<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED MARCH 31, 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 -- 4,203,036 SHARES AS OF MAY 8, 1995
(INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE)
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<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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
PART II. Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</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>
MARCH 31, DECEMBER 31,
1995 1994
--------- ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash $ 71 $ 79
Accounts receivable 13,973 12,478
Inventories 8,780 8,237
Prepaid expenses and other current assets 2,130 1,958
------- -------
Total current assets 24,954 22,752
------- -------
Property, plant and equipment:
Land 823 823
Buildings 12,496 12,274
Equipment 49,020 46,516
------- -------
62,339 59,613
Less accumulated depreciation 28,199 27,019
------- -------
Property, plant and equipment, net 34,140 32,594
------- -------
Excess of cost over net assets of businesses acquired, net 9,963 10,041
------- -------
Other assets, net 2,933 2,009
------- -------
$ 71,990 $ 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>
MARCH 31, DECEMBER 31,
1995 1994
--------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT:
Current liabilities:
Accounts payable $ 9,490 $ 10,489
Accrued expenses 5,648 6,289
Short-term debt 9,973 5,052
Current portion of long-term debt 2,906 2,599
-------- --------
Total current liabilities 28,017 24,429
-------- --------
Long-term debt, excluding current portion 49,825 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 12,648 12,659
Accumulated deficit (19,774) (20,593)
Cost of common stock in treasury, 145,915 shares (368) (368)
-------- --------
Total stockholders' deficit (6,407) (7,215)
-------- --------
$ 71,990 $ 67,396
======== ========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 5
LEXINGTON PRECISION CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1995 1994
---- ----
<S> <C> <C>
Net sales $ 27,074 $ 21,266
-------- --------
Costs and expenses:
Cost of sales 21,541 17,086
Selling and administrative expenses 2,620 2,245
-------- --------
Total costs and expenses 24,161 19,331
-------- --------
Income from operations 2,913 1,935
Interest expense 1,810 1,464
-------- --------
Income before income taxes 1,103 471
Provision for income taxes 284 8
-------- --------
Net income $ 819 $ 463
======== ========
Net income per primary and fully diluted
common share:
Primary $ .19 $ .11
======== ========
Fully diluted $ .18 $ .11
======== ========
</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>
THREE MONTHS ENDED MARCH 31,
----------------------------
1995 1994
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 819 $ 463
Adjustments to reconcile net income to net cash
provided/(used) by operating activities:
Depreciation and amortization 1,438 1,078
Changes in operating assets and liabilities which
provided/(used) cash:
Receivables (1,495) (1,461)
Inventories (543) (146)
Prepaid expenses and other current assets (172) (301)
Accounts payable (999) 2,272
Accrued expenses (641) (1,970)
Other - 165
------- -------
Net cash provided/(used) by operating activities (1,593) 100
------- -------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (2,723) (2,775)
Decrease/(increase) in equipment deposits, net (675) 195
Sales of property, plant and equipment - 241
Other (256) -
------- -------
Net cash used by investing activities (3,654) (2,339)
------- -------
FINANCING ACTIVITIES:
Net proceeds from short-term borrowings 4,921 901
Proceeds from issuance of long-term debt 1,000 5,468
Repayment of long-term debt (504) (4,152)
Preferred stock redemption and dividends (11) (74)
Issuance of common stock - 144
Other (167) -
------- -------
Net cash provided by financing activities 5,239 2,287
------- -------
Net increase/(decrease) in cash (8) 48
Cash at beginning of period 79 33
------- -------
Cash at end of period $ 71 $ 81
======= =======
</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.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly the
financial position of the Company as of March 31, 1995 and the Company's
results of operations and cash flows for the three-month periods ended March
31, 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 period ended March 31, 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 March 31, 1995 and December 31, 1994 are summarized
below (in thousands of dollars):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
--------- ------------
<S> <C> <C>
Finished goods $ 2,579 $ 2,696
Work in process 2,711 2,285
Raw materials and purchased parts 3,490 3,256
-------- --------
$ 8,780 $ 8,237
======== ========
</TABLE>
NOTE 3 -- SHORT-TERM DEBT
As of March 31, 1995 and December 31, 1994, short-term debt consisted of
revolving loans outstanding under the Company's borrowing arrangement (the
"Working Capital Facility") with its working capital lender (the "Working
Capital Lender"). As of March 31, 1995, $1,000,000 of revolving loans were
classified as long-term debt because they were refinanced by a term loan in
April 1995. (For additional information regarding the Working Capital
Facility, see Note 5 -- Long-Term Debt.)
