-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UFI4nvtuoqqBnMU5yaxqq5Fzr4ts49o+/TSgWqDJ1tT5RNvcGcyBs6xYmrN+bC+b ENyjGeNAb7K92uak+z373g== 0000950152-04-006378.txt : 20040818 0000950152-04-006378.hdr.sgml : 20040818 20040818134922 ACCESSION NUMBER: 0000950152-04-006378 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040818 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LEXINGTON PRECISION CORP CENTRAL INDEX KEY: 0000012570 STANDARD INDUSTRIAL CLASSIFICATION: FABRICATED RUBBER PRODUCTS, NEC [3060] IRS NUMBER: 221830121 STATE OF INCORPORATION: DE FISCAL YEAR END: 0814 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-03252 FILM NUMBER: 04983785 BUSINESS ADDRESS: STREET 1: 767 THIRD AVE 29TH FL CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2123194657 MAIL ADDRESS: STREET 1: 30195 CHAGRIN BLVD STREET 2: SUITE 208W CITY: CLEVELAND STATE: OH ZIP: 44124-5755 FORMER COMPANY: FORMER CONFORMED NAME: BLASIUS INDUSTRIES INC DATE OF NAME CHANGE: 19890116 10-Q 1 l08652ae10vq.txt LEXINGTON PRECISION CORPORATION 10-Q/QUARTER END 6-30-04 . . . 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, 2004 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-3252 LEXINGTON PRECISION CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 22-1830121 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 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, 2004, THERE WERE 4,931,767 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.....................................................................10 Item 3. Quantitative and Qualitative Disclosures about Market Risk.....................................24 Item 4. Controls and Procedures........................................................................25 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders............................................26 Item 6. Exhibits and Reports on Form 8-K...............................................................27
- i - PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS LEXINGTON PRECISION CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ------------------------ ------------------------ 2004 2003 2004 2003 ---- ---- ---- ---- Net sales $ 31,410 $ 30,873 $ 64,416 $ 63,256 Cost of sales 28,939 27,587 57,870 56,240 -------- -------- -------- -------- Gross profit 2,471 3,286 6,546 7,016 Selling and administrative expenses 2,203 2,173 4,272 4,265 -------- -------- -------- -------- Income from operations 268 1,113 2,274 2,751 Gain on repurchase of debt 3,252 -- 3,252 -- Interest expense 2,182 1,760 4,329 3,540 -------- -------- -------- -------- Income (loss) before income taxes 1,338 (647) 1,197 (789) Income tax provision 56 27 71 54 -------- -------- -------- -------- Net income (loss) $ 1,282 $ (674) $ 1,126 $ (843) ======== ======== ======== ======== Per share data: Basic and diluted net income (loss) applicable to common stockholders $ 0.26 $ (0.14) $ 0.23 $ (0.17) ======== ======== ======== ========
See notes to consolidated financial statements. -1- LEXINGTON PRECISION CORPORATION CONSOLIDATED BALANCE SHEETS (THOUSANDS OF DOLLARS)
JUNE 30, DECEMBER 31, 2004 2003 ----------- ------------ (UNAUDITED) ASSETS: Current assets: Cash $ 39 $ 189 Accounts receivable, net 19,692 17,277 Inventories, net 10,168 8,527 Prepaid expenses and other current assets 1,989 2,481 Deferred income taxes 1,360 1,360 -------- -------- Total current assets 33,248 29,834 Property, plant, and equipment, net 41,719 42,632 Goodwill 7,623 7,623 Other assets, net 3,720 3,598 -------- -------- Total assets $ 86,310 $ 83,687 ======== ======== LIABILITIES AND STOCKHOLDERS' DEFICIT: Current liabilities: Accounts payable $ 11,781 $ 10,038 Accrued expenses 6,962 6,473 Deferred gain on repurchase of debt -- 3,252 Short-term debt 17,059 12,246 Current portion of long-term debt 5,679 5,585 -------- -------- Total current liabilities 41,481 37,594 -------- -------- Long-term debt, excluding current portion 61,293 63,681 -------- -------- Deferred income taxes and other long-term liabilities 1,889 1,904 -------- -------- Stockholders' deficit: Common stock, $0.25 par value, 10,000,000 shares authorized, 4,931,767 shares issued 1,233 1,233 Additional paid-in-capital 13,169 13,169 Accumulated deficit (32,755) (33,894) -------- -------- Total stockholders' deficit (18,353) (19,492) -------- -------- Total liabilities and stockholders' deficit $ 86,310 $ 83,687 ======== ========
See notes to consolidated financial statements -2- LEXINGTON PRECISION CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (THOUSANDS OF DOLLARS)
SIX MONTHS ENDED JUNE 30 -------------------------- 2004 2003 ---------- ------- (UNAUDITED) OPERATING ACTIVITIES: Net income (loss) $ 1,126 $ (843) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 4,294 5,106 Amortization included in operating expense 221 296 Amortization included in interest expense 528 273 Gain on repurchase of debt (3,252) -- Changes in operating assets and liabilities that provided (used) cash: Accounts receivable, net (2,415) (3,217) Inventories, net (1,641) (409) Prepaid expenses and other current assets 639 642 Accounts payable 1,743 (112) Accrued expenses, excluding interest expense (230) 805 Accrued interest expense 719 2,229 Other long-term liabilities (15) 92 Other 15 (5) ------- ------- Net cash provided by operating activities 1,732 4,857 ------- ------- INVESTING ACTIVITIES: Purchases of property, plant, and equipment (3,185) (2,734) Net decrease in equipment deposits (299) (35) Expenditures for tooling owned by customers (248) (113) Other (147) 202 ------- ------- Net cash used by investing activities (3,879) (2,680) ------- ------- FINANCING ACTIVITIES: Net increase in loans under revolving line of credit 4,813 2,677 Repayment of term notes and other debt (2,507) (4,529) Deferred financing charges (309) (434) ------- ------- Net cash provided (used) by financing activities 1,997 (2,286) ------- ------- Net decrease in cash (150) (109) Cash at beginning of period 189 1,753 ------- ------- Cash at end of period $ 39 $ 1,644 ======= =======
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, 2003. In the opinion of management, the unaudited interim consolidated financial statements contain all adjustments, consisting only of adjustments of a normal, recurring nature, necessary to present fairly the financial position of the Company at June 30, 2004, the Company's results of operations for the three-month and six-month periods ended June 30, 2004 and 2003, and the Company's cash flows for the six-month periods ended June 30, 2004 and 2003. To prepare the accompanying interim consolidated financial statements, the Company is required to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates. The results of operations for the three-month and six-month periods ended June, 2004, are not necessarily indicative of the results to be expected for the full year or for any succeeding quarter. NOTE 2 -- INVENTORIES Inventories at June 30, 2004, and December 31, 2003, are set forth below (dollar amounts in thousands):
JUNE 30, DECEMBER 31, 2004 2003 -------- ------------ Finished goods $ 3,746 $ 3,793 Work in process 3,441 2,018 Raw materials and purchased parts 2,981 2,716 ------- ------- $10,168 $ 8,527 ======= =======
NOTE 3 -- PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment at June 30, 2004, and December 31, 2003, are set forth below (dollar amounts in thousands):
JUNE 30, DECEMBER 31, 2004 2003 -------- ------------ Land $ 2,350 $ 2,350 Buildings 23,055 22,863 Equipment 117,285 116,557 -------- -------- 142,690 141,770 Accumulated depreciation 100,971 99,138 -------- -------- Property, plant, and equipment, net $ 41,719 $ 42,632 ======== ========
-4- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 4 -- DEBT Debt at June 30, 2004, and December 31, 2003, is set forth below (dollar amounts in thousands):
JUNE 30, DECEMBER 31, 2004 2003 -------- ------------ Short-term debt: Revolving line of credit $ 16,901 $ 12,088 12 3/4% Senior Subordinated Notes 158 158 -------- -------- Subtotal 17,059 12,246 Current portion of long-term debt 5,679 5,585 -------- -------- Total short-term debt 22,738 17,831 -------- -------- Long-term debt: Equipment Term Loan 12,000 13,500 Real Estate Term Loan 10,925 11,500 12% Senior Subordinated Notes 42,441 42,441 13% Junior Subordinated Notes 347 347 Unsecured, amortizing term notes 214 104 Capital lease obligations 301 573 Series B Preferred Stock 609 594 Other 135 207 -------- -------- Subtotal 66,972 69,266 Less current portion (5,679) (5,585) -------- -------- Total long-term debt 61,293 63,681 -------- -------- Total debt $ 84,031 $ 81,512 ======== ========
REVOLVING LINE OF CREDIT At June 30, 2004, the aggregate principal amount of loans outstanding under the revolving line of credit was $16,901,000 and net unused availability totaled $1,805,000. The revolving line of credit expires on June 30, 2006. Loans under the revolving line of credit bear interest at either the prime rate plus 1% or the London Interbank Offered Rate ("LIBOR") plus 3 1/4%, at the Company's option. The loans outstanding under the revolving line of credit are classified as short-term debt because the revolving line of credit provides that the Company's cash receipts are automatically used to reduce such loans on a daily basis, by means of a lock-box sweep arrangement, and the lender has the ability to modify certain terms of the revolving line of credit without the Company's approval. Loans under the revolving line of credit are limited to 88% of eligible accounts receivable plus 65% of eligible inventories. All loans under the revolving line of credit are secured by first priority liens on substantially all of the Company's assets other than real property. At June 30, 2004, net availability under the revolving line of credit was being reduced by two separate reserves established by the lender, which totaled $1,850,000. The elimination of $500,000 of these reserves is subject to the attainment of certain specified financial performance goals and the -5- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) elimination of the balance of the reserve is at the discretion of the lender. We cannot predict at this time whether any of the remaining reserves will be released. 12 3/4% SENIOR SUBORDINATED NOTES The 12 3/4% Senior Subordinated Notes matured on February 1, 2000, and are unsecured obligations of the Company that are subordinated to all of the Company's existing and future senior debt. In December 2003, 99.3% of the outstanding Senior Subordinated Notes were exchanged for units consisting of 12% Senior Subordinated Notes and warrants to purchase common stock. The $158,000 principal amount of 12 3/4% Senior Subordinated Notes that did not participate in the exchange remain outstanding. 