10-Q 1 l02004ae10vq.txt LEXINGTON PRECISION CORPORATION FORM 10-Q ================================================================================ 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 JUNE 30, 2003 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 --- --- Indicate by check mark whether the registrant is an accelerated filer (as defined in rule 12b-2 of the Exchange Act). Yes No X --- --- AS OF AUGUST 12, 2003, THERE WERE 4,828,036 SHARES OF COMMON STOCK OF THE REGISTRANT OUTSTANDING. (INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE) ================================================================================ LEXINGTON PRECISION CORPORATION QUARTERLY REPORT ON FORM 10-Q TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1. Financial Statements.............................................1 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................................15 Item 3. Quantitative and Qualitative Disclosures about Market Risk......29 Item 4. Controls and Procedures.........................................29 PART II. OTHER INFORMATION Item 3. Defaults on Senior Securities...................................30 Item 4. Submission of Matters to a Vote of Security Holders.............30 Item 6. Exhibits and Reports on Form 8-K................................31 -i- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS LEXINGTON PRECISION CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS (THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ----------------------- ------------------------ 2003 2002 2003 2002 ---- ---- ---- ---- Net sales $ 30,873 $ 32,996 $ 63,256 $ 63,240 Cost of sales 27,587 28,356 56,240 55,632 --------- -------- --------- --------- Gross profit 3,286 4,640 7,016 7,608 Selling and administrative expenses 2,173 2,349 4,265 4,604 Plant closure costs - 87 - 609 --------- -------- --------- --------- Income from operations 1,113 2,204 2,751 2,395 Interest expense 1,760 1,967 3,540 3,763 --------- -------- --------- --------- Income (loss) before income taxes (647) 237 (789) (1,368) Income tax provision 27 30 54 51 --------- -------- --------- --------- Net income (loss) $ (674) $ 207 $ (843) $ (1,419) ========= ======== ========= ========= Per share data: Basic and diluted net income (loss) applicable to common stockholders $ (0.14) $ 0.04 $ (0.17) $ (0.29) ========= ======== ========= =========
See notes to consolidated financial statements. - 1 - LEXINGTON PRECISION CORPORATION CONSOLIDATED BALANCE SHEET (THOUSANDS OF DOLLARS) (UNAUDITED)
JUNE 30, DECEMBER 31, 2003 2002 --------------- ----------------- ASSETS: Current assets: Cash $ 1,644 $ 1,753 Accounts receivable, net 19,628 16,411 Inventories, net 9,250 8,841 Prepaid expenses and other current assets 2,848 3,682 Deferred income taxes 2,304 2,304 --------- ---------- Total current assets 35,674 32,991 Property, plant, and equipment, net 46,759 49,029 Goodwill 7,831 7,831 Other assets, net 2,320 2,294 --------- ---------- Total assets $ 92,584 $ 92,145 ========= ========== LIABILITIES AND STOCKHOLDERS' DEFICIT: Current liabilities: Accounts payable $ 10,686 $ 10,798 Accrued expenses, excluding accrued interest 7,061 6,256 Accrued interest expense 15,104 12,875 Short-term debt 68,875 69,665 Current portion of long-term debt 708 1,467 --------- ---------- Total current liabilities 102,434 101,061 --------- ---------- Long-term debt, excluding current portion 920 1,117 --------- ---------- Deferred income taxes and other long-term liabilities 2,928 2,836 --------- ---------- Series B preferred stock 330 330 --------- ---------- Stockholders' deficit: Common stock, $0.25 par value, 10,000,000 shares authorized, 4,828,036 shares issued 1,207 1,207 Additional paid-in-capital 12,960 12,960 Accumulated deficit (28,195) (27,366) --------- ---------- Total stockholders' deficit (14,028) (13,199) --------- ---------- Total liabilities and stockholders' deficit $ 92,584 $ 92,145 ========= ==========
See notes to consolidated financial statements - 2 - LEXINGTON PRECISION CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (THOUSANDS OF DOLLARS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30 --------------------------- 2003 2002 ---- ---- OPERATING ACTIVITIES: Net loss $ (843) $ (1,419) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 5,106 5,635 Amortization included in operating expense 296 394 Amortization included in interest expense 273 161 Changes in operating assets and liabilities that provided (used) cash: Accounts receivable, net (3,217) (2,687) Inventories, net (409) (286) Prepaid expenses and other current assets 642 819 Accounts payable (112) (1,368) Accrued expenses, excluding interest expense 805 1,353 Accrued interest expense 2,229 2,033 Other long-term liabilities 92 28 Other (5) 469 --------- --------- Net cash provided by operating activities 4,857 5,132 --------- --------- INVESTING ACTIVITIES: Purchases of property, plant, and equipment (2,734) (1,873) Net decrease (increase) in equipment deposits (35) 39 Expenditures for tooling owned by customers (113) (518) Other 202 (10) --------- --------- Net cash used by investing activities (2,680) (2,362) --------- --------- FINANCING ACTIVITIES: Net increase in loans under revolving line of credit 2,677 2,431 Repayment of term notes and other debt (4,529) (5,069) Deferred financing charges (434) (239) --------- --------- Net cash used by financing activities (2,286) (2,877) --------- --------- Net decrease in cash (109) (107) Cash at beginning of period 1,753 189 --------- --------- Cash at end of period $ 1,644 $ 82 ========= =========
See notes to consolidated financial statements. - 3 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 -- BASIS OF PRESENTATION The unaudited interim consolidated financial statements include the accounts of Lexington Precision Corporation and its subsidiaries (collectively, the "Company"). The consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, the consolidated financial statements do not include all the information and footnotes included in the Company's annual consolidated financial statements. Significant accounting policies followed by the Company are set forth in Note 1 to the consolidated financial statements in the Company's annual report on Form 10-K for the year ended December 31, 2002. Subject to the Company's ability to successfully restructure its indebtedness as discussed below, in the opinion of management, the unaudited interim consolidated financial statements contain all adjustments necessary to present fairly the financial position of the Company at June 30, 2003, and the Company's results of operations for the three-month and six-month periods ended June 30, 2003 and 2002, and the Company's cash flows for the six-month periods ended June 30, 2003 and 2002. All such adjustments were of a normal, recurring nature. The results of operations for the three-month and six-month periods ended June, 2003, are not necessarily indicative of the results to be expected for the full year or for any succeeding quarter. The Company's consolidated financial statements have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company's ability to refinance, extend, amend, or exchange substantially all of its outstanding debt, as more fully described below, is subject to risks and uncertainties. As a result, there is substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments to the amounts or classification of assets or liabilities to reflect this uncertainty. The Company has been in default on its 12 3/4% senior subordinated notes since February 1, 2000, when it did not make the payments of principal, in the amount of $27,412,000, and interest, in the amount of $1,748,000, that were due on that date. On July 10, 2002, the Company commenced an exchange offer for the 12 3/4% senior subordinated notes. The exchange offer was amended on March 7, 2003. If the amended exchange offer is consummated, at least 99% of the 12 3/4% senior subordinated notes will be exchanged for new 11 1/2% senior subordinated notes due August 1, 2007, in a principal amount equal to the principal amount of the 12 3/4% senior subordinated notes being exchanged plus the accrued and unpaid interest thereon through the day before the date the amended exchange offer is consummated, which accrued interest will total $520.979 for each $1,000 principal amount of 12 3/4% senior subordinated notes assuming the amended exchange offer is consummated on September 2, 2003. Interest on the 11 1/2% senior subordinated notes will accrue from the date the amended exchange offer is consummated, and will be payable on each February 1, May 1, August 1, and November 1. Each $1,000 principal amount of 11 1/2% senior subordinated notes will be issued with warrants to purchase ten shares of common stock at a price of $3.50 per share at any time from January 1, 2004, through August 1, 2007. If the amended exchange offer is consummated, the Company will pay a participation fee of 3% of the principal amount of 12 3/4% senior subordinated notes that are exchanged. The Company's senior, secured lenders have waived the cross default provisions with respect to the default on the senior subordinated notes through either September 15, 2003, or October 31, 2003, and the holders of the junior subordinated notes have waived such cross-default provisions through November 1, 2003. The Company plans to - 4 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) extend the expiration date of the amended exchange offer, which is currently August 14, 2003. One of the conditions to the consummation of the amended exchange offer is the tender for exchange of at least 99% of the senior subordinated notes. As of August 12, 2003, the Company had received tenders of $27,209,000 principal amount of 12 3/4% senior subordinated notes, or 99.3% of the notes. There are additional conditions to the consummation of the amended exchange offer that may not be satisfied by the expiration date. The Company has reached an agreement with the holders of its 14% junior