1
======================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-3252
LEXINGTON PRECISION CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 22-1830121
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
767 THIRD AVENUE, NEW YORK, NY 10017
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 319-4657
___________________________
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.25 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 28, 1995 was approximately $3,085,000.
The number of shares outstanding of the registrant's common stock as of
February 28, 1995 was 4,203,036.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement to be issued in connection with
its 1995 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.
======================================================================
2
LEXINGTON PRECISION CORPORATION
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PAGE
----
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . 6
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . 20
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . 43
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . 43
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . 43
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . 44
3
PART I
ITEM 1. BUSINESS
Lexington Precision Corporation (the "Company") is a Delaware
corporation which was incorporated in 1966. The Company manufactures, to
customer specifications, rubber and metal component parts used primarily by
manufacturers of automobiles, automotive replacement parts, computers, office
equipment, medical devices, home appliances and industrial equipment. The
Company's business is conducted primarily in the continental United States.
Unless the context otherwise requires, all references herein to the Company are
to Lexington Precision Corporation and its wholly-owned subsidiary, Lexington
Components, Inc. ("LCI").
RUBBER GROUP
The Company's Rubber Group manufactures, to customer specifications,
close tolerance silicone and organic rubber components. The Group conducts its
business through four operating divisions of LCI.
PRECISION SEALS DIVISION. The Precision Seals Division manufactures
molded rubber seals used in primary wire harnesses for automobiles and trucks.
Primary wire harnesses distribute electrical power to interior and exterior
lighting fixtures, electrically powered accessories and other electrical
equipment. The seals are used to assure the integrity of the many connections
which are required throughout the harnesses. The Division's largest customer
is Delphi Packard Electric Systems, a division of General Motors Corporation
("Delphi Packard Electric").
ELECTRICAL INSULATOR DIVISION. The Electrical Insulator Division
manufactures molded rubber insulators used in ignition wire harnesses for
automobiles and trucks. Insulators are used to shield the electrical
connections made by the ignition wire at the distributor and at the spark plug.
Approximately 30% of the insulators manufactured by the Division are used in
new vehicles, primarily those manufactured by Ford Motor Company and Chrysler
Corporation, with the balance used in automotive replacement parts.
LEXINGTON MEDICAL DIVISION. The Lexington Medical Division manufactures
molded rubber components which are used in a variety of medical devices, such
as syringes, laparoscopic instruments, catheters and intravenous feeding
systems.
EXTRUDED AND LATHE CUT PRODUCTS DIVISION. The Extruded and Lathe Cut
Products Division manufactures extruded rubber components which are used
primarily by manufacturers of industrial equipment, lighting products and home
appliances.
METALS GROUP
The Company's Metals Group manufactures, to customer specifications,
close tolerance metal components. The Group conducts its business through
Falconer Die Casting Company ("Falconer") and Ness Precision Products ("Ness"),
both of which are divisions of the Company.
FALCONER DIE CASTING COMPANY. Falconer manufactures aluminum,
magnesium and zinc die castings used primarily by manufacturers of computers,
office equipment, leisure time equipment, communications equipment, industrial
equipment and automobiles. Many of the die castings which are
-1-
4
produced by Falconer are also machined by Falconer using computer-controlled
machining centers and other secondary machining equipment.
NESS PRECISION PRODUCTS. Ness produces precision-machined aluminum,
brass and stainless steel components used primarily by manufacturers of
automobiles, home appliances, office equipment, communications equipment and
industrial equipment. In 1994, approximately half of the revenues of Ness were
generated by sales of components for automotive air bag systems.
PRINCIPAL END USES FOR THE COMPANY'S PRODUCTS
The following table summarizes net sales of the Rubber Group and the
Metals Group during 1994, 1993 and 1992 by the type of product in which the
Company's components were utilized (in thousands of dollars):
1994 1993 1992
------------- ------------- -------------
Rubber Group:
Automobiles and light trucks $37,584 80.2% $32,761 81.1% $26,018 78.3%
Medical devices 5,536 11.8 3,946 9.8 3,345 10.1
Other 3,748 8.0 3,681 9.1 3,865 11.6
------- ----- ------- ----- ------- -----
$46,868 100.0% $40,388 100.0% $33,228 100.0%
======= ===== ======= ===== ======= =====
Metals Group:
Automobiles and light trucks $15,421 37.0% $12,452 36.0% $ 8,578 26.8%
Industrial equipment 9,083 21.8 6,207 17.9 7,472 23.4
Leisure time equipment
and home appliances 7,871 18.9 6,712 19.4 6,953 21.7
Computers and office equipment 6,800 16.3 5,351 15.5 5,182 16.3
Other 2,489 6.0 3,866 11.2 3,788 11.8
------- ----- ------- ----- ------- -----
$41,664 100.0% $34,588 100.0% $31,973 100.0%
======= ===== ======= ===== ======= =====
(For additional information concerning the Rubber Group and the Metals
Group, see Note 11 to the Consolidated Financial Statements in Part II, Item
8.)
MARKETING AND SALES
The marketing and sales effort within the Rubber Group is carried out by
management personnel and internal sales personnel. The marketing and sales
effort within the Metals Group is carried out by management personnel, internal
sales personnel and independent sales representatives.
RAW MATERIALS
Each of the principal raw materials used by the Company is available at
competitive prices from several major manufacturers. All raw materials have
been readily available and the Company does not foresee any significant
shortages.
-2-
5
SEASONAL VARIATIONS
The Company's business generally is not subject to significant seasonal
variations.
MAJOR CUSTOMERS
Net sales to two customers of the Rubber Group accounted for 26.7%,
27.4% and 27.2% of the Company's total net sales during 1994, 1993 and 1992,
respectively. During such years, net sales to Delphi Packard Electric
accounted for 20.6%, 22.3% and 20.4%, respectively, of the Company's total net
sales. During 1994, 1993 and 1992, net sales to one customer of the Metals
Group, TRW Vehicle Safety Systems, Inc. ("TRW VSSI"), accounted for 13.0%,
11.8% and 9.0%, respectively, of the Company's total net sales. Sales to TRW
VSSI consisted primarily of sales of one component part. Loss of a significant
amount of business from any of the Company's three largest customers would have
a material adverse effect on the business of the affected Group and the Company
as a whole if such business were not replaced by additional business from
existing or new customers. (See also "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in Part II, Item 7.)
BACKLOG
The Company's backlog of customer orders includes orders which have
scheduled shipping dates and orders which do not have scheduled shipping dates
but which, based upon historical experience, the Company anticipates will be
produced and shipped within one year. Orders included in such backlog may be
subject to cancellation or postponement by customers, however, based upon past
experience, the Company expects to ship during 1995 substantially all of the
orders which were included in the backlog as of December 31, 1994. The Company
believes that its order backlog is not necessarily indicative of future net
sales levels. The following table sets forth the backlog of orders for the
Rubber Group and the Metals Group (in thousands of dollars):
DECEMBER 31,
-----------------------
1994 1993
------- -------
Rubber Group $ 7,976 $ 6,271
Metals Group 19,057 15,696
------- -------
$27,033 $21,967
======= =======
COMPETITION
The Company competes for business primarily on the basis of quality,
service, technical and engineering capabilities and price. The Rubber Group
and the Metals Group encounter substantial competition from a large number of
manufacturing companies. Competitors range from small and medium-sized
specialized firms to large diversified companies, many of which have resources
substantially greater than those of the Company. Additionally, some of the
Company's customers have captive manufacturing operations which compete with
the Company.
PRODUCT LIABILITY RISKS
The Company is subject to potential product liability risks which are
inherent in the manufacture and sale of precision components, including
components of medical devices. Although there have been no
-3-
6
claims made to date against the Company which the Company believes will have a
material adverse effect upon its financial position, there can be no assurance
that any existing claims or any claims made in the future will not have a
material adverse effect upon the financial position of the Company. (For a
description of a product liability claim against LCI, see "Legal Proceedings"
in Part I, Item 3.)
ENVIRONMENTAL COMPLIANCE
The Company's operations are subject to numerous federal, state and
local laws and regulations controlling the discharge of materials into the
environment or otherwise relating to the protection of the environment.
Although the Company continues to make expenditures for the protection of the
environment, compliance with federal, state and local environmental regulations
has not had a significant impact on the capital spending requirements, earnings
or competitive position of the Company. There can be no assurance that changes
in environmental laws and regulations, or the interpretation or enforcement
thereof, will not require material expenditures by the Company in the future.
(See also "Legal Proceedings" in Part I, Item 3.)
EMPLOYEES
The breakdown of employees of the Company by industry group is set forth
below:
DECEMBER 31,
1994
-------------
Rubber Group 506
Metals Group 482
Corporate Office 4
---
992
===
Thirty hourly workers at one plant location within the Rubber Group are
subject to a collective bargaining agreement. Although certain of the
Company's facilities have experienced union organizing activity from time to
time, the Company believes that its employee relations are generally good.
-4-
7
ITEM 2. PROPERTIES
At December 31, 1994, the Company conducted its operations at eight
manufacturing plants located in the United States. In December 1994, the
Company acquired an additional manufacturing facility in LaGrange, Georgia, at
which production is expected to commence during the second quarter of 1995.
The following table sets forth the manufacturing facilities of the Rubber Group
and the Metals Group and the Company's corporate offices as of December 31,
1994:
Square
Feet
------
Rubber Group:
Blue Ridge, GA 35,000
Jasper, GA 65,000
LaGrange, GA 77,000 (1)(2)
Vienna, OH 60,000 (2)
Rock Hill, SC 60,000 (2)
-------
297,000
-------
Metals Group:
Casa Grande, AZ 26,000 (2)
Lakewood, NY 53,000
Manchester, NY 21,000
Rochester, NY 60,000 (3)
-------
160,000
-------
Corporate Offices:
New York, NY 3,000 (4)
Cleveland, OH 3,000 (5)
-------
463,000
=======
(1) Purchased in December 1994.
(2) Encumbered by mortgage.
(3) Leased from an industrial development authority pursuant to a
lease which expires in 2000 and provides the Company with an
option to purchase the facility at the end of the lease term
for nominal consideration.
(4) Provided to the Company by an affiliate pursuant to arrangements
under which the Company reimburses the affiliate for a portion
of the cost relating to this office.
(5) Leased.
All of the plants are well maintained, general manufacturing facilities
which are suitable for the Company's operations. Although the Company believes
that, to varying degrees, each of the Company's manufacturing facilities has
the flexibility to meet increased demand for the Company's products, the
Company currently plans to add approximately 62,000 square feet of
manufacturing space within the Rubber Group and approximately 95,000 square
feet of manufacturing space within the Metals Group during 1995.
ITEM 3. LEGAL PROCEEDINGS
During the fourth quarter of 1994, the Company settled an action
commenced on April 26, 1991 in New York Supreme Court, County of Chautauqua,
and previously reported in the Company's Annual Reports on Form 10-K for the
years ended December 31, 1991 through 1993, by the purchaser of certain assets
of
-5-
8
the Company's discontinued office furniture division. As part of the
settlement, the Company sold certain real estate to a designee of the purchaser
for $200,000 in cash. In addition, the Company and the purchaser agreed to
dismiss the action with prejudice and exchanged mutual releases. During the
fourth quarter of 1994, the Company recorded a pre-tax gain of $200,000
relating to the sale and settlement.
On December 3, 1993, Kingston Oil Supply Corp. ("Kingston") commenced a
third party action against, among others, LCI in New York Supreme Court,
Ulster County, alleging that LCI had manufactured a defective gasket used in a
furnace which leaked oil and caused damage to a party who has sued Kingston
seeking $2,000,000 in compensatory damages plus punitive damages. Kingston has
sought contribution or indemnification from LCI and other third party
defendants with respect to any judgment awarded against Kingston. LCI has
asserted a crossclaim in this action against the customer for whom LCI
manufactured the gasket, seeking indemnification in the event LCI is held
liable in the action. LCI intends to appeal a decision denying its motion for
summary judgment dismissing the complaint against LCI. A trial of the action
has been tentatively scheduled for April 1995. LCI intends to defend the
allegations against it vigorously. Based upon the information presently
available to the Company, the Company believes that the outcome of the action
will not have a material adverse effect upon its financial position.
The Company has been one of approximately 150 potentially responsible
parties under the federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("CERCLA"), for aggregate costs of
approximately $2,000,000 incurred by the Environmental Protection Agency
("EPA") in connection with, among other things, inventorying, sampling,
analyzing, removing and disposing of containerized hazardous substances found
at a site to which such substances had been transported from a hazardous
substance treatment and disposal facility. The Company and other potentially
responsible parties have entered into an Administrative Order on Consent with
the EPA settling the matter. The Company has paid its pro rata share of the
settlement in the amount of $6,000. The Order on Consent is currently pending
approval by the Department of Justice. It is not anticipated that the EPA will
take any further action with respect to the site.
The Company has been one of approximately 50 potentially responsible
parties under CERCLA for costs of approximately $1,000,000 incurred by the EPA
in connection with, among other things, inventorying, sampling, analyzing,
removing and disposing of containerized hazardous substances found at a
hazardous substance treatment and disposal facility. The Company and other
potentially responsible parties have entered into an Administrative Order on
Consent with the EPA settling the matter. The Company has paid its pro rata
share of the settlement in the amount of $15,000. The Order on Consent was
approved by the Department of Justice in November 1994.
The Company is a party to certain other legal actions arising in the
ordinary course of its business, including actions naming the Company as a
potentially responsible party or as a third-party defendant in cost recovery
actions initiated by the EPA pursuant to applicable sections of CERCLA. Based
upon the information presently available to the Company, the Company believes
that the ultimate outcome of these actions will not have a material adverse
effect upon its financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
-6-
9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock, held by approximately 1,100 holders of
record as of February 28, 1995, is traded in the over-the-counter market. The
Company's common stock has not been listed on the National Association of
Securities Dealers Automated Quotation System (NASDAQ) since May 24, 1991
because the Company has failed to meet applicable net worth requirements.
