,904 7,981
Impairment of goodwill - 47 -
Plant closure costs - - 609
---------- ---------- ----------
Income from operations 4,666 5,507 6,202
Other income (expense):
Gain on repurchase of debt 8,598 - -
Gain on sale of securities - - 248
Interest expense (8,662) (6,980) (7,158)
---------- ---------- ----------
Income (loss) from continuing operations before
income tax 4,602 (1,473) (708)
Income tax provision (benefit) (196) 76 (538)
---------- ---------- ----------
Income (loss) from continuing operations 4,798 (1,549) (170)
Loss from discontinued operations (3,208) (4,653) (1,397)
---------- ---------- ----------
Income (loss) before cumulative effect of a
change in accounting principle 1,590 (6,202) (1,567)
Cumulative effect of a change in accounting principle - (247) -
---------- ---------- ----------
Net income (loss) $ 1,590 $ (6,449) $ (1,567)
========== ========== ==========
Basic and diluted income (loss) per share of common stock:
Continuing operations $ 0.97 $ (0.35) $ (0.03)
Discontinued operations (0.65) (0.96) (0.29)
Cumulative effect of a change in accounting principle - (0.05) -
---------- ---------- ----------
Net income (loss) $ 0.32 $ (1.36) $ (0.32)
========== ========== ==========
See notes to consolidated financial statements
- 4 -
LEXINGTON PRECISION CORPORATION
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
DECEMBER 31
-----------------------------
2004 2003
---------- ----------
ASSETS:
Current assets:
Cash $ 17 $ 178
Accounts receivable, net of allowances of $537,000
and $545,000, respectively 15,322 15,883
Inventories, net of allowances of $845,000
and $931,000, respectively 8,791 7,633
Prepaid expenses and other current assets 1,665 2,093
Deferred income taxes 1,090 1,360
Assets of discontinued operations 2,022 2,954
---------- ----------
Total current assets 28,907 30,101
---------- ----------
Plant and equipment:
Land 2,074 2,074
Buildings 19,450 19,301
Equipment 107,961 103,457
---------- ----------
129,485 124,832
Accumulated depreciation 93,428 86,638
---------- ----------
Plant and equipment, net 36,057 38,194
---------- ----------
Goodwill, net 7,623 7,623
---------- ----------
Assets of discontinued operations 2,754 4,438
---------- ----------
Other assets, net 3,036 3,331
---------- ----------
$ 78,377 $ 83,687
========== ==========
See notes to consolidated financial statements (continued on next page)
- 5 -
LEXINGTON PRECISION CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(THOUSANDS OF DOLLARS)
DECEMBER 31
-----------------------------
2004 2003
---------- ----------
LIABILITIES AND STOCKHOLDERS' DEFICIT:
Current liabilities:
Accounts payable $ 9,753 $ 9,522
Accrued expenses, excluding interest 4,839 5,993
Accrued interest expense 975 314
Deferred gain on repurchase of debt - 3,252
Short-term debt 14,667 12,246
Current portion of long-term debt 4,749 5,585
Liabilities of discontinued operations 794 775
---------- ----------
Total current liabilities 35,777 37,687
---------- ----------
Long-term debt, excluding current portion 58,949 63,681
---------- ----------
Deferred income taxes 1,090 1,360
---------- ----------
Other long-term liabilities 436 451
---------- ----------
Stockholders' deficit:
Common stock, $0.25 par value, 10,000,000 shares
authorized, 4,931,767 shares issued at December 31, 2004,
and December 31, 2003 1,233 1,233
Additional paid-in-capital 13,169 13,169
Accumulated deficit (32,277) (33,894)
---------- ----------
Total stockholders' deficit (17,875) (19,492)
---------- ----------
$ 78,377 $ 83,687
========== ==========
See notes to consolidated financial statements
- 6 -
LEXINGTON PRECISION CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(THOUSANDS OF DOLLARS)
ADDITIONAL TOTAL
COMMON PAID-IN- ACCUMULATED STOCKHOLDERS'
STOCK CAPITAL DEFICIT DEFICIT
--------- ---------- ------------ -------------
Balance at January 1, 2001 $ 1,207 $ 12,960 $ (23,703) $ (9,536)
Net loss - - (2,151) (2,151)
Amortization of restricted stock grants - - 28 28
--------- ---------- --------- -----------
Balance at December 31, 2001 1,207 12,960 (25,826) (11,659)
Net loss - - (1,567) (1,567)
Amortization of restricted stock grants - - 27 27
--------- ---------- --------- -----------
Balance at December 31, 2002 1,207 12,960 (27,366) $ (13,199)
Net loss - - (6,449) (6,449)
Amortization of restricted stock grants - - 27 27
Conversion of interest payable on
junior subordinated notes into
103,731 shares of common stock 26 209 - 235
Dividends on preferred stock - - (106) (106)
--------- ---------- --------- -----------
Balance at December 31, 2003 1,233 13,169 (33,894) (19,492)
Net income 1,590 1,590
Amortization of restricted stock grants 27 27
--------- ---------- --------- -----------
Balance at December 31, 2004 $ 1,233 $ 13,169 $ (32,277) $ (17,875)
========= ========== ========= ===========
See notes to consolidated financial statements
- 7 -
LEXINGTON PRECISION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
YEARS ENDED DECEMBER 31
------------------------------------
2004 2003 2002
---------- ---------- ----------
OPERATING ACTIVITIES:
Income (loss) from continuing operations $ 4,798 $ (1,549) $ (170)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 8,140 8,573 9,649
Amortization included in operating expense 304 382 598
Amortization included in interest 1,098 610 440
Impairment of goodwill - 47 -
Gain on repurchase of debt (8,598) - -
Gain on sales of marketable securities - - (248)
Current year interest expense converted to debt - 3,953 -
Changes in operating assets and liabilities that
provided (used) cash:
Accounts receivable, net 561 (376) 1,112
Inventories, net (1,158) 301 (136)
Prepaid expenses and other assets 310 850 (360)
Accounts payable 1,920 413 (1,050)
Accrued expenses, excluding interest (1,154) 67 620
Accrued interest expense 827 164 4,137
Other long term liabilities 104 (33) 158
Other (84) 68 16
---------- ---------- ----------
Net cash provided by continuing operations 7,068 13,470 14,766
Net cash provided (used) by discontinued operations (135) (2,351) 1,465
---------- ---------- ----------
Net cash provided by operating activities 6,933 11,119 16,231
---------- ---------- ----------
INVESTING ACTIVITIES:
Purchases of plant and equipment (5,715) (4,966) (3,401)
Proceeds from sales of marketable securities - - 1,522
Decrease (increase) in equipment deposits 27 (61) 345
Proceeds from sales of equipment 271 23 21
Expenditures for tooling owned by customers (650) (148) (368)
Other (18) 374 328
---------- ---------- ----------
Net cash used by continuing operations (6,085) (4,778) (1,553)
Net cash used by discontinued operations (440) (75) (1,551)
---------- ---------- ----------
Net cash used by Investing activities (6,525) (4,853) (3,104)
---------- ---------- ----------
FINANCING ACTIVITIES:
Net increase (decrease), in borrowings under revolving
line of credit 2,421 (3,347) (750)
Proceeds from issuance of debt 7,000 25,000 -
Repayment of long-term debt (6,364) (21,548) (10,194)
Repurchase of debt (2,892) (5,550) -
Payment of deferred financing expenses (745) (2,279) -
Other - (106) (619)
---------- ---------- ----------
Net cash used by financing activities (580) (7,830) (11,563)
---------- ---------- ----------
Net increase (decrease) in cash (172) (1,564) 1,564
Cash at beginning of year 189 1,753 189
---------- ---------- ----------
Cash at end of year $ 17 $ 189 $ 1,753
========== ========== ==========
See notes to consolidated financial statements
- 8 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Lexington
Precision Corporation and its subsidiaries (the "Company"). All significant
intercompany accounts and transactions have been eliminated.
During 2004, the Company committed to a plan to sell the assets and
business, or to close its die casting division. The results of operations and
assets and liabilities of the die casting division are classified as
discontinued operations in the Company's consolidated financial statements.
Unless otherwise indicated all disclosures and amounts relate solely to
continuing operations.