subordinated notes on the terms of a restructuring of those notes. If the restructuring is completed, the Company will exchange new 12 1/2% junior subordinated notes due November 1, 2007, for the existing 14% junior subordinated notes, and the accrued interest on the 14% junior subordinated notes for the period November 1, 1999, through the day before the restructuring is consummated, which will total $221,000 assuming the restructuring is consummated on September 2, 2003, will be converted into shares of the Company's common stock at a price of $2.27 per share. Interest on the 12 1/2% junior subordinated notes will accrue from the date the restructuring is consummated, and will be payable on each February 1, May 1, August 1, and November 1. Each $1,000 principal amount of 12 1/2% junior subordinated notes will be issued with warrants to purchase ten shares of common stock at a price of $3.50 per share at any time from January 1, 2004, through November 1, 2007. If the restructuring is completed, the Company also will pay a participation fee of 3% of the principal amount of 14% junior subordinated notes. The Company has been in default on its senior, unsecured note, since April 30, 2002, when it did not make the payments of principal, in the amount of $7,500,000, and interest, in the amount of $78,000, that were due on that date. If the other aspects of the financial restructuring program are completed, the Company has proposed to repurchase the senior, unsecured note for $5,550,000, plus interest from November 1, 2002, to the date the amended exchange offer is consummated, at the prime rate. The Company's senior, secured lenders have waived the cross default provisions with respect to the default on the senior, unsecured note through either September 15, 2003, or October 31, 2003, and the holders of the junior subordinated notes have waived such cross-default provisions through November 1, 2003. The Company is currently working with its primary secured lenders on the documents for a new senior, secured credit facility. The Company can give no assurance that it will be able to consummate the amended exchange offer, restructure the senior, unsecured note, or refinance its senior, secured credit facility on satisfactory terms. If the Company is unable to do so, it may choose to file a voluntary petition under the federal bankruptcy code in order to effect a debt restructuring on terms substantially similar to those discussed above, or on other terms. Representatives of the four largest holders of the senior subordinated notes, who hold in the aggregate approximately 75% of the notes, have indicated that, if the documentation for the new senior, secured credit facility cannot be completed promptly, they may demand that the Company file a voluntary petition under the federal bankruptcy code or, in the alternative, they may choose to file an involuntary petition against the Company in order to accomplish a debt restructuring, in which case the Company would have twenty days to respond by filing a voluntary petition or seeking the withdrawal or dismissal of such involuntary petition. Although the Company believes that such a debt restructuring could be accomplished without material disruption to its operations, any such proceeding involves considerable risks and uncertainties and could have a material adverse effect on the Company's operations and financial position. - 5 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) RECENTLY ISSUED ACCOUNTING STANDARDS STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 150, ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY In May 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("FAS 150"). This Statement establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company has not yet determined the impact, if any, that FAS 150 will have on its results of operations or financial position. NOTE 2 -- INVENTORIES Inventories at June 30, 2003, and December 31, 2002, are set forth below (dollar amounts in thousands): JUNE 30, DECEMBER 31, 2003 2002 ---------------- ---------------- Finished goods $ 3,131 $ 3,580 Work in process 3,491 2,493 Raw materials and purchased parts 2,628 2,768 ---------- ---------- $ 9,250 $ 8,841 ========== ========== NOTE 3 -- PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment at June 30, 2003, and December 31, 2002, are set forth below (dollar amounts in thousands): JUNE 30, DECEMBER 31, 2003 2002 ----------------- ---------------- Land $ 2,350 $ 2,314 Buildings 23,075 22,935 Equipment 115,756 113,291 ---------- ---------- 141,181 138,540 Accumulated depreciation 94,422 89,511 ---------- ---------- Property, plant, and equipment, net $ 46,759 $ 49,029 ========== ========== - 6 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 4 -- ACCRUED INTEREST EXPENSE At June 30, 2003, and December 31, 2002, accrued interest expense included $13,689,000 and $11,941,000, respectively, of accrued interest expense on the 12 3/4% senior subordinated notes, and $1,172,000 and $703,000, respectively, of accrued interest on the senior unsecured notes. NOTE 5 -- DEBT Debt at June 30, 2003, and December 31, 2002, is set forth below (dollar amounts in thousands): JUNE 30, DECEMBER 31, 2003 2002 ----------------- ---------------- Short-term debt: Revolving line of credit $ 18,112 $ 15,435 Secured, amortizing term notes 15,504 18,971 Senior, unsecured note 7,500 7,500 Senior subordinated notes 27,412 27,412 Junior subordinated notes 347 347 -------- --------- Subtotal 68,875 69,665 Current portion of long-term debt 708 1,467 -------- --------- Total short-term debt 69,583 71,132 -------- --------- Long-term debt: 12% secured term note 1,001 1,119 Unsecured, amortizing term notes 15 643 Other 612 822 -------- --------- Subtotal 1,628 2,584 Less current portion (708) (1,467) -------- --------- Total long-term debt 920 1,117 -------- --------- Total debt $ 70,503 $ 72,249 ======== ========= REVOLVING LINE OF CREDIT The Company's revolving line of credit is currently scheduled to expire on September 15, 2003. The Company is currently working with its primary secured lenders on the documents for a new secured credit facility, which includes an extension of its revolving line of credit until 2006. The Company can give no assurance that it will be able to refinance the revolving line of credit. At June 30, 2003, availability under the revolving line of credit totaled $1,983,000, before outstanding checks of $1,631,000 were deducted. At June 30, 2003, loans outstanding under the revolving line of credit accrued interest at one percent over the prime rate, which equated to 5.00%. The loans outstanding under the Company's revolving line of credit are collateralized by substantially all of the assets of the Company, including accounts receivable, inventories, equipment, certain real estate, and the stock of Lexington Rubber Group, Inc., a subsidiary of the Company. - 7 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The lenders providing loans under the Company's revolving line of credit have waived the cross-default provisions with respect to the defaults on the senior subordinated notes and the senior, unsecured note through September 15, 2003. SECURED, AMORTIZING TERM LOANS Secured, amortizing term loans outstanding at June 30, 2003, and December 31, 2002, are set forth below (dollar amounts in thousands):
JUNE 30, DECEMBER 31, 2003 2002 ----------- -------------- Term notes payable in equal monthly principal installments based on a 180-month amortization schedule, final maturities in 2003, prime rate plus 3/4% $ 1,871 $ 1,988 Term note payable in equal monthly principal installments based on a 180-month amortization schedule, final maturity in 2003, prime rate plus 3/4% 924 978 Term note payable in equal monthly principal installments based on a 180-month amortization schedule, final maturity in 2003, prime rate plus 3/4% 1,827 1,927 Term note payable in equal monthly principal installments, final Maturity in 2003, prime rate - 45 Term note payable in equal monthly principal installments, final Maturity in 2003, prime rate plus 1% - 10(1) Term note payable in equal monthly principal installments, final maturities in 2003, LIBOR plus 2 3/4% - 107 Term notes payable in equal monthly principal installments, final maturities in 2004, LIBOR plus 2 3/4% 309 476 Term note payable in equal monthly principal installments, final Maturity in 2004, prime rate and LIBOR plus 2 1/2% 250 386 Term notes payable in equal monthly principal installments, final maturities in 2004, prime rate plus 1% 2,441(1) 3,846(1) Term note payable in equal monthly principal installments, final Maturity in 2005, LIBOR plus 2 1/2% 467 579 Term note payable in equal monthly principal installments, final Maturity in 2005, prime rate plus 1% 488(1) 609(1) Term note payable in equal monthly principal installments, final Maturity in 2006, prime rate 228 270 Term notes payable in equal monthly principal installments, final maturities in 2006, prime rate plus 1% 4,143(1) 4,847(1) Term notes payable in equal monthly installments, final maturity in 2007, prime rate plus 1% 2,556(1) 2,903(1) ---------- ---------- $ 15,504 $ 18,971 ========== ==========