12% SENIOR SUBORDINATED NOTES The 12% Senior Subordinated Notes mature on August 1, 2009, and are unsecured obligations of the Company that are subordinated in right of payment to all of the Company's existing and future senior debt. Interest on the 12% Senior Subordinated Notes is payable quarterly on February 1, May 1, August 1, and November 1. SERIES B PREFERRED STOCK At June 30, 2004, there were outstanding 3,300 shares of the Company's $8 Cumulative Convertible Preferred Stock, Series B (the "Series B Preferred Stock"), par value $100 per share, with a carrying value of $609,000. Redemptions of $90,000 are scheduled on November 30 of each year in order to retire 450 shares of Series B Preferred Stock annually. The Company failed to make scheduled redemptions in the aggregate amount of $360,000 on November 30, 2000, 2001, 2002, and 2003. On July 1, 2003, the Company adopted Statement of Financial Accounting Standards No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity" ("FAS 150"), which established standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer that have characteristics of both liabilities and equity. As a result of the adoption of FAS 150, the Company classifies the Series B Preferred Stock as debt in the consolidated financial statements. Subsequent to adoption, the accretions in the fair value of the Series B Preferred Stock and payments of quarterly dividends have been recorded by monthly charges to interest expense. RESTRICTIVE COVENANTS The agreements governing the revolving line of credit, the Equipment Term Loan, and the Real Estate Term Loan contain certain financial covenants that require the Company to maintain specified financial ratios as of the end of specified periods, including the maintenance of a minimum fixed charge coverage ratio, minimum levels of net worth and earnings before interest, taxes, depreciation, and amortization ("EBITDA"), and a maximum leverage ratio. The Company also has other covenants that place restrictions on its business and operations, including covenants relating to the sale of all or substantially all of its assets, the purchase of common stock, the redemption of preferred stock, compliance with specified laws and regulations, the purchase of property, plant, and equipment, and the payment of cash dividends. -6- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) From time to time, the Company's secured lenders have agreed to waive, amend, or eliminate certain of the financial covenants contained in the Company's various financing agreements in order to maintain or otherwise ensure the Company's current or future compliance. Effective March 31, 2004, the Company's two senior, secured lenders amended their fixed charge coverage ratio and their annual limitation on unfinanced capital expenditures in order for the Company to avoid projected defaults under these two covenants during 2004. Effective May 31, 2004, one of the Company's secured lenders amended its minimum net worth covenant and effective June 30, 2004, the Company's two secured lenders amended certain of their financial covenants, including their respective fixed charge coverage ratio, minimum EBITDA, and leverage ratios as applicable in order for us to maintain or otherwise ensure our current or future compliance. In the event that the Company is not in compliance with any of its covenants in the future and its lenders do not agree to amend, waive, or eliminate those covenants, the lenders would have the right to declare the borrowings under their financing agreements to be due and payable immediately. NOTE 5 -- INCOME TAXES At June 30, 2004, and December 31, 2003, the Company's net deferred income tax assets were fully reserved by a valuation allowance. The income tax provisions recorded during the three-month and six-month periods ended June 30, 2004 and 2003, consisted of estimated state income taxes payable. NOTE 6 -- NET INCOME (LOSS) PER COMMON SHARE The calculations of basic and diluted net loss per common share for the three-month and six-month periods ended June 30, 2004 and 2003, are set forth below (in thousands, except per share data). The pro forma conversion of the Series B Preferred Stock and the pro forma exercise of outstanding warrants to purchase the Company's common stock, which were issued on December 18, 2003 (the "Warrants"), were not dilutive. As a result, the calculation of diluted net loss per common share set forth below does not reflect the pro forma conversion of the Series B Preferred Stock or the pro forma exercise of the Warrants.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 -------------------------- ------------------------ 2004 2003 2004 2003 ---- ---- ---- ---- Numerator-- income (loss) applicable to common stockholders $ 1,282 $ (674) $ 1,126 $ (843) ========= ========= ========= ======= Denominator-- weighted average common shares 4,932 4,828 4,932 4,828 ========= ========= ========= ======= Basic and diluted net income (loss) per common share $ 0.26 $ (0.14) $ 0.23 $ (0.17) ========= ========= ========= =======
-7- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 7 -- SEGMENTS Information relating to the Company's operating segments and its Corporate Office for the three-month and six-month periods ended June 30, 2004 and 2003, is summarized below (dollar amounts in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ------------------------ ------------------------- 2004 2003 2004 2003 ---- ---- ---- ---- NET SALES: Rubber Group $ 27,044 $ 26,645 $ 54,847 $ 53,367 Metals Group 4,366 4,228 9,569 9,889 -------- -------- -------- -------- Total net sales $ 31,410 $ 30,873 $ 64,416 $ 63,256 ======== ======== ======== ======== INCOME (LOSS) FROM OPERATIONS: Rubber Group $ 2,607 $ 3,020 $ 6,149 $ 5,839 Metals Group (1,589) (1,259) (2,549) (1,842) -------- -------- -------- -------- Subtotal 1,018 1,761 3,600 3,997 Corporate Office (750) (648) (1,326) (1,246) -------- -------- -------- -------- Total income from operations $ 268 $ 1,113 $ 2,274 $ 2,751 ======== ======== ======== ======== ASSETS: Rubber Group $ 64,876 $ 64,819 $ 64,876 $ 64,819 Metals Group 17,096 21,666 17,096 21,666 -------- -------- -------- -------- Subtotal 81,972 86,485 81,972 86,485 Corporate Office 4,338 6,099 4,338 6,099 -------- -------- -------- -------- Total assets $ 86,310 $ 92,584 $ 86,310 $ 92,584 ======== ======== ======== ======== DEPRECIATION AND AMORTIZATION (1): Rubber Group $ 1,684 $ 1,805 $ 3,424 $ 3,680 Metals Group 520 816 1,071 1,703 -------- -------- -------- -------- Subtotal 2,204 2,621 4,495 5,383 Corporate Office 10 10 20 19 -------- -------- -------- -------- Total depreciation and amortization $ 2,214 $ 2,631 $ 4,515 $ 5,402 ======== ======== ======== ======== CAPITAL EXPENDITURES (2): Rubber Group $ 1,572 $ 1,392 $ 2,482 $ 2,219 Metals Group 418 443 901 619 -------- -------- -------- -------- Subtotal 1,990 1,835 3,383 2,838 Corporate Office -- -- -- 2 -------- -------- -------- -------- Total capital expenditures $ 1,990 $ 1,835 $ 3,383 $ 2,840 ======== ======== ======== ========
(1) Does not include amortization of deferred financing expenses, which totaled $276,000 and $130,000 during the three-month periods ended June 30, 2004 and 2003, respectively, and $528,000 and $273,000 during the six-month periods ended June 30, 2004 and 2003, respectively, which is included in interest expense. (2) Capital expenditures for the six-month period ended June 30, 2004, included $198,000 of equipment purchased under a vendor financing agreement. Capital expenditures for the six-month period ended June 30, 2003, included $106,000 of equipment purchased under a capital lease obligation. -8- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 8 -- DEFERRED GAIN ON REPURCHASE OF DEBT On December 18, 2003, the Company repurchased its $7,500,000 senior, unsecured note, and all accrued and unpaid interest thereon, for a purchase price of $5,810,000. The pre-tax gain of $3,252,000 on the repurchase of the senior, unsecured note was deferred and recorded in current liabilities as "Deferred gain on repurchase of debt" because the agreement governing the repurchase of the note provided that the claim could be reinstated if certain events occurred prior to April 20, 2004. Because none of these events occurred prior to April 20, 2004, the Company realized the pre-tax gain of $3,252,000 during the three-month period ended June 30, 2004. -9- 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." 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: o increases and decreases in business awarded to us by our customers, o unanticipated price reductions for our products as a result of competition, o unanticipated operating results, o changes in the cost of raw materials, o increases or decreases in capital expenditures, o changes in economic conditions, o strength or weakness in the North American automotive market, o changes in the competitive environment, o changes in interest rates and the credit and securities markets, and o labor interruptions at our facilities or at our customers' facilities. 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. -10- RESULTS OF OPERATIONS-- SECOND QUARTER OF 2004 VERSUS SECOND QUARTER OF 2003 The following table sets forth our consolidated operating results for the three-month periods ended June 30, 2004 and 2003, and the reconciliation of income from operations to earnings before interest, taxes, depreciation, amortization, and other non-operating items of income or expense which is commonly referred to as EBITDA (dollar amounts in thousands):
THREE MONTHS ENDED JUNE 30 --------------------------------------------------- 2004 2003 ---------------------- ---------------------- Net sales $31,410 100.0% $30,873 100.0% Cost of sales 28,939 92.1 27,587 89.4 ------- ----- ------- ----- Gross profit 2,471 7.9 3,286 10.6 Selling and administrative expenses 2,203 7.0 2,173 7.0 ------- ----- ------- ----- Income from operations 268 0.9 1,113 3.6 Add back: depreciation and amortization (1) 2,214 7.0 2,631 8.5 ------- ----- ------- ----- EBITDA (2) $ 2,482 7.9 $ 3,744 12.1% ======= ===== ======= ===== Net cash provided by operating activities (3) $ 1,657 5.3% $ 4,467 14.5% ======= ===== ======= =====
(1) Does not include amortization of deferred financing expenses, which totaled $276,000 and $130,000 during the three-month periods ended June 30, 2004 and 2003, respectively, and which is included in interest expense in the consolidated financial statements. (2) 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 accounting principles generally accepted in the United States. 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, and because it is used by our lenders in setting financial covenants. Our definition of EBITDA may not be the same as the definition of EBITDA used by other companies. (3) The calculation of net cash provided by operating activities for the six months ended June 30, 2004 and 2003, is detailed in the consolidated statements of cash flows that are part of our consolidated financial statements in Part I, Item 1. Our net sales for the second quarter of 2004 were $31,410,000, compared to net sales of $30,873,000 for the second quarter of 2003, an increase of $537,000, or 1.7%. The increase in net sales was principally a result of increased net sales of rubber components. EBITDA for the second quarter of 2004 was $2,482,000, or 7.9% of net sales, compared to EBITDA of $3,744,000, or 12.1% of net sales, for the second quarter of 2003. The change in EBITDA was primarily a result of a $534,000, or 11%, -11- reduction in EBITDA at our Rubber Group and a $626,000, or 141%, reduction in EBITDA at our Metals Group. Net cash provided by operating activities during the second quarter of 2004 totaled $1,657,000, compared to $4,467,000 for the second quarter of 2003. 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, 2004 and 2003. 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 as a whole. Delphi Corporation is the Rubber Group's largest customer. During 2003, 2002, and 2001, the Rubber Group's net sales to Delphi totaled $24,150,000, $24,837,000, and $23,660,000, respectively, which represented 23.4%, 25.1%, and 25.8%, respectively, of the Rubber Group's net sales. Net sales to Delphi of connector seals for automotive wire harnesses totaled $20,227,000, $21,147,000, and $22,295,000, during 2003, 2002, and 2001, respectively. Substantially all of the connector seals we sell to Delphi are sold pursuant to a supply agreement that expires on December 31, 2004. We cannot predict whether we and Delphi will enter into a new agreement for us to supply connector seals to Delphi when the current agreement expires on December 31, 2004, or, if we do enter into a new agreement, what the volume, pricing, duration, and other terms of that agreement will be. Delphi has indicated to us that they currently plan to in-source, during 2005, approximately 30 connector seals currently manufactured by us under the supply agreement. Our aggregate net sales of these parts during 2003 were $9,319,000. Assuming those connector seals were in-sourced by Delphi on the earliest possible date, January 1, 2005, and we were unable to replace the lost business with new business from Delphi or other customers, we estimate that the operating profit and EBITDA of the Rubber Group would be reduced by approximately $2,500,000 per annum. We are currently in discussions with Delphi regarding our ongoing supply relationship, and we are developing plans to restructure the operations of our connector seals division to reduce expenses and mitigate the impact of any lost business. Any such restructuring of our connector seals business could include, among other things, the closing of one of our existing manufacturing facilities, which could result in significant cash and non-cash expenses. Although we can give you no assurance, it is also possible that, if we do continue to sell components to Delphi, the average price for those components may increase, thereby partially offsetting the negative impact of lower volume. -12- The following table sets forth the operating results of the Rubber Group for the three-month periods ended June 30, 2004 and 2003, and the reconciliation of the Rubber Group's income from operations to its EBITDA (dollar amounts in thousands):