Certain reclassifications have been made to the financial statements for
prior years in order to conform to the current year's presentation.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity
with U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, revenues and expenses, and the disclosure of contingent liabilities
in the consolidated financial statements. Actual results could differ from those
estimates.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out method)
or market. Inventory levels by principal classification are set forth below
(dollar amounts in thousands):
DECEMBER 31
---------------------
2004 2003
------ ------
Finished goods $ 4,142 $ 3,475
Work in process 2,372 1,570
Raw materials 2,277 2,588
------- -------
$ 8,791 $ 7,633
======= =======
PLANT AND EQUIPMENT
Plant and equipment are carried at cost less accumulated depreciation.
Depreciation is calculated principally on the straight-line method over the
estimated useful lives of the various assets (15 to 32 years for buildings and 3
to 8 years for equipment). When an asset is retired or otherwise disposed of,
the related cost and accumulated depreciation are eliminated. Maintenance and
repair expenses are charged as incurred, while major improvements that increase
the useful life of plant and equipment are capitalized. Maintenance and repair
expenses were $5,552,000, $5,733,000, and $5,961,000 for 2004, 2003, and 2002,
respectively.
- 9 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VALUATION OF LONG-LIVED ASSETS
The Company evaluates long-lived assets, such as plant and equipment and
other long-term amortizable assets, for impairment when events or changes in
circumstances indicate that the carrying value of the assets may not be fully
recoverable. When performing this evaluation, the Company compares the
undiscounted, projected cash flow of an asset or group of assets to the carrying
value of such asset or asset group. If such cash flow is less than the carrying
value of the asset or asset group, an impairment loss is recognized equal to the
excess, if any, of the carrying value of the asset or asset group over the
appraised value of the asset or asset group, net of estimated disposal costs.
Although the Company believes that its projections of future cash flows are
reasonable, changes in assumptions regarding future unit volumes, pricing,
operating efficiencies, material, labor, and overhead costs, and other factors
could significantly affect the Company's cash flow projections. During the
fourth quarter of 2003, the Company tested the long-lived assets of its die
casting division for impairment and, as a result thereof, recorded an impairment
charge of $2,427,000 to reduce the carrying value of the long-lived assets of
the division to their estimated fair value at that time. During 2004, the
Company committed to a plan to discontinue the operations of the die casting
division and recognized pre-tax impairment charges of $1,595,000 to reduce the
value of the division's assets to estimated fair value, which approximates the
projected proceeds to be realized on the disposition of the assets, net of
selling costs. For additional information, see Note 14, "Discontinued
Operations."
GOODWILL
Goodwill represents the excess of the purchase price of acquired
businesses over the fair value of the identifiable assets acquired, net of the
fair value of liabilities assumed. Tests for impairment of goodwill are
performed, using a fair value approach, during the fourth quarter of each year,
and at other times when there is a change in circumstances or an adverse event
that would indicate impairment. To assess the value of goodwill, an estimate of
future cash flows and other factors are considered in order to determine fair
value. During 2003, the Company performed its annual impairment test and
determined that the goodwill associated with the Metals Group was impaired; as a
result, the Company recorded a provision of $208,000 to write off all of the
unamortized goodwill of the Metals Group, of which $161,000 has been classified
as discontinued operations. At December 31, 2004 and 2003, there was $7,623,000
of unamortized goodwill recorded as an asset in the Company's consolidated
balance sheet, all of which related to the Rubber Group.
DEFERRED FINANCING EXPENSES
Deferred financing expenses are amortized over the lives of the related
debt instruments.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses are expensed as incurred. These costs
totaled $991,000, $1,168,000, and $924,000 during 2004, 2003, and 2002,
respectively.
NET INCOME OR LOSS PER COMMON SHARE
Basic net income or loss per common share is computed using the
weighted-average number of common shares outstanding. Diluted net income or loss
per share is calculated after giving effect to all potential common shares that
were dilutive, using the treasury stock method. Potential common shares are
- 10 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
securities (convertible preferred stock and warrants to purchase common stock)
that do not have a current right to participate in earnings but could in the
future by virtue of their terms.
REVENUE RECOGNITION
All of the Company's revenues result from the sale of rubber and metal
components. The Company recognizes revenue from the sale of components when
title and risk of loss pass to the customer according to shipping schedules and
terms of sale mutually agreed to by the Company and its customers. Shipping and
handling costs are typically paid by the customer. If paid by the Company,
shipping and handling costs are included in cost of sales.
RECENTLY ISSUED ACCOUNTING STANDARDS
Listed below are recently issued accounting standards and a discussion of
how they have affected the Company's consolidated financial statements:
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 106-2, "ACCOUNTING AND
DISCLOSURE REQUIREMENTS RELATED TO THE MEDICARE PRESCRIPTION DRUG,
IMPROVEMENT AND MODERNIZATION ACT OF 2003"
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003
(the "Act") became law on December 8, 2003. The Act provides for prescription
drug benefits under Medicare Part D and contains a subsidy, effective January 1,
2006, under current law, for plan sponsors who provide actuarially equivalent
prescription drug benefits to retirees on and after January 1, 2006. Statement
of Financial Accounting Standards No. 106-2, "Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003" ("FAS 106-2"), provides accounting guidance and
disclosure for the subsidy, if applicable. Although the Company currently
believes that this legislation may eventually reduce the prescription drug
portion of its retiree medical cost, it has not yet made any such determination.
The adoption of FAS 106-2 during 2004 did not have any effect on the Company's
results of operations or financial position and it is not expected to have any
significant effect in 2005.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 151, "INVENTORY COSTS - AN
AMENDMENT OF ARB NO. 43, CHAPTER 4"
In November 2004, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 151, "Inventory costs, an
Amendment of ARB No. 43, Chapter 4" ("FAS 151"), which is effective for fiscal
years beginning on January 1, 2006. Early adoption of FAS 151 is not
anticipated. FAS 151 amends ARB No. 43, Chapter 4, to clarify that abnormal
amounts of idle facility expense, freight, handling costs, and waste materials
(spoilage) should be recognized as current-period charges. FAS 151 also requires
that the allocation of fixed production overheads to the costs of conversion be
based on the normal capacity of the production facilities. The Company has not
yet determined the potential impact of adopting FAS 151 on January 1, 2006, if
any, on its results of operations or financial position.
- 11 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123 (REVISED 2004), "SHARE
BASED PAYMENT"
In December 2004, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 (revised 2004), "Share Based
Payment" ("FAS 123 Revised"). FAS 123 Revised is a revision to Financial
Accounting Standards Board Statement No. 123, "Accounting for Stock-Based
Compensation," and supercedes Accounting Principles Board Opinion No. 25.
"Accounting for Stock Issued to Employees," and effectively eliminates the
intrinsic value method of accounting for stock options that was available in FAS
123 as originally issued. FAS 123 Revised requires entities to recognize the
cost of employee services received in exchange for awards of equity instruments
based on the grant-date fair value of those awards. This statement is effective
at the beginning of the third quarter of 2005 and applies to all awards granted
after the effective date. The Company does not anticipate that the adoption of
FAS 123 Revised will have any a material impact on its results of operations or
financial position.
STATEMENT OF FINANCIAL POSITION NO. 109-1, "APPLICATION OF STATEMENT OF
FINANCIAL ACCOUNTING STANDARDS NO. 109, `ACCOUNTING FOR INCOME TAXES,' TO
THE TAX DEDUCTION ON QUALIFIED PRODUCTION ACTIVITIES PROVIDED BY THE
AMERICAN JOBS CREATION ACT OF 2004"
On December 21, 2004, the Financial Accounting Standards Board issued
Statement of Financial Position No. 109-1, "Application of Statement of
Financial Accounting Standards No. 109, `Accounting for Income Taxes,' to the
Tax Deduction on Qualified Production Activities Provided by the American Jobs
Creation Act of 2004" ("SOP 109-1"). The American Jobs Creation Act provides for
a specified tax credit on qualified production activities beginning in 2005. SOP
109-1 clarifies that the specified tax credit should be accounted for as a
special tax deduction in accordance with Statement of Financial Accounting
Standard No.109, "Accounting for Income Taxes." The Company currently believes
that SOP 109-1 will not have any impact on its results of operations or
financial position.