(1) Maturity date can be accelerated by the lender if the Company's revolving line of credit expires prior to the stated maturity date of the term loan. The revolving line of credit is currently scheduled to mature on September 15, 2003. - 8 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) At June 30, 2003, and December 31, 2002, the secured, amortizing term notes were classified as short-term debt because the Company's lenders had granted waivers, for a period of less than one year, of the cross-default provisions of such term notes with respect to the default on the senior subordinated notes and the senior, unsecured note or because the revolving line of credit was scheduled to expire in less than one year. The secured, amortizing term notes are collateralized by substantially all of the assets of the Company, including accounts receivable, inventories, equipment, certain real estate, and the stock of Lexington Rubber Group, Inc. The lenders providing secured, amortizing term notes have waived the cross-default provisions with respect to the defaults on the senior subordinated notes and the senior, unsecured note through September 15 or October 31, 2003. SENIOR, UNSECURED NOTE The senior, unsecured note, which matured on April 30, 2002, is senior in right of payment to the senior subordinated notes and the junior subordinated notes. The senior, unsecured note currently bears interest at 12 1/2% per annum. On April 30, 2002, the Company did not make the payments of principal and interest then due on the senior, unsecured note in the amounts of $7,500,000 and $78,000, respectively, and the Company has not made any payments on the senior, unsecured note since that date. At June 30, 2003, the accrued and unpaid interest on the senior, unsecured note totaled $1,172,000. For more information about the senior, unsecured note, refer to Note 1. SENIOR SUBORDINATED NOTES The senior subordinated notes, which matured on February 1, 2000, are unsecured obligations of the Company that are subordinated in right of payment to all of the Company's existing and future secured debt and to the payment of the senior, unsecured note. The senior subordinated notes currently bear interest at 12 3/4% per annum. On February 1, 2000, the Company did not make the payments of principal and interest then due on the senior subordinated notes in the amounts of $27,412,000 and $1,748,000, respectively, and the Company has not made any payments on the senior subordinated notes since that date. At June 30, 2003, the accrued and unpaid interest on the senior subordinated notes totaled $13,689,000. For more information about the senior subordinated notes, refer to Note 1. JUNIOR SUBORDINATED NOTES The junior subordinated notes are due on November 1, 2003, and are subordinated in right of payment to all existing and future secured debt of the Company, the senior, unsecured note, and the senior subordinated notes. The junior subordinated notes bear interest at 14% per annum. The holders of the junior subordinated notes have deferred until November 1, 2003, the interest payments that were due on or after February 1, 2000, and have waived the cross-default provisions with respect to the default on the senior, unsecured note and the senior subordinated notes. At June 30, 2003, the accrued and unpaid interest on the junior subordinated notes totaled $221,000. For more information on the junior subordinated notes, refer to Note 1. - 9 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 12% SECURED TERM NOTE The 12% secured term note is payable in sixty equal, monthly installments of principal and interest that commenced on November 30, 2001. The 12% secured term note has no cross-default provision with respect to defaults on any of the Company's other debt. RESTRICTIVE COVENANTS Certain of the Company's financing arrangements contain covenants that require the Company to maintain minimum levels of working capital, net worth, and cash flow coverage. The covenants also place certain restrictions and limitations on the Company's business and operations, including the incurrence or assumption of additional debt, the level of past-due trade accounts payable, the sale of all or substantially all of the Company's assets, the purchase of property, plant, and equipment, the purchase of common stock, the redemption of preferred stock, and the payment of cash dividends. In addition, most of the Company's financing agreements include cross-default provisions. From time to time, the Company's lenders have agreed to waive, amend, or eliminate certain of the financial covenants contained in its various note agreements in order to maintain or otherwise ensure the Company's current or future compliance. During 2003, covenants requiring minimum levels of net worth were amended in two of the Company's three financing agreements. In the event that the Company is not in compliance with any of its covenants in the future and its lenders do not agree to amend, waive, or eliminate those covenants, the lenders would have the right to declare the borrowings owed to them to be due and payable. For a more detailed discussion of recent amendments to and waivers under the Company's various debt obligations, refer to Note 1. NOTE 6 -- SERIES B PREFERRED STOCK At June 30, 2003, there were outstanding 3,300 shares of the Company's $8 cumulative convertible preferred stock, series B, par value $100 per share. As a result of the default on the senior subordinated notes, the Company has been prohibited from making any dividend payments on, or redemptions of, the series B preferred stock since February 2000. At June 30, 2003, the Company was in arrears in the payment of fourteen dividends on the series B preferred stock in the aggregate amount of $92,000 and in the redemption of 1,350 shares of series B preferred stock for $270,000. NOTE 7 -- INCOME TAXES At June 30, 2003, and December 31, 2002, the Company's net deferred income tax assets were fully offset by a valuation allowance. The income tax provisions recorded during the three-month and six-month periods ended June 30, 2003 and 2002, consisted of estimated state income taxes payable. NOTE 8 -- NET INCOME (LOSS) PER COMMON SHARE The calculations of basic and diluted net income or loss per common share for the three-month and six-month periods ended June 30, 2003 and 2002, are set forth below (in thousands, except per share amounts). The pro forma conversion of the Company's $8 cumulative convertible preferred stock, series B, was not dilutive for the three-month or six-month periods ended June 30, 2003 and 2002. As a result, - 10 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) the calculations of diluted net income or loss per common share set forth below do not reflect any pro forma conversion. For purposes of calculating earnings per share, earnings are reduced by (1) preferred stock dividend payments and (2) the amount by which payments made to redeem preferred stock exceeded the par value of such shares. During the three-month and six month periods ended June 30, 2003 and 2002, the Company did not pay any dividends on, or redeem any shares of, the series B preferred stock.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 -------------------- --------------------- 2003 2002 2003 2002 ---- ---- ---- ---- Numerator-- income (loss) applicable to common stockholders $ (674) $ 207 $ (843) $ (1,419) ======== ======== ======== ========= Denominator-- weighted average common shares 4,828 4,828 4,828 4,828 ======== ======== ======== ========= Basic and diluted net income (loss) per common share $ (0.14) $ 0.04 $ (0.17) $ (0.29) ======== ======== ======== =========
- 11 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 9 -- SEGMENTS Information relating to the Company's operating segments and its corporate office for the three-month and six-month periods ended June 30, 2003 and 2002, is summarized below (dollar amounts in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ------------------------ ---------------------- 2003 2002 2003 2002 ---- ---- ---- ---- NET SALES: Rubber Group $ 26,645 $ 26,161 $ 53,367 $ 50,114 Metals Group 4,228 6,835 9,889 13,126 --------- --------- -------- -------- Total net sales $ 30,873 $ 32,996 $ 63,256 $ 63,240 ========= ========= ======== ======== INCOME (LOSS) FROM OPERATIONS: Rubber Group $ 3,020 $ 3,449 $ 5,839 $ 5,939 Metals Group (1,259) (492) (1,842) (2,208) --------- --------- -------- -------- Subtotal 1,761 2,957 3,997 3,731 Corporate office (648) (753) (1,246) (1,336) --------- --------- -------- -------- Total income from operations $ 1,113 $ 2,204 $ 2,751 $ 2,395 ========= ========= ======== ======== ASSETs: Rubber Group $ 64,819 $ 68,723 $ 64,819 $ 68,723 Metals Group 21,666 24,843 21,666 24,843 --------- --------- -------- -------- Subtotal 86,485 93,566 86,485 93,566 Corporate office 6,099 4,739 6,099 4,739 --------- --------- -------- -------- Total assets $ 92,584 $ 98,305 $ 92,584 $ 98,305 ========= ========= ======== ======== DEPRECIATION AND AMORTIZATION (1): Rubber Group $ 1,805 $ 1,947 $ 3,680 $ 3,947 Metals Group 816 1,022 1,703 2,050 --------- --------- -------- -------- Subtotal 2,621 2,969 5,383 5,997 Corporate office 10 11 19 32 --------- --------- -------- -------- Total depreciation and amortization $ 2,631 $ 2,980 $ 5,402 $ 6,029 ========= ========= ======== ======== CAPITAL EXPENDITURES (2): Rubber Group $ 1,392 $ 903 $ 2,219 $ 1,566 Metals Group 443 244 619 359 --------- --------- -------- -------- Subtotal 1,835 1,147 2,838 1,925 Corporate office - - 2 - --------- --------- -------- -------- Total capital expenditures $ 1,835 $ 1,147 $ 2,840 $ 1,925 ========= ========= ======== ========
(1) Does not include amortization of deferred financing expenses, which totaled $130,000 and $125,000 during the three-month periods ended June 30, 2003 and 2002, respectively, and $273,000 and $161,000 during the six-month periods ended June 30, 2003 and 2002, respectively, which is included in interest expense in the consolidated financial statements. (2) Capital expenditures for the six-month period ended June 30, 2003, include $106,000 of equipment purchased under a capital lease obligation. - 12 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 10 -- PLANT CLOSURE During the fourth quarter of 2001, the Company was notified that the Metal Group's largest customer would cease purchasing components from the Metals Group after December 31, 2001. As a result of the subsequent reduction in sales at the Arizona facility, the Company closed the facility in 2002. At June 30, 2003, the book value of the remaining Arizona assets totaled $1,994,000, including $1,669,000 for the land and building, which is currently being offered for sale. The following table sets forth certain operating data of the Arizona facility for the three-month and six-month periods ended June 30, 2003 and 2002 (dollar amounts in thousands).