THREE MONTHS ENDED JUNE 30 --------------------------------------------------- 2004 2003 ---------------------- ---------------------- Net sales $27,044 100.0% $26,645 100.0% Cost of sales 23,342 86.3 22,472 84.3 ------- ----- ------- ----- Gross profit 3,702 13.7 4,173 15.7 Selling and administrative expenses 1,095 4.0 1,153 4.3 ------- ----- ------- ----- Income from operations 2,607 9.6 3,020 11.3 Add back depreciation and amortization 1,684 6.2 1,805 6.8 ------- ----- ------- ----- EBITDA $ 4,291 15.9% $ 4,825 18.1% ======= ===== ======= =====
During the second quarter of 2004, net sales of the Rubber Group increased by $399,000, or 1.5%, compared to the second quarter of 2003. The increase in net sales was primarily due to increased unit sales of connector seals for automotive wiring systems because of increased sales to existing customers, offset, in part, by reduced unit sales of insulators for automotive ignition wire sets resulting primarily from reduced net sales to one customer, and, to a lesser extent, reduced sales of components for medical devices. This increase was offset, in part, by price reductions on certain automotive components. Cost of sales as a percentage of net sales increased during the second quarter of 2004 to 86.3% of net sales from 84.3% of net sales during the second quarter of 2003, primarily because of less than acceptable operating results at our connector seals division, which have affected the Rubber Group's performance for the past year. The factors that affected the connector seals division's operating results included: o costs for scrap, sorting, and repair, relating to a particular type of connector seal; o freight costs, which resulted from delivery issues related to those quality problems; o costs related to the rollout of new business at our operations that mold seals from liquid silicone rubber; o losses resulting from the production problems encountered in the manufacture of automotive door grommets utilizing non-silicone materials; and o costs incurred due to the general disruption to our operations as we attempted to cope with the problems listed above. During the second half of 2003, we initiated a plan to reduce or eliminate these operating issues, which included: o upgrading management and supervisory personnel; -13- o installing and utilizing improved process controllers and centralized data collection capabilities on all molding presses; o implementing improved manufacturing procedures throughout the operation; o installing automated visual inspection and repair equipment; and o improving utilization of the division's enterprise resource planning software system. During the second quarter of 2004, the plan was expanded to include: o upgrading certain materials; o modifying or replacing certain tooling; and o initiating price increases on selected products. Although the operating performance of the connector seals division during the second quarter of 2004 was essentially unchanged when compared to the second quarter of 2003, we believe that the operations improvement plan has begun to benefit our results of operations and will continue to yield improved results during the remainder 2004 as key components of the plan take effect. Selling and administrative expenses as a percentage of net sales decreased during the second quarter of 2004, compared to the second quarter of 2003, primarily because of reduced salary expense and because certain of our selling and administrative expenses are fixed, or partially fixed, in nature. During the second quarter of 2004, income from operations totaled $2,607,000, a decrease of $413,000, or 13.7%, compared to the second quarter of 2003. EBITDA for the second quarter of 2004 was $4,291,000, or 15.9% of net sales, compared to $4,825,000, or 18.1% of net sales, during the second quarter of 2003. 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 as a whole. The Metals Group has incurred significant operating losses and negative EBITDA over the past twelve months. We are currently assessing the economic viability of the business units comprising the Metals Group. If we determine that either of those business units is not economically viable, we may be required to take action to restructure or close the business unit, which action may result in a charge to operations. -14- The following table sets forth the operating results of the Metals Group for the three-month periods ended June 30, 2004 and 2003, and the reconciliation of the Metals Group's income from operations to its EBITDA (dollar amounts in thousands):
THREE MONTHS ENDED JUNE 30 ------------------------------------------------------ 2004 2003 ------------------------ ------------------------- Net sales $ 4,366 100.0% $ 4,228 100.0% Cost of sales 5,597 128.2 5,115 121.0 ------- ----- ------- ----- Gross profit (loss) (1,231) (28.2) (887) (21.0) Selling and administrative expenses 358 8.2 372 8.8 ------- ----- ------- ----- Loss from operations (1,589) (36.4) (1,259) (29.8) Add back depreciation and amortization 520 11.9 816 19.3 ------- ----- ------- ----- EBITDA $(1,069) (24.5)% $ (443) (10.5)% ======= ===== ======= =====
During the second quarter of 2004, net sales of the Metals Group increased by $138,000, or 3.3%, compared to the second quarter of 2003. Cost of sales as a percentage of net sales increased to 128.2% of net sales during the second quarter of 2004 from 121.0% of net sales during the second quarter of 2003, primarily because of higher than anticipated start-up costs on recently awarded machined metal components, quality problems encountered on a particular die cast component, and the adverse effect of relatively high fixed, or partially fixed, operating expenses in a period of low sales volume. During the second quarter of 2004, the Metals Group's cost of sales was reduced, in part, by lower depreciation and amortization expenses. During the second quarter of 2004, the loss from operations at the Metals Group included a loss from operations of $100,000 incurred at the Group's idle facility in Casa Grande, Arizona, in order to maintain, insure, protect, and depreciate the facility. Selling and administrative expenses decreased during the second quarter of 2004 compared to the second quarter of 2003, primarily because of a reduction in salaried payroll expense and related employee benefit costs. During the second quarter of 2004, the loss from operations was $1,589,000 compared to a loss from operations of $1,259,000 during the second quarter of 2003. EBITDA for the second quarter of 2004 was a negative $1,069,000, or a negative 24.6% of net sales, a decrease of $626,000, compared to the second quarter of 2003. 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. -15- The following table sets forth the operating results of the Corporate Office for the three-month periods ended June 30, 2004 and 2003, and the reconciliation of the loss from operations to EBITDA (dollar amounts in thousands):
THREE MONTHS ENDED JUNE 30 ---------------------- 2004 2003 ------- -------- Loss from operations $ (750) (648) Add back depreciation and amortization 10 10 ------- -------- EBITDA $ (740) $ (638) ======= ========
INTEREST EXPENSE During the second quarters of 2004 and 2003, interest expense totaled $2,182,000 and $1,760,000, respectively, which included amortization of deferred financing expenses of $276,000 and $130,000, respectively. Interest expense increased primarily because the amount of outstanding debt on which we accrued and paid interest increased to $84,031,000 at June 30, 2004, from $70,503,000 at June 30, 2003, due to the exchange of 12% Senior Subordinated Notes for 12 3/4% Senior Subordinated Notes, which converted $15,029,000 of accrued interest to 12% Senior Subordinated Notes. INCOME TAX PROVISION At June 30, 2004, and December 31, 2003, our net deferred income tax assets were fully reserved by a valuation allowance. The income tax provisions recorded during the three-month periods ended June 30, 2004 and 2003, consisted of estimated state income taxes. -16- RESULTS OF OPERATIONS-- FIRST SIX MONTHS OF 2004 VERSUS FIRST SIX MONTHS OF 2003 The following table sets forth our consolidated operating results for the six-month periods ended June 30, 2004 and 2003, 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 -------------------------------------------------- 2004 2003 ----------------------- ---------------------- Net sales $64,416 100.0% $63,256 100.0% Cost of sales 57,870 89.8 56,240 88.9 ------- ----- ------- ----- Gross profit 6,546 10.2 7,016 11.1 Selling and administrative expenses 4,272 6.6 4,265 6.7 ------- ----- ------- ----- Income from operations 2,274 3.5 2,751 4.4 Add back depreciation and amortization (1) 4,515 7.0 5,402 8.5 ------- ----- ------- ----- EBITDA (2) $ 6,789 10.5% $ 8,153 12.9% ======= ===== ======= ===== Net cash provided by operating activities (3) $ 1,732 2.7% $ 4,857 7.7% ======= ===== ======= =====
(1) Does not include amortization of deferred financing expenses, which totaled $528,000 and $273,000 during the first six months of 2004 and 2003, respectively, and which is included in interest expense in the consolidated financial statements. (2) 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 accounting principles generally accepted in the United States. 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, and because it is used by our lenders in setting financial covenants. Our definition of EBITDA may not be the same as the definition of EBITDA used by other companies. (3) The calculation of net cash provided by operating activities is detailed in the consolidated statements of cash flows that are part of our consolidated financial statements in Part I, Item 1. Our net sales for the first six months of 2004 were $64,416,000, compared to net sales of $63,256,000 for the first six months of 2003, an increase of $1,160,000, or 1.8%. EBITDA for the first six months of 2003 was $6,789,000, or 10.5% of net sales, compared to $8,153,000, or 12.9% of net sales, for the first six months of 2003. The change in EBITDA was primarily a result of a $1,339,000 reduction in EBITDA at our Metals Group. -17- 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, 2004 and 2003. 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 as a whole. The following table sets forth the operating results of the Rubber Group for the six-month periods ended June 30, 2004 and 2003, and the reconciliation of the Rubber Group's income from operations to its EBITDA (dollar amounts in thousands):
SIX MONTHS ENDED JUNE 30 ----------------------------------------------------- 2004 2003 ------------------------ ----------------------- Net sales $54,847 100.0% $53,367 100.0% Cost of sales 46,459 84.7 45,241 84.8 ------- ----- ------- ----- Gross profit 8,388 15.3 8,126 15.2 Selling and administrative expenses 2,239 4.1 2,287 4.3 ------- ----- ------- ----- Income from operations 6,149 11.2 5,839 10.9 Add back depreciation and amortization 3,424 6.2 3,680 6.9 ------- ----- ------- ----- EBITDA $ 9,573 17.5% $ 9,519 17.8% ======= ===== ======= =====
