<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-3252
LEXINGTON PRECISION CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 22-1830121
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
767 THIRD AVENUE, NEW YORK, NY 10017
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
(212) 319-4657
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT DATE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
COMMON STOCK, $.25 PAR VALUE -- 4,228,036 SHARES AS OF AUGUST 10, 1995
(INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE)
<PAGE> 2
LEXINGTON PRECISION CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. Financial Information
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . 18
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LEXINGTON PRECISION CORPORATION
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
-------- -----------
<S> <C> <C>
ASSETS:
Current assets:
Cash $ 58 $ 79
Accounts receivable 13,685 12,478
Inventories 9,922 8,237
Prepaid expenses and other current assets 1,950 1,958
------- -------
Total current assets 25,615 22,752
------- -------
Property, plant and equipment:
Land 916 823
Buildings 12,617 12,274
Equipment 51,764 46,516
------- -------
65,297 59,613
Less accumulated depreciation 28,106 27,019
------- -------
Property, plant and equipment, net 37,191 32,594
------- -------
Excess of cost over net assets of businesses acquired, net 9,884 10,041
------- -------
Other assets, net 3,053 2,009
------- -------
$75,743 $67,396
======= =======
See notes to consolidated financial statements. (Continued)
</TABLE>
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<PAGE> 4
LEXINGTON PRECISION CORPORATION
CONSOLIDATED BALANCE SHEETS (CONT.)
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
-------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT:
Current liabilities:
Accounts payable $ 11,220 $ 10,489
Accrued expenses 7,691 6,289
Short-term debt 8,575 5,052
Current portion of long-term debt 3,105 2,599
-------- --------
Total current liabilities 30,591 24,429
-------- --------
Long-term debt, excluding current portion 49,905 49,627
-------- --------
Redeemable preferred stock, $100 par value,
at redemption value 1,110 1,110
Less excess of redemption value over par value 555 555
-------- --------
Redeemable preferred stock, at par value 555 555
-------- --------
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 12,615 12,659
Accumulated deficit (18,705) (20,593)
Cost of common stock in treasury, 120,915 and 145,915
shares, respectively (305) (368)
-------- --------
Total stockholders' deficit (5,308) (7,215)
-------- --------
$ 75,743 $ 67,396
======== ========
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE> 5
LEXINGTON PRECISION CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ---------------------
1995 1994 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $26,433 $21,724 $53,507 $42,990
------- ------- ------- -------
Costs and expenses:
Cost of sales 21,249 17,075 42,790 34,161
Selling and administrative expenses 2,514 2,393 5,134 4,638
------- ------- ------- -------
Total costs and expenses 23,763 19,468 47,924 38,799
------- ------- ------- -------
Income from operations 2,670 2,256 5,583 4,191
Interest expense 1,857 1,530 3,667 2,994
Other income 641 336 641 336
------- ------- ------- -------
Income before income taxes 1,454 1,062 2,557 1,533
Provision for income taxes 383 21 667 29
------- ------- ------- -------
Net income $ 1,071 $ 1,041 $ 1,890 $ 1,504
======= ======= ======= =======
Net income per common share:
Primary $ .25 $ .24 $ .44 $ .35
======= ======= ======= =======
Fully diluted $ .23 $ .23 $ .40 $ .33
======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 6
LEXINGTON PRECISION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1995 1994
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,890 $ 1,504
Adjustments to reconcile net income to net cash
provided/(used) by operating activities:
Depreciation and amortization 3,007 2,303
Gain on sale of property, plant and equipment (641) -
Gain on sale of marketable securities - (336)
Changes in operating assets and liabilities which
provided/(used) cash:
Receivables (1,207) (2,077)
Inventories (1,685) (772)
Prepaid expenses and other current assets 8 (978)
Accounts payable 731 2,895
Accrued expenses 1,402 (438)
Other - 167
------- -------
Net cash provided by operating activities 3,505 2,268
------- -------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (7,378) (5,834)
Increase in deposits relating to equipment purchases (722) (187)
Proceeds from sales of property, plant and equipment 970 246
Proceeds from sale of marketable equity securities - 338
Other (457) (194)
------- -------
Net cash used by investing activities (7,587) (5,631)
------- -------
FINANCING ACTIVITIES:
Net proceeds from short-term borrowings 3,523 -
Proceeds from issuance of long-term debt 2,300 8,134
Repayments of long-term debt (1,534) (4,611)
Other (228) 84
------- -------
Net cash provided by financing activities 4,061 3,607
------- -------
Net increase/(decrease) in cash (21) 244
Cash at beginning of period 79 33
------- -------
Cash at end of period $ 58 $ 277
======= =======
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by Lexington Precision
Corporation (the "Company") are set forth in Note 1 to the consolidated
financial statements in the Company's annual report on Form 10-K for the year
ended December 31, 1994, which was filed with the Securities and Exchange
Commission. Unless the context otherwise requires, all references to the
"Company" in this quarterly report on Form 10-Q shall be to Lexington Precision
Corporation and its wholly-owned subsidiary, Lexington Components, Inc.
("LCI").