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ------------------------ --------------------- 2003 2002 2003 2002 ---- ---- ---- ---- Net sales $ - $ - $ - $ 332 ======== ======== ======== ======== Operating loss before nonrecurring costs $ (156) $ (235) $ (311) $ (936) -------- -------- -------- -------- Nonrecurring plant closure costs: Severance and other employee termination costs - - - 246 Asset relocation costs - 43 - 209 Other costs - 44 - 154 -------- -------- -------- -------- Subtotal - 87 - 609 -------- -------- -------- -------- Operating loss $ (156) $ (322) $ (311) $ (1,545) ======== ======== ======== ======== Depreciation included in operating loss $ 49 $ 101 $ 103 $ 366 ======== ======== ======== ========
The operating loss recorded during the three-month and six-month periods ended June 30, 2003, and the three-month period ended June 30, 2002, resulted primarily from the ongoing cost of maintaining, insuring, protecting, and depreciating the building and the remaining equipment in the facility. During the six-month period ended June 30, 2002, the operating loss, excluding the plant closure costs, resulted primarily from the underabsorption of operating costs due to minimal sales and poor operating efficiencies while the facility was being shut down, and, to a lesser extent, from the cost of maintaining, insuring, protecting, and depreciating the facility and the remaining equipment. - 13 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 11 -- OTHER COMPREHENSIVE INCOME Comprehensive income for the three-month and six-month periods ended June 30, 2003 and 2002, net of applicable income tax, if any, is set forth below:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ------------------------ --------------------- 2003 2002 2003 2002 ---- ---- ---- ---- Net income (loss) $ (674) $ 207 $ (843) $ (1,419) Other comprehensive income: Unrealized gain on marketable securities - 303 - 373 -------- -------- -------- -------- Comprehensive income $ (674) $ 510 $ (843) $ (1,046) ======== ======== ======== ========
- 14 - ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Some of our statements in this Form 10-Q, including this item, are "forward-looking statements," as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements usually can be identified by our use of words like "believes," "expects," "may," "will," "should," "anticipates," "estimates," "projects," or the negative thereof. They may be used when we discuss strategy, which typically involves risk and uncertainty, and they generally are based upon projections and estimates rather than historical facts and events. Forward-looking statements are subject to a number of risks and uncertainties that could cause our actual results or performance to be materially different from the future results or performance expressed in or implied by those statements. Some of those risks and uncertainties are: - increases and decreases in business awarded to us by our customers, - unanticipated price reductions for our products as a result of competition, - unanticipated operating results and cash flows, - increases or decreases in capital expenditures, - changes in economic conditions, - strength or weakness in the North American automotive market, - changes in the competitive environment, - changes in interest rates and the credit and securities market, - product warranty claims, - labor interruptions at our facilities or at our customers' facilities, - the impact on our operations of the defaults on our indebtedness, and - our inability to obtain additional borrowings or to refinance our existing indebtedness. Because we have substantial borrowings for a company our size and because those borrowings require us to make substantial interest and principal payments, any negative event may have a greater adverse effect upon us than it would have upon a company of the same size that has less debt. Our results of operations for any particular period are not necessarily indicative of the results to be expected for any one or more succeeding periods. The use of forward-looking statements should not be regarded as a representation that any of the projections or estimates expressed in or implied by those forward-looking statements will be realized, and actual results may vary materially. We cannot assure you that any of the forward-looking statements contained herein will prove to be accurate. All forward-looking statements are expressly qualified by the discussion above. Our consolidated financial statements have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Our ability to refinance, extend, amend, or exchange substantially all of its outstanding debt, as more - 15 - fully described below, is subject to risks and uncertainties. As a result, there is substantial doubt about our ability to continue as a going concern. The consolidated financial statements do not include any adjustments to the amounts or classification of assets or liabilities to reflect this uncertainty. RESULTS OF OPERATIONS-- SECOND QUARTER OF 2003 VERSUS SECOND QUARTER OF 2002 The following table sets forth our consolidated operating results for the three-month periods ended June 30, 2003 and 2002, and the reconciliation of income from operations to earnings before interest, taxes, depreciation, and amortization, which is commonly referred to as EBITDA (dollar amounts in thousands):
THREE MONTHS ENDED JUNE 30 ---------------------------------- 2003 2002 --------------- --------------- Net sales $30,873 100.0% $32,996 100.0% Cost of sales 27,587 89.4 28,356 85.9 ------- ----- ------- ----- Gross profit 3,286 10.6 4,640 14.1 Selling and administrative expenses 2,173 7.0 2,349 7.1 Plant closure costs (1) -- -- 87 0.3 ------- ----- ------- ----- Income from operations 1,113 3.6 2,204 6.7 Add back: depreciation and amortization (2) 2,631 8.5 2,980 9.0 ------- ----- ------- ----- EBITDA (3) $ 3,744 12.1% $ 5,184 15.7% ======= ===== ======= ===== Net cash provided by operating activities (4) $ 4,467 14.5% $ 3,522 10.7% ======= ===== ======= =====
(1) In 2002, we closed our metal machining facility in Casa Grande, Arizona. In connection with the closing, we recorded plant closing costs of $87,000 during the second quarter of 2002. For more information, refer to the discussion of the results of operations of the Metals Group in this section. (2) Does not include amortization of deferred financing expenses, which totaled $130,000 and $125,000 during the second quarters of 2003 and 2002, respectively, and which is included in interest expense in the consolidated financial statements. (3) EBITDA is not a measure of performance under accounting principles generally accepted in the United States and should not be considered in isolation or used as a substitute for income from operations, net income, net cash provided by operating activities, or other operating or cash flow statement data prepared in accordance with generally accepted accounting principles. We have presented EBITDA here and elsewhere in this Form 10-Q because this measure is used by investors, as well as our own management, to evaluate the operating -16- performance of our business, including its ability to incur and to service debt. Our definition of EBITDA may not be the same as the definition of EBITDA used by other companies. (4) The calculation of net cash provided by operating activities is detailed in the consolidated statement of cash flows that is part of our consolidated financial statements in Part I, Item 1. Our net sales for the second quarter of 2003 were $30,873,000, compared to net sales of $32,996,000 for the second quarter of 2002, a decrease of $2,123,000, or 6.4%. The decrease in net sales was principally the result of decreased net sales of diecast components and machined metal components, offset, in part, by increased sales of rubber components. EBITDA for the second quarter of 2003 was $3,744,000, or 12.1% of net sales, compared to EBITDA of $5,184,000, or 15.7% of net sales, for 2002. The decrease in EBITDA was primarily a result of a $973,000 decrease in EBITDA at our Metals Group. Cash flows from operations for the second quarter of 2003 totaled $4,467,000, compared to $3,522,000 for the second quarter of 2002. Please refer to the Consolidated Statement of Cash Flows in Part I, Item 1 for a comparison of the changes in our individual operating activities and to our discussion of operating activities under the caption "Liquidity and Capital Resources" in this Part I, Item 2. The discussion that follows sets forth our analysis of the operating results of the Rubber Group, the Metals Group, and the corporate office for the three-month periods ended June 30, 2003 and 2002. RUBBER GROUP The Rubber Group manufactures silicone and organic rubber components primarily for automotive industry customers. Any significant reduction in the level of activity in the automotive industry may have a material adverse effect on the results of operations of the Rubber Group and on our company taken as a whole. The following table sets forth the operating results of the Rubber Group for the three-month periods ended June 30, 2003 and 2002, and the reconciliation of the Rubber Group's income from operations to its EBITDA (dollar amounts in thousands):
THREE MONTHS ENDED JUNE 30 ---------------------------------- 2003 2002 --------------- --------------- Net sales $26,645 100.0% $26,161 100.0% Cost of sales 22,472 84.3 21,515 82.2 ------- ----- ------- ----- Gross profit 4,173 15.7 4,646 17.8 Selling and administrative expenses 1,153 4.3 1,197 4.6 ------- ----- ------- ----- Income from operations 3,020 11.3 3,449 13.2 Add back depreciation and amortization 1,805 6.8 1,947 7.4 ------- ----- ------- ----- EBITDA $ 4,825 18.1% $ 5,396 20.6% ======= ===== ======= =====