During the first six months of 2004, net sales of the Rubber Group increased by $1,480,000, or 2.8%, compared to the second quarter of 2003. The increase in net sales was primarily due to increased unit sales of connector seals for automotive wire systems because of increased sales to existing customers, offset, in part, by reduced unit sales of insulators for automotive ignition wire sets resulting primarily from reduced net sales to one customer. This increase was also offset, in part, by price reductions on certain automotive components. Cost of sales as a percentage of net sales decreased during the first six months of 2004 to 84.7% of net sales from 84.8% of net sales during the first six months of 2003. Operating results for the first six months of 2004 were adversely affected by less than acceptable operating results at our connector seals division. The factors that affected the connector seals division's operating results for the first six months of 2004 included: o increased costs for scrap, sorting, and repair, relating to a particular type of connector seal; o increased freight costs, which resulted from delivery issues related to those quality problems; o costs related to the rollout of new business at our operations that mold seals from liquid silicone rubber; -18- o losses resulting from the production problems encountered in the manufacture of automotive door grommets utilizing non-silicone materials; and o costs incurred due to the general disruption to our operations as we attempted to cope with the problems listed above. During the first six months of 2003, we initiated a plan to reduce or eliminate these operating issues, which included: o upgrading management and supervisory personnel; o installing and utilizing improved process controllers and centralized data collection capabilities on all molding presses; o implementing improved manufacturing procedures throughout the operation; o installing automated visual inspection and repair equipment; o improving utilization of the division's enterprise resource planning software system. During the second quarter of 2004, the plan was expanded to include: o upgrading certain materials; o modifying or replacing certain tooling; and o initiating price increases on selected products. Although the income from operations of the connector seals division during the first six months of 2004 was slightly less than the division's income from operations during the first six months of 2003, we believe that the operations improvement plan has begun to benefit our results of operations and will yield improved results during the remainder of 2004 as key components of the plan take effect. Selling and administrative expenses as a percentage of net sales decreased during the first six months of 2004, compared to the first six months of 2003, primarily because of reduced salary expense and because certain of our selling and administrative expenses are fixed, or partially fixed, in nature. During the first six months of 2004, income from operations totaled $6,149,000, an increase of $310,000, or 5.3%, compared to the first six months of 2003. EBITDA for the first six months of 2004 was $9,573,000, or 17.5% of net sales, compared to $9,519,000, or 17.8% of net sales, for the first six months of 2003. 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 as a whole. -19- The following table sets forth the operating results of the Metals Group for the six-month periods ended June 30, 2004 and 2003, and the reconciliation of the Metals Group's income from operations to its EBITDA (dollar amounts in thousands):
SIX MONTHS ENDED JUNE 30 --------------------------------------------------------- 2004 2003 ------------------------- ------------------------- Net sales $ 9,569 100.0% $ 9,889 100.0% Cost of sales 11,411 119.2 10,999 111.2 -------- ----- -------- ----- Gross profit (loss) (1,842) (19.2) (1,110) (11.2) Selling and administrative expenses 707 7.4 732 7.4 -------- ----- -------- ----- Loss from operations (2,549) (26.6) (1,842) (18.6) Add back depreciation and amortization 1,071 11.2 1,703 17.2 -------- ----- -------- ----- EBITDA $ (1,478) (15.4)% $ (139) (1.4)% ======== ===== ======== =====
During the first six months of 2004, net sales of the Metals Group decreased by $320,000, or 3.2%, compared to the first six months of 2003. The decrease resulted primarily from reduced sales of machined metal components, primarily due to the loss of a high-volume machined metal component because the customer converted the part to a stamped metal component, the loss of a certain customer, and the in-sourcing of certain components by one of our customers. Cost of sales, as a percentage of net sales increased to 119.2% of net sales during the first six months of 2004 from 111.2% of net sales during the first six months of 2003, primarily because of higher than anticipated start up costs on recently awarded machined metal components, quality problems encountered on a particular die cast component, and the adverse effect of relatively high fixed, or partially fixed, operating expenses in a period of low sales volume. During the first six months 2004, the Metals Group's cost of sales was reduced, in part, by lower depreciation and amortization expenses. During the first six months of 2004, the loss from operations at the Metals Group included a loss from operations of $267,000 incurred at the Group's idle facility in Casa Grande, Arizona, primarily to maintain, insure, protect, and depreciate the facility. During the first six months of 2004, the loss from operations was $2,549,000 compared to a loss from operations of $1,842,000 during the first six months of 2003. EBITDA for the first six months of 2004 was a negative $1,478,000, or a negative 15.4% of net sales, a decrease of $1,339,000, compared to the first six months of 2003. 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. -20- The following table sets forth the operating results of the Corporate Office for the six-month periods ended June 30, 2004 and 2003, and the reconciliation of the loss from operations to EBITDA (dollar amounts in thousands):
SIX MONTHS ENDED JUNE 30 ----------------------- 2004 2003 ------- ------- Loss from operations $(1,326) $(1,246) Add back depreciation and amortization 20 19 ------- ------- EBITDA $(1,306) $(1,227) ======= =======
INTEREST EXPENSE During the first six months of 2004 and 2003, interest expense totaled $4,329,000 and $3,540,000, respectively, which included amortization of deferred financing expenses of $528,000 and $273,000, respectively. Interest expense increased primarily because the amount of outstanding debt on which we accrued and paid interest increased to $84,031,000 at June 30, 2004, from $70,503,000 at June 30, 2003, due to the exchange of 12% Senior Subordinated Notes for 12 3/4% Senior Subordinated Notes, which converted $15,029,000 of accrued interest to 12% Senior Subordinated Notes. INCOME TAX PROVISION At June 30, 2004, and December 31, 2003, our net deferred income tax assets were fully reserved by a valuation allowance. The income tax provision recorded during the six-month periods ended June 30, 2004 and 2003, consisted of estimated state income taxes. LIQUIDITY AND CAPITAL RESOURCES OPERATING ACTIVITIES During the first six months of 2004, our operating activities provided $1,732,000 of cash. Accounts receivable and inventories increased by $2,415,000 and $1,641,000, respectively, primarily due to increased levels of business activity in May and June of 2004 versus November and December of 2003. Accounts payable increased by $1,743,000, primarily due to increased levels of business activity and to a lesser extent, a modest increase in amounts outstanding beyond normal industry terms. At June 30, 2004, and December 31, 2003, accounts payable included outstanding checks of $872,000 and $1,488,000, respectively. Prepaid expenses and other current assets decreased by $639,000, primarily because of a reduction in the amount of unbilled tooling being manufactured or purchased by us for sale to our customers. INVESTING ACTIVITIES During the first six months of 2004, our investing activities used $3,879,000 of cash, primarily for capital expenditures. Capital expenditures attributable to the Rubber Group and the Metals Group totaled $2,482,000 and $901,000, respectively, primarily for the purchase of equipment. Capital expenditures for the Rubber Group during the first six months of 2004 include $198,000 of equipment financed by the vendor of the equipment. Capital expenditures for the Rubber Group, the Metals Group, -21- and the Corporate Office are currently projected to total $5,318,000, $1,057,000, and $1,000, respectively, during 2004. At June 30, 2004, we had outstanding commitments to purchase plant and equipment of approximately $1,129,000. FINANCING ACTIVITIES During the first six months of 2004, our financing activities provided $1,997,000 of cash. During the first six months of 2004, we made scheduled monthly payments on our Equipment Term Loan and our Real Estate Term Loan of $2,075,000. Net borrowings under our revolving line of credit increased by $4,813,000 during the second quarter of 2004, primarily to fund capital expenditures and increases in accounts receivable and inventories. LIQUIDITY We operate with substantial financial leverage and limited liquidity. Our aggregate indebtedness as of June 30, 2004, totaled $84,031,000. During the remaining six months of 2004, interest and scheduled principal payments are projected to be approximately $3,700,000 and $2,700,000, respectively. We finance our operations with cash from operating activities and a variety of financing arrangements, including the Equipment Term Loan, the Real Estate Term Loan, and loans under our revolving line of credit. The Equipment Term Loan bears interest at the prime rate plus 1 1/2% or LIBOR plus 3 3/4%, at our option. The Real Estate Term Loan bears interest at the prime rate plus 4%, subject to a minimum rate of 8 1/4% and requires us to pay a fee of 1.875% of the outstanding principal amount of the loans on each anniversary of the closing date. Loans under the revolving line of credit bear interest at the prime rate plus 1% or the London Interbank Offered Rate ("LIBOR") plus 3 1/4%, at our option. The revolving loans are limited to 88% of eligible accounts receivable plus 65% of eligible inventories. Our revolving line of credit is currently scheduled to expire on June 30, 2006. The revolving line of credit and the Equipment Term Loan are secured by first priority liens on substantially all of our assets other than real property. The Real Estate Term Loan is secured by first priority liens on all of our real property and second priority liens on substantially all of our other assets. At June 30, 2004, net availability under the revolving line of credit was being reduced by two separate reserves established by the lender, which totaled $1,850,000. The elimination of $500,000 of these reserves is subject to the attainment of certain specified financial performance goals and the elimination of the balance of the reserve is at the discretion of the lender. We cannot predict at this time whether any of the remaining reserves will be released. At June 30, 2004, net availability under our revolving line of credit totaled $1,805,000. At August 13, 2004, net availability under our revolving line of credit totaled $1,009,000. At June 30, 2004, and December 31, 2003, the aggregate principal amount of loans outstanding under the revolving line of credit was $16,901,000 and $12,088,000, respectively. These loans are classified as short-term debt because the revolving line of credit requires that our cash receipts are automatically used to reduce such loans on a daily basis, by means of a lock-box sweep arrangement, and the lender has the ability to modify certain terms of the revolving line of credit without our approval. The agreements governing the revolving line of credit, the Equipment Term Loan, and the Real Estate Term Loan contain certain financial covenants that require us to maintain specified financial ratios as of the end of specified periods, including the maintenance of a minimum fixed charge coverage ratio, -22- minimum levels of net worth, and earnings before interest, taxes, depreciation, and amortization ("EBITDA"), and a maximum leverage ratio. We also have covenants that limit our unfinanced capital expenditures to $6,250,000 per annum and limit the amount of additional secured financing we can incur for the purchase of plant and equipment to $2,500,000 per annum. Although we do not believe this provision will limit our planned capital expenditures during 2004, we may be required to obtain new borrowings in order to complete our planned capital expenditures. We currently believe, although we can give you no assurance, that the necessary new borrowings would be available to us under financing arrangements that we may negotiate. We also have other covenants that place restrictions on our business and operations, including covenants relating to the sale of all or substantially all of our assets, the purchase of common stock, the redemption of preferred stock, compliance with specified laws and regulations, and the payment of cash dividends. From time to time, our secured 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. Effective March 31, 2004, our two senior, secured lenders amended the fixed charge coverage ratio and the annual limitation on unfinanced capital expenditures in order for us to avoid projected defaults under