NOTE 4 -- ACCRUED EXPENSES
As of March 31, 1995 and December 31, 1994, accrued expenses included
accrued interest expense of $705,000 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 March 31, 1995 and December 31, 1994 is summarized
below (in thousands of dollars):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
--------- ------------
<S> <C> <C>
Term loans outstanding under the Working Capital Facility,
payable in monthly installments through 2002 $ 15,941 $ 15,296
12% Term Note, payable in monthly installments through 2000 2,972 3,078
Industrial Revenue Bond, 75% of the Prime Rate, payable in
monthly installments through 2000 573 598
12-3/4% Senior Subordinated Notes, due 2000 31,656 31,647
14% Junior Subordinated Convertible Notes, due 2000 1,000 1,000
14% Junior Subordinated Non-Convertible Notes, due 2000 347 347
Other 242 260
------- -------
Total long-term debt 52,731 52,226
Less current portion 2,906 2,599
------- -------
Total long-term debt, excluding current portion $ 49,825 $ 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; however, as of March 31, 1995, $1,000,000 of loans under the
revolving line of credit were classified as long-term debt because they were
refinanced by a term loan in April 1995. The equipment line of credit,
totaling $11,300,000, 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 May 8, 1995, the Company had
borrowings of $25,230,000 outstanding under the Working Capital Facility and
had approximately $3,214,000 of unused availability, without giving effect to
additional availability under the revolving line of credit which would result
from future borrowings under the equipment line of credit to refinance
equipment purchases presently financed under the revolving line of credit.
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.
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<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
12-3/4% SENIOR SUBORDINATED NOTES
The 12-3/4% Senior Subordinated Notes, due February 1, 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.
NOTE 6 -- PROVISION FOR INCOME TAXES
As of March 31, 1995 and December 31, 1994, the Company's net deferred
tax assets were entirely offset by a valuation allowance. There was no
material change in the components of the deferred tax assets, the deferred tax
liabilities or the valuation allowance during the first quarter of 1995.
The income tax provisions otherwise recognizable during the first
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 quarter ended March 31, 1995 was calculated using
the estimated annual effective tax rate (primarily attributable to federal
alternative minimum taxes) for the year ending December 31, 1995.
NOTE 7 -- INCOME PER SHARE
The weighted average number of common and dilutive common equivalent
shares used in the computation of primary net income per share was 4,228,000
and 4,141,000 for the three months ended March 31, 1995 and 1994, respectively.
The weighted average number of common and dilutive common equivalent shares
used in the computation of fully diluted net income per share was 4,668,000 and
4,581,000 for the three months ended March 31, 1995 and 1994, respectively.
For purposes of the income per share calculation, during the three months
ended March 31, 1995, net income was reduced by dividends of $11,000 paid to
the holders of the Company's $8 Cumulative Convertible Preferred Stock, Series
B (the "Redeemable Preferred Stock"), and by $11,000, which represented
one-fourth of the amount by which the payment to be made to effect the
scheduled redemption of 450 shares of Redeemable Preferred Stock on November
30, 1995 will exceed the par value of such shares. During the three months
ended March 31, 1994, net income was reduced by dividends of $12,000 paid to
the holders of Redeemable Preferred Stock and by $11,000, which represented
one-fourth of the amount by which the payment made to effect the scheduled
redemption of 450 shares of Redeemable Preferred Stock on November 30, 1994
exceeded the par value of such shares.
During the quarter ended March 31, 1995, fully diluted income per share
reflected the pro forma conversion of $1,000,000 principal amount of the
Company's 14% Junior Subordinated Convertible Notes, due May 1, 2000 (the "14%
Convertible Notes"), into 440,000 shares of common stock of the Company, with
income being increased on a pro forma basis to reflect the elimination of
interest expense on the 14% Convertible Notes, net of applicable income taxes.
During the quarter ended March 31, 1994, fully
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<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
diluted income per share did not reflect the pro forma conversion of the 14%
Convertible Notes into common stock because the conversion was not dilutive.
NOTE 8 -- 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, for 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> 11
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.
RESULTS OF OPERATIONS -- FIRST QUARTER OF 1995 VERSUS FIRST QUARTER OF 1994
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
highly dependent upon 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.
NET SALES
A summary of the net sales of the Rubber Group and the Metals Group for
the first quarters of 1995 and 1994 follows (dollar amounts in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------- PERCENTAGE
1995 1994 INCREASE
---- ---- --------
<S> <C> <C> <C>
Rubber Group $ 15,688 $ 10,298 52.3%
Metals Group 11,386 10,968 3.8
-------- -------- -----
$ 27,074 $ 21,266 27.3%
======== ======== =====
</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 and
electrical insulators for ignition wire harnesses and increased sales of
tooling. Although sales to TRW Vehicle Safety Systems, Inc. ("TRW VSSI") of
the highest dollar volume component part sold by the Metals Group declined by
approximately 21%, such decline was more than offset by increased sales of
other component parts to TRW VSSI and other customers.