-17- During the second quarter of 2003, net sales of the Rubber Group increased by $484,000, or 1.9%, compared to the second quarter of 2002. This increase was primarily due to increased unit sales of insulators for automotive ignition wire sets and medical components, offset, in part, by reduced sales of connector seals for automotive wiring systems and by price reductions on certain automotive components. Cost of sales as a percentage of net sales increased during the second quarter of 2003 to 84.3% of net sales from 82.2% of net sales during the second quarter of 2002, primarily because of increased costs for sorting and repair, which were caused by quality problems encountered in the manufacture of a certain type of connector seal. In July of 2003, we started to implement improved manufacturing processes and automated inspection and repair equipment. As a result, we anticipate that the additional sorting and repair costs will start to abate during the third quarter of 2003. These increased costs were offset, in part, by reduced depreciation and amortization expenses. Selling and administrative expenses as a percentage of net sales were unchanged during the second quarter of 2003, compared to the second quarter of 2002. During the second quarter of 2003, income from operations totaled $3,020,000, a decrease of $429,000, or 12.4%, compared to the second quarter of 2002. EBITDA for the second quarter of 2003 was $4,825,000, or 18.1% of net sales, compared to $5,396,000, or 20.6% of net sales, during the second quarter of 2002. METALS GROUP The Metals Group manufactures aluminum die castings and machines components from aluminum, brass, and steel bars, primarily for automotive industry customers. Any material reduction in the level of activity in the automotive industry may have a material adverse effect on the results of operations of the Metals Group and on our company taken as a whole. The following table sets forth the operating results of the Metals Group for the three-month periods ended June 30, 2003 and 2002, and the reconciliation of the Metals Group's income from operations to its EBITDA (dollar amounts in thousands):
THREE MONTHS ENDED JUNE 30 ------------------------------------- 2003 2002 ---------------- ---------------- Net sales $ 4,228 100.0% $ 6,835 100.0% Cost of sales 5,115 121.0 6,841 100.1 ------- ----- ------- ----- Gross profit (loss) (887) (21.0) (6) (0.1) Selling and administrative expenses 372 8.8 399 5.8 Plant closure costs -- -- 87 1.3 ------- ----- ------- ----- Income (loss) from operations (1,259) (29.8) (492) (7.2) Add back depreciation and amortization 816 19.3 1,022 15.0 ------- ----- ------- ----- EBITDA $ (443) (10.5) $ 530 7.8% ======= ===== ======= =====
-18- During the second quarter of 2003, net sales of the Metals Group decreased by $2,607,000, or 38.1%, compared to the second quarter of 2002. The decrease resulted from reduced sales of diecast and machined metal components, primarily due to the off-shore sourcing of certain diecast components and the loss of a high-volume machined metal component because the customer converted the part to a stamped metal component. Cost of sales, as a percentage of net sales increased to 121.0% of net sales during the second quarter of 2003 from 100.1% of net sales during the second quarter of 2002, primarily because of the affect of fixed, or partially fixed, manufacturing expenses during a period of low sales volume. During the second quarter of 2003, the impact of the fixed, or partially fixed, manufacturing costs was offset, in part, by reduced depreciation and amortization expenses. Selling and administrative expenses as a percentage of net sales increased during the second quarter of 2003 compared to the second quarter of 2002, primarily because of the reduced sales levels. During the fourth quarter of 2001, we were notified that the Metal Group's largest customer would cease purchasing components from the Metals Group after December 31, 2001. As a result of the reduction in sales at the Arizona facility, we closed the facility in 2002. At June 30, 2003, the book value of the remaining Arizona assets totaled $1,994,000, including $1,656,000 for the land and building, which is currently being offered for sale. The following table sets forth certain operating data of the Arizona facility for the three-month periods ended June 30, 2003 and 2002 (dollar amounts in thousands):
THREE MONTHS ENDED JUNE 30 -------------- 2003 2002 ------ ----- Net sales $ -- $-- ====== ===== Operating loss before plant closure costs $ (156) $(235) ------ ----- Nonrecurring plant closure costs: Severance and other employee termination costs -- -- Asset relocation costs -- 43 Other costs -- 44 ------ ----- Subtotal -- 87 ------ ----- Operating loss $ (156) $(322) ====== ===== Depreciation included in operating loss $ 49 $ 101 ====== =====
During the second quarters of 2003 and 2002, the operating loss, excluding plant closure costs, if any, resulted primarily from the ongoing cost to maintain, insure, protect, and depreciate the building and the remaining equipment in the facility. During the second quarter of 2003, the loss from operations was $1,259,000 compared to a loss from operations of $492,000 during the second quarter of 2002. EBITDA for the second quarter of 2003 was a negative $443,000, or 10.5% of net sales, a decrease of $973,000, compared to the second quarter of 2002. -19- PLANT CLOSURE COSTS For a discussion of plant closure costs please refer to our discussion of the Metals Group above. CORPORATE OFFICE Corporate office expenses, which are not included in the operating results of the Rubber Group or the Metals Group, represent administrative expenses incurred primarily at our New York and Cleveland offices. Corporate office expenses are consolidated with the selling and administrative expenses of the Rubber Group and the Metals Group in our consolidated financial statements. The following table sets forth the operating results of the corporate office for the three-month periods ended June 30, 2003 and 2002, and the reconciliation of the loss from operations to EBITDA (dollar amounts in thousands):
THREE MONTHS ENDED JUNE 30 -------------- 2003 2002 ----- ----- Loss from operations $(648) (753) Add back depreciation and amortization 10 11 ----- ----- EBITDA $(638) $(742) ===== =====
During the second quarter of 2003, corporate office expenses decreased compared to the second quarter of 2002, primarily because of reduced accruals for incentive compensation. INTEREST EXPENSE During the second quarters of 2003 and 2002, interest expense totaled $1,760,000 and $1,967,000, respectively, which included amortization of deferred financing expenses of $130,000 and $125,000, respectively. INCOME TAX PROVISION At June 30, 2003, and December 31, 2002, our net deferred income tax assets were fully offset by a valuation allowance. The income tax provisions recorded during the three-month periods ended June 30, 2003 and 2002, consisted of estimated state income taxes payable. -20- RESULTS OF OPERATIONS-- FIRST SIX MONTHS OF 2003 VERSUS FIRST SIX MONTHS OF 2002 The following table sets forth our consolidated operating results for the six-month periods ended June 30, 2003 and 2002 and the reconciliation of income from operations to earnings before interest, taxes, depreciation, and amortization, which is commonly referred to as EBITDA (dollar amounts in thousands):
SIX MONTHS ENDED JUNE 30 ------------------------------------ 2003 2002 ---------------- ---------------- Net sales $63,256 100.0% $63,240 100.0% Cost of sales 56,240 88.9 55,632 88.0 ------- ------ ------- ------ Gross profit 7,016 11.1 7,608 12.0 Selling and administrative expenses 4,265 6.7 4,604 7.3 Plant closure costs (1) -- -- 609 0.9 ------- ------ ------- ------ Income from operations 2,751 4.4 2,395 3.8 Add back depreciation and amortization (2) 5,402 8.5 6,029 9.5 ------- ------ ------- ------ EBITDA (3) $ 8,153 12.9% $ 8,424 13.3% ======= ====== ======= ====== Net cash provided by operating activities (4) $ 4,857 7.7% $ 5,132 8.1% ======= ====== ======= ======
(1) During the first quarter of 2002, we closed our metal machining facility in Casa Grande, Arizona. During the first six months of 2002, we incurred charges of $609,000 to close the facility. For more information, refer to the discussion of the results of operations of the Metals Group in this section. (2) Does not include amortization of deferred financing expenses, which totaled $273,000 and $161,000 during the first six months of 2003 and 2002, respectively, and which is included in interest expense in the consolidated financial statements. (3) EBITDA is not a measure of performance under accounting principles generally accepted in the United States and should not be considered in isolation or used as a substitute for income from operations, net income, net cash provided by operating activities, or other operating or cash flow statement data prepared in accordance with generally accepted accounting principles. We have presented EBITDA here and elsewhere in this Form 10-Q because this measure is used by investors, as well as our own management, to evaluate the operating performance of our business, including its ability to incur and to service debt. Our definition of EBITDA may not be the same as the definition of EBITDA used by other companies. (4) The calculation of net cash provided by operating activities is detailed in the consolidated statement of cash flows that is part of our consolidated financial statements in Part I, Item 1. -21- Our net sales for the first six months of 2003 were $63,256,000, compared to net sales of $63,240,000 for the first six months of 2002, an increase of $16,000. EBITDA for the first six months of 2003 was $8,153,000, or 12.9% of net sales, compared to $8,424,000, or 13.3% of net sales, for the first six months of 2002. The discussion that follows sets forth our analysis of the operating results of the Rubber Group, the Metals Group, and the corporate office for the six-month periods ended June 30, 2003 and 2002. RUBBER GROUP The Rubber Group manufactures silicone and organic rubber components primarily for automotive industry customers. Any material reduction in the level of activity in the automotive industry may have a material adverse effect on the results of operations of the Rubber Group and on our company taken as a whole. The following table sets forth the operating results of the Rubber Group for the six-month periods ended June 30, 2003 and 2002, and the reconciliation of the Rubber Group's income from operations to its EBITDA (dollar amounts in thousands):
SIX MONTHS ENDED JUNE 30 ------------------------------------ 2003 2002 ---------------- ---------------- Net sales $53,367 100.0% $50,114 100.0% Cost of sales 45,241 84.8 41,851 83.5 ------- ------ ------- ------ Gross profit 8,126 15.2 8,263 16.5 Selling and administrative expenses 2,287 4.3 2,324 4.6 ------- ------ ------- ------ Income from operations 5,839 10.9 5,939 11.9 Add back depreciation and amortization 3,680 6.9 3,947 7.8 ------- ------ ------- ------ EBITDA $ 9,519 17.8% $ 9,886 19.7% ======= ====== ======= ======