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly the
consolidated financial position of the Company as of June 30, 1995, the
Company's consolidated results of operations for the three- month and six-month
periods ended June 30, 1995 and 1994 and the Company's consolidated cash flows
for the six-month periods ended June 30, 1995 and 1994. All such adjustments
were of a normal recurring nature. Certain amounts in the consolidated
financial statements for 1994 have been reclassified to conform to the
presentation for 1995.
The results of operations for the three-month and six-month periods ended
June 30, 1995 are not necessarily indicative of the results to be expected for
the full year or for any succeeding quarter.
NOTE 2 -- INVENTORIES
Inventories as of June 30, 1995 and December 31, 1994 are summarized
below (in thousands of dollars):
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
-------- -----------
<S> <C> <C>
Raw materials and purchased parts $3,577 $3,256
Work in process 2,984 2,285
Finished goods 3,361 2,696
------ ------
$9,922 $8,237
====== ======
</TABLE>
NOTE 3 -- SHORT-TERM DEBT
As of June 30, 1995 and December 31, 1994, short-term debt consisted of
borrowings under the revolving line of credit available under the Company's
borrowing arrangement (the "Working Capital Facility") with its working capital
lender (the "Working Capital Lender"). (For additional information regarding
the Working Capital Facility, see Note 5 -- Long-Term Debt.)
NOTE 4 -- ACCRUED EXPENSES
As of June 30, 1995 and December 31, 1994, accrued expenses included
accrued interest expense of $1,717,000 and $1,716,000, respectively.
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<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 -- LONG-TERM DEBT
Long-term debt as of June 30, 1995 and December 31, 1994 is summarized
below (in thousands of dollars):
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
------- -----------
<S> <C> <C>
Term loans outstanding under the Working Capital Facility,
payable in monthly installments through 2002 $16,365 $15,296
12% Term Note, payable in monthly installments through 2000 2,863 3,078
Industrial Revenue Bond, 75% of the Prime Rate, payable in
monthly installments through 2000 548 598
12-3/4% Senior Subordinated Notes, due 2000 31,665 31,647
14% Junior Subordinated Convertible Notes, due 2000 1,000 1,000
14% Junior Subordinated Non-Convertible Notes, due 2000 347 347
Other 222 260
------- -------
Total long-term debt 53,010 52,226
Less current portion 3,105 2,599
------- -------
Total long-term debt, excluding current portion $49,905 $49,627
======= =======
</TABLE>
WORKING CAPITAL FACILITY
The Working Capital Facility, which expires in January 1998, enables the
Company to borrow up to $40,000,000, subject to availability formulas set by
the Working Capital Lender. Interest is charged on loans outstanding under the
Working Capital Facility at either the Prime Rate plus 1% or the London
Interbank Offered Rate plus 3-1/4%. The Working Capital Facility includes a
revolving line of credit, term loans and an equipment line of credit. The
Company classifies loans outstanding under the revolving line of credit as
short-term debt. The unused portion of the equipment line of credit, which
totaled $10,000,000 at June 30, 1995, can be used to finance a portion of the
purchase price of new equipment through new term loans which will be payable in
equal monthly principal installments through 2002. As of August 10, 1995, the
Company had borrowings of $26,321,000 outstanding under the Working Capital
Facility and had approximately $1,523,000 of unused availability.
Under the terms of the Working Capital Facility, the Company is required,
among other things, to maintain net working capital of not less than
$1,000,000, exclusive of amounts borrowed under the Working Capital Facility
which are classified as current liabilities, 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 personal property of the Company, including,
accounts receivable, inventory and equipment, and certain real property of the
Company.
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<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12-3/4% SENIOR SUBORDINATED NOTES
The 12-3/4% Senior Subordinated Notes, due February 1, 2000, 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.
NOTE 6 -- PROVISION FOR INCOME TAXES
As of June 30, 1995 and December 31, 1994, the Company's net deferred tax
assets were entirely offset by a valuation allowance.
The income tax provisions otherwise recognizable during the three and six
months ended June 30, 1995 and 1994 were reduced by the utilization of portions
of the Company's tax loss carryforwards and tax credit carryforwards. The
income tax provisions recorded for the three and six months ended June 30, 1995
were calculated using the projected annual effective tax rate (primarily
attributable to federal alternative minimum taxes) for the year ending December
31, 1995.