these two covenants during 2004. Effective May 31, 2004, one on our secured lenders amended their minimum net worth covenant and effective June 30, 2004, our two secured lenders amended certain of their financial covenants, including, their respective fixed charge coverage ratio, minimum EBITDA, and leverage ratios as applicable in order for us to maintain or otherwise ensure our current or future compliance. In connection with the June 30, 2004, amendments, the rate on our Equipment Term Loan was increased by 1/4 of 1% until we reach a specified fixed charge coverage ratio, and the rate on our Real Estate Term Loan was increased by 1% until we reach a specified fixed charge coverage ratio and a specified minimum excess borrowing availability. As amended effective March 31, May 31, and June 30, 2004, the financial covenants contained within the agreements governing the revolving line of credit, the Equipment Term Loan, and the Real Estate Term Loan are as follows: - Fixed Charge Coverage. The fixed charge coverage ratio is calculated by dividing EBITDA less capital expenditures by specified fixed charges and is required to be not less than 0.45 for the nine-month period ended September 30, 2004, 0.55 for the twelve-month period ended December 31, 2004, 0.65 and 0.85 for the twelve-month periods ended March 31, 2005, and June 30, 2005, respectively, 1.0 for the twelve-month period ended September 30, 2005, 1.0 and 1.05 for the twelve month period ended December 31, 2005, and 1.10 to 1.20 for the twelve-month period ending on the last day of each calendar quarter thereafter; - Net Worth. Stockholders' equity adjusted to exclude certain non-cash write-offs must not be less than negative $17,200,000 for July 31, 2004, negative $17,500,000 from August 31, 2004 through March 31, 2005, negative $17,300,000 from April 30, 2005, through May 31, 2005, negative $17,000,000 from June 30, 2005 through August 31, 2005, negative $16,500,000 from September 30, 2005, through November 30, 2005, negative $16,000,000 at December 31, 2005, and negative $15,000,000 at all times thereafter; - EBITDA. Must be not less than $12,500,000 for the twelve-month period ended September 30, 2004, $13,000,000 for the twelve-month period ended December 31, 2004; $14,000,000 for the twelve-month period ended March 31, 2005, $15,000,000 for the twelve-month period ended June 30, 2005, and $16,000,000 for the twelve-month period ended September 30, 2005, and for each twelve-month period ending on the last day of the month thereafter. In addition, EBITDA cannot be less than $6,600,000 for the seven-month period ended July 31, 2004, cumulating each -23- month until the end of 2004, at which time EBITDA for the trailing twelve-month period must not be less than $13,500,000; and - Financial Leverage. The ratio of secured debt plus letters of credit to EBITDA must not exceed 3.50 for each twelve-month period ending on the last day of the month from July 31, 2004 through September 30, 2004, 3.25 for each twelve-month period ending on the last day of the month from October 31, 2004 through December 31, 2004, 2.75 for each twelve-month period ending on the last day of the month from January 31, 2005 through May 31, 2005, and 2.50 for the twelve-month period ended June 30, 2005, and for each twelve-month period ending on the last day of the month thereafter. 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 immediately. On December 18, 2003, we repurchased our $7,500,000 senior, unsecured note, and all accrued and unpaid interest thereon, for a purchase price of $5,810,000. The pre-tax gain of $3,252,000 on the repurchase was deferred and recorded in current liabilities as "Deferred gain on repurchase of debt" because the agreement governing the repurchase of the note provided that the claim could be reinstated if certain events occurred prior to April 20, 2004. Because none of these events occurred prior to April 20, 2004, during the second quarter of 2004 we realized a pre-tax gain of $3,252,000. We had a net working capital deficit of $7,992,000 at June 30, 2004, compared to a net working capital deficit of $7,760,000 at December 31, 2003. The net working capital deficit exists primarily because we are required, under accounting principles generally accepted in the United States, to classify the loans outstanding under the revolving line of credit, which totaled $16,901,000 and $12,088,000, at June 30, 2004, and December 31, 2003, respectively, as current liabilities. Based on our most recent financial projections, we estimate that, in addition to cash flow from operations and borrowings under our revolving line of credit, we will not require any significant new borrowings during 2004 to meet our working capital and debt service requirements and to fund projected capital expenditures. If cash flow from operations or availability under existing and new financing arrangements fall below expectations, we may be forced to delay certain capital expenditures, reduce certain operating expenses, extend certain trade accounts payable beyond terms that we believe are customary in the industries in which we operate, or consider other alternatives designed to improve our liquidity. Some of these actions could have a material adverse effect upon our business. 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 insignificant. At June 30, 2004, we had $39,826,000 of outstanding floating rate debt at interest rates equal to either LIBOR plus 3 1/4%, LIBOR plus 3 3/4%, the prime rate plus 1%, the prime rate plus 1 1/2%, the prime rate plus 4%, or the prime rate. 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. -24- At June 30, 2004, we had outstanding $44,205,000 of fixed-rate, long-term debt with a weighted-average interest rate of 11.9%, of which $158,000 had matured. We currently estimate that our monthly cash interest expense during the remaining six months of 2004 will be approximately $623,000 and that a one percentage point increase or decrease in short-term interest rates would increase or decrease our monthly interest expense by approximately $31,000. For further information about our indebtedness, we recommend that you also read Note 4 to our consolidated financial statements in Part I, Item 1 of this Form 10-Q. ITEM 4. CONTROLS AND PROCEDURES Our Chairman of the Board, President, and Chief Financial Officer, with the participation of the management of our operating divisions, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2004. Based on that evaluation, our Principal Executive Officers and our Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms. We also reviewed our internal controls, and determined that there have been no changes in our internal controls or in other factors identified in connection with this evaluation that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting. -25- PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Stockholders of the Company was held on May 18, 2004. 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 4,666,711 Votes withheld from Mr. Conner 16,897 Mr. Delano: Votes for Mr. Delano 4,664,986 Votes withheld from Mr. Delano 18,622 Mr. Greenstein: Votes for Mr. Greenstein 4,667,315 Votes withheld from Mr. Greenstein 16,293 Mr. Lubin: Votes for Mr. Lubin 4,665,304 Votes withheld from Mr. Lubin 18,304 Mr. Pardo: Votes for Mr. Pardo 4,666,829 Votes withheld from Mr. Pardo 16,779 Ms. Ruml: Votes for Ms. Ruml 4,668,333 Votes withheld from Ms. Ruml 15,275 (2) The ratification of Ernst & Young LLP as independent auditors of the Company for the year ending December 31, 2004. Votes for Ernst & Young LLP 4,671,059 Votes against Ernst & Young LLP 3,077 Abstentions 9,472 There were no broker non-votes in respect of the foregoing matters. -26- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS The following exhibits are filed herewith: 10-1 Amendment Agreement dated as of August 16, 2004, between Lexington Precision Corporation (LPC) and Congress Financial Corporation 10-2 Amendment Agreement dated as of August 13, 2004, between LPC and Ableco Finance LLC 31-1 Rule 13(a) - 14(a) / 15(d) - 14(a) Certification of Michael A. Lubin, Chairman of the Board and Co-Principal Officer of the registrant. 31-2 Rule 13(a) - 14(a) / 15(d) - 14(a) Certification of Warren Delano, President and Co-Principal Officer of the registrant. 31-3 Rule 13(a) - 14(a) / 15(d) - 14(a) Certification of Dennis J. Welhouse, Chief Financial Officer and Principal Financial Officer of the registrant. 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 16, 2004, we filed a report on Form 8-K that included a press release dated April 14, 2004, announcing financial results for the quarter and year ended December 31, 2003. On May 18, 2004, we filed a report on Form 8-K that included a press release dated May 17, 2004, announcing financial results for the quarter ended March 31, 2004. -27- LEXINGTON PRECISION CORPORATION FORM 10-Q JUNE 30, 2004 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 17, 2004 By: /s/ Michael A. Lubin - --------------- ----------------------------------- Date Michael A. Lubin Chairman of the Board August 17, 2004 By: /s/ Warren Delano - --------------- -------------------------- Date Warren Delano President August 17, 2004 By: /s/ Dennis J. Welhouse - --------------- -------------------------- Date Dennis J. Welhouse Senior Vice President and Chief Financial Officer -28- EX-10.1 2 l08652aexv10w1.txt EXHIBIT 10.1 Exhibit 10-1 AMENDMENT NO. 2 TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT --------------------------- AMENDMENT NO. 2 TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT, dated as of August 16, 2004, by and among Lexington Precision Corporation, a Delaware corporation ("LPC"), Lexington Rubber Group, Inc. ("LRG" and together with LPC, individually, each a "Borrower" and collectively, "Borrowers"), the parties to the Loan Agreement (as hereinafter defined) as lenders (each individually, a "Lender" and collectively, "Lenders") and Congress Financial Corporation, a Delaware corporation, in its capacity as agent for Lenders (in such capacity, "Agent"). W I T N E S S E T H: - - - - - - - - - - Whereas, Agent, Lenders and Borrowers have entered into financing arrangements pursuant to which Lenders (or Agent on behalf of Lenders) have made and may make loans and advances to Borrowers as set forth in the Amended and Restated Loan and Security Agreement, dated December 18, 2003, by and among Borrowers, Agent, The CIT Group/Business Credit, Inc., in its capacity as co-agent, and Lenders and Amendment No. 1 to Amended and Restated Loan and Security Agreement, dated as of March 31, 2004, by and among Borrowers, Agent and Lenders (as the same now exists and is amended hereby or may hereafter be further amended, modified, supplemented, extended, renewed, restated or replaced, the "Loan Agreement"), and other agreements, documents and instruments referred to therein or at any time executed and/or delivered in connection therewith or related thereto (all of the foregoing, including the Loan Agreement, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced, being collectively referred to herein as the "Financing Agreements"). WHEREAS, Borrowers have requested that Agent and Lenders agree to certain amendments to the Loan Agreement and Agent and Lenders are willing to agree to such amendments, subject to the terms and conditions contained herein; and WHEREAS, by this Amendment No. 2, Borrowers, Agent and Lenders intend to evidence such amendments. NOW, THEREFORE, in consideration of the foregoing and the mutual agreements and covenants contained herein, the parties hereto agree as follows: SECTION 1. Definitions. 1.1 Additional Definitions. As used herein, the following terms shall have the respective meanings given to them below and the Loan Agreement shall be deemed and is hereby amended to include, in addition and not in limitation, each of the following definitions: (a) "Amendment No. 2" shall mean this Amendment No. 2 to Amended Restated Loan and Security Agreement by and among Agent, Lenders and Borrowers as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced, and the Loan Agreement shall be deemed and is hereby amended to include, in addition and not in limitation of, such definition. (b) "Die Casting Assets" shall mean all of the machinery and equipment owned by Borrowers' and located at Borrowers' die casting operations located at 201 and 202 Winchester Road, Lakewood, New York and described on Schedule A hereto; provided, that, the term "Die Casting Assets" shall not include any Inventory or Accounts of Borrowers. 