Trading of shares of the Company's common stock is limited. No material
trading data for the Company's common stock was publicly available for the
period January 1, 1993 through April 7, 1994. Since April 8, 1994, trading
information has been available from the OTC Bulletin Board provided by the
National Association of Securities Dealers (NASD). The following table sets
forth information regarding selling prices obtained from the OTC Bulletin
Board:
SELLING PRICES
--------------
PERIOD HIGH LOW
---------------- ------ ------
4/1/94 - 6/30/94 $3.00 $1.50
7/1/94 - 9/30/94 $2.50 $1.50
10/1/94-12/31/94 $2.50 $1.50
The Company is not able to determine whether or not retail mark-ups,
mark-downs or commissions were included in the above prices. The Company
believes that four brokerage firms currently make a market in the Company's
common stock, although both bid and asked quotations may at times be limited.
No dividends have been paid on the Company's common stock since 1979.
The future payment of dividends is dependent upon, among other things, the
earnings and capital requirements of the Company. The agreements pursuant to
which certain of the Company's indebtedness is outstanding contain provisions
limiting the Company's ability to make dividend payments on its common stock.
The most restrictive of such provisions would have permitted the Company to pay
$2,264,000 of dividends on its common stock as of December 31, 1994.
The Board of Directors intends, for the foreseeable future, to follow a
policy of retaining the Company's earnings in order to reduce the indebtedness
of the Company and finance the development and expansion of its business.
-7-
10
ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AND EMPLOYEE DATA)
Selected financial information of the Company is set forth below:
Years Ended December 31,
------------------------------------------------------------------
1994 1993 1992 (1) 1991 (1)(2) 1990 (1)(2)(3)
---- ---- ---- ---- ----
SELECTED STATEMENTS OF OPERATIONS DATA:
Net sales $ 88,532 $ 74,976 $ 65,201 $ 65,180 $ 69,584
======== ======== ========= ======== =========
Income/(loss) from continuing operations (4) $ 8,102 $ 6,347 $ 548 $ 3,965 $ (3,861)
Interest expense 6,272 5,496 5,041 5,867 6,096
Other income/(expense), net (4) 536 - - (56) 31
Provision/(credits) for income taxes 34 - - (396) (620)
-------- -------- --------- -------- ---------
Income/(loss) before discontinued operations
and extraordinary items 2,332 851 (4,493) (1,562) (9,306)
Discontinued operations - - - (209) (90)
Extraordinary items - - - 978 1,294
-------- -------- --------- -------- ---------
Net income/(loss) $ 2,332 $ 851 $ (4,493) $ (793) $ (8,102)
======== ======== ========= ======== =========
Per fully diluted share of common stock (5):
Income/(loss) before discontinued operations
and extraordinary items $ .51 $ .13 $ (1.11) $ (.39) $ (2.36)
Discontinued operations - - - (.05) (.02)
Extraordinary items - - - .24 .32
-------- -------- --------- -------- ---------
Net income/(loss) $ .51 $ .13 $ (1.11) $ (.20) $ (2.06)
======== ======== ========= ======== =========
OTHER DATA:
Average number of employees 968 860 883 905 1,075
Depreciation and amortization expenses $ 5,060 $ 4,297 $ 5,050 $ 5,216 $ 4,838
Capital expenditures $ 15,319 $ 6,288 $ 2,235 $ 613 $ 6,360
(Footnotes on following page) (Continued)
8
11
ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) (CONT.)
DECEMBER 31,
--------------------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
SELECTED BALANCE SHEET DATA:
Current assets $ 22,752 $ 15,715 $ 14,257 $ 15,211 $ 16,629
Current liabilities 24,429 12,733 51,224 50,940 58,684
--------- ---------- --------- ---------- ---------
Net working capital/(deficit) $ (1,677) $ 2,982 $ (36,967) $ (35,729) $ (42,055)
========= ========== ========= ========== =========
Total assets $ 67,396 $ 49,983 $ 45,584 $ 50,978 $ 55,450
Long-term debt, excluding current portion $ 49,627 $ 46,273 $ 3,795 $ 5,013 $ 981
Redeemable preferred stock at par value $ 555 $ 600 $ 735 $ 735 $ 735
Total stockholders' deficit $ (7,215) $ (9,623) $ (10,170) $ (5,710) $ (4,950)
<FN>
(1) In 1992, income/(loss) before discontinued operations and extraordinary
items included $1,113,000 for the amortization of and $2,132,000 for
the write-off of covenants not to compete. In each of 1991 and 1990,
income/(loss) before discontinued operations and extraordinary items
included $1,113,000 of amortization of the covenants not to compete.
(2) In 1991 and 1990, extraordinary items represented the gains on the
repurchase of $1,500,000 and $5,800,000 principal amount, respectively,
of the Company's 12-3/4% Subordinated Notes, due February 1, 1997.
(3) In 1990, income/(loss) before discontinued operations and extraordinary
items included a restructuring charge of $7,043,000.
(4) Effective for 1994, amortization of the excess of cost over net assets
of businesses acquired (goodwill) has been classified as an operating
expense. Previously, amortization of goodwill had been classified as
other expense. Prior period presentations have been reclassified to
conform to the current year's presentation. During each of the years
in the above table, amortization of goodwill totaled $316,000.
(5) In 1994, 1993, and 1990, fully diluted income/(loss) per common share
was reduced by $.02, $.07, and $.06, respectively, to reflect the
effect of dividends paid or accrued on the Company's preferred stock
and the amount by which payments made to effect the redemption of the
$8 Cumulative Convertible Redeemable Preferred Stock, Series B,
exceeded the par value of such shares.
9
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Through its two business segments, the Rubber Group and the Metals
Group, the Company manufactures, to customer specifications, close tolerance
rubber and metal components. The Rubber Group manufactures silicone and organic
rubber components for sale primarily to manufacturers of automobiles,
automotive replacement parts and medical devices. The Metals Group
manufactures metal components for sale primarily to manufacturers of
automobiles, automotive replacement parts, industrial equipment, home
appliances and business machines.
LIQUIDITY AND CAPITAL RESOURCES
DEBT RESTRUCTURING
In January 1994, the Company completed a restructuring of substantially
all of its outstanding debt. The restructuring included the completion of an
exchange offer (the "Exchange Offer") for the Company's 12-3/4% Subordinated
Notes, due February 1, 1997 (the "12-3/4% Subordinated Notes"), the
restructuring of the Company's 14% Junior Subordinated Convertible Notes, due
May 1, 2000 (the "14% Convertible Notes"), and the amendment of the Company's
borrowing arrangement (the "Working Capital Facility") with its working capital
lender (the "Working Capital Lender"). Upon the completion of the
restructuring, all defaults which existed on the Company's debt at the time of
the restructuring were eliminated.
Pursuant to the Exchange Offer, all of the 12-3/4% Subordinated Notes
(principal of $25,275,000 and accrued interest of $10,079,000) were tendered in
exchange for $31,720,000 principal amount of 12-3/4% Senior Subordinated Notes,
due February 1, 2000 (the "12-3/4% Senior Subordinated Notes"), and $3,634,000
of cash. The restructuring of the 14% Convertible Notes included the
satisfaction of past due interest through the payment of $99,000 in cash and
the issuance of $347,000 principal amount of 14% Junior Subordinated
Non-Convertible Notes, due May 1, 2000 (the "14% Non-Convertible Notes"). The
funds used to make the cash payments required at the closing of the debt
restructuring in January 1994 were obtained through increased borrowings under
the Working Capital Facility.
The Company did not record any gain or loss for book purposes or for tax
purposes from the restructuring of its indebtedness in January 1994.
WORKING CAPITAL FINANCING
The Company's working capital financing is provided through the Working
Capital Facility, originally entered into between the Company and the Working
Capital Lender in 1990. The Working Capital Facility currently permits the
Company to borrow up to $40,000,000, provided that the aggregate borrowings
may not exceed an availability formula set by the Working Capital Lender.
During 1994, the Working Capital Facility was amended to, among other things,
increase the Company's maximum borrowing availability from $10,000,000 to
$25,000,000, convert certain borrowings thereunder from revolving loans to term
loans, reduce the rate of interest charged on loans outstanding under the
Working Capital Facility from Prime plus 2% to Prime plus 1-1/2% and revise
certain financial covenants.
In January 1995, the Working Capital Facility was further amended to,
among other things, increase the Company's maximum borrowing availability from
$25,000,000 to $40,000,000, subject to availability formulas set by the Working
Capital Lender, convert $7,873,000 of term loans and $7,267,000 of revolving
loans into new term loans in the aggregate amount of $15,140,000 payable in 84
monthly principal
-10-
13
installments of $181,000 each, reduce the rate of interest charged on loans
outstanding under the Working Capital Facility from Prime plus 1-1/2% to either
Prime plus 1% or the London Interbank Offered Rate plus 3-1/4% and revise a
financial covenant. As amended, the Working Capital Facility includes a line
(the "Equipment Line") of $11,300,000 which, subject to availability formulas
set by the Working Capital Lender, can be used to finance a portion of the
purchase price of new equipment. If utilized, borrowings under the Equipment
Line will convert to term loans which will be payable in equal monthly
principal installments through February 1, 2002. As of March 1, 1995, the
Company had borrowings of $23,943,000 outstanding under the Working Capital
Facility and had approximately $3,097,000 of unused availability, without
giving effect to new borrowings which are expected to be available under the
Equipment Line to finance purchases of new equipment.
Amounts outstanding under the Working Capital Facility are
collateralized by substantially all of the accounts receivable, inventory,
equipment and other personal property, and certain real property of the
Company.
OPERATING ACTIVITIES OF THE COMPANY
During 1994, net cash provided by the operating activities of the
Company totaled $5,957,000, a decrease of $3,644,000 when compared to 1993.
The decrease was attributable, in large part, to the payment during January
1994, in connection with the restructuring of substantially all of the
Company's indebtedness, of all past due interest of the Company. During 1993,
cash provided by operating activities included an increase in accrued interest
of $4,152,000 resulting from the Company's failure to pay, during 1993,
interest due on the 12-3/4% Subordinated Notes and the 14% Convertible Notes.
During 1994, accounts receivable increased by $3,384,000. The increase
was primarily the result of increased net sales during the fourth quarter of
1994 compared to the fourth quarter of 1993 and a slowdown in payments from one
of the Company's largest customers. Inventories increased by $2,458,000 during
1994, primarily as a result of increased sales levels during the fourth quarter
of 1994 and anticipated higher sales levels during the first quarter of 1995.
Accounts payable increased by $6,037,000 during 1994. The increase
included an increase of $2,293,000 in payables relating to purchases of capital
equipment, an increase of $1,218,000 in payables relating to purchases of
tooling, and a general slowing of payments to suppliers during the fourth
quarter of 1994 pending the completion of the amendments to the Working Capital
Facility. Subsequent to the completion of the amendments to the Working
Capital Facility in January 1995, the Company reduced its accounts payable to
bring the amounts outstanding to its suppliers generally within terms which the
Company believes are customary in the industries in which the Company operates.
The funds used to reduce the Company's trade debt were obtained through
increased borrowings under the Working Capital Facility.
Although 1994 net income exceeded 1993 net income by $1,481,000 and
non-cash charges for depreciation and amortization expenses increased by
$763,000 during 1994, net working capital declined by $4,659,000 primarily
because, at December 31, 1994, the Company classified as short-term debt
$5,052,000 of revolving loans outstanding under the Working Capital Facility.
Although the revolving loans, as amended in January 1995, have a maturity date
of January 2, 1998, the revolving loans have been classified as short-term debt
because the Company's cash receipts are automatically used to reduce the
revolving loans on a daily basis, by means of a lock-box sweep agreement, and
the Working Capital Lender has the ability to modify certain terms of the
revolving loan financing agreements without the prior approval of the Company.
-11-
14
During 1994, aggregate income from operations of the Rubber Group and
the Metals Group totaled $9,920,000. After deducting corporate operating
expenses of $1,818,000, income from operations totaled $8,102,000, or 9.2% of
net sales. Included in income from operations for 1994 were non-cash expenses
of $5,018,000 (principally depreciation expense of $4,239,000). Net income
for 1994 included a gain, net of income taxes, of $336,000 from the sale of
marketable equity securities and a gain, net of applicable income taxes, of
$200,000 from a sale of real estate in connection with the settlement of
certain litigation.
INVESTING ACTIVITIES OF THE COMPANY
During 1994, the investing activities of the Company used $14,966,000 of
cash. During the year, the Company made $15,319,000 of capital expenditures,
which included $1,500,000 for the purchase of a 77,000 square foot
manufacturing facility in LaGrange, Georgia. During 1994, capital expenditures
attributable to the Rubber Group and the Metals Group totaled $8,651,000 and
$6,656,000, respectively. The Company estimates that approximately $3,000,000
of the 1994 capital expenditures were made to maintain or replace existing
equipment or to effect cost reductions. The Company estimates that
approximately $10,000,000 of the 1994 capital expenditures were for the
purchase and installation of production equipment to meet orders which have
been awarded to the Company. During 1994, the capital expenditure program
included the purchase and rebuilding of die casting machines, the purchase of
metal machining equipment, the purchase and rebuilding of rubber molding
machines and ancillary equipment, the expansion of clean room facilities for
the molding of rubber components for medical devices and the purchase of the
LaGrange facility to provide space for ongoing expansion of production capacity
within the Rubber Group. The Company presently projects that 1995 capital
expenditures will total approximately $19,000,000. As of December 31, 1994,
the Company had commitments outstanding to purchase equipment of approximately
$4,727,000.