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<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 -- INCOME PER SHARE
The calculation of primary and fully diluted income per share for the
three- and six-month periods ended June 30, 1995 and 1994 are set forth below
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
-------------------- -------------------
1995 1994 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
PRIMARY NET INCOME PER COMMON SHARE:
Weighted average common shares outstanding during period 4,214 4,202 4,209 4,159
Common stock equivalents - incentive stock options 26 25 26 25
------- ------- ------- -------
Weighted average common and common equivalent shares 4,240 4,227 4,235 4,184
======= ======= ======= =======
Net Income $ 1,071 $ 1,041 $ 1,890 $ 1,504
Preferred Stock Dividends (11) (12) (22) (24)
Pro rata portion of the excess of the redemption cost over
the par value of preferred stock redeemed (11) (11) (22) (22)
------- ------- ------- -------
Income for primary income per share calculation $ 1,049 $ 1,018 $ 1,846 $ 1,458
======= ======= ======= =======
Primary net income per common share $ .25 $ .24 $ .44 $ .35
======= ======= ======= =======
FULLY DILUTED NET INCOME PER COMMON SHARE:
Weighted average common shares outstanding during period 4,228 4,203 4,228 4,192
Pro forma conversion of 14% Junior Subordinated
Convertible Notes 440 440 440 440
Common stock equivalents - incentive stock options 26 25 26 25
------- ------- ------- -------
Weighted average common and common equivalent shares 4,694 4,668 4,694 4,657
======= ======= ======= =======
Net Income $ 1,071 $ 1,041 $ 1,890 $ 1,504
Preferred Stock Dividends (11) (12) (22) (24)
Pro rata portion of the excess of the redemption cost over
the par value of preferred stock redeemed (11) (11) (22) (22)
Pro forma elimination of interest expense on the 14%
Junior Subordinated Convertible Notes, net of applicable
income taxes 26 35 52 70
------- ------- ------- -------
Income for fully diluted income per share calculation $ 1,075 $ 1,053 $ 1,898 $ 1,528
======= ======= ======= =======
Fully diluted net income per common share $ .23 $ .23 $ .40 $ .33
======= ======= ======= =======
</TABLE>
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<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 -- SALE OF EXTRUDED AND LATHE-CUT PRODUCTS DIVISION
On June 30, 1995, the Company sold the inventory, equipment and
manufacturing facility of the Extruded and Lathe-Cut Products Division of LCI
for cash and the assumption by the purchaser of certain liabilities, which
resulted in a pre-tax gain of $578,000 which is included in other income.
During 1994, the Extruded and Lathe-Cut Products Division had net sales of
approximately $2,600,000, which represented approximately 3% of the Company's
consolidated net sales.
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
The Company is subject to various claims and legal proceedings covering a
wide range of matters that arise in the ordinary course of its business
activities. In addition, the Company has been named a potentially responsible
party or a third-party defendant, along with other companies, with respect to
certain waste disposal sites. 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.
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<PAGE> 12
ITEM 2. 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 customers' specifications, high 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.
The results of operations for any particular fiscal period of the Company
are not necessarily indicative of the results to be expected for any one or
more succeeding fiscal periods. In addition, because the Company's business is
materially affected by the level of activity in the automotive industry, any
material reduction in the level of activity in that industry may have a
material adverse effect on the Company's results of operations.
RESULTS OF OPERATIONS -- SECOND QUARTER OF 1995 VERSUS SECOND QUARTER OF 1994
NET SALES
A summary of the net sales of the Rubber Group and the Metals Group for
the second quarters of 1995 and 1994 follows (dollar amounts in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
----------------------- PERCENTAGE
1995 1994 INCREASE
------- ------- ----------
<S> <C> <C> <C>
Rubber Group $15,923 $11,662 36.5%
Metals Group 10,510 10,062 4.5
------- ------- ----
$26,433 $21,724 21.7%
======= ======= ====
</TABLE>
The increase in net sales of the Rubber Group was primarily the result of
increased sales of cable and connector seals for automotive wire harnesses,
electrical insulators for ignition wire harnesses, medical components and
tooling. Although sales by the Metals Group of a single component to TRW
Vehicle Safety Systems, Inc. ("TRW VSSI") declined by $1,150,000, or 48%, the
decline was more than offset by increased sales of other metal components to
other customers, which consisted primarily of die castings.
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<PAGE> 13
COST OF SALES
A summary of the cost of sales for the Rubber Group and the Metals Group
follows (in thousands of dollars and as a percentage of net sales of each
Group):
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
--------------------------------------
1995 1994
---------------- ---------------
<S> <C> <C> <C> <C>
Rubber Group $13,016 81.7% $ 9,418 80.8%
Metals Group 8,233 78.3 7,657 76.1
------- ---- ------- ----
$21,249 80.4% $17,075 78.6%
======= ==== ======= ====
</TABLE>
Cost of sales of the Rubber Group as a percentage of Rubber Group net
sales increased to 81.7% during the second quarter of 1995 from 80.8% during
the second quarter of 1994. During the second quarter of 1995, material costs
as a percentage of net sales increased because of increased sales of tooling,
which generally have higher material costs as a percentage of net sales.
Increased material costs as a percentage of net sales were offset by
(1) reduced direct labor costs as a percentage of net sales, primarily because
of the purchase of new equipment and the installation of improved manufacturing
processes, and (2) reduced factory overhead expenses as a percentage of net
sales, primarily because factory overhead expenses grew at a slower rate than
sales. Although factory overhead expenses as a percentage of net sales
decreased during the second quarter, the reduction was partially offset by
startup expenses and production inefficiencies incurred at the Rubber Group's
new facility in LaGrange, Georgia.