1.2 Defined Terms. For purposes of this Amendment No. 2, unless otherwise defined herein, all terms used herein, including, but not limited to, those terms used and/or defined in the recitals above, shall have the respective meanings assigned to such terms in the Loan Agreement. SECTION 2. Amendments to Loan Agreement. 2.1 Interest Rate. (a) Section 1.73(a) of the Loan Agreement is hereby deleted in its entirety and replaced with the following: "(a) Subject to clause (b) of this definition below: (i) as to Prime Rate Revolving Loans, a rate equal to one (1%) percent per annum in excess of the Prime Rate, (ii) as to Prime Rate Term Loans, a rate equal to one and three-quarters (1 3/4%) percent per annum in excess of the Prime Rate, (iii) as to Eurodollar Rate Revolving Loans, a rate equal to three and one-quarter (3 1/4%) percent per annum in excess of the Adjusted Eurodollar Rate (in each case, based on the Eurodollar Rate applicable for the Interest Period selected by a Borrower, or by Administrative Borrower on behalf of such Borrower, as in effect three (3) Business Days after the date of receipt by Agent of the request of or on behalf of such Borrower for such Eurodollar Rate Loans in accordance with the terms hereof, whether such rate is higher or lower than any rate previously quoted to any Borrower), and (iv) as to Eurodollar Rate Term Loans, a rate equal to four (4%) percent per annum in excess of the Adjusted Eurodollar Rate (determined as provided above); provided, that, in the event that the aggregate amount of net cash proceeds from the sale of Die Casting Assets applied to reduce the Loans prior to or as of February 16, 2005 equal or exceed $750,000, and no Default or Event of Default shall exist or have occurred and be continuing, then as of the first day of the month after the receipt of such proceeds by Agent: (a) the Interest Rate as to Prime Rate Term Loans shall be reduced to a rate equal to one and one-half (1 1/2%) percent per annum in excess of the Prime Rate, and (b) the Interest Rate as to Eurodollar Rate Term Loans shall be reduced to a rate 2 equal to three and three-quarters (3 3/4%) percent per annum in excess of the Adjusted Eurodollar Rate." 2.2 Rubber Group Reserve. Section 1.122 of the Loan Agreement is hereby deleted in its entirety and replaced with the following: "1.122 "Rubber Group Reserve" shall mean the Reserve in the amount of $500,000; provided, that, the Rubber Group Reserve shall be released within five (5) Business Days following the earlier of (x) the receipt by the Agent of the Borrowers' audited financial statements for the twelve months ended December 31, 2004, so long as the Fixed Coverage Charge Ratio of Borrowers (but excluding for purposes of this calculation any amounts attributable to Borrowers' die casting operations) for the consecutive three months immediately preceding December 31, 2004 (treated as a single accounting period) is not less than 1.00 to 1.00 and (y) the receipt by the Agent of the Borrowers' financial statements for any Test Date after December 31, 2004, which evidence that the Fixed Coverage Charge Ratio of Borrowers for the immediately preceding consecutive three months (treated as a single accounting period) is not less than 1.00 to 1.00; provided, that, as of the date of such release and after giving effect thereto (i) no Default or Event of Default shall exist or have occurred and be continuing, and (ii) Agent shall have received evidence in form and substance satisfactory to Agent of the cessation by Borrowers of the conduct and operations of their die casting business; provided, further, that, in the event such Reserve is released in accordance with the conditions set forth above, Agent shall re-re-establish such Reserve in the amount of $1,000,000 at any time that Agent determines that the EBITDA of Borrowers' Rubber Group, as such EBITDA of the Rubber Group is reflected in Borrowers' quarterly reports on Form 10-Q and annual reports on Form 10-K, for any prior two consecutive fiscal quarters was less than $8,000,000 and such Reserve shall be released in the event that the conditions set forth above for its release have been satisfied." 2.3 Financial Covenants. (a) Section 9.17 of the Loan Agreement is hereby deleted in its entirety and replaced with the following: "9.17 Net Worth. Borrowers (on a consolidated basis) shall, as of the end of each month, have a Net Worth of not less than the amount set forth below with respect to such month (the numbers below in parentheses indicate a negative amount):
--------------------------------------------- ------------------ Month Minimum Net Worth ----- ----------------- --------------------------------------------- ------------------ June 2004 $(16,200,000) --------------------------------------------- ------------------ July 2004 $(17,200,000) --------------------------------------------- ------------------ August 2004 and each month thereafter $(17,500,000) through and including March 2005 --------------------------------------------- ------------------
3 --------------------------------------------- ------------------ April 2005 and May 2005 $(17,300,000) --------------------------------------------- ------------------ June 2005 and each month thereafter through $(17,000,000) and including August 2005 --------------------------------------------- ------------------ September 2005 and each month thereafter $(16,500,000) through and including November 2005 --------------------------------------------- ------------------ December 2005 $(16,000,000) --------------------------------------------- ------------------ January 2006 and each month thereafter $(15,000,000) --------------------------------------------- ------------------
(b) Section 9.18 of the Loan Agreement is hereby deleted in its entirety and replaced with the following: "9.18 Minimum EBITDA. (a) The EBITDA of Borrowers (on a consolidated basis) as of the end of each month during fiscal year 2004 (commencing on June 2004), on a cumulative year-to-date basis, shall be not less than the amount set forth below with respect to such month:
--------------------------------------------- ------------------ Month Minimum EBITDA ----- -------------- --------------------------------------------- ------------------ June 2004 $6,000,000 --------------------------------------------- ------------------ July 2004 $6,600,000 --------------------------------------------- ------------------ August 2004 $8,000,000 --------------------------------------------- ------------------ September 2004 $9,500,000 --------------------------------------------- ------------------ October 2004 $11,000,000 --------------------------------------------- ------------------ November 2004 $12,500,000 --------------------------------------------- ------------------ December 2004 $13,500,000 --------------------------------------------- ------------------
(b) The EBITDA of Borrowers (on a consolidated basis) for the immediately preceding twelve (12) consecutive months (treated as a single 4 accounting period) as of the end of each month set forth below shall be not less than the amount set forth below with respect to such month:
--------------------------------------------- ---------------- Month Minimum EBITDA ----- -------------- --------------------------------------------- ---------------- January 2005 and each month thereafter $14,000,000 through and including May 2005 --------------------------------------------- ---------------- June 2005 and each month thereafter through $15,000,000 and including September 2005 --------------------------------------------- ---------------- October 2005 and each month thereafter $16,000,000 --------------------------------------------- ----------------
(c) Section 9.19 of the Loan Agreement is hereby deleted in its entirety and replaced with the following: "9.19 Fixed Charge Coverage Ratio. The Fixed Charge Coverage Ratio of Borrowers (on a consolidated basis) as of the last day of each fiscal quarter set forth below ("Test Date") for the immediately preceding period set forth below with respect to such fiscal quarter (treated as a single accounting period) shall be not less than the ratio set forth opposite thereto (provided, that, the die casting operations of Borrowers shall not be included the calculation):
-------------- ---------------------------------------- Ratio Fiscal Quarter Applicable ----- ------------------------- Period ------ -------------- ---------------------------------------- 0.45:1.00 For the six months ending June 30, 2004 -------------- ---------------------------------------- 0.45:1.00 For the nine months ending September 30, 2004 -------------- ---------------------------------------- 0.55:1.00 For the twelve months ending December 31, 2004 -------------- ---------------------------------------- 0.65:1.00 For the twelve months ending March 31, 2005 -------------- ---------------------------------------- 0.85:1.00 For the twelve months ending June 30, 2005 -------------- ---------------------------------------- 1.00:1.00 For the twelve months ending September 30, 2005 -------------- ---------------------------------------- 1.05:1.00 For the twelve months ending December 31, 2005 -------------- ---------------------------------------- 1.10:1.00 For the twelve consecutive months ending on March 31, 2006 and on for the twelve months ended on last day of each fiscal quarter thereafter -------------- ----------------------------------------
5 2.4 Field Examinations. Section 9.22(f) of the Loan Agreement is hereby deleted in its entirety and replaced with the following: "(f) all reasonable out-of-pocket expenses and costs heretofore and from time to time hereafter incurred by Agent during the course of periodic field examinations of the Collateral and such Borrower's operations, plus a per diem charge at the rate of $750 per person per day for Agent's examiners in the field and office;" SECTION 3. Waiver of Events of Default. 3.1 Subject to the satisfaction of each of the conditions precedent set forth in Section 9 hereof, Agent on behalf of Lenders hereby waives the Event of Default arising under Section 10.1(a) of the Loan Agreement as a result of the failure of Borrowers to maintain the Net Worth required under Section 9.17 of the Loan Agreement as of May 31, 2004 (the "Existing Default"). 3.2 Agent has not waived, is not by this Amendment waiving, and has no intention of waiving any Event of Default which may have occurred on or prior to the date hereof, whether or not continuing on the date hereof, or which may occur after the date hereof (whether the same or similar to the Event of Default referred to in Section 3.1 above or otherwise), other than the Existing Default (subject to the terms and conditions set forth in Section 3.1 above). The foregoing waiver shall not be construed as a bar to or a waiver of any other or further Event of Default on any future occasion, whether similar in kind or otherwise and shall not constitute a waiver, express or implied, of any of the rights and remedies of Agent arising under the terms of the Loan Agreement or any other Financing Agreements on any future occasion or otherwise. SECTION 4. Additional Covenants and Agreements. 4.1 Borrowers hereby agree and covenant, in addition to all other terms, conditions and provisions set forth in the other Financing Agreements: (a) to deliver or cause to be delivered to Agent, in form and substance satisfactory to Agent, (i) no later than September 16, 2004, a detailed budget analysis reflecting the wind-down of Borrowers' die casting operations, and (ii) from time to time after September 30, 2004, such additional budget analyses and related information and materials as Agent may request; and (b) that, promptly, but in any event by no later than February 16, 2005, Borrowers shall have sold, all or substantially all of the Die Casting Assets of Borrowers, on terms and conditions acceptable to Agent (which terms and conditions shall include but not be limited to the following: (i) such sale shall be for cash or other immediately available funds, (ii) 6 Agent shall have received all material documents and agreements relating to such sale and Borrowers shall have no liability with respect to the assets once sold, (iii) Agent shall have received the net cash proceeds of such sales for application to the Obligations in such order and manner as Agent may determine, and (iv) no Event of Default, or act, condition or event which with notice or passage of time or both would constitute an Event of Default, shall exist or have occurred and be continuing prior to or as of the date of the sale of Die Casting Assets); provided, that, no sale shall be consummated without the prior written consent of Agent. Borrowers agree that in the event that the Die Casting Assets are not disposed of by February 16, 2005, Borrowers shall promptly, on terms and conditions acceptable to Agent, commence an auction of the Die Casting Assets. SECTION 5. Consultant. 