FINANCING ACTIVITIES OF THE COMPANY
During 1994, the financing activities of the Company provided $9,055,000
of cash, primarily from increased borrowings under the Working Capital Facility.
The Company operates with high financial leverage. As of December 31,
1994, the Company's aggregate indebtedness, excluding trade payables, was
$57,278,000, compared to $48,077,000 as of December 31, 1993, an increase of
$9,201,000. As a result of increased borrowings under the Working Capital
Facility during the first two months of 1995, aggregate indebtedness, excluding
trade payables, totaled $60,780,000 as of March 1, 1995 an increase of
$3,502,000. The additional borrowings were used for the payment, on February
1, 1995, of the interest due on the 12-3/4% Senior Subordinated Notes and the
14% Convertible and Non-Convertible Notes and the reduction of trade payables.
During 1994, cash interest and principal payments required and paid under the
terms of the Company's various financing agreements (exclusive of cash interest
payments of $3,733,000 made upon completion of the debt restructuring in
January 1994) totaled $6,046,000 and $1,804,000, respectively. During 1995,
the cash interest and principal payments required under the terms of the
Company's loan agreements are currently projected to total $7,900,000 and
$2,599,000, respectively.
Based upon the Company's present business plan, the achievement of which
cannot be assured, the Company believes that for the foreseeable future
anticipated borrowings under the Working Capital Facility and cash generated
from operations should be adequate to meet its presently anticipated working
capital, capital expenditure and debt service requirements. If cash flow from
operations or availability under the Working Capital Facility fall below
expectations, the Company's capital expenditure program will be reduced or
delayed.
-12-
15
ACQUISITIONS OF BUSINESSES
The Company is seeking to acquire assets and businesses related to its
current operations with the intention of expanding its existing operations.
Depending on, among other things, the size and terms of such acquisitions, the
Company may be required to obtain additional financing and, in some cases, the
approval of the Working Capital Lender and the holders of other debt of the
Company. The Company's ability to effect acquisitions may be dependent upon
its ability to obtain such financing and, to the extent applicable, consents.
DEPENDENCE ON LARGE CUSTOMERS
The Company has limited ability to predict the volume and pricing of
orders from its existing and potential customers. For example, since 1992,
Delphi Packard Electric and other divisions of General Motors Corporation have
followed a policy of soliciting bids from large groups of manufacturers for the
majority of the component parts purchased by General Motors and its divisions,
including those parts which have previously been awarded to the Company and its
competitors. The Company is unable to predict the timing or the outcome of
future rounds of competitive bidding or other programs designed to lower Delphi
Packard Electric's cost of purchased parts. During 1994, 1993, and 1992, net
sales to Delphi Packard Electric accounted for 20.6%, 22.3% and 20.4%,
respectively, of the Company's total net sales. Loss of all or a major portion
of the Delphi Packard Electric business would have a material adverse effect on
the Company's operations.
During 1994, 1993 and 1992, net sales to TRW VSSI, the Company's second
largest customer, accounted for 13.0%, 11.8% and 9.0%, respectively, of the
Company's total net sales and consisted primarily of a single component part.
The Company has limited ability to predict the customer's future requirements
for this component part and the percentage of production, if any, which will be
awarded to the Company. Currently, management of the Company believes that the
part will remain in production for all of 1995 and at substantially reduced
quantities during 1996 and 1997. During 1993 and 1994, the Company received
several orders for new parts from TRW VSSI and anticipates receiving orders for
additional new parts during 1995, although there can be no assurance such
orders will be received. Loss of all or a major portion of the TRW VSSI
business, if not replaced by equivalent volume of other parts, would have a
material adverse effect on the Company's operations.
-13-
16
RESULTS OF OPERATIONS
1994 VERSUS 1993
NET SALES
A summary of the net sales of the Rubber Group and the Metals Group
follows (dollar amounts in thousands):
Percentage
1994 1993 Increase
------- ------- ---------
Rubber Group $46,868 $40,388 16.0%
Metals Group 41,664 34,588 20.5
------- ------- ----
$88,532 $74,976 18.1%
======= ======= ====
Net sales of the Rubber Group increased by $6,480,000 in 1994. Net
sales to automotive customers increased by $4,823,000, or 14.7%, primarily as a
result of increased sales of wire harness seals to Delphi Packard Electric and
increased sales of ignition wire insulators for new vehicles. Net sales of
rubber components for medical devices increased to $5,536,000 in 1994 from
$3,946,000 in 1993, primarily as a result of increased sales efforts.
Net sales of the Metals Group increased by $7,076,000 in 1994, primarily
due to a 30.5% increase in net sales to TRW VSSI of component parts used in
automotive airbag systems.
COST OF SALES
A summary of the cost of sales (in thousands of dollars and as a
percentage of net sales) for the Rubber Group and the Metals Group follows:
1994 1993
------------ ------------
Rubber Group $39,314 83.9% $33,280 82.4%
Metals Group 32,320 77.6 27,413 79.3
------- ---- ------- ----
$71,634 80.9% $60,693 80.9%
======= ==== ======= ====
Cost of sales of the Rubber Group as a percentage of net sales increased
from 82.4% in 1993 to 83.9% in 1994, primarily as a result of increased factory
overhead costs as a percentage of net sales. During 1994, increased factory
overhead costs included higher indirect labor costs, increased depreciation and
amortization expenses resulting from the installation and startup of new and
refurbished equipment and new tooling and increased workers' compensation
costs. Increased factory overhead costs as a percentage of net sales were
offset in part by lower direct labor costs as a percentage of net sales
resulting from the installation of new and refurbished equipment and the
introduction of improved manufacturing processes.
Cost of sales of the Metals Group as a percentage of net sales decreased
from 79.3% in 1993 to 77.6% in 1994. During 1994, material and direct labor
costs as percentages of net sales were essentially unchanged,
-14-
17
while factory overhead costs as a percentage of net sales decreased, primarily
because sales increased while certain components of factory overhead costs
remained relatively unchanged.
SELLING AND ADMINISTRATIVE EXPENSES
In 1994, consolidated selling and administrative expenses totaled
$8,796,000, or 9.9% of net sales, compared to $7,936,000, or 10.6% of net
sales, in 1993. Selling and administrative expenses of the Rubber Group
increased to $3,694,000, or 7.9% of net sales, during 1994, compared to
$3,166,000, or 7.8% of net sales, during 1993, primarily as a result of the
addition of sales and administrative personnel. Selling and administrative
expenses of the Metals Group increased to $3,284,000, or 7.9% of net sales,
during 1994, compared to $2,894,000, or 8.4% of net sales, during 1993.
Increased sales of products subject to sales commissions and increased
advertising costs were more than offset by efficiencies related to increased
volume. Corporate office administrative expenses decreased by $58,000, or
3.1%, primarily as a result of reduced legal fees. During 1993, corporate
office administrative expenses included $730,000 of expenses recorded in
connection with the Company's restructuring of its 12-3/4% Subordinated Notes
and 14% Convertible Notes which were partially offset by a credit of $215,000
resulting from the settlement of litigation. Effective for 1994, the Company
determined that amortization of the excess of cost over net assets of
businesses acquired (goodwill) should be classified as part of selling and
administrative expenses. Previously, amortization of goodwill had been
classified as other expense. Prior period presentations have been reclassified
to conform to the current year's presentation. During each of the years
presented, amortization of goodwill totaled $316,000.
INTEREST EXPENSE
Interest expense totaled $6,272,000 during 1994, an increase of $776,000
compared to 1993. This increase was caused primarily by an increase of
approximately $7,690,000 in average borrowings outstanding under the Working
Capital Facility and an increase in the weighted average rate of interest
charged on the Working Capital Facility due to increases in the Prime rate
which more than offset interest rate reductions negotiated by the Company.
OTHER INCOME
During 1994, other income consisted of a realized gain of $336,000 on
the sale of marketable securities and a gain of $200,000 from the sale of real
estate in connection with the settlement of litigation.
PROVISION FOR INCOME TAXES
The provisions for income tax otherwise recognizable during 1994 and
1993 were reduced by the utilization of portions of the Company's tax loss and
tax credit carryforwards. For information concerning income tax expense and
the utilization of tax loss and tax credit carryforwards, see Note 10 to the
Consolidated Financial Statements in Part II, Item 8.
-15-
18
1993 VERSUS 1992
NET SALES
A summary of the net sales for the Rubber Group and the Metals Group
follows (dollar amounts in thousands):
PERCENTAGE
1993 1992 INCREASE
------- ------- --------
Rubber Group $40,388 $33,228 21.5%
Metals Group 34,588 31,973 8.2
------- ------- ----
$74,976 $65,201 15.0%
======= ======= ====
Net sales of the Rubber Group increased by $7,160,000 in 1993. Net
sales to automotive customers increased by 25.9%, primarily as a result of
increased net sales of cable and connector seals to Delphi Packard Electric,
increased net sales of rubber insulators for ignition wire harnesses and
increased tooling sales.
Net sales of the Metals Group increased by $2,615,000 in 1993, primarily
due to a 50.6% increase in net sales to TRW VSSI of component parts used in
automotive airbag systems.
COST OF SALES
A summary of the cost of sales (in thousands of dollars and as a
percentage of net sales) for the Rubber Group and the Metals Group follows:
1993 1992
------------ ------------
Rubber Group $33,280 82.4% $27,964 84.2%
Metals Group 27,413 79.3 25,922 81.1
------- ---- ------- ----
$60,693 80.9% $53,886 82.6%
======= ==== ======= ====
Cost of sales of the Rubber Group as a percentage of net sales decreased
in 1993 primarily because of reduced direct labor and material costs as
percentages of net sales at certain of the Group's facilities resulting
primarily from the upgrading of the Group's manufacturing capacity through the
purchase of new rubber molding presses and tooling, the rebuilding of existing
molding presses and the introduction of improved manufacturing processes. This
was offset in part by increased factory overhead costs as a percentage of net
sales resulting principally from increased depreciation relating to the
installation and operation of new or refurbished equipment and increased
maintenance and repair expenses.
Cost of sales of the Metals Group as a percentage of net sales decreased
in 1993 from 1992 primarily because of (1) a provision recorded during the
fourth quarter of 1992 in the amount of $213,000 for the costs to close and
hold for disposition a manufacturing facility located in Silver Springs, New
York, and to consolidate the operations conducted at the Silver Springs
facility into the Company's manufacturing facility located in Rochester, New
York, and (2) reduced direct labor and material costs as percentages of net
sales resulting from a favorable change in the mix of products sold.
-16-
19
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses decreased by 26.3% in 1993 from 1992
primarily because 1992 results included a charge of $2,132,000 to write off the
unamortized portion, as of December 31, 1992, of covenants not to compete and
$1,113,000 of amortization of the covenants not to compete. Selling and
administrative expenses in 1993 included $730,000 of expenses recorded in
connection with the restructuring of substantially all of the Company's
indebtedness in January 1994. Partially offsetting these restructuring
expenses was a credit of $215,000 resulting from the settlement of a commercial
claim.
INTEREST EXPENSE
Interest expense totaled $5,496,000 during 1993, an increase of $455,000
compared to 1992. Interest expense increased due to the accrual of interest on
the pro forma issuance, effective February 1, 1993, of $6,445,000 principal
amount of 12-3/4% Senior Subordinated Notes and $277,000 principal amount of
14% Non-Convertible Notes in connection with the Company's debt restructuring,
which was completed in January 1994. This increase was offset in part by
reduced interest expense on the Working Capital Facility and other secured
indebtedness due to lower average borrowings.
PROVISION FOR INCOME TAXES
The provisions for income tax otherwise recognizable during 1993 and
1992 were reduced by the utilization of portions of the Company's tax loss and
tax credit carryforwards. For information concerning income tax expense and
the utilization of the tax loss and tax credit carryforwards, see Note 10 to
the Consolidated Financial Statements in Part II, Item 8.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS ADOPTED DURING 1994 AND 1993
FINANCIAL ACCOUNTING STANDARD NO. 106
Effective January 1, 1993, the Company changed its method of accounting
for postretirement benefits other than pensions from the cash basis
(recognizing expense as benefits are paid) to the accrual method (recognizing
the estimated cost of providing retiree health and welfare benefits as an
expense while the employee renders service) as required by "Financial
Accounting Standard No. 106, Employers' Accounting for Postretirement Benefits
Other Than Pensions" ("FAS 106"). The adoption of FAS 106 did not materially
affect the financial position or operating results of the Company. (See also
Note 9 to the Consolidated Financial Statements in Part II, Item 8.)
On January 1, 1993, the Company's accumulated postretirement benefit
obligation (the "transition obligation") totaled $692,000. The Company is
amortizing the transition obligation over the remaining life expectancy of the
participants (i.e., an annual rate of $57,000). During 1993, the adoption of
FAS 106 reduced earnings before income taxes by approximately $61,000.
As of December 31, 1994, the Company increased the discount rate used to
calculate the obligation for its postretirement benefit plan from 7-1/4% to
8-1/4%, in recognition of higher prevailing long-term interest rates. The
effect of the change in discount rate on 1995 postretirement benefit costs will
not be material. The determination of postretirement benefit costs beyond 1995
will depend on various factors, including long-term interest rates, health care
cost trend rates, other actuarial assumptions, benefit levels, and demographic
changes.
-17-
20
FINANCIAL ACCOUNTING STANDARD NO. 109
Effective January 1, 1993, the Company changed its method of accounting
for income taxes from the deferred method to the liability method as required
by "Financial Accounting Standard No. 109, Accounting for Income Taxes" ("FAS
109"). In accordance with the provisions of FAS 109, the Company has recorded
deferred tax assets and deferred tax liabilities.