Cost of sales of the Metals Group as a percentage of Metals Group net
sales increased to 78.3% during the second quarter of 1995 from 76.1% during
the second quarter of 1994. During the second quarter of 1995, material costs
as a percentage of net sales increased primarily because of higher aluminum and
zinc prices and increased sales of tooling, which generally have higher
material costs as a percentage of net sales. Factory overhead expenses as a
percentage of net sales increased because of increased costs associated with
the installation of new equipment and reduced absorption of fixed factory
overhead expenses due to a decrease in net sales at the Company's Arizona
facility.
SELLING AND ADMINISTRATIVE EXPENSES
A summary of the selling and administrative expenses for the Rubber
Group, the Metals Group and the Corporate Office follows (dollar amounts in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
---------------------- PERCENTAGE
1995 1994 INCREASE
------ ------ ----------
<S> <C> <C> <C>
Rubber Group $1,061 $ 974 8.9%
Metals Group 887 837 6.0
Corporate Office 566 582 (2.7)
------ ------ ---
$2,514 $2,393 5.1%
====== ====== ===
</TABLE>
As a percentage of Rubber Group net sales, selling and administrative
expenses fell to 6.7% during the second quarter of 1995 from 8.4% during the
second quarter of 1994, primarily because most selling and administrative
expenses grew at a slower rate than net sales and because of reduced legal
expenses. As a
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<PAGE> 14
percentage of Metals Group net sales, selling and administrative expenses
increased slightly to 8.4% during the second quarter of 1995 from 8.3% during
the second quarter of 1994.
INTEREST EXPENSE
Interest expense totaled $1,857,000 during the second quarter of 1995, an
increase of $327,000 compared to the second quarter of 1994. This increase was
caused by an increase of $11,900,000 in average borrowings outstanding under
the Company's borrowing arrangement (the "Working Capital Facility") with its
working capital lender (the "Working Capital Lender") and an increase in the
average rate of interest charged on borrowings outstanding under the Working
Capital Facility due to increases in short-term interest rates.
OTHER INCOME
On June 30, 1995, the Company sold the inventory, equipment and
manufacturing facility of the Extruded and Lathe-Cut Products Division of LCI
for cash and the assumption by the purchaser of certain liabilities, which
resulted in a pre-tax gain of $578,000. During 1994, the Extruded and
Lathe-Cut Products Division had net sales of approximately $2,600,000, which
represented approximately 3% of the Company's consolidated net sales. In
addition, during the second quarter of 1995, the Company realized a pretax gain
on the sale of several other pieces of equipment in the amount of $63,000.
PROVISION FOR INCOME TAXES
As of June 30, 1995 and December 31, 1994, the Company's net deferred tax
assets were entirely offset by a valuation allowance.
The income tax provisions otherwise recognizable during the second
quarters of 1995 and 1994 were reduced by the utilization of portions of the
Company's tax loss carryforwards and tax credit carryforwards. The income tax
provision recorded for the second quarter of 1995 was calculated using the
projected annual effective tax rate (primarily attributable to federal
alternative minimum taxes) for the year ending December 31, 1995.
RESULTS OF OPERATIONS -- FIRST HALF OF 1995 VERSUS FIRST HALF OF 1994
NET SALES
A summary of the net sales of the Rubber Group and the Metals Group for
the first halves of 1995 and 1994 follows (dollar amounts in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------- PERCENTAGE
1995 1994 INCREASE
------- ------- ----------
<S> <C> <C> <C>
Rubber Group $31,611 $21,960 43.9%
Metals Group 21,896 21,030 4.1
------- ------- ----
$53,507 $42,990 24.5%
======= ======= ====
</TABLE>
The increase in net sales of the Rubber Group was primarily the result of
increased sales of cable and connector seals for automotive wire harnesses,
electrical insulators for ignition wire harnesses, medical
-13-
<PAGE> 15
components and tooling. Although sales by the Metals Group of a single
component to TRW VSSI declined by $1,780,000, or 33%, the decline was more than
offset by increased sales of other metal components to other customers, which
consisted primarily of die castings.
COST OF SALES
A summary of the cost of sales for the Rubber Group and the Metals Group
follows (in thousands of dollars and as a percentage of net sales of each
Group):
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------------------
1995 1994
---------------- ---------------
<S> <C> <C> <C> <C>
Rubber Group $25,436 80.5% $18,023 82.1%
Metals Group 17,354 79.3 16,138 76.7
------- ---- ------- ----
$42,790 80.0% $34,161 79.5%
======= ==== ======= ====
</TABLE>
Cost of sales of the Rubber Group as a percentage of Rubber Group net
sales decreased to 80.5% during the first half of 1995 from 82.1% during the
first half of 1994. During the first half of 1995, material costs as a
percentage of net sales increased because of increased sales of tooling, which
generally have higher material costs as a percentage of net sales. Increased
material costs as a percentage of net sales were offset by (1) reduced direct
labor costs as a percentage of net sales, primarily because of the purchase of
new equipment and the installation of improved manufacturing processes, and
(2) reduced factory overhead expense as a percentage of net sales, primarily
because factory overhead expenses grew at a slower rate than sales. Although
factory overhead expenses as a percentage of net sales decreased during the
first half of 1995, the reduction was partially offset by startup expenses and
production inefficiencies incurred at the Rubber Group's new facility in
LaGrange, Georgia.