NOTE 2 -- PREPAID EXPENSES AND OTHER CURRENT ASSETS
At December 31, 2004 and 2003, other current assets included $306,000 and
$715,000, respectively, of tooling manufactured or purchased by the Company
pursuant to purchase orders issued by its customers. Upon customer approval of
the components produced by such tooling, which normally takes less than 90 days,
the customer is obligated to pay for the tooling in accordance with previously
agreed-upon terms.
NOTE 3 -- OTHER NONCURRENT ASSETS
The Company has paid a portion of the cost of certain tooling that was
purchased by customers and is being used by the Company to produce components
under long-term supply arrangements. The payments have been recorded as a
noncurrent asset and are being amortized on a straight-line basis over three
years or, if shorter, the period during which the tooling is expected to produce
components. At December 31, 2004 and 2003, other noncurrent assets included
$746,000 and $728,000, respectively, representing the unamortized portion of
such capitalized payments. During 2004, 2003, and 2002, the Company amortized
$274,000, $354,000, and $570,000, respectively, of such capitalized payments.
- 12 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 -- ACCRUED EXPENSES, EXCLUDING INTEREST EXPENSE
Accrued expenses, excluding interest expense, at December 31, 2004 and
2003, are summarized below (dollar amounts in thousands):
DECEMBER 31
----------------------
2004 2003
-------- -------
Employee fringe benefits $ 2,762 $ 3,768
Salaries and wages 1,065 931
Taxes 195 445
Other 817 849
-------- -------
$ 4,839 $ 5,993
======== =======
NOTE 5 -- DEBT
Debt at December 31, 2004 and 2003, is set forth below (dollar amounts in
thousands):
DECEMBER 31
------------------------
2004 2003
--------- ---------
Short-term debt:
Revolving line of credit $ 14,509 $ 12,088
12 3/4% Senior Subordinated Notes 158 158
--------- ---------
Subtotal 14,667 12,246
Current portion of long-term debt 4,749 5,585
--------- ---------
Total short-term debt 19,416 17,831
--------- ---------
Long-term debt:
Equipment term loans 10,200 13,500
Real estate term loan 10,350 11,500
12% Senior Subordinated Notes 34,177 42,441
13% Junior Subordinated Note 347 347
Increasing Rate Note 7,000 -
Unsecured, amortizing term notes 669 104
Capital lease obligations 275 573
Series B Preferred Stock 623 594
Other 57 207
--------- ---------
Subtotal 63,698 69,266
Less current portion (4,749) (5,585)
--------- ---------
Total long-term debt 58,949 63,681
--------- ---------
Total Debt $ 78,365 $ 81,512
========= =========
REVOLVING LINE OF CREDIT
At December 31, 2004, the Company had outstanding loans of $14,509,000,
outstanding letters of credit of $2,093,000, and net unused availability of
$1,224,000 under the revolving line of credit. The
- 13 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
revolving line of credit expires on June 30, 2006. Loans under the revolving
line of credit bear interest at either the prime rate plus 1% or the London
Interbank Offered Rate ("LIBOR") plus 3 1/4%, at the Company's option. The loans
outstanding under the revolving line of credit are classified as short-term debt
because the revolving line of credit provides that the Company's cash receipts
are automatically used to reduce such loans on a daily basis, by means of a
lock-box sweep arrangement, and the lender has the ability to modify certain
terms of the revolving line of credit without the Company's approval. Loans
under the revolving line of credit are limited to 88% of eligible accounts
receivable plus 65% of eligible inventories, less outstanding letters of credit
and any reserves established by the lender. All loans and reimbursement
obligations with respect to letters of credit under the revolving line of credit
are secured by first priority liens on substantially all of the Company's assets
other than real estate.
At December 31, 2004, the Company's availability under the revolving line
of credit was reduced by $1,350,000 of reserves established by the lender. In
connection with amendments to certain of the Company's loan agreements on
January 27, 2005, $600,000 of these reserves were released. The release of the
balance of the reserves is at the discretion of the lender, and the Company
cannot predict at this time whether any of the remaining reserves will be
released.
At December 31, 2004, 2003, and 2002, the weighted-average interest rates
on borrowings under the revolving line of credit were 6 1/4%, 5%, and 5 1/4%,
respectively.
EQUIPMENT TERM LOANS
The equipment term loans were originally payable in monthly installments
of $300,000 each, with interest at either the prime rate plus 1 1/2% or LIBOR
plus 3 3/4%, at the Company's option. On January 27, 2005, the Company and the
lender amended the terms of the agreement governing the equipment term loans.
The amendment permitted the Company to borrowing an additional $1,500,000 under
its equipment loan agreement, which increased the equipment term loans to
$11,400,000, eliminated the principal payment due February 1, 2005, reduced the
scheduled monthly principal payments to $200,000 commencing March 1, 2005,
eliminated the option of a Eurodollar rate for the equipment term loans, and
increased the interest rate to the prime rate plus 4 3/4%. At December 31, 2004,
the interest rate on the equipment term loans was 6 3/4%. The unpaid balance of
the equipment term loans is payable on June 30, 2006, if the revolving line of
credit is not extended. The equipment term loans are secured by first priority
liens on substantially all of the Company's assets other than real estate.
REAL ESTATE TERM LOAN
The real estate term loan is payable in monthly installments of $96,000
each from January 1, 2004, through June 1, 2006, with the unpaid balance due on
June 30, 2006. The Company has the option to extend the loans to June 30, 2007,
on the same terms, provided that the revolving line of credit is also extended
from June 30, 2006, to June 30, 2007. The real estate term loan bears interest
at the prime rate plus 5%, subject to a minimum of 9 1/4%, and requires the
Company to pay a fee of $216,000 on each anniversary of the closing date. The
real estate term loan is secured by first mortgages on substantially all of the
Company's real estate and by second priority liens on substantially all of the
Company's other assets. The real estate term loan contains a provision that
permits the lender to accelerate the loan if there is a material adverse change
in the Company's financial condition, business, or operating performance. At
December 31, 2004, the interest rate on the real estate term loan was 10 1/4%.
- 14 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INCREASING RATE NOTE
On September 3, 2004, the Company issued a $7,000,000 note with an
increasing rate of interest. The Increasing Rate Note is an unsecured obligation
of the Company that is senior in right of payment to the 12% Senior Subordinated
Notes, the 12 3/4% Senior Subordinated Notes, and the 13% Junior Subordinated
Notes. The Increasing Rate Note matures on June 30, 2007. Interest is due
monthly and is currently being paid at the rate of 13.8% per annum (the "Cash
Rate"). In lieu of paying the Cash Rate, the Company has the option to pay
interest at the rate of 12% in cash and an additional 3.6% in additional
Increasing Rate Notes (the "PIK Rate"). The Cash Rate will increase by up to 0.6
percentage points on each of September 1, 2005 and 2006, and the PIK Rate will
increase by up to 1.2 percentage points on each of September 1, 2005 and 2006.
The exact amount of each increase will depend upon the principal amount of the
Increasing Rate Note then outstanding.
12 3/4% SENIOR SUBORDINATED NOTES
The 12 3/4% Senior Subordinated Notes matured on February 1, 2000, and are
unsecured obligations of the Company that are subordinated to all of the
Company's existing and future senior debt. In December 2003, 99.3% of the
12 3/4% Senior Subordinated Notes then outstanding were exchanged for units
consisting of 12% Senior Subordinated Notes and warrants to purchase common
stock. The remaining $158,000 of 12 3/4% Senior Subordinated Notes that did not
participate in the exchange remained outstanding at December 31, 2004.
12% SENIOR SUBORDINATED NOTES
The 12% Senior Subordinated Notes mature on August 1, 2009, and are
unsecured obligations of the Company that are subordinated in right of payment
to all of the Company's existing and future senior debt. Interest on the 12%
Senior Subordinated Notes is payable quarterly on February 1, May 1, August 1,
and November 1. On October 1, 2004, the Company purchased $8,264,000 principal
amount of its 12% Senior Subordinated Notes plus interest accrued thereon for
$2,892,000. See Note 13, "Gain on the Repurchase of Debt."