As a result of losses incurred in 1992, 1991 and 1990, at January 1,
1993 the Company recorded a valuation allowance equal to 100% of its net
deferred tax position. Accordingly, the adoption of FAS 109 did not affect the
Company's operating results during 1993. As permitted by FAS 109, prior year
financial statements have not been restated. (See also Note 10 to the
Consolidated Financial Statements in Part II, Item 8.)
FINANCIAL ACCOUNTING STANDARD NO. 112
Effective January 1, 1994, the Company changed its method of accounting
for post-employment benefits, such as company funded disability benefits, from
the cash basis (recognizing expense as benefits are paid) to the accrual method
(recognizing the estimated cost of providing such benefits as an expense while
the employee renders service) as required by "Financial Accounting Standards
No. 112, Employers' Accounting for Postemployment Benefits" ("FAS 112"). The
adoption of FAS 112 did not have any effect on the Company's financial position
or results of operations because benefits of this type currently provided by
the Company are de minimis in amount.
FINANCIAL ACCOUNTING STANDARD NO. 115
Effective January 1, 1994, the Company adopted "Financial Accounting
Standard No. 115, Accounting for Certain Investments in Debt and Equity
Securities" ("FAS 115"), which required the Company to carry its marketable
equity securities at fair value. The adoption of FAS 115 did not affect the
financial position or operating results of the Company.
INFLATION
The Company believes that, during 1994, 1993 and 1992, the impact of
inflation on the Company's manufacturing and selling and administrative costs
has been minimal. To the extent practicable, fluctuations in material costs
relating to existing components typically are passed through to customers.
Although the Company may, in certain cases, commit to a fixed material cost for
an agreed upon time period, generally a similar, offsetting commitment is made
to the Company by its material supplier. In recent years, inflationary
increases in salaries, wages, benefits and other expenses have been
substantially offset by improvements in manufacturing processes and by
adjustments to quoted prices.
ENVIRONMENTAL AND OTHER LEGAL MATTERS
The Company has been named one of numerous potentially responsible
parties, under CERCLA for restoration costs at three waste disposal sites, a
third-party defendant in cost recovery actions initiated by the EPA pursuant to
applicable sections of CERCLA and as a defendant or potential defendant in
various legal matters. It is the Company's policy to record accruals for such
matters when losses are deemed probable and the amount of such loss can be
reasonably estimated. The various actions to which the Company is or may be a
party in the future are at various stages of completion and, although there can
be no assurance as to the outcome of existing or potential litigation, in the
event such litigation were instituted,
-18-
21
based upon the information currently available to the Company, the Company
believes that the outcome of such actions would not have a material adverse
effect upon the financial position of the Company.
(For additional information concerning environmental and other legal
matters, see "Business" in Part I, Item 1, and "Legal Proceedings" in Part I,
Item 3.)
-19-
22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TABLE OF CONTENTS
Page
----
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . 21
Consolidated Balance Sheets as of December 31, 1994 and 1993 . . . . . . . . . . 22
Consolidated Statements of Operations for the Years Ended
December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . 24
Consolidated Statements of Stockholders' Deficit for
the Years Ended December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . 25
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . 26
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . 28
-20-
23
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Lexington Precision Corporation and Subsidiary
We have audited the accompanying consolidated balance sheets of
Lexington Precision Corporation and subsidiary as of December 31, 1994 and
1993, and the related consolidated statements of operations, stockholders'
deficit, and cash flows for each of the three years in the period ended
December 31, 1994. Our audits also included the financial statement schedule
listed in the table of contents in Part IV, Item 14(a). These financial
statements and schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Lexington Precision Corporation and subsidiary at December 31, 1994 and
1993, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1994, in conformity
with generally accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in the notes to consolidated financial statements,
effective January 1, 1993, the Company changed its methods of accounting for
income taxes and postretirement benefits other than pensions.
ERNST & YOUNG LLP
Cleveland, Ohio
February 28, 1995
-21-
24
LEXINGTON PRECISION CORPORATION
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
DECEMBER 31,
------------------------
1994 1993
--------- ---------
ASSETS:
Current assets:
Cash $ 79 $ 33
Accounts recievable 12,478 9,094
Inventories 8,237 5,779
Prepaid expenses and other current assets 1,958 809
--------- ---------
Total current assets 22,752 15,715
--------- ---------
Property, plant and equipment:
Land 823 658
Buildings 12,274 11,348
Equipment 46,516 33,808
--------- ---------
59,613 45,814
Less accumumulated depriciation 27,019 23,721
--------- ---------
Property, plant and equipment, net 32,594 22,093
Excess of costs over net assets of businesses acquired, net 10,041 10,357
Other assets, net 2,009 1,818
--------- ---------
$ 67,396 $ 49,983
========= =========
See notes to consolidated financial statements. (Continued)
-22-
25
LEXINGTON PRECISION CORPORATION
CONSOLIDATED BALANCE SHEETS (CONT.)
(THOUSANDS OF DOLLARS)
DECEMBER 31,
-------------------------
1994 1993
---- ----
LIABILITIES AND STOCKHOLDERS' DEFICIT:
Current liabilities:
Accounts payable $ 10,489 $ 4,452
Accrued expenses 6,289 6,477
Short-term debt 5,052 -
Current portion of long-term debt 2,599 1,804
---------- ---------
Total current liabilities 24,429 12,733
---------- ---------
Long-term debt, excluding current portion 49,627 46,273
---------- ---------
Redeemable preferred stock, $100 par value,
at redemption value 1,110 1,200
Less excess of redemption value over par value 555 600
---------- ---------
Redeemable preferred stock at par value 555 600
---------- ---------
Stockholders' deficit:
Common stock, $.25 par value, 10,000,000
shares authorized, 4,348,951 shares issued 1,087 1,087
Additional paid-in-capital 12,659 12,975
Accumulated deficit (20,593) (22,925)
Cost of common stock in treasury, 145,915 and
300,915 shares, respectively (368) (760)
---------- ---------
Total stockholders' deficit (7,215) (9,623)
---------- ---------
$ 67,396 $ 49,983
========== =========
See notes to consolidated financial statements.
-23-
26
LEXINGTON PRECISION CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
Years Ended December 31,
--------------------------------------
1994 1993 1992
--------- -------- ---------
Net sales $ 88,532 $ 74,976 $ 65,201
--------- -------- ---------
Costs and expenses:
Cost of sales 71,634 60,693 53,886
Selling and administrative expenses 8,796 7,936 10,767
--------- -------- ---------
Total costs and expenses 80,430 68,629 64,653
--------- -------- ---------
Income from operations 8,102 6,347 548
Interest expense 6,272 5,496 5,041
Other income 536 - -
--------- -------- ---------
Income/(loss) before income taxes 2,366 851 (4,493)
Provision for income taxes 34 - -
--------- -------- ---------
Net income/(loss) $ 2,332 $ 851 $ (4,493)
========= ======== =========
Net income/(loss) per primary and fully diluted
common share:
Primary $ .53 $ .13 $ (1.11)
========= ======== =========
Fully diluted $ .51 $ .13 $ (1.11)
========= ======== =========
See notes to consolidated financial statements.
-24-
27
LEXINGTON PRECISION CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(THOUSANDS OF DOLLARS)
ADDITIONAL TOTAL
COMMON PAID-IN ACCUMULATED TREASURY STOCKHOLDERS'
STOCK CAPITAL DEFICIT STOCK DEFICIT
----- ------- ------- ----- -------
Balance at January 1, 1992 $ 1,087 $ 13,286 $ (19,323) $ (760) $ (5,710)
Net loss - - (4,493) - (4,493)
Deferred compensation expense
on restricted stock - - 33 - 33
-------- -------- --------- -------- ----------
Balance at December 31, 1992 1,087 13,286 (23,783) (760) (10,170)
Net income - - 851 - 851
Preferred stock dividends
and redemptions - (311) - - (311)
Deferred compensation expense
on restricted stock - - 7 - 7
-------- -------- --------- -------- ----------
Balance at December 31, 1993 1,087 12,975 (22,925) (760) (9,623)
Net income - - 2,332 - 2,332
Preferred stock dividends
and redemptions - (92) - - (92)
Issuance of common shares - (224) - 392 168
-------- -------- --------- -------- ----------
Balance at December 31, 1994 $ 1,087 $ 12,659 $ (20,593) $ (368) $ (7,215)
======== ======== ========= ======== ==========
See notes to consolidated financial statements.
-25-
28
LEXINGTON PRECISION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
YEARS ENDED DECEMBER 31,
--------------------------------------
1994 1993 1992
---- ---- ----
OPERATING ACTIVITIES:
Net income/(loss) $ 2,332 $ 851 $ (4,493)
Adjustments to reconcile net income/(loss) to net cash
provided by operating activities:
Depreciation and amortization 5,060 4,297 5,050
Gain on sale of marketable equity securities (336) - -
Gain on sale of real estate (200) - -
Write-off of covenants not to compete - - 2,132
Changes in operating assets and liabilities which
provided/(used) cash:
Receivables (3,399) (1,672) 908
Inventories (2,488) (348) 64
Prepaid expenses and other current assets (1,149) 529 (200)
Accounts payable 6,037 32 (1,384)
Accrued expenses (110) 5,844 3,326
Other 210 68 51
--------- --------- --------
Net cash provided by operating activities 5,957 9,601 5,454
--------- --------- --------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (15,319) (6,288) (2,235)
Decrease/(increase) in equipment deposits, net 36 (575) (315)
Sales of property, plant and equipment 614 5 57
Sale of marketable securities 338 - -
Other (635) (373) (177)
--------- --------- --------
Net cash used by investing activities (14,966) (7,231) (2,670)
--------- --------- --------
See notes to consolidated financial statements. (Continued)
-26-
29
LEXINGTON PRECISION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT.)
(THOUSANDS OF DOLLARS)
YEARS ENDED DECEMBER 31,
--------------------------------------
1994 1993 1992
---- ---- ----
FINANCING ACTIVITIES:
Proceeds from/(repayment of) revolving loans, net 5,052 498 (973)
Proceeds from issuance of long-term debt 9,847 - -
Repayment of long-term debt (5,735) (2,421) (1,938)
Redemption of preferred stock (90) (270) -
Preferred stock dividends (47) (176) -
Issuance of common stock 90 - -
Other (62) - -
--------- -------- ---------
Net cash provided/(used) by financing activities 9,055 (2,369) (2,911)
--------- -------- ---------
Net increase/(decrease) in cash 46 1 (127)
Cash at beginning of year 33 32 159
--------- -------- ---------
Cash at end of year $ 79 $ 33 $ 32
========= ======== =========
Supplemental disclosure of cash flow information:
Interest paid $ 9,779 $ 1,134 $ 1,489
Income taxes paid $ 26 $ - $ -
Supplemental disclosure of noncash financing activities:
Accrued interest converted to long-term debt $ - $ 10,525 $ -
Issuance of 100,000 shares of common stock in exchange
for investment banking services $ 78 $ - $ -
See notes to consolidated financial statements.
-27-
30
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 wholly-owned subsidiary (collectively, the
"Company"). All significant intercompany accounts and transactions have been
eliminated.
CONCENTRATION OF CREDIT RISK
As of December 31, 1994 and 1993, trade accounts receivable outstanding
from automotive customers totaled $7,904,000 and $5,364,000, respectively. The
Company provides for credit losses based upon historical experience and ongoing
credit evaluations of its customers' financial condition but does not generally
require collateral from its customers to support the extension of trade credit.
As of December 31, 1994 and 1993, the Company had reserves for credit losses of
$174,000 and $159,000, respectively.
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
(in thousands of dollars):
DECEMBER 31,
-------------------
1994 1993
------- -------
Finished goods $ 2,696 $ 1,737
Work in process 2,285 2,012
Raw materials and purchased parts 3,256 2,030
------- -------
$ 8,237 $ 5,779
======= =======
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost less accumulated
depreciation. Depreciation is calculated principally on the straight-line
method over the estimated useful life of the various assets (15 to 32 years for
buildings and 3 to 10 years for equipment). Maintenance and repair expenses
were $2,484,000, $2,189,000 and $1,395,000 for 1994, 1993 and 1992,
respectively. Maintenance and repair expenses are charged against income as
incurred, while major improvements are capitalized. When property is retired
or otherwise disposed of, the related cost and accumulated depreciation are
eliminated.
EXCESS OF COST OVER NET ASSETS OF BUSINESSES ACQUIRED
Excess of cost over the net assets of businesses acquired (goodwill) is
amortized on the straight-line method, principally over 40 years. As of
December 31, 1994 and 1993, accumulated amortization of goodwill was $1,948,000
and $1,632,000, respectively. Effective for 1994, the Company determined that
amortization of goodwill should be classified as part of selling and
administrative expenses. Previously, amortization of goodwill had been
classified as other expense. Prior period presentations have been reclassified
to conform to the current year's presentation. During each of the periods
presented, amortization
-28-
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of goodwill totaled $316,000. The carrying value of goodwill is reviewed
quarterly using an analysis of historical and projected operating performance
of the business to which the goodwill relates. Based upon such analysis, the
Company believes that no impairment of goodwill existed as of December 31,
1994.
INCOME PER SHARE
Income per common and dilutive common equivalent share were computed
based upon the weighted average number of common shares and dilutive common
equivalent shares outstanding. For purposes of the income per share
calculations, income for each period was reduced by preferred stock dividends
and by the amount by which payments made to redeem shares of the Company's $8
Cumulative Convertible Redeemable Preferred Stock, Series B (the "Redeemable
Preferred Stock"), exceeded the par value of such shares. Common equivalent
shares were those shares issuable upon the assumed exercise of outstanding
stock options and conversion of Redeemable Preferred Stock, calculated using
the treasury stock method. Fully diluted income per share assumes conversion
of the 14% Junior Subordinated Convertible Notes, due May 1, 2000 (the "14%
Convertible Notes"), if dilutive.