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:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1995 1994
------ ------
<S> <C> <C> <C> <C>
Rubber Group $ 12,420 79.2% $ 8,605 83.6%
Metals Group 9,121 80.1 8,481 77.3
------- ----- --------- -----
$ 21,541 79.6% $ 17,086 80.3%
======== ===== ========= =====
</TABLE>
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<PAGE> 12
Cost of sales of the Rubber Group as a percentage of net sales decreased
to 79.2% during the first quarter of 1995 from 83.6% during the first quarter
of 1994. During the first quarter of 1995, material costs as a percentage of
net sales increased because of increased tooling sales, which generally have
higher material cost as a percentage of net sales, direct labor costs as a
percentage of net sales decreased primarily because of the purchase of new
equipment and the installation of improved manufacturing processes, and factory
overhead expense as a percentage of net sales decreased primarily because
factory overhead expenses grew at a slower rate than sales. Included in
factory overhead expenses during the first quarter was $183,000 of costs and
expenses associated with the start-up of the Rubber Group's new manufacturing
facility in LaGrange, Georgia.
Cost of sales of the Metals Group as a percentage of net sales increased
to 80.1% during the first quarter of 1995 from 77.3% during the first quarter
of 1994. During the first quarter of 1995, reduced material costs as a
percentage of net sales were more than offset by increased factory overhead
expense as a percentage of net sales. Although net sales of the Metals Group
were 3.8% greater during the first quarter of 1995 than during the first
quarter of 1994, increases in indirect labor, repairs and maintenance,
depreciation expense and other factory overhead expenses resulted in a quarter
to quarter increase in factory overhead expense of 15.0%.
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
MARCH 31,
-------------------- PERCENTAGE
1995 1994 INCREASE
---- ---- --------
<S> <C> <C> <C>
Rubber Group $ 1,010 $ 729 38.5%
Metals Group 957 863 10.9
Corporate Office 653 653 -
-------- -------- -----
$ 2,620 $ 2,245 16.7%
======== ======== =====
</TABLE>
Selling and administrative expenses of the Rubber Group increased
primarily as a result of the addition of sales and administrative personnel and
related relocation and recruiting costs.
INTEREST EXPENSE
Interest expense totaled $1,810,000 during the first quarter of 1995, an
increase of $346,000 compared to the first quarter of 1994. This increase was
caused by an increase of $11,884,000 in average borrowings outstanding under
the Working Capital Facility and an increase in the rate of interest charged on
borrowings outstanding under the Working Capital Facility due to increases in
short-term interest rates which more than offset interest rate reductions
negotiated by the Company.
PROVISION FOR INCOME TAXES
As of March 31, 1995 and December 31, 1994, the Company's net deferred
tax assets were entirely offset by a valuation allowance. There was no
material change in the components of the deferred tax assets, the deferred tax
liabilities or the valuation allowance during the first quarter of 1995.
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<PAGE> 13
The income tax provisions otherwise recognizable during the first 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 quarter ended March 31, 1995 was calculated using the
estimated 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 quarter of 1995, net cash used by the operating
activities of the Company totaled $1,593,000. Cash was used to fund an
increase of $2,038,000 in accounts receivable and inventories resulting from
increased sales and orders during the first quarter of 1995. Also during the
first quarter of 1995, the Company reduced accounts payable by $999,000, as
more funding was made available under the Company's revolving line of credit,
and reduced accrued expenses by $641,000, primarily because of the payment, on
February 1, 1995, of the semi-annual interest payment in the amount of
$2,022,000 on the 12-3/4% Senior Subordinated Notes.
Net working capital declined by $1,386,000 primarily because capital
expenditures were financed with increased short-term borrowings under the
Working Capital Facility. It is the Company's intention to refinance a portion
of such borrowings with term loans under the equipment line of credit which is
available as part of the Working Capital Facility.
INVESTING ACTIVITIES
During the first quarter of 1995, the investing activities of the Company
used $3,654,000 of cash. During the quarter, the Company made $2,723,000 of
capital expenditures, primarily for equipment, and deposits in the net amount
of $675,000 for the purchase of new equipment. During the first quarter of
1995, capital expenditures attributable to the Rubber Group and the Metals
Group totaled $2,130,000 and $593,000, respectively. The Company presently
expects that capital expenditures will total approximately $19,000,000 during
1995, which will be comprised of approximately $3,000,000 for the construction
or improvement of manufacturing facilities and approximately $16,000,000 for
the purchase of equipment. As of March 31, 1995, the Company had commitments
outstanding for capital expenditures totaling approximately $8,200,000.
FINANCING ACTIVITIES
During the first quarter of 1995, the financing activities of the Company
provided $5,239,000 of cash, primarily from increased borrowings under the
Working Capital Facility.