13% JUNIOR SUBORDINATED NOTE
The 13% Junior Subordinated Note matures on November 1, 2009, and is an
unsecured obligation of the Company that is subordinated in right of payment to
all existing and future secured and senior, unsecured debt of the Company, the
12 3/4% Senior Subordinated Notes, and the 12% Senior Subordinated Notes.
UNSECURED, AMORTIZING TERM NOTES
The unsecured, amortizing term notes mature in 2005, and bear interest at
rates varying from 6% to 8%. At December 31, 2004, the weighted average interest
rate on the notes was 7.8%.
CAPITAL LEASE OBLIGATIONS
Capital lease obligations relate to the purchase of equipment used in the
Company's manufacturing operations. During 2004, the Company entered into
capital leases totaling $144,000. At December 31, 2004, the Company's
consolidated balance sheet included equipment held under capital
- 15 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
leases with a cost of $1,146,000 and related accumulated depreciation of
$252,000. The future minimum lease payments under the terms of the various
capital leases are set forth below under the heading "Scheduled Maturities of
Long-Term Debt." Amortization of assets recorded as capital leases is included
in depreciation expense.
SERIES B PREFERRED STOCK
At December 31, 2004, there were outstanding 3,300 shares of the Company's
$8 Cumulative Convertible Preferred Stock, Series B (the "Series B Preferred
Stock"), par value $100 per share, with a carrying value of $623,000. Each share
of Series B Preferred Stock is (1) entitled to one vote, (2) redeemable for $200
plus accumulated and unpaid dividends, (3) convertible into 14.8148 shares of
common stock (subject to adjustment), and (4) entitled, upon voluntary or
involuntary liquidation and after payment of the debts and other liabilities of
the Company, to a liquidation preference of $200 plus accumulated and unpaid
dividends. Redemptions of $90,000 are scheduled on November 30 of each year in
order to retire 450 shares of Series B Preferred Stock annually. The Company
failed to make scheduled redemptions in the aggregate amount of $450,000 on
November 30, 2000, 2001, 2002, 2003, and 2004.
During 2003, the Company adopted Statement of Financial Accounting
Standards No. 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity" ("FAS 150"), which established
standards for classifying and measuring as liabilities certain financial
instruments that embody obligations of the issuer that have characteristics of
both liabilities and equity. As a result of the adoption of FAS 150, the Company
began to classify the Series B Preferred Stock as debt in the consolidated
financial statements and recognized a pre-tax charge of $247,000 to increase the
carrying value of the Series B Preferred Stock to its fair value. Subsequent to
adoption, increases in the fair value of the Series B Preferred Stock and
payments of quarterly dividends have been recorded by monthly charges to
interest expense.
NON-CASH INVESTING AND FINANCING ACTIVITIES
The Company purchased equipment under capitalized lease obligations in the
amount of $144,000, $720,000, and $365,000, during 2004, 2003, and 2002,
respectively, and obtained seller financing for the purchase of equipment in the
aggregate amount of $198,000 in 2004 and $247,000 in 2002.
RESTRICTIVE COVENANTS
The agreements governing the revolving line of credit, the equipment term
loans, and the real estate term loan contain certain financial covenants that
require the Company to maintain specified financial ratios as of the end of
specified periods, including the maintenance of a minimum level of fixed charge
coverage, minimum levels of net worth and EBITDA, and a maximum ratio of debt to
EBITDA. The Company also has covenants that limit its unfinanced capital
expenditures to $6,250,000 per annum and limit the amount of additional secured
financing that it can incur for the purchase of plant and equipment to
$2,500,000 per annum. Although there can be no assurance, the Company currently
believes that this provision will not limit its planned capital expenditures
during 2005. The Company also has other covenants that place restrictions on its
business and operations, including covenants relating to the sale of all or
substantially all of its assets, the purchase of common stock, the redemption of
preferred stock, and the payment of cash dividends.
- 16 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
From time to time, the Company's secured lenders have agreed to waive,
amend, or eliminate certain of the financial covenants contained in its various
financing agreements in order to maintain or otherwise ensure the Company's
current or future compliance.
- Effective March 31, 2004, the Company's two secured lenders amended fixed
charge coverage ratios and annual limitations on unfinanced capital
expenditures;
- Effective May 31, 2004, one of the Company's secured lenders waived
compliance with a minimum net worth covenant;
- Effective June 30, 2004, the Company's two secured lenders amended
financial covenants, related to minimum net worth, minimum fixed charge
coverage, minimum EBITDA, and maximum debt to EBITDA; and
- Effective January 27, 2005, the Company's two secured lenders further
amended financial covenants, related to minimum consolidated EBITDA,
minimum Rubber Group EBITDA, fixed charge coverage ratios, and maximum
secured debt to EBITDA.
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 financing agreements to be due and payable immediately.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company believes that, at December 31, 2004, the fair values of the
loans outstanding under the revolving line of credit, the equipment term loans,
and the real estate term loan approximated the principal amounts of such loans.
On October 1, 2004, the Company repurchased a total of $8,264,000
principal amount of its 12% Senior Subordinated Notes plus interest accrued
thereon at an aggregate cost of $2,892,000. The Company is unaware of any other
trading activity in the 12% Senior Subordinated Notes or the 12 3/4% Senior
Subordinated Notes since January 1, 2001. The Company believes that it has no
basis to express an opinion as to the fair market value of 12% Senior
Subordinated Notes, 12 3/4% Senior Subordinated Notes, the 13% Junior
Subordinated Note, the Increasing Rate Note, or the Series B Preferred Stock.
FINANCIAL LEVERAGE AND LIQUIDITY
The Company operates with substantial financial leverage and limited
liquidity. Aggregate indebtedness as of December 31, 2004, totaled $78,365,000.
During 2005, interest and scheduled principal payments are projected to be
approximately $8,189,000 and $4,277,000, respectively.
CASH INTEREST PAID
Cash interest paid during 2004, 2003, and 2002 totaled $7,144,000,
$2,122,000, and $2,644,000, respectively.
- 17 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SCHEDULED MATURITIES OF LONG-TERM DEBT
Scheduled maturities of long-term debt and capital lease obligations for
the years ending December 31 are listed below (dollar amounts in thousands):
CAPITAL
LONG-TERM LEASE
DEBT OBLIGATIONS TOTAL
--------- ----------- ----------
2005 $ 4,565 $ 184 $ 4,749
2006 17,236 86 17,322
2007 7,074 4 7,078
2008 25 - 25
2009 34,524 - 34,524
--------- ----------- ----------
$ 63,424 $ 274 $ 63,698
========= =========== ==========
NOTE 6 -- COMMON STOCK, WARRANTS, AND OTHER EQUITY SECURITIES
COMMON STOCK, $.25 PAR VALUE
At December 31, 2004, 2003, and 2002, there were 4,931,767, 4,931,767 and
4,828,036 shares of the Company's common stock outstanding, respectively, and
48,889 shares were reserved for issuance on the conversion of the Series B
Preferred Stock. In connection with the completion of the Company's debt
refinancing on December 18, 2003, the Company exchanged 103,731 shares of its
common stock for the $235,000 of interest that was accrued and unpaid on its
then outstanding junior subordinated notes.
WARRANTS
At December 31, 2004 and 2003, there were outstanding 345,237 and 427,877
warrants, respectively, each of which entitles the holder to purchase one share
of the Company's common stock at $3.50 per share from August 1, 2005, through
August 1, 2009. The Company issued 424,410 of the warrants in connection with
the exchange of its 12 3/4% Senior Subordinated Notes due February 1, 2000, for
units consisting of warrants and 12% Senior Subordinated Notes due August 1,
2009, and 3,467 of the warrants in connection with the exchange of its 14%
Junior Subordinated Notes for units consisting of warrants and new 13% Junior
Subordinated Notes due November 1, 2009. On October 1, 2004, the Company
repurchased units comprising $8,264,000 principal amount of its 12% Senior
Subordinated Notes and 82,640 warrants, which were subsequently retired. The
warrants will trade only as part of a unit with the 12% Senior Subordinated
Notes or the 13% Junior Subordinated Notes, as the case may be, until August 1,
2005, at which time the warrants can be separated from the notes. Because the
exercise price of the warrants substantially exceeded the market price of the
Company's common stock at the date of issuance, the Company concluded that the
warrants had negligible value.