REPORTING OF CASH FLOWS
The Company considers all highly liquid investments with maturities at
the time of purchase of less than three months to be cash equivalents.
RECLASSIFICATIONS
Certain amounts in the consolidated financial statements for 1993 and
1992 have been reclassified to conform to the statement presentation for 1994.
NOTE 2 -- OTHER CURRENT ASSETS
As of December 31, 1994 and 1993, other current assets included
$1,242,000 and $237,000, respectively, of tooling acquired by the company for
certain customers. Upon customer approval of the components produced from such
tooling, which normally takes less than 90 days, the customer is required to
purchase the tooling from the Company.
NOTE 3 -- OTHER NONCURRENT ASSETS
As of December 31, 1994 and 1993, other noncurrent assets included
$797,000 and $438,000, respectively, which represented amounts paid by the
Company for tooling owned by the Company's customers in excess of the amounts
paid by the customers for such tooling. Such excess amounts are amortized over
periods not exceeding three years. During 1994 and 1993, amortization expense
related to tooling owned by customers but funded by the Company was $272,000
and $115,000, respectively.
NOTE 4 -- SHORT-TERM DEBT
As of December 31, 1994, short-term debt consisted of $5,052,000 of
revolving loans outstanding under the Company's borrowing arrangement (the
"Working Capital Facility") with its working capital lender (the "Working
Capital Lender"). Although the revolving loans, as amended in January 1995,
have a maturity date of January 2, 1998, the revolving loans have been
classified as short-term debt as of
-29-
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994 because the Company's cash receipts are automatically used to
reduce the revolving loans on a daily basis, by means of a lock-box sweep
arrangement, and the Working Capital Lender has the ability to modify certain
terms of the revolving loan financing agreements without the prior approval of
the Company.
At December 31, 1994, 1993 and 1992, the interest rate on borrowings
under the revolving line of credit was 10.0%, 7.5% and 8.5%, respectively.
(Also see Note 6, Long-Term Debt.)
NOTE 5 -- ACCRUED EXPENSES
Accrued expenses are summarized below (in thousands of dollars):
DECEMBER 31,
--------------------
1994 1993
---- ----
Employee fringe benfits $ 1,744 $ 897
Accured interest 1,716 1,715
Salaries and wages 976 1,086
Taxes 523 617
Preferred dividends and redemptions - 446
Other 1,330 1,716
------ ------
$ 6,289 $ 6,477
====== ======
-30-
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 -- LONG TERM DEBT
Long-term debt is summarized below (in thousands of dollars):
DECEMBER 31,
---------------------
1994 1993
---- ----
Long-term portion of Working Capital Facility:
Revolving loans, converted to term loans in January 1995,
payable in monthly installments through 2002 $ 7,267 $ --
Revolving loans, as amended in January 1994 -- 5,888
Term loans, as amended in January 1995,
payable in monthly installments through 2002 8,029 --
Term loans payable in monthly installments
through 1995 -- 1,004
12% Term Note, payable in monthly installments through 2000 3,078 3,471
Industrial Revenue Bond, 75% of prime, payable in monthly
installments through 2000 598 698
12-3/4% Senior Subordinated Notes, due 2000 31,647 --
12-3/4% Subordinated Notes due 1997:
Principal exchanged in January 1994 for
12-3/4% Senior Subordinated Notes -- 25,167
Interest exchanged in January 1994 for
12-3/4% Senior Subordinated Notes -- 6,445
Interest paid in January 1994 with proceeds
from term loans -- 3,634
14% Junior Subordinated Convertible Notes, due 2000:
Principal 1,000 1,000
Interest exchanged in January 1994 for
14% Junior Subordinated Non-Convertible Notes -- 347
Interest paid in January 1994 with proceeds
from term loans -- 99
14% Junior Subordinated Non-Convertible Notes, due 2000 347 --
Other 260 324
------- ------
Total long-term debt 52,226 48,077
Less current portion 2,599 1,804
------- ------
Total long-term debt, excluding current portion $ 49,627 $ 46,273
======= =======
- 31 -
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
WORKING CAPITAL FACILITY
As of December 31, 1994 and 1993, the Working Capital Facility
consisted of loans outstanding under a revolving line of credit and term loans.
At December 31, 1994, the long-term portion of the Working Capital Facility
consisted of $8,029,000 of term loans and $7,267,000 of revolving loans which
were converted into new term loans in January 1995. In January 1995, the
Working Capital Facility was further amended to, among other things, increase
the company's maximum borrowing availability from $25,000,000 to $40,000,000,
subject to availability formulas set by the Working Capital Lender, convert
$7,873,000 of term loans and $7,267,000 of revolving loans into new term loans
in the aggregate amount of $15,140,000 payable in 84 monthly principal
installments of $181,000 each, reduce the rate of interest charged on loans
outstanding under the Working Capital Facility from Prime plus 1-1/2% to either
Prime plus 1% or the London Interbank Offered Rate plus 3-1/4% and revise a
financial covenant. As amended, the Working Capital Facility includes a line
(the "Equipment Line") of $11,300,000 which, subject to availability formulas
set by the Working Capital Lender, can be used to finance a portion of the
purchase price of new equipment. If utilized, borrowings under the equipment
line will convert to term loans which will be payable in equal monthly
principal installments through February 1, 2002. As of March 1, 1995, the
Company had borrowings of $23,943,000 outstanding under the Working Capital
Facility and had approximately $3,097,000 of unused availability, without
giving effect to new borrowings which are expected to be available under the
Equipment Line to finance purchases of new equipment.
Under the terms of the Working Capital Facility the Company is
required, among other things, to maintain at all times working capital,
exclusive of amounts borrowed under the Working Capital Facility which are
classified as current liabilities, of not less than $1,000,000 and net worth of
not less than negative $9,500,000.
Amounts outstanding under the Working Capital Facility are
collateralized by substantially all of the accounts receivable, inventory,
equipment and other personal property and certain real property of the Company.
12% TERM NOTE
The 12% Term Note, due April 30, 2000 (the "12% term note"), is
payable by the Company's wholly-owned subsidiary, Lexington Components, Inc.
("LCI"), is secured by a mortgage on the premises of LCI's Rock Hill, South
Carolina, facility and is guaranteed by the Company. Level payments of
principal and interest in the amount of $66,000 are due monthly until the 12%
Term Note is paid in full.
12-3/4% SENIOR SUBORDINATED NOTES AND 12-3/4% SUBORDINATED NOTES
The 12-3/4% Senior Subordinated Notes, due 2000 (the "12-3/4% Senior
Subordinated Notes"), are unsecured obligations of the Company, redeemable at
the option of the Company, in whole or in part, at a declining premium over the
principal amount thereof. Interest on the 12-3/4% Senior Subordinated Notes is
due semi-annually on February 1 and August 1. In January 1994, in connection
with the restructuring of substantially all of the Company's indebtedness, the
Company issued $31,720,000 principal amount of the 12-3/4 % Senior Subordinated
Notes to the holders of the Company's 12-3/4% Subordinated Notes, due February
1, 1997 (the "12-3/4 Subordinated Notes"), in exchange for $25,275,000
principal amount of the 12-3/4% Subordinated Notes and accrued but unpaid
interest on the 12-3/4% Subordinated Notes in the amount of $6,445,000.
-32-
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14% NOTES
The 14% Junior Subordinated Convertible and Non-Convertible Notes, due
May 1, 2000 (collectively the "14% Notes"), are unsecured obligations of the
Company and are redeemable at the option of the Company, in whole or in part,
at a declining premium over the principal amount thereof. Interest on the 14%
Notes is due quarterly on February 1, May 1, August 1 and November 1. the 14%
Convertible Notes are convertible into 440,000 shares of the Company's common
stock.
The holders of the 14% Notes are the Chairman of the Board and the
President of the Company, each of whom has a controlling equity interest in the
Company. As of December 31, 1994, the Chairman and the President held 14%
Notes in the amounts of $680,000 and $667,000, respectively.
RESTRUCTURING OF INDEBTEDNESS
In January 1994, the Company completed the restructuring of the
12-3/4% Subordinated Notes, the 14% Convertible Notes, the Working Capital
Facility and a certain industrial revenue bond. The restructuring eliminated
all defaults that existed at December 31, 1993. Accordingly, obligations
previously classified as current liabilities due to the defaults were
reclassified as long-term liabilities as of December 31, 1993.
RESTRICTIVE COVENANTS
Certain of the Company's loan agreements contain covenants restricting
the Company's business and operations, including restrictions on the issuance
or assumption of additional debt, the sale of all or substantially all of the
Company's assets, the purchase of common stock, the redemption of preferred
stock and the payment of cash dividends and prohibitions against any material
adverse change in the Company's business, assets or financial condition.
SCHEDULED MATURITIES OF LONG-TERM DEBT
Maturities of long-term debt for the five-year period ending December
31, 1999 and for the years thereafter are listed below (in thousands of
dollars):
1995 $ 2,599
1996 2,782
1997 2,846
1998 2,919
1999 3,001
Thereafter 38,079
---------
$ 52,226
=========
-33-
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 -- PREFERRED STOCK
REDEEMABLE PREFERRED STOCK
Each share of $8 Cumulative Convertible Redeemable Preferred Stock,
Series B, is (1) entitled to one vote, (2) redeemable for $200 plus accumulated
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. On
November 30, 1994, 450 shares of Redeemable Preferred Stock were redeemed for
$90,000. Further redemptions of $90,000 are scheduled on November 30 of each
year in order to annually retire 450 shares of Redeemable Preferred Stock.
Scheduled redemptions for the years 1995 through 1999 total $450,000. For
accounting purposes, when such stock is redeemed, the redeemable preferred
stock account is reduced by the $100 par value of each share redeemed and
paid-in-capital is charged for the $100 excess of redemption value over par
value of each share redeemed. Under the terms of the Redeemable Preferred
Stock, the Company may not declare any cash dividends on its common stock if
there exists a dividend arrearage on the Redeemable Preferred Stock. During
1994, the Company paid the holders of the Redeemable Preferred Stock regular
dividends aggregating $8.00 per share and past due dividends aggregating $24.00
per share which had been accrued by the Company as of December 31, 1993.
OTHER AUTHORIZED PREFERRED STOCK
The Company's Restated Certificate of Incorporation provides that the
Company is authorized to issue 2,500 shares of 6% Cumulative Convertible
Preferred Stock, Series A, $100 par value ("Series A Preferred Stock"). As of
December 31, 1994 and 1993, no shares of the Series A Preferred Stock were
issued or outstanding.
The Company's Restated Certificate of Incorporation also provides that
the Company is authorized to issue 2,500,000 shares of Preferred Stock having a
par value of $1 per share. As of December 31, 1994 and 1993, no shares of the
preferred stock, $1 par value, were issued or outstanding.
NOTE 8 -- COMMON STOCK
COMMON STOCK, $.25 PAR VALUE
As of December 31, 1994 and 1993, there were 4,203,036 and 4,048,036
shares, respectively, of the Company's common stock outstanding and 410,000 and
475,000 shares, respectively, reserved for issuance under the Company's
Incentive Stock Option and Restricted Stock Award Plans.
RESTRICTED STOCK AWARD PLAN
The Company has a Restricted Stock Award Plan pursuant to which the
Company may award restricted shares of common stock to officers and key
employees. Plan participants are entitled to receive cash dividends (if any)
and to vote their respective shares. The restricted shares vest at a rate set
by the Compensation Committee of the Company's Board of Directors which has
generally set the rate at 25% per year on each of the four anniversary dates
subsequent to the award date. Unless otherwise amended, the Restricted Stock
Award Plan expires on December 31, 2001.
-34-
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 1994, 1993 and 1992, no shares of restricted common stock were
awarded. As of December 31, 1994 and 1993, 350,000 shares of common stock were
available for grant under the terms of the Restricted Stock Award Plan.
INCENTIVE STOCK OPTION PLAN
The Company has an Incentive Stock Option Plan that provides for
grants to officers and key employees of options to purchase shares of the
Company's common stock. The exercise prices of the options granted thereunder
are established at the date of grant at prices not less than the market price
of the Company's common stock on the date of grant. As of December 31, 1994,
options for 60,000 shares were outstanding and no options were available for
future grant.
Activity in the Company's Incentive Stock Option Plan for 1994 and
1993 is summarized below:
OPTION PRICE
OR SHARES
PRICE RANGE UNDER OPTION
------------- --------------
Outstanding at January 1, 1993 $.63 to $1.63 130,000
Granted None
Exercised None
Terminated $1.28 5,000
-------
Outstanding at December 31, 1993 $.63 to $1.63 125,000
Granted None
Exercised $1.63 55,000
Terminated $1.63 10,000
-------
Outstanding at December 31, 1994 $.63 to $1.63 60,000
=======
As of December 31, 1994 and 1993, options for 51,250 and 98,750
shares, respectively, were exercisable.
NOTE 9 -- EMPLOYEE BENEFIT PLANS
RETIREMENT AND SAVINGS PLAN
The Company maintains a retirement and savings plan (the "Plan")
pursuant to section 401 of the Internal Revenue Code (i.e., a 401(k) plan).
All employees of the Company are entitled to participate in the Plan after
meeting the eligibility requirements. Generally, employees may contribute up
to 15% of their annual compensation but not more than prescribed amounts as
established by the United States Secretary of the Treasury. Employee
contributions, up to a maximum of 6% of an employee's compensation, are matched
50% by the Company. During 1994, 1993 and 1992, provisions for company
matching contributions totaled approximately $339,000, $296,000 and $248,000,
respectively. In addition, the Company has the option of making a profit
sharing contribution to the Plan. The size of the profit sharing contribution
is set annually at the end of each Plan year by the Company's Board of
Directors. Provisions
-35-
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
recorded for profit sharing contributions authorized by the Company's Board of
Directors totaled $370,000, $334,000 and $153,000 during 1994, 1993 and 1992,
respectively. The Company's matching and profit sharing contributions vest
over a seven-year period, with 20% vesting after three years of service and an
additional 20% vesting for each year of service thereafter until fully vested.