The Company operates with high financial leverage. During the first
quarter of 1995, the aggregate indebtedness of the Company, excluding trade
payables, increased by $5,426,000 to $62,704,000. During 1995, the cash
interest and principal payments required under the terms of the Company's loan
agreements are currently expected to total $7,600,000 and $2,900,000,
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. As of March 31, 1995,
the Company had outstanding under the Working Capital Facility term loans of
$15,941,000, payable in equal monthly installments through 2002, and revolving
loans of $9,973,000 which mature in January 1998. As of March 31, 1995,
$1,000,000 of revolving loans were classified as long-term debt because they
were
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<PAGE> 14
refinanced by a term loan in April 1995. There is also available under the
Working Capital Facility an equipment line of credit of $11,300,000, which can
be used to finance a portion of the purchase price of new equipment 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. As
of May 8, 1995, the Company had approximately $3,214,000 of unused
availability under the Working Capital Facility, without giving effect to
additional availability under the revolving line of credit which would result
from future borrowings under the equipment line of credit to refinance
equipment purchases presently financed under the revolving line of credit.
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.
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.
DEPENDENCE ON LARGE CUSTOMERS
During the first quarter of 1995, the Company's three largest customers
accounted for 38.8% 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.
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<PAGE> 15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In December 1993, Kingston Oil Supply Corp. ("Kingston") commenced
a third party action against, among others, the Company's
subsidiary, Lexington Components, Inc. ("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 sought
contribution or indemnification from LCI and other third party
defendants with respect to any judgment awarded against Kingston.
LCI asserted a crossclaim in this action against the customer for
whom LCI manufactured the gasket, seeking indemnification in the
event LCI were held liable in the action. In April 1995, all
claims which had been asserted against LCI in this action were
discontinued with prejudice and LCI was dismissed from the suit.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith:
10-1 Term Promissory Note dated April 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 OF FORM 8-K
During the first quarter of 1995, the Company filed a report on
Form 8-K, dated February 2, 1995, with the Securities and Exchange
Commission, stating that the Company and the Working Capital
Lender had amended the Working Capital Facility.
-14-
<PAGE> 16
LEXINGTON PRECISION CORPORATION
FORM 10-Q
MARCH 31, 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)
May 9, 1995 By: /s/ Michael A. Lubin
- ----------- --------------------------------
Date Michael A. Lubin
Chairman of the Board
May 9, 1995 By: /s/ Warren Delano
- ----------- -------------------------------
Date Warren Delano
President
May 9, 1995 By: /s/ Dennis J. Welhouse
- ----------- -------------------------------
Date Dennis J. Welhouse
Senior Vice President and
Chief Financial Officer
-15-
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Location
- ------ ------- --------
<S> <C> <C>
10-1 Term Promissory Note dated April 26, 1995 Filed with this Form 10-Q
from Lexington Components, Inc. in favor of
Congress Financial Corporation
27-1 Financial Data Schedule Filed with this Form 10-Q
</TABLE>
<PAGE> 1
EXHIBIT 10.1
TERM PROMISSORY NOTE
$1,000,000 New York, New York
April 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 DOLLARS ($1,000,000) in lawful money of the
United States of America and in immediately available funds, in eighty-four
(84) consecutive monthly installments (or earlier as hereinafter referred to)
on the first day of each month commencing June 1, 1995, of which the first
eighty-three (83) installments shall each be in the amount of TWELVE THOUSAND
DOLLARS ($12,000), and the last (i.e. eighty-fourth (84th)) 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 June 1, 1995 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 four and one-half
(4-1/2%) 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 Agreement (as
hereinafter defined) and the other Financing Agreements.
<PAGE> 2
The Interest Rate applicable to Prime Rate Loans payable hereunder
shall increase or decrease by an amount equal to each increase or decrease,
respectively, in the Prime Rate, effective on the first day of the month after
any change in the 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 the "LCI Ohio Real
Estate Loan" (as defined in 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
collection hereof, including, but not limited to, reasonable attorneys' fees.
-2-
<PAGE> 3
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 and during the continuance of any Event of Default, 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 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
-3-
<PAGE> 4
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
- ----------------------------
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> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 71
<SECURITIES> 0
<RECEIVABLES> 13973
<ALLOWANCES> 0
<INVENTORY> 8780
<CURRENT-ASSETS> 24954
<PP&E> 62339
<DEPRECIATION> 28199
<TOTAL-ASSETS> 71990
<CURRENT-LIABILITIES> 28017
<BONDS> 49825
<COMMON> 1087
555
0
<OTHER-SE> (7494)
<TOTAL-LIABILITY-AND-EQUITY> 71990
<SALES> 27074
<TOTAL-REVENUES> 27074
<CGS> 21541
<TOTAL-COSTS> 21541
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1810
<INCOME-PRETAX> 1103
<INCOME-TAX> 284
<INCOME-CONTINUING> 819
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 819
<EPS-PRIMARY> .19
<EPS-DILUTED> .18
</TABLE>