OTHER AUTHORIZED PREFERRED STOCK
The Company's restated certificate of incorporation provides that the
Company is authorized to issue 2,500 shares of 6% Cumulative Convertible
Preferred Stock, Series A, par value $100 per share. No shares of this preferred
stock have been issued.
- 18 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's restated certificate of incorporation also provides that the
Company is authorized to issue 2,500,000 shares of other preferred stock having
a par value of $1 per share. No shares of this preferred stock have been issued.
NOTE 7 -- EMPLOYEE BENEFIT PLANS
RETIREMENT AND SAVINGS PLAN
The Company maintains a retirement and savings plan pursuant to Section
401 of the Internal Revenue Code (a "401(k) plan"). All employees of the Company
are entitled to participate in the 401(k) plan after meeting the eligibility
requirements. Effective January 1, 2003, employees may generally contribute up
to 60% of their annual compensation but not more than prescribed dollar amounts
established by the United States Secretary of the Treasury. Employee
contributions, up to a maximum of 6% of an employee's compensation, are matched
50% by the Company. During 2004, 2003, and 2002, matching contributions made by
the Company totaled $507,000, $504,000, and $520,000, respectively. Company
contributions to the 401(k) plan vest at a rate of 20% per year commencing after
the participant's second year of service until the participant becomes fully
vested after six years of service.
INCENTIVE COMPENSATION PLAN
The Company has an incentive compensation plan that provides for the
payment of annual cash bonus awards to certain officers and key employees of the
Company if specified targets are met. The Compensation Committee of the
Company's Board of Directors, which consists of two directors who are not
employees of the Company, oversees the administration of the incentive
compensation plan and approves the cash bonus awards. Bonus awards for eligible
divisional employees are typically based upon the attainment of predetermined
targets for earnings before interest, taxes, depreciation, and amortization
("EBITDA") at each division. Bonus awards for corporate officers are typically
based upon the attainment of predetermined consolidated EBITDA targets. The
consolidated financial statements include provisions for bonuses totaling
$641,000, $569,000, and $623,000 for 2004, 2003, and 2002, respectively.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company maintains programs to fund certain costs related to a
prescription drug card program for a closed group of retirees of one of its
former divisions and to fund limited medical costs for certain retirees of one
of its divisions. At December 31, 2004, the Company's accumulated postretirement
benefit obligation totaled $322,000. Prior to January 1, 2004, the Company
amortized its transition obligation over the remaining life expectancy of the
participants, which equated to an annual rate of $23,000. Effective January 1,
2004, the Company revised the life expectancy of the participants in the
prescription drug program and, as a result, the Company began to amortize its
unamortized transition obligation at the rate of $20,000 per year during 2004.
The Company measures its post-retirement benefit obligation on January 1 of each
year.
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003
(the "Act") became law on December 8, 2003. The Act provides for a prescription
drug benefit under Medicare Part D and contains a federal subsidy, effective
January 1, 2006, to plan sponsors who provide actuarially equivalent
prescription drug benefit to retirees. The Company has not yet determined if the
prescription drug benefit it provides to a closed group of retirees is
actuarially equivalent to the benefits provided for in the Act. As a result, the
possible effects of the Act are not reflected in the obligations or net annual
- 19 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
postretirement benefit cost set forth below. During 2004 and 2003, the Company
paid $14,000 and $15,000, respectively, for retiree prescription drug benefits.
A reconciliation of the changes in the Company's post-retirement
obligations at December 31, 2004 and 2003, is set forth below (dollar amounts in
thousands):
DECEMBER 31
----------------
2004 2003
------ ------
Accumulated postretirement benefit obligation at
beginning of year $ 332 $ 411
Interest cost 19 26
Benefits paid (36) (43)
Actuarial loss (gain) 7 (62)
------ ------
Accumulated postretirement benefit obligation at
end of year 322 332
Plan assets at fair market value - -
------ ------
Unfunded accumulated postretirement benefit obligation
at end of year 322 332
Unrecognized transition obligation (79) (99)
Unrecognized net gain 52 64
------ ------
Accrued benefit cost $ 295 $ 297
====== ======
Net annual postretirement benefit costs for 2004, 2003, and 2002, are
summarized below (dollar amounts in thousands):
YEARS ENDED DECEMBER 31
--------------------------
2004 2003 2002
------ ------ ------
Interest cost $ 19 $ 26 $ 28
Net amortization and deferral 15 22 54
------ ------ ------
Net annual postretirement benefit cost $ 34 $ 48 $ 82
====== ====== ======
The weighted-average annual rate of increase in the per capita cost of
covered benefits for the prescription drug card program is assumed to be 10% in
2005 and is projected to decrease gradually thereafter until it reaches 5% in
2012. Changing the assumed rate of increase in the prescription drug cost by one
percentage point in each year would not have a significant effect on the
accumulated postretirement benefit obligation. The Company's program to fund
certain insurance premiums for retirees of one of its divisions has a defined
dollar benefit and is therefore unaffected by increases in health care costs.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation at December 31, 2004 and 2003, was 6% and
6 1/4%, respectively.
NOTE 8 -- INCOME TAXES
Income taxes are accounted for in accordance with Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." The Company
- 20 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
files a consolidated federal income tax return with its wholly-owned subsidiary.
Deferred tax assets are reduced by a valuation allowance if, based on the weight
of available evidence, it is more likely than not that some portion or all of
the deferred tax assets will not be realized.
The components of the provisions for income taxes related to continuing
operations in 2004, 2003, and 2002, are set forth below (dollar amounts in
thousands):
YEARS ENDED DECEMBER 31
-------------------------------
2004 2003 2002
------- ------- -------
Current:
Federal $ (328) $ - $ (643)
State 132 76 105
------- ------- -------
(196) 76 (538)
Deferred:
Federal - - -
------- ------- -------
Income tax provision (benefit) $ (196) $ 76 $ (538)
======= ======= =======
The federal income tax benefit recorded during 2004, consisted of an
adjustment of previously recorded federal income tax liabilities.
The federal income tax benefit recorded during 2002 resulted from a refund
of alternative minimum taxes totaling $643,000 that were paid in earlier
periods.
Excluding the receipt of refunds of prior years' income taxes, income
taxes paid during 2004, 2003, and 2002 totaled $84,000, $103,000, and $80,000,
respectively.
The difference between the Company's income tax provision (benefit) for
income (loss) from operations in 2004, 2003, and 2002 and the income taxes that
would have been payable at the federal statutory rate for income (loss) from
operations is reconciled as follows (dollar amounts in thousands):
YEARS ENDED DECEMBER 31
-----------------------------------
2004 2003 2002
--------- --------- ---------
Federal statutory income tax provision $ 1,564 $ (501) $ (241)
Change in valuation allowance (1,542) 718 (409)
Adjustment of tax liabilities (328)
Nondeductible goodwill - 16 -
State income taxes, net of federal benefit 87 50 78
Other 23 (207) 34
--------- --------- ---------
Income tax provision (benefit) $ (196) $ 76 $ (538)
========= ========= =========
- 21 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth the Company's deferred tax assets and deferred
tax liabilities at December 31, 2004 and 2003 (dollar amounts in thousands):
DECEMBER 31
---------------------
2004 2003
-------- ---------
Deferred tax assets:
Net operating losses and tax credit carryforwards:
Federal net operating losses $ 5,566 $ 6,714
State net operating losses 1,852 1,942
Federal alternative minimum taxes 864 864
Investment tax credit 100 100
Other tax credit 81 81
-------- ---------
Total tax carryforwards 8,463 9,701
Deductible temporary differences:
Impairment of long-lived assets 693 693
Accounts receivable and inventory reserves 470 520
Tax inventory over book 193 159
Compensation accruals 542 318
Other accruals 398 381
Other 129 118
-------- ---------
Total deferred tax assets 10,888 11,890
Valuation allowance (8,121) (8,925)
-------- ---------
Net deferred tax assets 2,767 2,965
Deferred tax liabilities:
Tax over book depreciation 2,767 2,965
-------- ---------
Net deferred taxes $ - $ -
======== =========
During 2004, the Company's valuation allowance decreased by $804,000,
primarily due to the net income reported by the Company for calendar 2004.