INCENTIVE COMPENSATION PLAN
The Company has incentive compensation plans which provide for the
payment of cash bonus awards to certain officers and key employees of the
Company. The Compensation Committee (the "Committee") of the Company's Board
of Directors, which consists of two directors who are not employees of the
Company, oversees the administration of the plans. Cash bonus awards, which
are subject to the approval of the Committee, are based upon prescribed
formulae relating to the attainment of predetermined consolidated and
divisional operating profit and sales targets and the achievement of other
objectives. The amounts charged against operations for bonus expense totaled
$214,000, $386,000 and $103,000 during 1994, 1993 and 1992, respectively.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company maintains programs to fund certain costs related to a
prescription drug card program for retirees of one of its former divisions and
to fund certain insurance premiums for retirees of one of its divisions.
Effective January 1, 1993, the Company adopted "Financial Accounting
Standard No. 106, Employers' Accounting For Postretirement Benefits Other Than
Pensions" ("FAS 106"). As a result, during 1994 and 1993, the Company
recognized the estimated future cost of providing retiree health and welfare
benefits as an expense while employees render service. in 1993, the adoption
of FAS 106 reduced earnings before income taxes by approximately $61,000.
As of January 1, 1993, the Company's accumulated postretirement benefit
obligation (the "transition obligation") totaled $692,000. The Company is
amortizing the transition obligation over the remaining life expectancy of the
participants (i.e., an annual rate of $57,000). During 1992, the Company's
cost of providing postretirement health care benefits (accounted for on a cash
basis) totaled $65,000.
-36-
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the plan's funded status (in thousands of
dollars):
DECEMBER 31,
------------------
1994 1993
---- ----
Accumulated postretirement benefit obligation:
Retirees $ 469 $ 525
Fully eligible active plan participants 13 16
Other active plan participants 39 48
------ -------
521 589
Unrecognized net gain 156 107
Unrecognized transition obligation (578) (635)
------ -------
Accrued postretirement benefit cost $ 99 $ 61
====== =======
Net postretirement benefit cost:
Service cost $ 1 $ 1
Interest cost 41 54
Net amortization and deferral 46 57
------ -------
Net periodic postretirement benefit cost $ 88 $ 112
====== =======
The weighted-average annual assumed rate of increase in the per capita
cost of covered benefits for the prescription drug card program is 10.7% for
1995 and is assumed to decrease gradually to 6.45% in 2005. Changing the
assumed rate of increase in the prescription drug cost by one percentage point
in each year would not have a significant effect on the accumulated
postretirement benefit obligation. The Company's program to fund certain
insurance premiums for retirees of one of its divisions has a defined dollar
benefit and is therefore unaffected by increases in the health care cost trend
rates. The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 8.25% and 7.25% as of December 31, 1994
and 1993, respectively. The change in the discount rate at December 31, 1994,
reflects the higher prevailing interest rates.
NOTE 10 -- INCOME TAXES
Effective January 1, 1993, the Company changed its method of accounting
for income taxes from the deferred method to the liability method as required
by "Financial Accounting Standard No. 109, Accounting For Income Taxes" ("FAS
109"). The Company recorded a valuation allowance equal to 100% of its net
deferred tax asset at January 1, 1993. As a result, the adoption of FAS 109
did not affect the Company's results for 1993. As permitted by FAS 109, prior
year financial statements were not restated.
In accordance with the provisions of FAS 109, at December 31, 1994 and
1993, the Company has recorded deferred tax assets and deferred tax
liabilities. Deferred tax assets and liabilities recorded by the Company
reflect the tax effects of loss carryforwards, tax credit carryforwards and
temporary differences between the values of assets and liabilities for
financial reporting purposes and income tax purposes. The tax effects of loss
carryforwards, tax credit carryforwards and temporary differences existing at
-37-
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994 and 1993 that gave rise to the deferred tax assets and
deferred tax liabilities are presented below (in thousands of dollars):
DECEMBER 31,
------------------
1994 1993
---- ----
Deferred tax assets:
Tax carryforwards:
Operating loss carryforwards $ 3,285 $ 3,512
Capital loss carryforwards 2,313 2,313
Investment tax credit carryforwards 341 366
Other tax credit carryforwards 127 101
--------- ---------
Total tax carryforwards 6,066 6,292
Asset loss reserves 254 428
Write-off of intangible assets - 347
Tax inventory over book 375 414
Deferred compensation liabilities 111 111
Vacation accruals 168 157
Non-economic performance accruals 179 84
Deferred financing costs 58 77
Other 10 8
--------- ---------
Total deferred tax assets 7,221 7,918
Valuation allowance (5,762) (6,918)
--------- ---------
Net deferred tax assets 1,459 1,000
Deferred tax liabilities -- tax over book depreciation 1,459 1,000
--------- ---------
Net deferred taxes $ - $ -
========= =========
Management of the Company believes, after reviewing the positive and
negative evidence available with respect to the realization of its net deferred
tax assets, that a valuation allowance equal to 100% of its net deferred tax
asset is appropriate. In 1994 and 1993, the change in the valuation allowance
was $1,156,000 and $835,000, respectively.
At December 31, 1994, the Company had net operating loss carryforwards
for federal income tax purposes of $8,319,000 that expire in the years 2004
through 2007. Capital loss carryforwards for federal income tax purposes
totaled $6,802,000 at December 31, 1994 and expire in 1995 and 1996. For
purposes of the Federal Alternative Minimum Tax, the Company essentially
utilized all of its Alternative Minimum Tax operating loss carryforward during
1994.
-38-
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of income taxes at the United States federal statutory
rate to the effective income tax rate are summarized below (liability method of
accounting in 1994 and 1993 and deferred method of accounting in 1992):
1994 1993 1992
------ ------ ------
Statutory federal income tax rate on
income/(loss) before income taxes 34.0% 34.0% (34.0)%
Tax benefit not currently utilized -- -- 29.7
Goodwill 4.5 12.6 2.4
Other 1.8 4.4 1.9
Current year NOL Utilization (12.4) (39.1) --
Current year temporary differences (26.5) (11.9) --
------ ------ ------
Effective income tax rate 1.4% --% --%
====== ====== ======
NOTE 11 -- INDUSTRY SEGMENTS
Through its two business segments, the Rubber Group and the Metals
Group, the Company manufactures, to customer specifications, close tolerance
rubber and metal components. The Rubber Group manufactures silicone and organic
rubber components for sale primarily to manufacturers of automobiles,
automotive replacement parts and medical devices. The Metals Group
manufactures metal components for sale primarily to manufacturers of
automobiles, automotive replacement parts, industrial equipment, home
appliances and business machines.
During 1994, 1993 and 1992, net sales to automotive industry customers
totaled $53,005,000, $45,213,000 and $34,596,000, respectively, which
represented 59.9%, 60.3% and 53.1%, respectively, of the Company's total net
sales. The Company's three largest customers accounted for 39.7% 39.2% and
36.2% of net sales during the same respective periods. One customer of the
Company's Rubber Group accounted for 20.6%, 22.3% and 20.4% of the Company's
total net sales during the same respective periods. In addition, one customer
of the Metals Group accounted for 13.0%, 11.8% and 9.0% of the Company's total
net sales during such respective periods. Loss of a significant amount of
business from any of the Company's three largest customers could have a
material adverse effect on the Company's business.
-39-
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information relating to the Company's industry segments is summarized
below (in thousands of dollars):
1994 1993 1992
------- -------- --------
NET SALES:
Rubber Group $ 46,868 $ 40,388 $ 33,228
Metals Group 41,664 34,588 31,973
-------- -------- --------
NET SALES $ 88,532 $ 74,976 $ 65,201
======== ======== ========
INCOME/(LOSS) FROM OPERATIONS:
Rubber Group $ 3,860 $ 3,942 $ (840)
Metals Group 6,060 4,281 3,301
-------- -------- --------
Subtotal 9,920 8,223 2,461
Corporate expense 1,818 1,876 1,913
-------- -------- --------
Income from operations $ 8,102 $ 6,347 $ 548
======== ======== ========
IDENTIFIABLE ASSETS:
Rubber Group $ 42,013 $ 31,986 $ 27,728
Metals Group 25,025 17,531 16,899
-------- -------- --------
Subtotal 67,038 49,517 44,627
Corporate 358 466 957
-------- -------- --------
Total identifiable assets $ 67,396 $ 49,983 $ 45,584
======== ======== ========
DEPRECIATION AND AMORTIZATON EXPENSES:
Rubber Group $ 3,316 $ 2,440 $ 3,225
Metals Group 1,510 1,602 1,562
-------- -------- --------
Subtotal 4,826 4,042 4,787
Corporate 234 255 263
-------- -------- --------
Total depreciation and amortization
expenses $ 5,060 $ 4,297 $ 5,050
======== ======== ========
CAPITAL EXPENDITURES:
Rubber Group $ 8,651 $ 5,046 $ 1,377
Metals Group 6,656 1,225 833
-------- -------- --------
Subtotal 15,307 6,271 2,210
Corporate 12 17 25
-------- -------- --------
Total capital expenditures $ 15,319 $ 6,288 $ 2,235
======== ======== ========
During 1992, the Rubber Group's operating loss included $3,245,000 for the amortization and write-off of covenants not to
compete.
-40-
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 -- INCOME PER SHARE
PRIMARY INCOME PER SHARE
Primary income per share is based upon the weighted average number of
common shares outstanding and, if dilutive, the common share equivalents
outstanding during each period. The weighted average number of common and
dilutive common equivalent shares used in the calculation of primary income per
share totaled 4,209,000 in 1994 and 4,048,000 in each of 1993 and 1992. For
purposes of the primary income per share calculations, net income for 1994 was
reduced by (1) $47,000 of dividends on Redeemable Preferred Stock and (2)
$45,000, the amount by which the payment made to effect the scheduled
redemption of 450 shares of Redeemable Preferred Stock exceeded the par value
of such shares. Net income for 1993 was reduced by (1) $176,000 of dividends
on Redeemable Preferred Stock and (2) $135,000, the amount by which the payment
made to effect the redemption of 1,350 shares of redeemable preferred stock
exceeded the par value of such shares. Net income for 1992 was not reduced by
preferred stock dividends or the redemption of preferred shares because the
Company did not pay any such dividends and did not redeem any of such shares.
FULLY DILUTED INCOME PER SHARE
Fully diluted income per share is based upon the total of the weighted
average number of common shares outstanding, the exercise or conversion of
common share equivalents, if dilutive, as of the beginning of each period or,
if later, their date of issuance and the conversion, as of the beginning of
each period, of $1,000,000 principal amount of 14% Convertible Notes, if
dilutive, into 440,000 shares of the Company's common stock. The weighted
average number of common and dilutive common equivalent shares used in the
calculation of fully diluted income per share totaled 4,666,000 in 1994 and
4,048,000 in each of 1993 and 1992. For purposes of the fully diluted income
per share calculations, net income for 1994 and 1993 was reduced to reflect
dividends on the Redeemable Preferred Stock and the amount by which payments
made to effect the redemption of Redeemable Preferred Stock exceeded the par
value of such shares. In addition, net income for 1994 was increased by
$140,000, net of applicable income taxes, to reflect the pro forma elimination
of interest expense on the 14% Convertible Notes. For 1993 and 1992, exercise
or conversion of common stock equivalents and the conversion of the 14%
Convertible Notes was not assumed because such exercise or conversion would
have been antidilutive.
NOTE 13 -- COMMITMENTS AND CONTINGENCIES
LEASES
The Company is lessee under various leases relating to buildings and
equipment. Total rent expense under operating leases aggregated $177,000,
$89,000 and $85,000 for 1994, 1993 and 1992, respectively. As of December 31,
1994, future minimum lease commitments under non-cancelable operating leases
were not significant for any year or in the aggregate.
LEGAL ACTIONS
The Company is subject to various claims and legal proceedings covering
a wide range of matters that arose in the ordinary course of its business
activities. In addition, the Company has been named a potentially responsible
party or a third-party defendant, along with other companies, for certain waste
disposal sites.
-41-
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Each of these matters is subject to various uncertainties, and it is possible
that some of these matters may be decided unfavorably to the Company.
Management believes that any liability that may ultimately result from the
resolution of these matters will not have a material adverse effect on the
financial position of the Company.
NOTE 14 -- RELATED PARTIES
The Chairman of the Board and the President of the Company are the two
largest holders of the Company's common stock and are the holders of the 14%
Notes.
The Chairman and the President of the Company are partners of an
investment banking firm which was retained by the Company to provide management
and investment banking services through December 31, 1994, for an annual fee of
$400,000 and additional compensation related to the Company's operating
performance and for specific transactions completed by the Company with the
assistance of the firm. The Company also has agreed to reimburse the firm for
certain expenses. During 1994, the Company paid the firm aggregate fees in the
amount of $678,000 (including $328,000 which the company had accrued at
December 31, 1993 relating to the restructuring of the Company's debt in
January 1994) and reimbursed it for direct and indirect expenses incurred by
the Chairman of the Board and the President in an amount totaling $135,000.
During each of 1993 and 1992, the Company paid the firm aggregate fees of
$300,000 and reimbursed it for indirect expenses of $50,000.
The Secretary of the Company, who is also a member of the Company's
Board of Directors, is a stockholder of a professional corporation which is a
partner in a law firm which serves as general counsel to the Company. During
1994, 1993 and 1992, the Company made payments to the law firm for legal
services in the amounts of $364,000, $383,000 and $342,000, respectively. As
of December 31, 1994 and 1993, outstanding accounts payable for legal services
to the law firm totaled $36,000 and $67,000, respectively.