During the first six months of 2003, net sales of the Rubber Group increased by $3,253,000, or 6.5%, compared to the first six months of 2002. This increase was primarily due to increased unit sales of insulators for automotive ignition wire sets and components for medical devices, offset, in part, by price reductions on certain automotive components. Cost of sales as a percentage of net sales increased during the first six months of 2003 to 84.8% of net sales from 83.5% of net sales for the first six months of 2002, primarily because of increased costs for sorting and repair, which were caused by quality problems encountered in the manufacture of a certain type of connector seal. In July 2003, we started to implement improved manufacturing processes and automated inspection and repair equipment. As a result, we anticipate that the additional sorting and repair costs will start to abate during the third quarter of 2003. During the first six months of 2003, increased costs for sorting and repair were offset, in part, by reduced depreciation and amortization expenses. -22- Selling and administrative expenses as a percentage of net sales decreased during the first six months of 2003, compared to the first six months of 2002, primarily because these expenses are fixed or partially fixed in nature. During the first six months of 2003, income from operations totaled $5,839,000, a decrease of $100,000, or 1.7%, compared to the first six months of 2002. EBITDA for the first six months of 2003 was $9,519,000, or 17.8% of net sales, compared to $9,886,000, or 19.7% of net sales, for the first six months of 2002. METALS GROUP The Metals Group manufactures aluminum die castings and machines components from aluminum, brass, and steel bars, primarily for automotive industry customers. Any material reduction in the level of activity in the automotive industry may have a material adverse effect on the results of operations of the Metals Group and on our company taken as a whole. The following table sets forth the operating results of the Metals Group for the six-month periods ended June 30, 2003 and 2002, and the reconciliation of the Metals Group's income from operations to its EBITDA (dollar amounts in thousands):
SIX MONTHS ENDED JUNE 30 ----------------------------------------- 2003 2002 ------------------ ------------------ Net sales $ 9,889 100.0% $ 13,126 100.0% Cost of sales 10,999 111.2 13,781 105.0 -------- ------ -------- ------ Gross profit (loss) (1,110) (11.2) (655) (5.0) Selling and administrative expenses 732 7.4 944 7.2 Plant closure costs -- -- 609 4.6 -------- ------ -------- ------ Income (loss) from operations (1,842) (18.6) (2,208) (16.8) Add back depreciation and amortization 1,703 17.2 2,050 15.6 -------- ------ -------- ------ EBITDA $ (139) (1.4)% $ (158) (1.2)% ======== ====== ======== ======
As previously discussed, during the fourth quarter of 2001, we were notified that the Metal Group's largest customer would cease purchasing components from the Metals Group after December 31, 2001. As a result of the reduction in sales at the Arizona facility we closed the facility in 2002. -23- The following table sets forth certain operating data of the Arizona facility for the first six months of 2003 and 2002 (dollar amounts in thousands):
SIX MONTHS ENDED JUNE 30 ------------------ 2003 2002 ------- ------- Net sales $ -- $ 332 ======= ======= Operating loss before plant closure costs $ (311) $ (936) ------- ------- Plant closure costs: Severance and other employee termination costs -- 246 Asset relocation costs -- 209 Other costs -- 154 ------- ------- -- 609 ------- ------- Operating loss (311) (1,545) Add back depreciation and amortization 103 366 ------- ------- EBITDA $ (208) $(1,179) ======= =======
During 2002, operating losses other than plant closure costs resulted primarily from the underabsorption of operating costs incurred due to minimal sales and poor operating efficiencies while the facility was being shut down, and, to a lesser extent, from the cost of maintaining, insuring, protecting, and depreciating the facility and the equipment remaining in the facility. The operating loss during the first six months of 2003, resulted primarily from the ongoing cost to maintain, insure, protect, and depreciate the building and the remaining equipment in the facility. During the first six months of 2003, net sales of the Metals Group decreased by $3,237,000, or 24.7%, compared to the first six months of 2002. The decrease resulted from reduced sales of diecast and machined metal components, primarily due to the off-shore sourcing of certain diecast components and the loss of a high-volume machined metal component because the customer converted the part to a stamped metal component. Cost of sales as a percentage of net sales increased during the first six months of 2003 to 111.2% of net sales from 105.0% of net sales during the first six months of 2002, primarily due to the affect of fixed, or partially fixed, manufacturing expenses during a period of low sales volume. During the first six months of 2003, the impact of fixed, or partially fixed, manufacturing costs was offset, in part, by reduced depreciation and amortization expenses. Selling and administrative expenses as a percentage of net sales increased during the first six months of 2003 compared to the first six months of 2002, primarily because of the reduced sales level. During the first six months of 2003, the loss from operations was $1,842,000, compared to a loss from operations of $2,208,000 during the first six months of 2002. Excluding the entire loss incurred at the Arizona facility during the first six months of 2003, the loss from operations during the first six months of 2003 was $1,531,000. -24- CORPORATE OFFICE Corporate office expenses, which are not included in the operating results of the Rubber Group or the Metals Group, represent administrative expenses incurred primarily at our New York and Cleveland offices. Corporate office expenses are consolidated with the selling and administrative expenses of the Rubber Group and the Metals Group in our consolidated financial statements. The following table sets forth the operating results of the corporate office for the six-month periods ended June 30, 2003 and 2002, and the reconciliation of the loss from operations to EBITDA (dollar amounts in thousands):
SIX MONTHS ENDED JUNE 30 ------------------- 2003 2002 ------- ------- Loss from operations $(1,246) $(1,336) Add back depreciation and amortization 19 32 ------- ------- EBITDA $(1,227) $(1,304) ======= =======
During the first six months of 2003, corporate office expenses decreased compared to the first six months of 2002, primarily because of reduced accruals for incentive compensation. INTEREST EXPENSE During the first six months of 2003 and 2002, interest expense totaled $3,540,000 and $3,763,000, respectively, which included amortization of deferred financing expenses of $273,000 and $161,000, respectively. The decrease in interest expense was caused primarily by lower rates of interest on our floating rate indebtedness and a reduction in the average amount of outstanding indebtedness. INCOME TAX PROVISION At June 30, 2003, and December 31, 2002, our net deferred income tax assets were fully offset by a valuation allowance. The income tax provision recorded during the six-month periods ended June 30, 2003 and 2002 consisted of estimated state income taxes payable. LIQUIDITY AND CAPITAL RESOURCES OPERATING ACTIVITIES During the first six months of 2003, our operating activities provided $4,857,000 of cash. Accounts receivable increased by $3,217,000. The increase was caused primarily by an increase in net sales during May and June 2003 compared to November and December 2002, and, at December 31, 2002, a payment by one customer of approximately $450,000 of invoices in advance of their scheduled due dates. Prepaid expenses and other current assets decreased by $642,000, primarily because of a reduction in the amount of unbilled tooling being manufactured or purchased by us for sale to our customers. Accrued interest expense increased by $2,229,000, reflecting additional interest accrued during the first six months of 2003 on our senior, unsecured note, our senior subordinated notes, and our junior subordinated notes. -25- INVESTING ACTIVITIES During the first six months of 2003, our investing activities used $2,680,000 of cash, primarily for capital expenditures. Capital expenditures attributable to the Rubber Group, the Metals Group, and the corporate office totaled $2,113,000, $619,000, and $2,000, respectively, primarily for the purchase of equipment. We presently project that capital expenditures during 2003 will total approximately $6,791,000, substantially all of which will be for the purchase of equipment. Capital expenditures for the Rubber Group, the Metals Group, and the corporate office are projected to total approximately $5,770,000, $1,015,000, and $6,000, respectively, during 2003. At June 30, 2003, we had outstanding commitments to purchase property, plant, and equipment of approximately $946,000. FINANCING ACTIVITIES During the first six months of 2003, our financing activities used $2,286,000 of cash. During the first six months of 2003, we made payments on our amortizing term notes totaling $4,529,000, and we increased the net borrowings under our revolving line of credit by $2,677,000. LIQUIDITY We finance our operations with cash from operating activities and a variety of financing arrangements, including term loans and loans under our revolving line of credit. Our ability to borrow under our revolving line of credit is subject to certain availability formulas based on the levels of our accounts receivable and inventories. Our revolving line of credit is currently scheduled to expire on September 15, 2003. At August 12, 2003 the aggregate principal amount outstanding under our revolving line of credit was $15,829,000. We are currently working with our primary secured lenders on the documents for a new secured credit facility, which include an extension of our revolving