Cost of sales of the Metals Group as a percentage of Metals Group net
sales increased to 79.3% during the first half of 1995 from 76.7% during the
first half of 1994. During the first half of 1995, material costs increased
slightly as a result of an increase in sales of tooling, which generally have
higher material costs as a percentage of net sales. Factory overhead expenses
as a percentage of net sales increased because of increased costs associated
with the installation of new equipment and reduced absorption of fixed factory
overhead expenses due to a decrease in net sales at the Company's Arizona
facility.
SELLING AND ADMINISTRATIVE EXPENSES
A summary of the selling and administrative expenses for the Rubber
Group, the Metals Group and the Corporate Office follows (dollar amounts in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------- PERCENTAGE
1995 1994 INCREASE
------ ------ ----------
<S> <C> <C> <C>
Rubber Group $2,071 $1,703 21.6%
Metals Group 1,844 1,700 8.5
Corporate Office 1,219 1,235 (1.3)
------ ------ ----
$5,134 $4,638 10.7%
====== ====== ====
</TABLE>
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<PAGE> 16
Selling and administrative expenses of the Rubber Group increased
primarily as a result of the addition of sales and administrative personnel and
increased relocation costs. As a percentage of Rubber Group net sales, selling
and administrative expenses fell from 7.8% of net sales during the first half
of 1994 to 6.6% during the first half of 1995. As a percentage of Metals Group
net sales, selling and administrative expenses increased from 8.1% during the
first half of 1994 to 8.4% during the first half of 1995.
INTEREST EXPENSE
Interest expense totaled $3,667,000 during the first half of 1995, an
increase of $673,000 compared to the first half of 1994. This increase was
caused by an increase of $11,700,000 in average borrowings outstanding under
the Working Capital Facility and an increase in the average rate of interest
charged on borrowings outstanding under the Working Capital Facility due to
increases in short-term interest rates.
OTHER INCOME
On June 30, 1995, the Company sold the inventory, equipment and
manufacturing facility of the Extruded and Lathe-Cut Products Division of LCI
for cash and the assumption by the purchaser of certain liabilities, which
resulted in a pre-tax gain of $578,000. During 1994, the Extruded and
Lathe-Cut Products Division had net sales of approximately $2,600,000, which
represented approximately 3% of the Company's consolidated net sales. In
addition, during the second quarter of 1995, the Company realized a pretax gain
on the sale of several other pieces of equipment in the amount of $63,000.
PROVISION FOR INCOME TAXES
As of June 30, 1995 and December 31, 1994, the Company's net deferred tax
assets were entirely offset by a valuation allowance.
The income tax provisions otherwise recognizable during the first halves
of 1995 and 1994 were reduced by the utilization of portions of the Company's
tax loss carryforwards and tax credit carryforwards. The income tax provision
recorded for the first half of 1995 was calculated using the projected annual
effective tax rate (primarily attributable to federal alternative minimum
taxes) for the year ending December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
During the first half of 1995, net cash provided by the operating
activities of the Company totaled $3,505,000. During the first half of 1995,
$2,892,000 of cash was used to fund increased levels of accounts receivable and
inventories resulting primarily from increased levels of sales and orders.
During the first half of 1995, cash was provided from increases in accounts
payable and accrued expenses of $731,000 and $1,402,000, respectively,
resulting primarily from increased sales volume. At June 30, 1995, the
Company's trade accounts payable included approximately $4,020,000 relating to
the purchase of new equipment and tooling, a decrease from $4,325,000 at
December 31, 1994. The Company has generated cash flow from operations by
extending payment periods on certain trade payables, in order to partially
finance its capital expenditure program. At June 30, 1995, accrued expenses
included increased accruals for employee compensation and related taxes and
benefits caused by the higher levels of business. In addition, with the
utilization of substantially all of the Company's alternative minimum tax loss
carryforwards in 1994, the Company has recorded substantially higher accruals
for alternative minimum taxes during 1995.
-15-
<PAGE> 17
Net working capital declined during the first half of 1995 by $3,299,000
primarily because capital expenditures were financed with increased short-term
borrowings under the Working Capital Facility and increased accounts payable.
INVESTING ACTIVITIES
During the first half of 1995, the investing activities of the Company
used $7,587,000 of cash. The Company made $7,378,000 of capital expenditures,
primarily for equipment, and increased by $722,000 its deposits for the
purchase of new equipment. During the first half of 1995, capital expenditures
attributable to the Rubber Group and the Metals Group totaled $5,836,000 and
$1,542,000, respectively. The Company presently estimates that capital
expenditures will total approximately $23,000,000 during 1995, including
approximately $6,000,000 for the construction or improvement of manufacturing
facilities and approximately $17,000,000 for the purchase of equipment. As of
June 30, 1995, the Company had commitments outstanding for capital expenditures
totaling approximately $10,400,000.
FINANCING ACTIVITIES
During the first half of 1995, the financing activities of the Company
provided $ 4,061,000 of cash, primarily from increased borrowings under the
Working Capital Facility. The Company operates with high financial leverage.