At December 31, 2004, the Company had net operating loss carryforwards for
federal income tax purposes of $16,370,000, which expire in the years 2005
through 2022, alternative minimum tax net operating loss carryforwards of
$7,838,000, which can be used to reduce future taxable income for purposes of
calculating alternative minimum taxable income, if any, without any time
limitation, and alternative minimum tax credit carryforwards of $864,000, which
can be used to offset future payments of regular federal income taxes, if any,
without any time limitation.
- 22 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The expiration of the Company's federal net operating loss carryforwards
by year of expiration is set forth in the table below (dollar amounts in
thousands):
2005 $ 319
2006 3,473
2007 1,246
2008 -
2009 -
Thereafter 11,332
----------
Total federal net operating loss
carryforwards $ 16,370
==========
NOTE 9 -- SEGMENTS
DESCRIPTION OF SEGMENTS AND PRODUCTS
The Company has two operating segments, the Rubber Group and the Metals
Group. The Rubber Group produces seals used in automotive wiring systems,
insulators for automotive ignition wire sets, and components for medical
devices. The Metals Group machines components from aluminum, brass, and steel
bars for sale primarily to automotive suppliers. During 2004, the Company
committed to a plan to discontinue the operations of its die casting division,
which is one of two operating units that comprise the Metals Group segment. In
the following table, information related to the die casting division has been
excluded. The Rubber Group and the Metals Group conduct substantially all of
their business in the continental United States. At December 31, 2004,
approximately 34.9% of the Company's employees were subject to collective
bargaining agreements that expire in 2007 and 2008.
MEASUREMENT OF SEGMENT PROFIT OR LOSS
The Company evaluates its performance based upon several measures,
including income from operations, EBITDA, and asset utilization.
The accounting policies of the Company's operating segments are the same
as those described in Note 1, "Summary of Significant Accounting Policies,"
except that debt, deferred financing expenses, interest expense, and income tax
expense are recorded at the Corporate Office. Also, Corporate Office expenses
that are not considered direct expenses of the Rubber Group or the Metals Group
are not allocated to those segments.
FACTORS MANAGEMENT USED TO IDENTIFY REPORTABLE SEGMENTS
Although all of the Company's production facilities are similar
manufacturing operations, selling to similar customers, the Company presents
financial data for the Rubber Group and the Metals Group because of the
significant difference in financial performance between those businesses.
INDUSTRY CONCENTRATION; RELIANCE ON LARGE CUSTOMERS AND CREDIT RISK
During 2004, 2003, and 2002, net sales from continuing operations to
customers in the automotive industry totaled $97,902,000, $97,146,000, and
$96,458,000, respectively, which represented 88.7%, 85.8%, and 85.9%,
respectively, of the Company's net sales. At December 31, 2004 and 2003,
- 23 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
accounts receivable from automotive industry customers totaled $15,248,000 and
$15,166,000, respectively. The Company operates primarily in the domestic
automotive market, which has been characterized by intense price competition and
increasing customer requirements for quality and service. These factors, among
others, may have a sudden and an adverse affect on the operating results and
financial condition of the Company's customers, and, in turn, the collectibility
of the Company's accounts receivable from those customers. The Company attempts
to mitigate this risk of loss through ongoing evaluations of automotive market
conditions, examinations of customer financial statements, and discussions with
customer management as deemed necessary. Provisions for credit losses are based
upon historical experience and such ongoing evaluations of the financial
condition of the Company's customers. The Company generally does not require
collateral from its customers to support the extension of trade credit. At
December 31, 2004 and 2003, the Company had reserves for credit losses of
$537,000 and $545,000, respectively. At December 31, 2004 and 2003, accounts
receivable from automotive industry customers of discontinued operations totaled
$1,227,000 and $1,552,000, respectively.
During 2004, 2003, and 2002, the Company's net sales to Delphi
Corporation, totaled $23,413,000, $24,591,000, and $25,181,000. Substantially
all of the Company's net sales to Delphi during the three years ended December
31, 2004, were made by the Rubber Group. Sales to Delphi in 2004, 2003, and
2002, represented 21.2%, 21.7%, and 22.4%, respectively, of the Company's net
sales and 23.5%, 23.4%, and 25.1%, respectively, of the Rubber Group's net
sales. At December 31, 2004, 2003, and 2002, accounts receivable due from Delphi
represented 23.8%, 23.3%, and 26.8% of the Company's total trade receivable
balances. During 2004 and 2003, net sales to General Cable Corporation totaled
$11,636,000 and $11,802,000 or 10.5% and 10.4%, respectively, of the Company's
net sales, and 11.7% and 11.4%, respectively, of the Rubber Group's net sales.
No other customer accounted for more than 10% of the Company's net sales during
2004, 2003, or 2002. In 2004, the three largest customers of the Rubber Group,
including Delphi, accounted for 44.6% of the Rubber Group's net sales and, at
December 31, 2004, 43.2% of the Company's total trade receivable balances. In
2004, the three largest customers of the continuing operations of the Metals
Group accounted for 61.3% of the Metals Group's net sales and, at December 31,
2004, 9.3% of the Company's total trade receivable balances. Loss of a
significant amount of business from Delphi, General Cable, or any of the
Company's other large customers would have a material adverse effect on the
Company if such business were not substantially replaced by additional business
from existing or new customers. In addition, the Company's results of operations
could be materially adversely affected if Delphi, General Cable, or any of the
Company's other large customers experience financial difficulties that cause
them to delay or fail to make payments for goods sold to them.
Net sales to Delphi of connector seals for automotive wiring harnesses
totaled $19,802,000, $20,227,000, and $21,147,000 during 2004, 2003, and 2002,
respectively. Since July 2001, substantially all of the connector seals that the
Company has sold to Delphi were sold pursuant to a supply agreement that was
scheduled to expire on December 31, 2004.
During 2004, Delphi advised the Company that it planned to insource during
2005, approximately 36 high-volume connector seals that were then being produced
by the Company's Lexington Connector Seals division, and asked the Company to
provide a proposal to continue to manufacture the remaining connector seals then
being supplied to Delphi by the connector seals division. On November 22, 2004,
Delphi and the connector seals division entered into an agreement pursuant to
which Delphi agreed to purchase from the division 100% of its requirements
through December 31, 2009, for all connector seals not scheduled to be insourced
and 100% of its requirements through various dates in 2005 for the connector
seals scheduled to be insourced. The Company estimates that if the 36 connector
seals had been
- 24 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
in-sourced by Delphi on January 1, 2004, its net sales and income from
operations for 2004 would have been reduced by approximately $8,624,000 and
$840,000, respectively. Pursuant to the agreement, the connector seals division
will receive price increases effective January 1, 2005 on the remaining parts
supplied to Delphi, which are expected to offset a significant portion of the
profit lost due to the in-sourcing. The Company is currently restructuring the
operations of the connector seals division to reduce expenses and further
mitigate the impact of the reduced volume. The restructuring of the connector
seals division will include, among other things, the closing of one of its
existing manufacturing facilities.
CORPORATE OFFICE
The net loss from operations at the Corporate Office consists primarily of
general administrative expenses that are not a result of any activity carried on
by either the Rubber Group or the Metals Group. Corporate Office expenses
include the compensation and benefits of the Company's executive officers and
corporate staff, rent on the office space occupied by these individuals, general
corporate legal fees, including fees related to financings, and certain
insurance expenses. Assets of the Corporate Office are primarily cash, certain
prepaid expenses and other miscellaneous current assets, deferred tax assets,
and deferred financing expenses.