A member of the Board of Directors of the Company is a member of the
board of directors of an insurance brokerage firm which specializes in
brokering commercial, life and accident insurance coverage and providing third
party administration of health claims. After a competitive bidding process,
the Company has from time to time secured large portions of its insurance
coverage through this firm and purchased third party administrative services
from this firm. During 1994, 1993 and 1992, the Company made cash payments to
the brokerage firm for (1) insurance premiums, including commissions thereon,
of $1,319,000, $1,518,000 and $1,794,000, respectively, and (2) administrative
fees for services performed in connection with the administration of the
Company's hospital and medical plans of $70,000, $76,000 and $85,000,
respectively. As of December 31, 1994, and 1993, the Company did not have a
balance due to or from the brokerage firm. As of December 31, 1992, the
Company had a net refund due from the brokerage firm of approximately $65,000.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
-42-
45
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by Item 10 is incorporated by reference from the
Company's proxy statement to be issued in connection with its 1995 Annual
Meeting of Stockholders and to be filed with the Securities and Exchange
Commission (the "Commission") not later than 120 days after December 31, 1994.
ITEM 11. EXECUTIVE COMPENSATION
Information required by Item 11 is incorporated by reference from the
Company's proxy statement to be issued in connection with its 1995 Annual
Meeting of Stockholders and to be filed with the Commission not later than 120
days after December 31, 1994.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information required by Item 12 is incorporated by reference from the
Company's proxy statement to be issued in connection with its 1995 Annual
Meeting of Stockholders and to be filed with the Commission not later than 120
days after December 31, 1994.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by Item 13 is incorporated by reference from the
Company's proxy statement to be issued in connection with its 1995 Annual
Meeting of Stockholders and to be filed with the Commission not later than 120
days after December 31, 1994.
-43-
46
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(A) 1. FINANCIAL STATEMENTS
The consolidated financial statements of Lexington
Precision Corporation are included in Part II, Item 8.
2. FINANCIAL STATEMENT SCHEDULES
Schedule II, Valuation and Qualifying Accounts and Reserves,
is included in this Part IV, item 14, on page 49. All other
schedules are omitted because the required information is
not applicable, not material or included in the consolidated
financial statements or notes thereto.
3. EXHIBITS
3-1 Articles of Incorporation and Restatement thereof
3-2 By-Laws, as amended
3-3 Certificate of Correction dated September 21, 1976
3-4 Certificate of Ownership and Merger dated May 24, 1977
3-5 Certificate of Ownership and Merger dated May 31, 1977
3-6 Certificate of Reduction of Capital dated December 30, 1977
3-7 Certificate of Retirement of Preferred Shares dated December 30, 1977
3-8 Certificate of Reduction of Capital dated December 28, 1978
3-9 Certificate of Retirement of Preferred Shares dated December 28, 1978
3-10 Certificate of Reduction of Capital dated January 9, 1979
3-11 Certificate of Reduction of Capital dated December 20, 1979
3-12 Certificate of Retirement of Preferred Shares dated December 20, 1979
3-13 Certificate of Reduction of Capital dated December 16, 1982
3-14 Certificate of Reduction of Capital dated December 17, 1982
-44-
47
3-15 Certificate of Amendment of Restated Certificate of Incorporation dated September 26, 1984
3-16 Certificate of Retirement of Stock dated September 24, 1986
3-17 Certificate of Amendment of Restated Certificate of Incorporation dated
November 21, 1986
3-18 Certificate of Retirement of Stock dated January 15, 1987
3-19 Certificate of Retirement of Stock dated February 22, 1988
3-20 Certificate of Amendment of Restated Certificate of Incorporation dated
January 6, 1989
3-21 Certificate of Retirement of Stock dated August 17, 1989
3-22 Certificate of Retirement of Stock dated January 9, 1990
3-23 Certificate of the Designations, Preferences and Relative Participating, Optional
and Other Special Rights of 12% Cumulative Convertible Exchangeable
Preferred Stock, Series C and the Qualifications, Limitations and Restrictions
thereof dated January 10, 1990
3-24 Certificate of Ownership and Merger dated April 25, 1990
3-25 Certificate of Elimination of 12% Cumulative Convertible Exchangeable
Preferred Stock, Series C, dated June 4, 1990
3-26 Certificate of Retirement of Stock dated March 6, 1991
3-27 Certificate of Retirement of Stock dated April 29, 1994
3-28 Certificate of Retirement of Stock dated January 6, 1995
4-1 Certificate of Designations, Preferences, Rights and Number of Shares of
Preferred Stock, Series B
4-2 Purchase Agreement dated as of February 7, 1985 between the Company and
L&D Precision Limited Partnership ("L&D Precision") and exhibits thereto
4-3 Amendment Agreement dated as of April 27, 1990 between the Company and
L&D Precision with respect to Purchase Agreement dated as of February 7, 1985
4-4 Recapitalization Agreement dated as of April 27, 1990 between the Company
and L&D Woolens Limited Partnership ("Woolens") and exhibits thereto
4-5 Specimen of Junior Subordinated Convertible Increasing Rate Note due
May 1, 2000
-45-
48
4-6 Restructuring Agreement dated as of December 10, 1993 among the Company,
Warren Delano and Michael A. Lubin and exhibits thereto
4-7 Specimen of 14% Junior Subordinated Note due May 1, 2000
4-8 Indenture dated as of August 1, 1993 between the Company and IBJ Schroder
Bank & Trust Company, as Trustee
4-9 Specimen of 12-3/4% Senior Subordinated Note due February 1, 2000
10-1 Purchase Agreement dated as of February 7, 1985 between the Company and
L&D Precision and exhibits thereto
10-2 Amendment Agreement dated as of April 27, 1990 between the Company and
L&D Precision with respect to Purchase Agreement dated as of February 7, 1985
10-3 *Lexington Precision Corporation Flexible Compensation Plan, as amended
10-4 *1983 Incentive Stock Option Plan, as amended
10-5 *1986 Restricted Stock Award plan, as amended
10-6 *Lexington Precision Corporation Retirement & Savings Plan, as amended
10-7 *Description of 1994 Compensation Arrangements with Lubin, Delano, &
Company
10-8 *Lexington Precision Corporate Office 1994 Management Cash Bonus Plan
10-9 *Lexington Precision Corporate Office 1995 Management Cash Bonus Plan
10-10 Lease Agreement dated as of December 1, 1985 between the County of Monroe
Industrial Development Agency and the Company
10-11 Consent and Amendment Letter Agreement between Chemical Bank of New
Jersey and the Company dated as of December 29, 1993
10-12 Promissory Note dated November 30, 1988 of LCI payable to the order of Paul
H. Pennell in the original principal amount of $3,530,000
10-13 Guaranty dated as of November 30, 1988 from the Company to Paul H. Pennell
10-14 Amendment Agreement dated as of November 30, 1991 between LCI and Paul
H. Pennell
10-15 Release and Notice Agreement dated as of March 31, 1993 between LCI and
Paul H. Pennell
-46-
49
10-16 Standstill Agreement dated as of November 2, 1988 between Atlas Corporation
and the Company
10-17 Recapitalization Agreement dated as of april 27, 1990 between the Company
and Woolens and exhibits thereto
10-18 Accounts Financing Agreement [Security Agreement] dated as of January 11,
1990 between Congress Financial Corporation ("Congress") and the Company
10-19 Accounts Financing Agreement [Security Agreement] dated as of January 11,
1990 between Congress and LCI
10-20 Covenants Supplement to Accounts Financing Agreement [Security Agreement]
dated as of January 11, 1990 between Congress and the Company
10-21 Covenants Supplement to Accounts Financing Agreement [Security Agreement]
dated as of January 11, 1990 between Congress and LCI
10-22 Letter dated April 11, 1990 from the Company and Wise Die Casting, Inc. to
Congress
10-23 Letter Agreement dated February 28, 1991 between the Company and Congress
amending certain financing agreements and consent thereto of LCI
10-24 Letter Agreement dated February 28, 1991 between LCI and Congress amending
certain financing agreements and consent thereto of the Company
10-25 Letter Agreement dated January 14, 1994 between the Company and Congress
amending certain financing agreements and consent thereto of LCI
10-26 Letter Agreement dated January 14, 1994 between LCI and Congress amending
certain financial agreements and consent thereto of the Company
10-27 Letter Agreement dated March 25, 1994 between Congress and the Company,
and consent thereto of LCI
10-28 Letter Agreement dated March 25, 1994 between Congress and LCI, and consent
thereto of the Company
10-29 Letter Agreement dated as of August 1, 1994 between the Company and
Congress amending certain financing agreements and consent thereto of LCI
10-30 Letter Agreement dated as of August 1, 1994 between LCI and Congress
amending certain financing agreements and consent thereto of the Company
10-31 Trade Financing Agreement Supplement to Accounts Financing Agreement
[Security Agreement] dated as of July 19, 1994 between the Company and
Congress
-47-
50
10-32 Letter Agreement dated January 13, 1995 between LCI and Congress amending
certain financing agreements and consent thereto of the Company
10-33 Term Promissory Note dated January 13, 1995 from LCI in favor of Congress
10-34 Letter Agreement dated January 31, 1995 between the Company and Congress
amending certain financing agreements and consent thereto of LCI
10-35 Second Amended and Restated Promissory Note dated January 31, 1995 from
the Company in favor of Congress
10-36 Letter Agreement dated January 31, 1995 between LCI and Congress amending
certain financing agreements and consent thereto of the Company
10-37 Second Amended and Restated Promissory Note dated January 31, 1995 from
LCI in favor of Congress
10-38 Restructuring Agreement dated as of December 10, 1993 among the Company,
Warren Delano and Michael A. Lubin and exhibits thereto
10-39 Consent and Amendment letter Agreement between Chemical Bank of New
Jersey and the Company dated as of December 30, 1994
21-1 Subsidiary of Registrant
23-1 Consent of Ernst & Young LLP
27-1 **Financial Data Schedule
* Indicates a management contract or compensatory plan or
arrangement required to be filed as an exhibit pursuant to
item 14(a)(3).
** Not deemed filed for purposes of section 11 of the Securities
Act of 1933, Section 18 of the Securities Exchange Act of 1934
and Section 323 of the Trust Indenture Act of 1939, or
otherwise subject to the liabilities of such sections and not
deemed part of any regulation statement to which such exhibit
relates.
Note: Pursuant to section (b)(4)(iii) of item 601 of Regulation
S-K, the Company agrees to furnish to the Securities and
Exchange Commission upon request documents defining the
rights of other holders of long-term debt.
(b) Reports on Form 8-K:
On February 2, 1995, the Company filed with the Securities and
Exchange Commission a Current Report on Form 8-K dated
January 31, 1995 which stated, among other things, that
the Company had amended its Working Capital Facility with its
Working Capital Lender.
-48-
51
LEXINGTON PRECISION CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(THOUSANDS OF DOLLARS)
BALANCE AT CHARGED TO DEDUCTIONS BALANCE
BEGINNING COSTS AND FROM AT END
OF PERIOD EXPENSES RESERVES OF PERIOD
---------- -------- -------- ---------
ALLOWANCE FOR
DOUBTFUL ACCOUNTS
-----------------
Year ended December 31, 1994 $ 159 $ 20 $ 5 $ 174
Year ended December 31, 1993 181 25 47 159
Year ended December 31, 1992 164 44 27 181
INVENTORY RESERVES
------------------
Year ended December 31, 1994 $ 337 $ 92 $ 62 $ 367
Year ended December 31, 1993 281 57 1 337
Year ended December 31, 1992 243 81 43 281
-49-
52
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
LEXINGTON PRECISION CORPORATION
---------------------------------------
(Registrant)
By: /s/ Warren Delano
-----------------------------------
Warren Delano,
President
March 29, 1995
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 29, 1995:
PRINCIPAL EXECUTIVE OFFICERS:
/s/ Michael A. Lubin
-------------------------------------------------------
Michael A. Lubin, Chairman of the Board
/s/ Warren Delano
--------------------------------------------------------
Warren Delano, President and Director
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
/s/ Dennis J. Welhouse
------------------------------------------------------
Dennis J. Welhouse, Senior Vice President
and Chief Financial Officer
DIRECTORS:
/s/ William B. Conner
------------------------------------------------------
William B. Conner, Director
/s/ Kenneth I. Greenstein
-----------------------------------------------------
Kenneth I. Greenstein, Secretary and
Director
/s/ Arnold W. MacAlonan
--------------------------------------------------
Arnold W. MacAlonan, Director
/s/ Phillips E. Patton
----------------------------------------------------------
Phillips E. Patton, Director
-50-
53
EXHIBIT INDEX
Exhibit
Number Exhibit
------ -------
Location
--------
3-1 Articles of Incorporation and Restatement Incorporated by reference from Exhibit 3-1 to the
thereof Company's Form 10-K for the year ended May 31, 1981
located under Securities and Exchange Commission File
No. 0-3252 ("1981 10-K")
3-2 By-laws, as amended Incorporated by reference from Exhibit 3-2 to the
Company's Form 10-K for the year ended December 31,
1991 located under Securities and Exchange Commission
File No. 0-3252 ("1991 10-K")
3-3 Certificate of Correction dated September Incorporated by reference from Exhibit 3-3 to the
21, 1976 Company's Form 10-K for the year ended May 31, 1983
located under Securities and Exchange Commission File
No. 0-3252 ("1983 10-K")
3-4 Certificate of Ownership and Merger dated Incorporated by reference from Exhibit 3-4 to
May 24, 1977 1983 10-K
3-5 Certificate of Ownership and Merger dated Incorporated by reference from Exhibit 3-5 to
May 31, 1977 1983 10-K
3-6 Certificate of Reduction of Capital dated Incorporated by reference from Exhibit 3-6 to
December 30, 1977 1983 10-K
3-7 Certificate of Retirement of Preferred Incorporated by reference from Exhibit 3-7 to
Shares dated December 30, 1977 1983 10-K
3-8 Certificate of Reduction of Capital dated Incorporated by reference from Exhibit 3-8 to
December 28, 1978 1983 10-K
3-9 Certificate of Retirement of Preferred Incorporated by reference from Exhibit 3-9 to
Shares dated December 28, 1978 1983 10-K
3-10 Certificate of Reduction of Capital dated Incorporated by reference from Exhibit 3-10 to 1983
January 9, 1979 10-K
3-11 Certificate of Reduction of Capital dated Incorporated by reference from Exhibit 3-11 to 1983
December 20, 1979 10-K
3-12 Certificate of Retirement of Preferred Incorporated by reference from Exhibit 3-12 to 1983
Shares dated December 20, 1979 10-K
3-13 Certificate of Reduction of Capital dated Incorporated by reference from Exhibit 3-13 to 1983
December 16, 1982 10-K
3-14 Certificate of Reduction of Capital dated Incorporated by reference from Exhibit 3-14 to 1983 10-K
December 17, 1982
54
-2-
3-15 Certificate of Amendment of Restated Incorporated by reference from Exhibit 3-15 to the
Certificate of Incorporation dated September Company's Form 10-K for the year ended May 31, 1985
26, 1984 located under Securities and Exchange Commission File
No. 0-3252
3-16 Certificate of Retirement of Stock dated Incorporated by reference from Exhibit 4-3 to the
September 24, 1986 Company's Registration Statement on Form S-2 located
under Securities and Exchange Commission File No.