During the first half of 1995, the aggregate indebtedness of the Company,
excluding trade payables, increased by $4,307,000 to $61,585,000. During 1995,
the cash interest and principal payments required under the terms of the
Company's loan agreements are currently expected to total approximately
$7,400,000 and $3,009,000, respectively.
The Company finances its operations primarily through the Working Capital
Facility, which expires in January 1998. The Company's maximum borrowing
availability under the Working Capital Facility is $40,000,000, subject to
availability formulas set by the Working Capital Lender. The Working Capital
Facility includes a revolving line of credit, term loans and an equipment line
of credit. The Company classifies loans outstanding under the revolving line
of credit as short-term debt. The unused portion of the equipment line of
credit, $10,000,000 as of June 30, 1995, can be used to finance a portion of
qualifying new equipment purchases through term loans which will be payable in
equal monthly installments through February 2002. The balance of the
$40,000,000 facility is available for revolving loans, subject to availability
formulas set by the Working Capital Lender. The Company has commenced
discussions with the Working Capital Lender to increase the availability under
the Working Capital Facility by increasing the Company's advance rates on
inventory and equipment and permitting the Company to reborrow the principal
payments made on the term loans since February 1995. Although there can be no
assurance that the Company will be able to obtain such additional availability,
the Company presently believes that the additional availability can be obtained
on terms which are satisfactory to the Company. Increased availability, if
obtained, would be used to, among other things, bring amounts outstanding to
its suppliers to generally within terms which the Company believes are
customary in the industries in which it operates and provide additional funding
for the Company's capital expenditure program. As of August 10, 1995, the
Company had approximately $1,523,000 of unused availability under the Working
Capital Facility. Amounts outstanding under the Working Capital Facility are
collateralized by substantially all of the personal property of the Company,
including accounts receivable, inventory and equipment, and certain real
property of the Company.
Based upon the Company's present business plan, the achievement of which
cannot be assured, the Company anticipates that, in addition to its projected
cash flows from operations and projected availability under the Working Capital
Facility as currently in effect, additional borrowings in the amount of
-16-
<PAGE> 18
approximately $7,000,000 will be required to complete the Company's 1995
capital expenditure program as presently projected and to meet the Company's
working capital, capital expenditure and debt service requirements for 1995 and
for the foreseeable future. Although there can be no assurance that such
additional borrowings can be obtained, the Company presently believes that
borrowings which are sufficient to complete its 1995 capital expenditure
program and to meet its working capital, capital expenditure and debt service
requirements for 1995 and for the foreseeable future can be obtained on terms
which are satisfactory to the Company. If cash flow from operations or
anticipated borrowings fall short of its expectations, the Company's capital
expenditure program will be reduced or delayed and/or accounts payable balances
with suppliers may continue to be extended to terms which the Company believes
are longer than customary in the industries in which it operates.
DEPENDENCE ON LARGE CUSTOMERS
During the first half of 1995, the Company's three largest customers
accounted for 36.6% of the Company's total net sales. The Company has limited
ability to predict the volume and pricing of orders from such customers. Loss
of all or a major portion of the business of any of the Company's three largest
customers would have a material adverse effect on the Company's operations.
ACQUISITIONS
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.
ENVIRONMENTAL MATTERS
The Company has been named as one of numerous potentially responsible
parties under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA") for restoration costs at three waste disposal
sites, as a third-party defendant in cost recovery actions initiated by the
Environmental Protection Agency pursuant to applicable sections of CERCLA and
as a defendant or potential defendant in various other legal matters. It is
the Company's policy to record accruals for such matters when a loss is deemed
probable and the amount of such loss can be reasonably estimated. The various
actions to which the Company is or may be a party in the future are at various
stages of completion and, although there can be no assurance as to the outcome
of existing or potential litigation, in the event such litigation were
commenced, based upon the information currently available to the Company, the
Company believes that the outcome of such actions would not have a material
adverse effect upon its financial position.
-17-
<PAGE> 19
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Stockholders of the Company was held on May
16, 1995.
(b) The matters voted upon at the Annual Meeting and the results of
the voting as to each such matter are set forth below:
(i) The election of Warren Delano and Kenneth I. Greenstein as
directors of the Company for terms expiring in 1998.
<TABLE>
<S> <C>
Votes for Mr. Delano 3,246,434
Votes withheld from Mr. Delano 9,562
Votes for Mr. Greenstein 3,246,234
Votes withheld from Mr. Greenstein 9,762
(ii) The ratification of Ernst & Young LLP as independent
auditors of the Company for the year ending December 31,
1995.
Votes for Ernst & Young LLP 3,253,330
Votes against Ernst & Young LLP 5,062
Abstentions 1,804
There were no broker non-votes in respect of the foregoing matters.
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith:
10-1 Equipment Term Note dated June 26, 1995 from Lexington
Components, Inc. in favor of Congress Financial
Corporation
27-1 Financial Data Schedule*
* 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 registration statement to which such
exhibit relates.