- 25 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEGMENT FINANCIAL DATA
Information relating to the Company's operating segments and the Corporate
Office for 2004, 2003, and 2002 is summarized below (dollar amounts in
thousands):
YEARS ENDED DECEMBER 31
---------------------------------------
2004 2003 2002
--------- ---------- ----------
NET SALES:
Rubber Group $ 99,565 $ 103,243 $ 98,880
Metals Group 10,788 9,988 13,483
--------- ---------- ----------
Total net sales $ 110,353 $ 113,231 $ 112,363
========= ========== ==========
INCOME (LOSS) FROM OPERATIONS (1):
Rubber Group $ 9,865 $ 10,026 $ 10,765
Metals Group (2,788) (1,840) (2,099)
--------- ---------- ----------
Subtotal 7,077 8,166 8,666
Corporate Office (2,411) (2,679) (2,464)
--------- ---------- ----------
Total income from operations $ 4,666 $ 5,507 $ 6,202
========= ========== ==========
DEPRECIATION AND AMORTIZATION (2):
Rubber Group $ 6,929 $ 7,121 $ 7,786
Metals Group 1,476 1,796 2,408
--------- ---------- ----------
Subtotal 8,405 8,919 10,194
Corporate Office 39 38 53
--------- ---------- ----------
Total depreciation and amortization $ 8,444 $ 8,955 $ 10,247
========= ========== ==========
CAPITAL EXPENDITURES (3):
Rubber Group $ 5,277 $ 4,873 $ 3,690
Metals Group 773 799 319
--------- ---------- ----------
Subtotal 6,050 5,672 4,009
Corporate Office 7 14 4
--------- ---------- ----------
Total capital expenditures $ 6,057 $ 5,686 $ 4,013
========= ========== ==========
ASSETS:
Rubber Group $ 60,377 $ 61,953 $ 64,439
Metals Group 9,872 10,231 11,702
--------- ---------- ----------
Subtotal 70,249 72,184 76,141
Corporate Office 3,352 4,111 5,252
Discontinued operations 4,776 7,392 10,752
--------- ---------- ----------
Total assets $ 78,377 $ 83,687 $ 92,145
========= ========== ==========
(1) During 2003, the loss from operations at the Metals Group includes a
provision of $47,000 to write off goodwill. During 2002, the loss from
operations at the Metals Group includes costs of $609,000 incurred to
close the Metals Group's metal machining facility in Arizona, and
$1,290,000 of other losses related to the Arizona facility.
(2) Excludes amortization of deferred financing expenses, which totaled
$1,098,000, $610,000, and $440,000, during 2004, 2003, and 2002,
respectively, and which is included in interest expense in the
consolidated financial statements.
(3) Capital expenditures for 2004, included $144,000 of equipment
purchased under capitalized lease obligations and $198,000 of equipment
acquired with seller-provided financing. Capital expenditures for 2003
included $720,000 of equipment purchased under capital lease
obligations. Capital expenditures for 2002 included $365,000 of
equipment purchased under capitalized lease obligations and $247,000 of
equipment acquired with seller-provided financing.
- 26 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 -- NET INCOME (LOSS) PER COMMON SHARE
The calculations of basic and diluted net income (loss) per common share
for 2004, 2003, and 2002, are set forth below (in thousands, except per share
amounts). The assumed conversion of the Series B Preferred Stock and the assumed
exercise of outstanding warrants to purchase the Company's common stock, which
were issued on December 18, 2003, were not dilutive. As a result, the weighted
average number of outstanding common shares used in the calculation of net
income (loss) per common share set forth below does not reflect the assumed
conversion of the Series B Preferred Stock or the assumed exercise of the
warrants.
During 2003, the Company's loss per share calculation reflected dividends
on the Series B Preferred Stock totaling $106,000. If the Company had paid
dividends on the Series B Preferred Stock during 2002, the Company's net loss
per share would have been increased by one cent per share. Dividends and
redemptions accruing on the Series B preferred stock subsequent to the adoption
of FAS 150 by the Company on July 1, 2003, are classified as interest expense in
the Company's consolidated statements of operations.
YEARS ENDED DECEMBER 31
-------------------------------
2004 2003 2002
-------- -------- --------
Numerator for basic and diluted earnings per share:
Income (loss) from continuing operations before
deducting preferred stock dividends $ 4,798 $ (1,549) $ (170)
Less: preferred stock dividends - 106 -
-------- -------- --------
Income (loss) from continuing operations after
deducting preferred stock dividends 4,798 (1,655) (170)
Loss from discontinued operations (3,208) (4,653) (1,397)
Cumulative effect of a change in accounting principle - (247) -
-------- -------- --------
Net income (loss) applicable to common stockholders $ 1,590 $ (6,555) $ (1,567)
======== ======== ========
Denominator - weighted average shares outstanding 4,932 4,832 4,828
======== ======== ========
Basic and diluted income (loss) per share of common stock:
Continuing operations $ 0.97 $ (0.35) $ (0.03)
Discontinued operations (0.65) (0.96) (0.29)
Cumulative effect of a change in accounting principle - (0.05) -
-------- -------- --------
Net income (loss) $ 0.32 $ (1.36) $ (0.32)
======== ======== ========
- 27 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
PURCHASE COMMITMENTS
At December 31, 2004, the Company had outstanding commitments to purchase
equipment of $341,000.
LEASES
The Company is lessee under various operating leases relating to storage
and office space, temporary office units, and equipment. Total rent expense
under operating leases from continuing operations aggregated $440,000, $395,000,
and $419,000 for 2004, 2003, and 2002, respectively. At December 31, 2004,
future minimum lease commitments under noncancelable operating leases from
continuing operations totaled $226,000, $109,000, and $54,000 for 2005, 2006,
and 2007, respectively. Commitments subsequent to 2007 are not significant.
LEGAL ACTIONS
The Company is subject to various claims and legal proceedings covering a
wide range of matters that arise in the ordinary course of its business
activities. It is the Company's policy to record accruals for such matters when
a loss is deemed probable and the amount of such loss can be reasonably
estimated. The various actions to which the Company is or may in the future be a
party are at various stages of completion. Although there can be no assurance as
to the outcome of existing or potential litigation, the Company believes, based
upon the information currently available to it, that the outcome of such actions
will not have a material adverse effect upon its financial position.
OTHER
The Company maintains insurance coverage for certain aspects of its
business and operations. Based on the Company's evaluation of the various risks
to which it may be exposed, the Company has elected to retain a portion of the
potential losses that it could experience in the future through the use of
various deductibles, limits, and retentions. These forms of self-insurance
subject the Company to possible future liability for which it is partially or
completely uninsured. Although there can be no assurance that it will be
successful in its efforts, the Company attempts to limit future liability
through, among other things, the ongoing training and education of its
employees, the implementation of safety programs, the ongoing testing and
evaluation of the safety and suitability of its workplace environments, the
development of sound business practices, and the exercise of care and judgment
in the negotiation of contracts.
NOTE 12 -- RELATED PARTIES
The Chairman of the Board and the President of the Company, Michael A.
Lubin and Warren Delano, are the Company's two largest stockholders, with
beneficial ownership of 32.7% and 28.3%, respectively, of the Company's common
stock. They are also the holders of the 13% Junior Subordinated Note, and,
together with affiliates and associates, the holders of $2,831,000 principal
amount of 12% Senior Subordinated Notes. In December 2003, Messrs. Delano and
Lubin converted accrued interest of $235,000 on the Company's junior
subordinated notes into 103,731 shares of common stock.
- 28 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 2004, Messrs. Delano and Lubin, through an investment banking firm of
which they are the only partners, were paid $700,000 to provide management and
investment banking services. Additionally, Messrs. Delano and Lubin may receive
incentive compensation tied to the Company's operating performance and other
compensation for specific transactions completed by the Company with the
assistance of Messrs. Lubin and Delano. The Company also has agreed to reimburse
their firm for certain out-of-pocket expenses. During each of 2003 and 2002, the
Company paid the Messrs. Lubin and Delano fees of $500,000. During 2004, 2003,
and 2002, the Company reimbursed their firm for expenses of $163,000, $200,000,
and $196,000, respectively.
For more information on the compensation of Messrs. Delano and Lubin,
refer to the Company's proxy statement to be issued in connection with its
Annual Meeting of Stockholders and to be filed during April, 2005.
NOTE 13 -- GAIN ON THE REPURCHASE OF DEBT
During 2004, the Company recognized $8,598,000 of aggregate gains on the
repurchase of its debt.