line of credit until 2006. We can give no assurance, however, that we will be able to refinance the revolving line of credit on favorable terms, or at all. At June 30, 2003, availability under our revolving line of credit totaled $1,938,000 before outstanding checks of $1,631,000 were deducted. Substantially all of our assets are pledged as collateral for various of our borrowings. A number of our financing arrangements contain covenants that require us to maintain minimum levels of working capital, net worth, and cash flow coverage and other covenants that place certain restrictions on our business and operations, including covenants relating to the incurrence or assumption of additional debt, the level of past-due trade accounts payable, the sale of all or substantially all of our assets, the purchase of property, plant, and equipment, the purchase of common stock, the redemption of preferred stock, and the payment of cash dividends. In addition, substantially all of our financing arrangements include cross-default provisions. From time to time, our lenders have agreed to waive, amend, or eliminate certain of the financial covenants contained in our various financing agreements in order to maintain or otherwise ensure our current or future compliance. During 2003, covenants requiring minimum levels of net worth were amended in two of our three financing agreements. In the event that we are not in compliance with any of our covenants in the future and our lenders do not agree to amend, waive, or eliminate those covenants, the lenders would have the right to declare the borrowings under their financing agreements to be due and payable. We are in default in the payment of our senior subordinated notes and our senior, unsecured note, which have outstanding principal amounts of $27,412,000 and $7,500,000, respectively, and accrued interest, as of June 30, 2003, of $13,689,000 and $1,172,000, respectively. In addition, our revolving line -26- of credit is currently scheduled to expire on September 15, 2003, we have $347,000 of junior subordinated notes that are scheduled to mature during 2003, and we have $7,656,000 of scheduled principal payments on our secured, amortizing term notes during the last six months of 2003. We estimate that, at existing contractual and market rates, the interest expense on all of our debt during 2003 will be approximately $7,000,000. Interest paid during the first six months of 2003 and 2002 totaled $1,310,000 and $1,730,000, respectively. We had a net working capital deficit of $66,760,000 at June 30, 2003, compared to a net working capital deficit of $68,070,000 at December 31, 2002. The net working capital deficit exists primarily because the majority of our debt is in default or subject to short-term waivers of cross defaults. As discussed in more detail below, we are in the process of negotiating extensions or refinancings of all of our matured and maturing debt, although there can be no assurance that we will be successful in this effort. If our debt were refinanced on the terms that are set forth below, we estimate that our monthly cash interest expense would be approximately $610,000. We have been in default on our 12 3/4% senior subordinated notes since February 1, 2000, when we did not make the payments of principal, in the amount of $27,412,000, and interest, in the amount of $1,748,000, that were due on that date. On July 10, 2002, we commenced an exchange offer for the 12 3/4% senior subordinated notes. The exchange offer was amended on March 7, 2003. If the amended exchange offer is consummated, at least 99% of the 12 3/4% senior subordinated notes will be exchanged for new 11 1/2% senior subordinated notes due August 1, 2007, in a principal amount equal to the principal amount of the 12 3/4% senior subordinated notes being exchanged plus the accrued and unpaid interest thereon through the day before the date the amended exchange offer is consummated, which accrued interest will total $520.979 for each $1,000 principal amount of 12 3/4% senior subordinated notes, assuming the amended exchange offer is consummated on September 2, 2003. Interest on the 11 1/2% senior subordinated notes will accrue from the date the amended exchange offer is consummated, and will be payable on each February 1, May 1, August 1, and November 1. Each $1,000 principal amount of 11 1/2% senior subordinated notes will be issued together with warrants to purchase ten shares of common stock at a price of $3.50 per share at any time from January 1, 2004, through August 1, 2007. If the amended exchange offer is consummated, we will pay a participation fee of 3% of the principal amount of 12 3/4% senior subordinated notes that are exchanged. Our senior, secured lenders have waived the cross default provisions with respect to the default on the senior subordinated notes through either September 15, 2003, or October 31, 2003, and the holders of the junior subordinated notes have waived such cross-default provisions through November 1, 2003. We plan to extend the expiration date of the amended exchange offer, which is currently August 14, 2003. One of the conditions to the consummation of the amended exchange offer is the tender for exchange of at least 99% of the senior subordinated notes. As of August 12, 2003, we had received tenders of $27,209,000 principal amount of 12 3/4% senior subordinated notes, or 99.3% of the notes. There are additional conditions to the consummation of the amended exchange offer that may not be satisfied by the expiration date. We have reached an agreement with the holders of our 14% junior subordinated notes on the terms of a restructuring of those notes. If the restructuring is completed, we will exchange new 12 1/2% junior subordinated notes due November 1, 2007, for the existing 14% junior subordinated notes, and the accrued interest on the 14% junior subordinated notes for the period November 1, 1999, through the day before the restructuring is consummated, which will total $221,000, assuming the restructuring is consummated on September 2, 2003, will be converted into shares of our common stock at a price of $2.27 per share. Interest on the 12 1/2% junior subordinated notes will accrue from the date the restructuring is consummated, and will be payable on each February 1, May 1, August 1, and November 1. Each $1,000 principal amount of 12 1/2% junior subordinated notes will be issued with warrants to purchase ten shares of common stock at a price of $3.50 per share at any time from -27- January 1, 2004, through November 1, 2007. If the restructuring is completed, we will also pay a participation fee of 3% of the principal amount of 14% junior subordinated notes. We have been in default on our senior, unsecured note since April 30, 2002, when we did not make the payments of principal, in the amount of $7,500,000, and the interest, in the amount of $78,000, that were due on that date. If the other aspects of the financial restructuring program are completed, we have proposed to repurchase the senior, unsecured note for $5,550,000 in cash plus interest on that amount from November 1, 2002, to the date the amended exchange offer is consummated, at the prime rate. Our senior, secured lenders have waived the cross default provisions with respect to the default on the senior, unsecured note through either September 15, 2003, or October 31, 2003, and the holders of the junior subordinated notes have waived such cross-default provisions through November 1, 2003. We are currently working with our primary secured lenders on the documents for a new senior, secured credit facility. We can give no assurance that we will be able to consummate the amended exchange offer, restructure the senior, unsecured note, or refinance our senior, secured credit facility on satisfactory terms. If we are unable to do so, we may choose to file a voluntary petition under the federal bankruptcy code in order to effect a debt restructuring on terms substantially similar to those discussed above, or on other terms. Representatives of the four largest holders of the senior subordinated notes, who hold in the aggregate approximately 75% of the notes, have indicated that, if the documentation for the new senior, secured credit facility cannot be completed promptly, they may demand that we file a voluntary petition under the federal bankruptcy code or, in the alternative, they may choose to file an involuntary petition against us in order to accomplish a debt restructuring, in which case we would have twenty days to respond by filing a voluntary petition or seeking the withdrawal or dismissal of such involuntary petition. Although we believe that such a debt restructuring could be accomplished without material disruption to our operations, any such proceeding involves considerable risks and uncertainties and could have a material adverse effect on our business, results of operations, cash flows, and financial position. The consolidated financial statements do not include any adjustments to the amounts or classifications of assets or liabilities to reflect those risks. RECENTLY ISSUED ACCOUNTING STANDARDS STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 150, ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY In May 2003, the Financial Accounting Standards Board issued statement of Financial Accounting Standard No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("FAS 150"). This Statement establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. We have not yet determined the impact, if any, that FAS 150 will have on the company's results of operations or financial position. -28- ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We do not invest in or trade market risk sensitive instruments. We also do not have any foreign operations or any significant amount of foreign sales and, therefore, we believe that our exposure to foreign currency exchange rate risk is minimal. At June 30, 2003, we had $33,715,000 of outstanding floating-rate debt at interest rates equal to either LIBOR plus 2 1/2%, LIBOR plus 2 3/4%, the prime rate, the prime rate plus 3/4%, or the prime rate plus 1%. Currently we do not purchase derivative financial instruments to hedge or reduce our interest rate risk. As a result, changes in either LIBOR or the prime rate affect the rates at which we borrow funds under these