(b) REPORTS ON FORM 8-K
On July 5, 1995, the Company filed a Form 8-K with the Securities
and Exchange Commission stating that Lexington Components, Inc.,
a wholly-owned subsidiary of the Company, had sold the assets of
its Extruded and Lathe-Cut Products Division to Kismet Products,
Inc., of Painesville, Ohio, recognizing a pre-tax gain of $578,000
on the sale.
-18-
<PAGE> 20
LEXINGTON PRECISION CORPORATION
FORM 10-Q
JUNE 30, 1995
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LEXINGTON PRECISION CORPORATION
(Registrant)
<TABLE>
<S> <C>
August 11, 1995 By: /s/ Michael A. Lubin
--------------- -------------------------
Date Michael A. Lubin
Chairman of the Board
August 11, 1995 By: /s/ Warren Delano
--------------- -------------------------
Date Warren Delano
President
August 11, 1995 By: /s/ Dennis J. Welhouse
--------------- -------------------------
Date Dennis J. Welhouse
Senior Vice President and
Chief Financial Officer
</TABLE>
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Location
------ ------- --------
<S> <C> <C>
10-1 Equipment Term Note dated June 26, Filed with this Form 10-Q
1995 from Lexington Components, Inc.
In favor of Congress Financial
Corporation
27-1 Financial Data Schedule Filed with this Form 10-Q
</TABLE>
<PAGE> 1
NEW EQUIPMENT TERM NOTE
-----------------------
$1,300,000 June 26, 1995
FOR VALUE RECEIVED, LEXINGTON COMPONENTS, INC., a Delaware corporation (the
"Debtor"), hereby unconditionally promises to pay to the order of CONGRESS
FINANCIAL CORPORATION, a California corporation (the "Payee"), at the offices
of Payee at 1133 Avenue of the Americas, New York, New York 10036, or at such
other place as the Payee or any holder hereof may from time to time designate,
the principal sum of ONE MILLION THREE HUNDRED THOUSAND DOLLARS ($1,300,000) in
lawful money of the United States of America and in immediately available
funds, in seventy-nine (79) consecutive monthly installments (or earlier as
hereinafter referred to) on the first day of each month commencing August 1,
1995, of which the first seventy-eight (78) installments shall each be in the
amount of SIXTEEN THOUSAND DOLLARS ($16,000), and the last (i.e. seventy-ninth
(79th)) installment shall be in the amount of the entire unpaid balance of this
Note.
Debtor hereby further promises to pay interest to the order of Payee on the
unpaid principal balance hereof at the Interest Rate. Such interest shall be
paid in like money at said office or place from the date hereof, commencing on
the first day of the month next following the date hereof, and on the first day
of each month thereafter until the indebtedness evidenced by this Note is paid
in full. Interest payable upon and during the continuance of an Event of
Default or following the effective date of termination or non-renewal of the
Financing Agreements shall be payable upon demand.
For purposes hereof, (a) the term "Interest Rate" shall mean, as to Prime
Rate Loans, a rate of one (1%) percent per annum in excess of the Prime Rate,
and as to Eurodollar Rate Loans, a rate of three and one-quarter (3 1/4%)
percent per annum in excess of the Adjusted Eurodollar Rate; PROVIDED, THAT, at
Payee's option, the Interest Rate shall mean a rate of three (3%) percent per
annum in excess of the Prime Rate as to Prime Rate Loans and a rate of five and
one-quarter (5 1/4%) percent per annum in excess of the Adjusted Eurodollar
Rate as to Eurodollar Rate Loans, upon and during the continuance of an Event
of Default or following the effective date of termination or non-renewal of the
Financing Agreements, and (b) the term "Prime Rate" shall mean the rate from
time to time publicly announced by CoreStates Bank, N.A., or its successors, at
its office in Philadelphia, Pennsylvania, as its prime rate, whether or not
such announced rate is the best rate available at such bank. Unless otherwise
defined herein, all capitalized terms used herein shall have the meanings
assigned thereto in the Accounts
<PAGE> 2
Agreement (as hereinafter defined) and the other Financing Agreements.
The Interest Rate payable hereunder shall increase or decrease by an amount
equal to each increase or decrease, respectively, in such Prime Rate, effective
on the first day of the month after any change in such Prime Rate, based on the
Prime Rate in effect on the last day of the month in which any such change
occurs. Interest shall be calculated on the basis of a three hundred sixty
(360) day year and actual days elapsed. In no event shall the interest charged
hereunder exceed the maximum permitted under the laws of the State of New York
or other applicable law.
This Note is issued pursuant to the terms and provisions of the letter
agreement re: Amendment to Financing Agreements, dated as of January 31, 1995
between Debtor and Payee (the "Amendment") to evidence a "New Equipment Term
Loan" (as defined in the New Equipment Term Loan Agreement as referred to in
and as modified by the Amendment) made by Payee to Debtor. This Note is
secured by the "Collateral" described in the Accounts Financing Agreement
[Security Agreement], dated January 11, 1990, by and between Payee and Debtor,
as amended (the "Accounts Agreement") and any agreement, document or instrument
now or at any time hereafter executed and/or delivered in connection therewith
or related thereto (the foregoing, as the same now exist or may hereafter be
amended, modified, supplemented, renewed, extended, restated or replaced, are
hereinafter collectively referred to as the "Financing Agreements") and is
entitled to all of the benefits and rights thereof and of the Financing
Agreements. At the time any payment is due hereunder, at its option, Payee may
charge the amount thereof to any account of Debtor maintained by Payee.