REPURCHASE OF 10 1/2% SENIOR, UNSECURED NOTE
During the second quarter of 2004, the Company recognized a pre-tax gain
of $3,252,000 on the repurchase of its $7,500,000 10 1/2% senior, unsecured note
and all accrued interest thereon. Although the Company repurchased the senior,
unsecured note on December 18, 2003, the gain on the repurchase of the senior,
unsecured note was deferred and recorded, at December 31, 2003, in current
liabilities as "deferred gain on repurchase of debt" because the agreement
governing the repurchase of the note provided that the claim could be reinstated
if certain events occurred prior to April 20, 2004. Because none of these events
occurred prior to April 20, 2004, the Company recognized the pre-tax gain during
the three-month period ended June 30, 2004.
REPURCHASE OF 12% SENIOR SUBORDINATED NOTES
On October 1, 2004, the Company repurchased a total of $8,264,000
principal amount of its 12% Senior Subordinated Notes plus interest accrued
thereon at an aggregate cost of $2,892,000. After the write-off of deferred
financing expenses of $192,000, the Company realized a pre-tax gain on the
repurchase of $5,346,000. The purchased 12% Senior Subordinated Notes have been
cancelled and retired.
- 29 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 -- DISCONTINUED OPERATIONS
During 2002 and 2003, the Company's die casting division, which was one of
two operating units that comprised the Company's Metals Group segment,
experienced negative gross profit margins. At December 31, 2003, the Company
reassessed the division's business and reduced its overall expectations for the
division's future financial performance. As a result, the Company reviewed the
long-lived assets of the die casting division for impairment as of December 31,
2003, under the provisions of Statement of Financial Accounting Standards
No.144, "Accounting for Impairment or Disposal of Long-Lived Assets" ("FAS
144"). The Company determined that the undiscounted, projected cash flow of the
division was less than the carrying value of the long-lived assets being tested.
As a result, the Company concluded that the long-lived assets of this division,
which had a carrying value of $7,131,000, were impaired and the Company wrote
them down to their estimated fair value of $4,704,000, recording a non-cash,
pre-tax impairment charge of $2,427,000 at December 31, 2003. Fair value was
based primarily on independent appraisals of the long-lived assets.
In September 2004, as a result of continued poor operating performance and
reduced expectations for the division's future financial performance, the
Company committed to a plan to discontinue the operations of the die casting
division. In the fourth quarter of 2004, the Company initiated a program to sell
the assets or business of the die casting division. If a sale of the entire
business does not occur during the first half of 2005, the Company plans to
close the operations of the die casting division during the second quarter of
2005, after fulfilling certain agreed-upon customer purchase orders.
Accordingly, pursuant to FAS 144, the carrying value of the assets of the die
casting division have been adjusted to the Company's estimate of the fair value
of such assets, which approximates the projected proceeds to be realized on the
disposition of the assets, net of estimated selling costs. As a result, the
Company recognized a pretax impairment charge of $1,595,000 during 2004.
In accordance with Financial Accounting Standards Board Emerging Issue
Task force Abstract No. 87-24, "Allocation of Interest to Discontinued
Operations" ("EITF 87-24"), the Company has allocated interest to the
discontinued operations based on the debt that would be required to be repaid
using management's estimate of the proceeds to be realized on the anticipated
sale of the die casting assets. No allocation was made to the die casting
division for any other interest or for any corporate office expenses. Interest
expense allocated to the die casting division totaled $241,000, $69,000, and
$62,000 for 2004, 2003, and 2002, respectively.
- 30 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes certain operating data of the die casting
division for 2004, 2003, and 2002 (dollar amounts in thousands):
YEARS ENDED DECEMBER 31
------------------------------
2004 2003 2002
-------- -------- --------
Net sales $ 9,096 $ 8,385 $ 12,489
======== ======== ========
Loss from operations before asset impairment charge $ (1,372) $ (1,996) $ (1,335)
Impairment of long-lived assets (1,595) (2,427) -
Impairment of goodwill - (161) -
-------- -------- --------
Loss from operations of discontinued operations (2,967) (4,584) (1,335)
Allocated interest expense 241 69 62
-------- -------- --------
Loss before income tax (3,208) (4,653) (1,397)
Income tax - - -
-------- -------- --------
Loss from discontinued operations (3,208) (4,653) (1,397)
Add back: depreciation and amortization 666 1,324 1,618
interest expense 241 69 62
-------- -------- --------
EBITDA from discontinued operations $ (2,301) $ (3,260) $ 283
======== ======== ========
The following table sets forth the assets and liabilities of the die
casting division in our consolidated balance sheets at December 31, 2004 and
2003 (dollar amounts in thousands):
DECEMBER 31
--------------------
2004 2003
-------- --------
ASSETS:
Current assets:
Cash $ - $ 11
Accounts receivable, net 1,056 1,394
Inventories, net 695 894
Prepaid expenses and other current assets 240 388
Other assets, net 31 267
-------- --------
Current assets 2,022 2,954
Plant and equipment, net (1) 2,754 4,438
-------- --------
Assets of discontinued operations $ 4,776 $ 7,392
======== ========
LIABILITIES (2):
Current liabilities:
Accounts payable $ 615 $ 516
Accrued expenses 179 166
Other liabilities - 93
-------- --------
Liabilities of discontinued operations $ 794 $ 775
======== ========
- 31 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Under the terms of our secured loan agreements, we are required to use
proceeds from the sale of property, plant and equipment to pay down the
indebtedness collateralized by such property, plant, and equipment.
(2) Liabilities do not include debt for money borrowed by us that is secured
by assets of the division.
NOTE 15 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly unaudited financial data for the eight fiscal quarters ended
December 31, 2004, is set forth below (dollar amounts in thousands, except per
share amounts).
QUARTERS ENDED 2004
---------------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- -------- --------
Net sales $ 30,607 $ 29,474 $ 25,880 $ 24,392
======== ======== ======== ========
Gross profit $ 4,146 $ 3,093 $ 2,817 $ 1,993
======== ======== ======== ========
Income (loss) from continuing operations $ 103 $ 2,139 $ (1,194) $ 3,750
Loss from discontinued operations (259) (857) (1,525) (567)
-------- -------- -------- --------
Net income (loss) $ (156) $ 1,282 $ (2,719) $ 3,183
======== ======== ======== ========
Basic and diluted income (loss) per share of
common stock:
Continuing operations $ 0.02 $ 0.42 $ (0.25) $ 0.76
Discontinued operations (0.05) (0.16) (0.30) (0.11)
-------- -------- -------- --------
Net income (loss) $ (0.03) $ 0.26 $ (0.55) $ 0.65
======== ======== ======== ========
QUARTERS ENDED 2003
---------------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- -------- --------
Net sales $ 29,949 $ 28,925 $ 26,551 $ 27,806
======== ======== ======== ========
Gross profit $ 3,853 $ 3,700 $ 2,334 $ 3,571
======== ======== ======== ========
Income (loss) from continuing operations $ 158 $ (65) $ (1,262) $ (380)
Loss from discontinued operations (327) (609) (454) (3,263)
Cumulative effect of a change in accounting principle - - (247) -
-------- -------- -------- --------
Net income (loss) $ (169) $ (674) $ (1,963) $ (3,643)
======== ======== ======== ========
Basic and diluted income (loss) per share of
common stock
Continuing operations $ 0.02 $ (0.02) $ (0.26) $ (0.10)
Discontinued operations (0.06) (0.12) (0.10) (0.67)
Cumulative effect of a change in accounting
principle - - (0.05) -
-------- -------- -------- --------
Net income (loss) $ (0.04) $ (0.14) $ (0.41) $ (0.77)
======== ======== ======== ========
Results of the discontinued operations for the third and fourth quarters
of 2004, included non-cash, pre-tax impairment charges of $928,000 and $667,000,
respectively, to reduce the carrying value of the assets of the discontinued die
casting division to management's estimate of the current fair value of such
assets, which approximates the projected proceeds to be realized on the
disposition of the assets, net of selling costs.
- 32 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Results of the discontinued operations for the fourth quarter of 2003,
included a non-cash, pre-tax impairment charge of $161,000 to write off its
unamortized goodwill and a non-cash, pre-tax charge of $2,427,000 to write down
to fair value the long-lived assets of the discontinued die casting division.
- 33 -
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
LEXINGTON PRECISION CORPORATION
(Registrant)
April 5, 2005 By: /s/ Dennis J. Welhouse
------------------------------------------
Dennis J. Welhouse, Senior Vice President,
Chief Financial Officer, and Secretary
- 34 -