33-9380 ("1933 Act Registration Statement")
3-17 Certificate of Amendment of Restated Incorporated by reference from Exhibit 3-17 to the
Certificate of Incorporation Dated Company's Form 10-K for the year ended May 31, 1987
November 21, 1986 located under Securities and Exchange Commission File
No. 0-3252
3-18 Certificate of Retirement of Stock dated Incorporated by reference from Exhibit 4-5 to Amendment
January 15, 1987 No. 1 to 1933 Act Registration Statement
3-19 Certificate of Retirement of Stock dated Incorporated by reference from Exhibit 3-19 to the
February 22, 1988 Company's Form 10-K for the year ended May 31, 1989
located under Securities and Exchange Commission File
No. 0-3252 ("May 31, 1989 10-K")
3-20 Certificate of Amendment of Restated Incorporated by reference from Exhibit 3-20 to May 31,
Certificate of Incorporation dated 1989 10-K
January 6, 1989
3-21 Certificate of Retirement of Stock dated Incorporated by reference from Exhibit 3-21 to May 31,
August 17, 1989 1989 10-K
3-22 Certificate of Retirement of Stock dated Incorporated by reference from Exhibit 3-22 to the
January 9, 1990 Company's Form 10-K for the seven months ended
December 31, 1989 located under Securities and
Exchange Commission File No. 0-3252
("December 31, 1989 10-K")
3-23 Certificate of the Designations, Preferences Incorporated by reference from Exhibit 3-1 to the
and Relative Participating, Optional and Company's Form 10-Q for the quarter ended November 30,
Other Special Rights of 12% Cumulative 1989 located under Securities and Exchange Commission
Convertible Exchangeable Preferred Stock, File No. 0-3252 ("November 30, 1989 10-Q")
Series C and the Qualifications, Limitations
and Restrictions thereof dated January 10,
1990
3-24 Certificate of Ownership and Merger dated Incorporated by reference from Exhibit 3-24 to December
April 25, 1990 31, 1989 10-K
55
-3-
3-25 Certificate of Elimination of 12% Cumulative Incorporated by reference from Exhibit 3-25 to the
Convertible Exchangeable Preferred Stock, Company's Form 10-K for the year ended December 31,
Series C, dated June 4, 1990 1990 located under Securities and Exchange Commission
File No. 0-3252 ("1990 10-K")
3-26 Certificate of Retirement of Stock dated Incorporated by reference from Exhibit 3-26 to 1990
March 6, 1991 10-K
3-27 Certificate of Retirement of Stock dated Filed with this Form 10-K
April 29, 1994
3-28 Certificate of Retirement of Stock dated Filed with this Form 10-K
January 6, 1995
4-1 Certificate of Designations, Preferences, Incorporated by reference from Exhibit 3-3 to 1981 10-K
Rights and Number of Shares of Preferred
Stock, Series B
4-2 Purchase Agreement dated as of February 7, Incorporated by reference from Exhibit 4-1 to the
1985 between the Company and L&D Precision Company's Form 8-K dated February 7, 1985 (date of
Limited Partnership ("L&D Precision") and earliest event reported) located under Securities and
exhibits thereto Exchange Commission File No. 0-3252
4-3 Amendment Agreement dated as of April 27, Incorporated by reference from Exhibit 10-2 to 1990 10-K
1990 between the Company and L&D Precision
with respect to Purchase Agreement dated as
of February 7, 1985
4-4 Recapitalization Agreement dated as of Incorporated by reference from Exhibit 4-10 to December
April 27, 1990 between the Company and 31, 1989 10-K
L&D Woolens Limited Partnership ("Woolens")
and exhibits thereto
4-5 Specimen of Junior Subordinated Convertible Incorporated by reference from Exhibit 4-11 to December
Increasing Rate Note Due May 1, 2000 31, 1989 10-K
4-6 Restructuring Agreement dated as of December Incorporated by reference from Exhibit 10-2 to the
10, 1993 among the Company, Warren Delano Company's Form 8-K dated December 10, 1993 (date of
and Michael A. Lubin and exhibits thereto earliest event reported) located under Securities and
Exchange Commission File No. 0-3252
4-7 Specimen of 14% Junior Subordinated Note due Included in Exhibit 4-6 hereto
May 1, 2000
4-8 Indenture dated as of August 1, 1993 between Incorporated by reference from Exhibit 4-2 to the
the Company and IBJ Schroder Bank & Trust Company's Form 8-K dated January 18, 1994 (date of
Company, as Trustee earliest event reported) located under Securities and
Exchange Commission File No. 0-3252
56
-4-
4-9 Specimen of 12-3/4% Senior Subordinated Note Included in Exhibit 4-8 hereto
due February 1, 2000
10-1 Purchase Agreement dated as of February 7, See Exhibit 4-2 hereto
1985 between the Company and L&D Precision
and exhibits thereto
10-2 Amendment Agreement dated as of April 27, See Exhibit 4-3 hereto
1990 between the Company and L&D Precision
with respect to Purchase Agreement dated as
of February 7, 1985
10-3 Lexington Precision Corporation Flexible Incorporated by reference from Exhibit 10-3 to 1991 10-K
Compensation Plan, as amended
10-4 1983 Incentive Stock Option Plan, as amended Incorporated by reference from Exhibit 10-37 to
December 31, 1989 10-K
10-5 1986 Restricted Stock Award Plan, as amended Incorporated by reference from Exhibit 10-38 to
December 31, 1989 10-K
10-6 Lexington Precision Corporation Retirement Incorporated by reference from Exhibit 10-9 to 1991 10-K
and Savings Plan, as amended
10-7 Description of 1994 Compensation Filed with this Form 10-K
Arrangements with Lubin, Delano & Company
10-8 Lexington Precision Corporate Office 1994 Filed with this Form 10-K
Management Cash Bonus Plan
10-9 Lexington Precision Corporate Office 1995 Filed with this Form 10-K
Management Cash Bonus Plan
10-10 Lease Agreement dated as of December 1, 1985 Incorporated by reference from Exhibit 10-22 to the
between the County of Monroe Industrial Company's Form 10-K for the year ended May 31, 1986
Development Agency and the Company located under Securities and Exchange Commission File
No. 03252
10-11 Consent and Amendment Letter Agreement Incorporated by reference from Exhibit 10-1 to the
between Chemical Bank of New Jersey and the Company's Form 8-K dated December 30, 1993 (date of
Company dated as of December 29, 1993 earliest event reported) located under Securities and
Exchange Commission File No. 0-3252
10-12 Promissory Note dated November 30, 1988 of Incorporated by reference from Exhibit 10-32 to May 31,
LCI payable to the order of Paul H. Pennell 1989 10-K
in the original principal amount of
$3,530,000
57
-5-
10-13 Guaranty dated as of November 30, 1988 from Incorporated by reference from Exhibit 10-33 to May 31,
the Company to Paul H. Pennell 1989 10-K
10-14 Amendment Agreement dated as of November 30, Incorporated by reference from Exhibit 10-28 to 1991
1991 between LCI and Paul H. Pennell 10-K
10-15 Release and Notice Agreement dated as of Incorporated by reference from Exhibit 10-40 to the
March 31, 1993 between LCI and Paul H. Company's Form 10-K for the year ended December 31,
Pennell 1992 located under Securities and Exchange Commission
File No. 0-3252
10-16 Standstill Agreement dated as of November 2, Incorporated by reference from Exhibit 10-49 to May 31,
1988 between Atlas Corporation and the 1989 10-K
Company
10-17 Recapitalization Agreement dated as of April See Exhibit 4-4 hereto
27, 1990 between the Company and Woolens and
exhibits thereto
10-18 Accounts Financing Agreement [Security Incorporated by reference from Exhibit 4-2 to November
Agreement] dated as of January 11, 1990 30, 1989 10-Q
between Congress Financial Corporation
("Congress") and the Company
10-19 Accounts Financing Agreement [Security Incorporated by reference from Exhibit 4-3 to November
Agreement] dated as of January 11, 1990 30, 1989 10-Q
between Congress and LCI
10-20 Covenants Supplement to Accounts Financing Incorporated by reference from Exhibit 10-49 to 1990
Agreement [Security Agreement] dated as of 10-K
January 11, 1990 between Congress and the
Company
10-21 Covenants Supplement to Accounts Financing Incorporated by reference from Exhibit 10-50 to 1990
Agreement [Security Agreement] dated as of 10-K
January 11, 1990 between Congress and LCI
10-22 Letter dated April 11, 1990 from the Company Incorporated by reference from Exhibit 10-51 to 1990
and Wise to Congress 10-K
10-23 Letter Agreement dated February 28, 1991 Incorporated by reference from Exhibit 10-54 to 1990
between the Company and Congress amending 10-K
certain financing agreements and consent
thereto of LCI
58
-6-
10-24 Letter Agreement dated February 28, 1991 Incorporated by reference from Exhibit 10-56 to 1990
between LCI and Congress amending certain 10-K
financing agreements and consent thereto of
the Company
10-25 Letter Agreement dated January 14, 1994 Incorporated by reference from Exhibit 10-26 to the
between the Company and Congress amending Company's Form 10-K for the year ended December 31,
certain financing agreements and consent 1993 located under Securities and Exchange Commission
thereto of LCI File No. 0-3252 ("1993 10-K")
10-26 Letter Agreement dated January 14, 1994 Incorporated by reference from Exhibit 10-27 to 1993
between LCI and Congress amending certain 10-K
financing agreements and consent thereto of
the Company
10-27 Letter Agreement dated March 25, 1994 Incorporated by reference from Exhibit 10-30 to 1993
between Congress and the Company, and 10-K
consent thereto of LCI
10-28 Letter Agreement dated March 25, 1994 Incorporated by reference from Exhibit 10-31 to 1993
between Congress and LCI, and consent 10-K
thereto of the Company
10-29 Letter Agreement dated as of August 1, 1994 Incorporated by reference from Exhibit 10-1 to the
between the Company and Congress amending Company's Form 10-Q for the quarter ended September 30,
certain financing agreements and consent 1994 located under Securities and Exchange Commission
thereto of LCI File No. 0-3252 ("September 30, 1994 10-Q")
10-30 Letter Agreement dated as of August 1, 1994 Incorporated by reference from Exhibit 10-2 to
between LCI and Congress amending certain September 30, 1994 10-Q
financing agreements and consent thereto of
the Company
10-31 Trade Financing Agreement Supplement to Incorporated by reference from Exhibit 10-3 to
Accounts Financing Agreement [Security September 30, 1994 10-Q
Agreement] dated as of July 19, 1994 between
the Company and Congress
10-32 Letter Agreement dated January 13, 1995 Filed with this Form 10-K
between LCI and Congress amending certain
financing agreements and consent thereto of
the Company
10-33 Term Promissory Note dated January 13, 1995 Filed with this Form 10-K
from LCI in favor of Congress
59
-7-
10-34 Letter Agreement dated January 31, 1995 Filed with this Form 10-K
between the Company and Congress amending
certain financing agreements and consent
thereto of LCI
10-35 Second Amended and Restated Promissory Note Filed with this Form 10-K
dated January 31, 1995
from the Company in favor of Congress
10-36 Letter Agreement dated January 31, 1995 Filed with this Form 10-K
between LCI and Congress amending certain
financing agreements and consent thereto of
the Company
10-37 Second Amended and Restated Promissory Note Filed with this Form 10-K
dated January 31, 1995 from LCI in favor of
Congress
10-38 Restructuring Agreement dated as of December See Exhibit 4-6 hereto
10, 1993 among the Company, Warren Delano
and Michael A. Lubin and exhibits thereto
10-39 Consent and Amendment Letter Agreement Filed with this Form 10-K
between Chemical Bank of New Jersey and the
Comnpany dated as of December 30, 1994
21-1 Subsidiary of Registrant Incorporated by reference from Exhibit 22-1 to 1991 10-K
23-1 Consent of Ernst & Young LLP Filed with this Form 10-K
27-1 Financial Data Schedule Filed with this Form 10-K