If any principal or interest payment is not made when due hereunder, and such
failure shall continue for three (3) days, or if any other Event of Default (as
defined in the Accounts Agreement) shall occur for any reason, or if the
Financing Agreements shall be terminated or not renewed for any reason
whatsoever, then and in any such event, in addition to all rights and remedies
of Payee under the Financing Agreements, applicable law or otherwise, all such
rights and remedies being cumulative, not exclusive and enforceable
alternatively, successively and concurrently, Payee may, at its option, declare
any or all of Debtor's obligations, liabilities and indebtedness owing to Payee
under the Financing Agreements (the "Obligations"), including, without
limitation, all amounts owing under this Note, to be due and payable, whereupon
the then unpaid balance hereof together with all interest accrued thereon,
shall forthwith become due and payable, together with interest accruing
thereafter at the then applicable rate stated above until the indebtedness
evidenced by this Note is paid in full, plus the costs and expenses of
-2-
<PAGE> 3
collection hereof, including, but not limited to, reasonable attorneys' fees.
Debtor (i) waives diligence, demand, presentment, protest and notice of any
kind, (ii) agrees that it will not be necessary for any holder hereof to first
institute suit in order to enforce payment of this Note and (iii) consents to
any one or more extensions or postponements of time of payment, release,
surrender or substitution of collateral security, or forbearance or other
indulgence, without notice or consent. Upon the occurrence of any Event of
Default and during the continuance thereof, Payee shall have the right, but not
the obligation to setoff against this Note all money owed by Payee to Debtor.
Payee shall not be required to resort to any Collateral for payment, but may
proceed against Debtor and any guarantors or endorsers hereof in such order and
manner as Payee may choose. None of the rights of Payee shall be waived or
diminished by any failure or delay in the exercise thereof.
Debtor hereby waives the right to a trial by jury and all rights of setoff
and rights to interpose counterclaims and cross-claims in any litigation or
proceeding arising in connection with this Note, the Accounts Agreement, the
other Financing Agreements, the Obligations or the Collateral, other than
compulsory counterclaims, the non-assertion of which would result in a
permanent waiver. Debtor hereby irrevocably consents to the non-exclusive
jurisdiction of the Supreme Court of the State of New York and of the United
States District Court for the Southern District of New York for all purposes in
connection with any action or proceeding arising out of or relating to this
Note, the Accounts Agreement, the other Financing Agreements, the Obligations
or the Collateral and further consents that any process or notice of motion or
other application to said Courts or any judge thereof, or any notice in
connection with any proceeding hereunder may be served (i) inside or outside
the State of New York by registered or certified mail, return receipt
requested, and service or notice so served shall be deemed complete five (5)
days after the same shall have been posted or (ii) in such other manner as may
be permissible under the rules of said Courts. Within thirty (30) days after
such mailing, Debtor shall appear in answer to such process or notice of motion
or other application to said Courts, failing which Debtor shall be deemed in
default and judgment may be entered by Payee against Debtor for the amount of
the claim and other relief requested therein.
The execution and delivery of this Note has been authorized by the Board of
Directors of Debtor.
This Note, the other Obligations and the Collateral shall be governed by and
construed in accordance with the laws of the
-3-
<PAGE> 4
State of New York and shall be binding upon the successors and assigns of
Debtor and inure to the benefit of Payee and its successors, endorsees and
assigns. If any term or provision of this Note shall be held invalid, illegal
or unenforceable, the validity of all other terms and provisions hereof shall
in no way be affected thereby.
This Note may not be changed, modified or terminated orally, but only by an
agreement in writing signed by the Payee or the holder hereof.
Whenever used herein, the terms "Debtor" and "Payee" shall be deemed to
include their respective successors and assigns.
LEXINGTON COMPONENTS, INC.
ATTEST:
By: Warren Delano
Michael A. Lubin -------------------------------
--------------------------
Chairman of the Board Title: Vice Chairman
----------------------------
[Corporate Seal]
-4-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-01-1995
<CASH> 58
<SECURITIES> 0
<RECEIVABLES> 13,685
<ALLOWANCES> 0
<INVENTORY> 9,922
<CURRENT-ASSETS> 25,615
<PP&E> 65,297
<DEPRECIATION> 28,106
<TOTAL-ASSETS> 75,743
<CURRENT-LIABILITIES> 30,591
<BONDS> 49,905
<COMMON> 1,087
555
0
<OTHER-SE> (6,395)
<TOTAL-LIABILITY-AND-EQUITY> 75,743
<SALES> 53,507
<TOTAL-REVENUES> 53,507
<CGS> 42,790
<TOTAL-COSTS> 42,790
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,667
<INCOME-PRETAX> 2,557
<INCOME-TAX> 667
<INCOME-CONTINUING> 1,890
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,890
<EPS-PRIMARY> .44
<EPS-DILUTED> .40
</TABLE>