agreements. At June 30, 2003, we had $36,788,000 of outstanding fixed-rate, long-term debt with a weighted-average interest rate of 12.7%, of which $34,912,000 has matured. We have received tenders of over 99% of our 12 3/4% senior subordinated notes in exchange for new 11 1/2% senior subordinated notes due August 1, 2007, in a principal amount equal to the principal amount of the existing 12 3/4% senior subordinated notes being exchanged plus the accrued and unpaid interest thereon through the day before the date the exchange is effected, which accrued interest will total $520.979 for each $1,000 principal amount of 12 3/4% senior subordinated notes exchanged, if the exchange offer is consummated on September 2, 2003. The holders of our 14% junior subordinated notes have agreed to exchange the $347,000 principal amount of those notes for new 12 1/2% junior subordinated notes due November 1, 2007, and to convert the accrued interest on the notes into shares of common stock. If the other aspects of the financial restructuring are completed, we have proposed to repurchase our $7,500,000 senior, unsecured note for $5,550,000 plus interest on that amount from November 1, 2002, to the date of repurchase, at the prime rate. If the financial restructuring is completed on the terms currently negotiated, we estimate that our monthly cash interest expense would be approximately $610,000 and that a one percentage point increase or decrease in the applicable short-term rate would increase or decrease our monthly cash interest expense by approximately $34,000. For further information about our indebtedness, we recommend that you also read Notes 1 and 5 of our consolidated financial statements in Part I, Item 1. ITEM 4. CONTROLS AND PROCEDURES An evaluation was performed under the supervision, and with the participation, of our management, including one of our co-principal executive officers and our chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2003. Based on that evaluation, the co-principal executive officer and our chief financial officer concluded that our disclosure controls and procedures are effective to provide us with timely notice of material information required to be disclosed in periodic reports filed with the U.S. Securities and Exchange Commission. We also reviewed our internal controls, and there have been no significant changes in our internal controls or in other factors that could significantly affect our internal controls subsequent to the date of our previous evaluation. -29- PART II. OTHER INFORMATION ITEM 3. DEFAULTS ON SENIOR SECURITIES (a) We are in default in respect of our 12 3/4% senior subordinated notes because we did not make the payments of principal, in the amount of $27,412,000, and interest, in the amount of $1,748,000, that were due on February 1, 2000. For more information regarding the default in respect of the 12 3/4% senior subordinated notes, refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity," in Part I, Item 2, which is incorporated herein by reference. We are in default in respect of our senior, unsecured note because we did not make the payments of principal, in the amount of $7,500,000, and interest, in the amount of $78,000, that were due on April 30, 2002. For more information regarding the default in respect of the senior, unsecured note, refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity," in Part I, Item 2, which is incorporated herein by reference. (b) We did not pay dividends on our $8 cumulative convertible preferred stock, series B, during the three-month or six-month periods ended June 30, 2003, in the aggregate amount of $6,600 and $13,200, respectively. As of August 13, 2003, the Company was in arrears in the payment of dividends in the amount of $92,000 and in the making of mandatory redemptions in the amount of $270,000. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Stockholders of the Company was held on May 20, 2003. The matters voted upon at the Annual Meeting and the results of the voting on each matter are set forth below: (1) A proposal to elect six directors (Messrs. William B. Conner, Warren Delano, Kenneth I. Greenstein, Michael A. Lubin, and Joseph A. Pardo, and Ms. Elizabeth Ruml). Mr. Conner: Votes for Mr. Conner 4,567,646 Votes withheld from Mr. Conner 18,827 Mr. Delano: Votes for Mr. Delano 4,562,417 Votes withheld from Mr. Delano 24,056 Mr. Greenstein: Votes for Mr. Greenstein 4,562,422 Votes withheld from Mr. Greenstein 24,051 Mr. Lubin: Votes for Mr. Lubin 4,562,472 Votes withheld from Mr. Lubin 24,001 Mr. Pardo: Votes for Mr. Pardo 4,568,263 Votes withheld from Mr. Pardo 18,210 -30- Ms. Ruml: Votes for Ms. Ruml 4,568,664 Votes withheld from Ms. Ruml 17,809 (2) The ratification of Ernst & Young LLP as independent auditors of the Company for the year ending December 31, 2003. Votes for Ernst & Young LLP 4,558,635 Votes against Ernst & Young LLP 5,102 Abstentions 22,736 There were no broker non-votes in respect of the foregoing matters. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS The following exhibits are filed herewith: 10-1 Agreement relating to 14% Junior Subordinated Notes dated as of July 31, 2003, between Lexington Precision Corporation ("LPC") and Michael A. Lubin 10-2 Agreement relating to Junior Subordinated Convertible Increasing Rate Note dated as of July 31, 2003, among LPC, Michael A. Lubin, and Warren Delano 10-3 Agreement dated as of May 21, 2003, between LPC and Congress Financial Corporation ("Congress") 10-4 Agreement dated as of May 21, 2003, between Lexington Rubber Group, Inc. ("LRGI") and Congress 10-5 Agreement dated as of May 21, 2003 among LPC, LRGI, and Congress 10-6 Agreement dated as of July 9, 2003, between LPC and Congress 10-7 Agreement dated as of July 9, 2003, between LRGI and Congress 10-8 Agreement dated as of July 9, 2003 among LPC, LRGI, and Congress 10-9 Agreement dated as of August 11, 2003, between LPC and Congress 10-10 Agreement dated as of August 11, 2003, between LRGI and Congress 10-11 Agreement dated as of August 11, 2003 among LPC, LRGI, and Congress 10-12 Agreement dated July 31, 2003, between LPC and CIT Group/Equipment Financing, Inc. ("CIT") -31- 10-13 Thirteenth Amendment Agreement dated as of May 21, 2003, between LPC, LRGI, and Bank One, NA ("Bank One") 10-14 Fourteenth Amendment Agreement dated as of July 11, 2003, between LPC, LRGI, and Bank One 10-15 Fifteenth Amendment Agreement dated as of August 11, 2003, between LPC, LRGI, and Bank One 10-16 Agreement dated as of July 11, 2003, between LPC, LRGI, and Bank One 10-17 Agreement dated as of August 11, 2003, between LPC, LRGI, and Bank One 10-18 Amendment No. 9 to Loan and Security Agreement dated as of May 31, 2003, between LPC and CIT 31-1 Certification of Michael A. Lubin, Chairman of the Board and Co-Principal Executive Officer of the registrant, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31-2 Certification of Warren Delano, President and Co-Principal Executive Officer of the registrant, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31-3 Certification of Dennis J. Welhouse, Chief Financial Officer and Principal Financial Officer of the registrant, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32-1 Certification of Michael A. Lubin, Chairman of the Board and Co-Principal Executive Officer of the registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32-2 Certification of Warren Delano, President and Co-Principal Executive Officer of the registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32-3 Certification of Dennis J. Welhouse, Chief Financial Officer and Principal Financial Officer of the registrant, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) REPORTS ON FORM 8-K On April 3, 2003, we filed a report on Form 8-K that included a press release dated April 3, 2003, stating that we were extending the expiration date of our offer to exchange our senior subordinated notes from April 3, 2003, to 12 midnight, New York City Time on April 24, 2003, unless further extended. On April 24, 2003, we filed a report on Form 8-K that included a press release dated April 24, 2003, stating that we were extending the expiration date of our offer to exchange our senior subordinated notes from April 24, 2003, to 12 midnight, New York City Time on May 15, 2003, unless further extended. -32- On May 15, 2003, we filed a report on Form 8-K that included a press release dated May 15, 2003, stating that we were extending the expiration date of our offer to exchange our senior subordinated notes from May 15, 2003, to 12 midnight, New York City Time on June 5, 2003, unless further extended. On June 5, 2003, we filed a report on Form 8-K that included a press release dated June 5, 2003, stating that we were extending the expiration date of our offer to exchange our senior subordinated notes from June 5, 2003, to 12 midnight, New York City Time on June 27, 2003, unless further extended. On June 27, 2003, we filed a report on Form 8-K that included a press release dated June 27, 2003, stating that we were extending the expiration date of our offer to exchange our senior subordinated notes from June 27, 2003, to 12 midnight, New York City Time on July 11, 2003, unless further extended. On July 11, 2003, we filed a report on Form 8-K that included a press release dated July 11, 2003, stating that we were extending the expiration date of our offer to exchange our senior subordinated notes from July 11, 2003, to 12 midnight, New York City Time on July 31, 2003, unless further extended. On July 31, 2003, we filed a report on Form 8-K that included a press release dated July 31, 2003, stating that we were extending the expiration date of our offer to exchange our senior subordinated notes from July 31, 2003, to 12 midnight, New York City Time on August 14, 2003, unless further extended. -33- LEXINGTON PRECISION CORPORATION FORM 10-Q JUNE 30, 2003 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) August 13, 2003 By:/s/ Michael A. Lubin --------------- --------------------------- Date Michael A. Lubin Chairman of the Board August 13, 2003 By:/s/ Warren Delano --------------- -------------------------- Date Warren Delano President August 13, 2003 By:/s/ Dennis J. Welhouse --------------- -------------------------- Date Dennis J. Welhouse Senior Vice President and Chief Financial Officer -34-