5.1 Upon the request by Agent, Borrowers shall retain a consultant satisfactory to Agent ("Consultant") pursuant to a consulting agreement, in form and substance satisfactory to Agent ("Consulting Agreement"). Pursuant to the Consulting Agreement, the Consultant shall be engaged to, among other things, (a) review the Borrowers' die casting and machining operations and (b) prepare a written report relating to the foregoing. The Consulting Agreement shall not be amended, modified or supplemented without the prior written consent of Agent. The Consultant and the scope and nature of the engagement of the Consultant shall at all times be acceptable to Agent. Borrowers agree to provide the Consultant with complete and full access to all of its books and records and premises and agree to cooperate fully with the Consultant. Borrowers hereby authorize (which authorization and direction shall be irrevocable during the term of the Consulting Agreement) and direct Consultant to share with Agent all budgets, records, projections, financial information, reports and other information relating to the Collateral, the financial condition or operations of the businesses of Borrowers. 5.2 If Agent determines that the Consultant is not providing Agent with information or access to the books and records of Borrowers as may be requested by Agent or the Consultant is not providing Borrowers with the services provided in the Consulting Agreement, Borrowers hereby agree, promptly upon the request of Agent, to terminate the Consultant and to promptly (but in any event within three (3) Business Days after the request of Agent) retain another Consultant from a list provided by Agent to Borrowers after the date hereof. SECTION 6. Additional Events of Default. The parties hereto acknowledge, confirm and agree that the failure of any Borrower to comply with any of the covenants, conditions and agreements contained herein or in any other agreement, document or instrument at any time executed by any Borrower in connection herewith shall constitute an Event of Default under the Financing Agreements. SECTION 7. Amendment Fee. In addition to all other fees, charges, interest and expenses payable by Borrowers to Agent and Lenders under the Loan Agreement and the other Financing Agreements, Borrowers shall pay to Agent for the account of Lenders, contemporaneously with the effectiveness of this Amendment No. 2, an amendment fee in the amount of $75,000, which fee shall be fully earned and nonrefundable as of the date hereof and may be charged to any loan account of Borrowers. 7 SECTION 8. Representations and Warranties. Borrowers, jointly and severally, represent, warrant and covenant with and to Agent and Lenders as follows, which representations, warranties and covenants are continuing and shall survive the execution and delivery hereof, the truth and accuracy of, or compliance with each, together with the representations, warranties and covenants in the other Financing Agreements, being a continuing condition of the making of any Loans by Lenders to Borrowers: 8.1 As of the date hereof and after giving effect to this Amendment No. 2, no Default or Event of Default exists or has occurred and is continuing. 8.2 Amendment No. 2 has been duly executed and delivered by Borrowers and is in full force and effect as of the date hereof and the agreements and obligations of Borrowers contained herein constitute legal, valid and binding obligations of Borrowers enforceable against Borrowers in accordance with their respective terms. SECTION 9. Conditions Precedent. This Amendment No. 2 shall be effective as of August 16, 2004 but only upon the satisfaction of each of the following conditions precedent in a manner satisfactory to Agent: 9.1 Agent shall have received an original of this Amendment No. 2, duly authorized, executed and delivered by each Borrower; 9.2 Agent shall have received the fee referred to in Section 7 hereof; and 9.3 no Default or Event of Default shall exist or have occurred and be continuing (after giving effect to the amendments and waivers set forth in this Amendment No. 2). SECTION 10. General. 10.1 Except as modified pursuant hereto, no other changes or modifications to the Financing Agreements are intended or implied and in all other respects the Financing Agreements are hereby specifically ratified, restated and confirmed by all parties hereto as of the date hereof. To the extent of conflict between the terms of this Amendment No. 2 and the Financing Agreements, the terms of this Amendment No. 2 shall control. 10.2 The parties hereto shall execute and deliver such additional documents and take such additional action as may be necessary to effectuate the provisions and purposes of this Amendment No. 2. 10.3 The rights and obligations hereunder of each of the parties hereto shall be governed by and interpreted and determined in accordance with the laws of the State of New York, but excluding any principles of conflicts of law or other rule of law that would result in the application of the law of any jurisdiction other than the laws of the State of New York. 10.4 This Amendment No. 2 is binding upon and shall inure to the benefit of Agent, Lenders and Borrowers and their respective successors and assigns. 8 10.5 This Amendment No. 2 may be executed in one or more counterparts, each of which when so executed shall be deemed to be an original but all of which when taken together shall constitute one and the same instrument. In making proof of this Amendment No. 2, it shall not be necessary to produce or account for more than one counterpart thereof signed by each of the parties hereto. Delivery of an executed counterpart of this Amendment No. 2 by telefacsimile shall have the same force and effect as delivery of an original executed counterpart of this Amendment No. 2. Any party delivering an executed counterpart of this Amendment No. 2 by telefacsimile also shall deliver an original executed counterpart of this Amendment No. 2, but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Amendment No. 2 as to such party or any other party. 9 IN WITNESS WHEREOF, Agent, Lenders and Borrowers have caused this Amendment No. 2 to be duly executed as of the day and year first above written. LEXINGTON PRECISION CORPORATION By : Michael A. Lubin ------------------------------------ Title: Chairman of the Board ------------------------------------ LEXINGTON RUBBER GROUP, INC. By: Michael A. Lubin ------------------------------------ Title: Chairman of the Board ------------------------------------ AGREED: CONGRESS FINANCIAL CORPORATION, as Agent and Lender By: Herbert C. Korn ------------------------------ Title: Vice President ------------------------------ THE CIT GROUP/BUSINESS CREDIT, INC., as Lender By: G. Louis McKinley ------------------------------ Title: Vice President ------------------------------ 10 EX-10.2 3 l08652aexv10w2.txt EXHIBIT 10.2 Exhibit 10-2 AMENDMENT NO. 3 TO LOAN AND SECURITY AGREEMENT --------------------------- AMENDMENT (this "Amendment") dated as of August 16, 2004 by and among Lexington Precision Corporation, a Delaware corporation ("LPC") and Lexington Rubber Group, Inc., a Delaware corporation ("LRG", and together with LPC, each, individually, a "Borrower" and collectively, "Borrowers"), the lenders party to the Loan Agreement (as hereinafter defined) (each individually, a "Lender" and collectively, "Lenders") and Ableco Finance LLC, a Delaware limited liability company, in its capacity as agent for Lenders (in such capacity, "Agent"). WITNESSETH ---------- WHEREAS, Borrowers, Agent and Lenders have entered into financing arrangements pursuant to which Lenders have made loans to Borrowers as set forth in the Loan and Security Agreement, dated December 18, 2003, by and among Borrowers, Agent and Lenders (as heretofore amended, as amended hereby and as the same may hereafter be further amended, modified, supplemented, extended, renewed, restated or replaced, the "Loan Agreement") and the other agreements, documents and instruments referred to therein or at any time executed and/or delivered in connection therewith or related thereto, including this Amendment (all of the foregoing, including the Loan Agreement, as the same now exist or may hereafter be further amended, modified, supplemented, extended, renewed, restated or replaced, being collectively referred to herein as the "Financing Agreements"); and WHEREAS, Borrowers have requested that Agent and Lenders agree to certain amendments to the Loan Agreement and Agent and Lenders are willing to agree to the requested amendments, subject to the terms and conditions contained herein; NOW, THEREFORE, in consideration of the mutual conditions and agreements and covenants set forth herein, and for other good and valuable consideration, the adequacy and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: Section 1. Definitions 1.1. Additional Definitions. As used herein, the following terms shall have the respective meanings given to them below and the Loan Agreement shall be deemed and is hereby amended to include, in addition and not in limitation of, each of the following definitions: (a) "Metals Group EBITDA" shall mean EBITDA of the "Metals Group" division of the Borrowers and their Subsidiaries, on a consolidated basis. (b) "Rubber Group EBITDA" shall mean EBITDA of the Borrowers and their Subsidiaries, on a consolidated basis, less the Metals Group EBITDA. 1.2. Amendments to Definitions. (a) The definition of the term "Interest Rate" set forth in Section 1.61 of the Loan Agreement is hereby amended in its entirety to read as follows: "1.61 "Interest Rate" shall mean, (a) Subject to clause (b) of this definition below, a rate equal to the greater of (i) five percent (5.0%) per annum in excess of the Prime Rate and (ii) nine and one quarter percent (9.25%) per annum; provided, that the Interest Rate shall be decreased by one percentage point for any month in which each of the following conditions are satisfied: (A) the Borrowers shall have Excess Availability (calculated in accordance with clause (c) of this definition below) of not less than $1,500,000 for the thirty day period immediately preceding such interest payment date; and (B) the Borrowers and their Subsidiaries, on a consolidated basis, shall have a Fixed Charge Coverage Ratio of at least 1.00:1.00 for the most recently ended three-month period as set forth in the most recent financial statements of the Borrowers and their Subsidiaries delivered pursuant to Section 9.6(a) of this Agreement; provided, further, that (1) if the Borrowers and their Subsidiaries fail to deliver any financial statement pursuant to Section 9.6(a) at the time such financial statements are due to be delivered, the Interest Rate shall be the highest rate set forth in this clause (a) until such time as the financial statements are actually delivered to Agent and Lenders and (2) solely for purposes of this clause (a) of this definition, if the Borrowers' Lexington Die Casting Division shall have ceased operations, the Fixed Charge Coverage Ratio shall exclude the EBITDA of such Division (but shall include the Fixed Charges of such Division). (b) Notwithstanding anything to the contrary contained in clause (a) of this definition, the Interest Rate shall mean a rate of interest per annum equal to the rate of interest otherwise in effect from time to time pursuant to the terms of this Agreement plus 2.5%, either (1) for the period on and after the date of termination or non-renewal hereof until such time as all Obligations are indefeasibly paid and satisfied in full in immediately available funds, or (2) for the period from and after the date of the occurrence of any Event of Default, and for so long as such Event of Default is continuing as determined by Agent. (c) Solely for purposes of clause (a) of this definition, Excess Availability shall also be reduced by (in addition to all other deductions set forth in the definition of Excess Availability) the amount by which (i) the aggregate amount of all then outstanding and unpaid trade payables and other obligations of the Borrowers and the amount of checks issued by the Borrowers, but not yet sent, to pay trade payables and other obligations (in each case other than trade payables or other obligations being contested or disputed by the Borrowers in good faith and trade payables related to Capital Expenditures) exceeds (ii) seventy-ninetieths (70/90ths) of the Borrowers' purchases (other than Capital Expenditures) during the immediately preceding three (3) month period." -2- 1.3. Interpretation. For purposes of this Amendment, all terms used herein, including but not limited to, those terms used and/or defined herein or in the recitals hereto shall have the respective meanings assigned thereto in the Loan Agreement, unless otherwise defined herein. Section 2. Additional Amendments. 2.1. Financial Covenants. (a) Section 9.17 of the Loan Agreement is hereby amended in its entirety to read as follows: "9.17 Leverage Ratio. Borrowers and their Subsidiaries, on a consolidated basis, shall, not permit the ratio of consolidated secured Indebtedness (including letters of credit) to consolidated EBITDA as of the end of each trailing twelve month period of Borrowers and their Subsidiaries for which the last month ends on a date set forth below to be greater than the applicable ratio set forth below:
------------------- -------------------------------------------- Leverage Ratio Applicable Period -------------- ----------------- ------------------- -------------------------------------------- 3.35:1.00 For the trailing twelve months ending December 31, 2003 ------------------- -------------------------------------------- 3.35:1.00 For the trailing twelve months ending January 31, 2004 ------------------- -------------------------------------------- 3.35:1.00 For the trailing twelve months ending February 29, 2004 ------------------- -------------------------------------------- 3.35:1.00 For the trailing twelve months ending March 31, 2004 ------------------- -------------------------------------------- 3.35:1.00 For the trailing twelve months ending April 30, 2004 ------------------- -------------------------------------------- 3.35:1.00 For the trailing twelve months ending May 31, 2004 ------------------- -------------------------------------------- 3.50:1.00 For the trailing twelve months ending June 30, 2004 ------------------- -------------------------------------------- 3.50:1:00 For the trailing twelve months ending July 31, 2004 ------------------- -------------------------------------------- 3.50:1.00 For the trailing twelve months ending August 31, 2004 ------------------- -------------------------------------------- 3.50:1.00 For the trailing twelve months ending September 30, 2004 ------------------- -------------------------------------------- 3.25:1.00 For the trailing twelve months ending October 31, 2004 ------------------- -------------------------------------------- 3.25:1.00 For the trailing twelve months ending November 30, 2004 ------------------- -------------------------------------------- 3.25:1.00 For the trailing twelve months ending December 31, 2004 ------------------- -------------------------------------------- 2.75:1.00 For the trailing twelve months ending January 31, 2005 ------------------- --------------------------------------------
-3-
------------------- -------------------------------------------- 2.75:1.00 For the trailing twelve months ending February 28, 2005 ------------------- -------------------------------------------- 2.75:1.00 For the trailing twelve months ending March 31, 2005 ------------------- -------------------------------------------- 2.75:1.00 For the trailing twelve months ending April 30, 2005 ------------------- -------------------------------------------- 2.75:1.00 For the trailing twelve months ending May 31, 2005 ------------------- -------------------------------------------- 2.50:1.00 For the trailing twelve months ending June 30, 2005 ------------------- -------------------------------------------- 2.50:1.00 For each trailing twelve months period ending on the last day of each calendar month thereafter" ------------------- --------------------------------------------
(b) Section 9.18 of the Loan Agreement is hereby amended in its entirety to read as follows: "9.18 Minimum EBITDA. (a) Borrowers and their Subsidiaries, on a consolidated basis, shall, at all times have, and shall maintain, EBITDA, measured on a quarter-end basis, of at least the required amount set forth in the following table for the applicable period set forth opposite thereto:
-------------------- -------------------------------------------- Applicable Amount Applicable Period ----------------- ----------------- -------------------- -------------------------------------------- $10,000,000 For the trailing twelve months ending December 31, 2003 -------------------- -------------------------------------------- $10,000,000 For the trailing twelve months ending March 31, 2004 -------------------- -------------------------------------------- $12,000,000 For the trailing twelve months ending June 30, 2004 -------------------- -------------------------------------------- $12,500,000 For the trailing twelve months ending September 30, 2004 -------------------- -------------------------------------------- $13,000,000 For the trailing twelve months ending December 31, 2004 -------------------- -------------------------------------------- $14,000,000 For the trailing twelve months ending March 31, 2005 -------------------- -------------------------------------------- $15,000,000 For the trailing twelve months ending June 30, 2005 -------------------- -------------------------------------------- $16,000,000 For the trailing twelve months ending September 30, 2005 -------------------- -------------------------------------------- $16,000,000 For each trailing twelve months period ending on the last day of each quarter thereafter -------------------- --------------------------------------------
-4- (b) Borrowers and their Subsidiaries, on a consolidated basis, shall, at all times have, and shall maintain, Rubber Group EBITDA, measured on a quarter-end basis, of at least the required amount set forth in the following table for the applicable period set forth opposite thereto:
-------------------- -------------------------------------------- Applicable Amount Applicable Period ----------------- ----------------- -------------------- -------------------------------------------- $3,250,000 For the three month period ending September 30, 2004 -------------------- -------------------------------------------- $6,900,000 For the six month period ending December 31, 2004 -------------------- -------------------------------------------- $11,300,000 For the nine month period ending March 31, 2005 -------------------- -------------------------------------------- $15,000,000 For the trailing twelve months ending June 30, 2005 -------------------- -------------------------------------------- $16,000,000 For the trailing twelve months ending September 30, 2005 -------------------- -------------------------------------------- $16,000,000 For the trailing twelve months ending December 31, 2005 -------------------- -------------------------------------------- $16,500,000 For the trailing twelve months ending March 31, 2006 -------------------- -------------------------------------------- $16,500,000 For the trailing twelve months ending June 30, 2006 -------------------- -------------------------------------------- $16,500,000 For the trailing twelve months ending September 30, 2006 -------------------- -------------------------------------------- $16,500,000 For the trailing twelve months ending December 31, 2006 -------------------- -------------------------------------------- $17,000,000 For each trailing twelve months period ending on the last day of each quarter thereafter" -------------------- --------------------------------------------
(c) Section 9.19 of the Loan Agreement is hereby amended in its entirety to read as follows: "9.19 Fixed Charge Coverage Ratio. Borrowers and their Subsidiaries, on a consolidated basis, shall, at all times have, and shall maintain, a Fixed Charge Coverage Ratio, measured on a quarter-end basis, of at least the required amount set forth in the following table for the applicable period set forth opposite thereto:
----------------------------- ------------------------------------ Fixed Charge Coverage Applicable Period --------------------- ----------------- Ratio ----- ----------------------------- ------------------------------------ 0.50:1.00 For the three months ending December 31, 2003 ----------------------------- ------------------------------------ 0.85:1.00 For the three months ending March 31, 2004 ----------------------------- ------------------------------------ 0.45:1.00 For the six months ending June 30, 2004 ----------------------------- ------------------------------------
-5- ----------------------------- ------------------------------------ 0.45:1.00 For the nine months ending September 30, 2004 ----------------------------- ------------------------------------ 0.55:1.00 For the twelve months ending December 31, 2004 ----------------------------- ------------------------------------ 0.65:1.00 For the trailing twelve months ending March 31, 2005 ----------------------------- ------------------------------------ 0.85:1.00 For the trailing twelve months ending June 30, 2005 ----------------------------- ------------------------------------ 1.00:1.00 For the trailing twelve months ending September 30, 2005 ----------------------------- ------------------------------------ 1.00:1.00 For the trailing twelve months ending December 31, 2005 ----------------------------- ------------------------------------ 1.10:1.00 For the trailing twelve months ending March 31, 2006 ----------------------------- ------------------------------------ 1.15:1.00 For the trailing twelve months ending June 30, 2006 ----------------------------- ------------------------------------ 1.15:1.00 For the trailing twelve months ending September 30, 2006 ----------------------------- ------------------------------------ 1.20:1.00 For each trailing twelve months period ending on the last day of each quarter thereafter" ----------------------------- ------------------------------------
Section 3. Representations and Warranties. In addition to the continuing representations, warranties and covenants heretofore or hereafter made by each Borrower to Agent and Lenders pursuant to the other Financing Agreements, each Borrower, jointly and severally, hereby represents, warrants and covenants with and to Agent and Lenders as follows (which representations, warranties and covenants are continuing and shall survive the execution and delivery hereof and shall be incorporated into and made a part of the Financing Agreements): 3.1. Corporate Power and Authority. This Amendment and each other agreement or instrument to be executed and delivered by each Borrower have been duly authorized, executed and delivered by all necessary action on the part of such Borrower which is a party hereto and thereto and, if necessary, its stockholders, and is in full force and effect as of the date hereof, as the case may be, and the agreements and obligations of each Borrower contained herein and therein constitute legal, valid and binding obligations of such Borrower enforceable against it in accordance with their terms except as such enforceability may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or similar laws of general applicability affecting the enforcement of creditors' rights and (b) the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 3.2. Consents: Approvals. No action of, or filing with, or consent of any Governmental Authority is required to authorize, or is otherwise required in connection with, the execution, delivery and performance of this Amendment. 3.3. No Event of Default. No Event of Default, and no condition or event which, with the giving of notice or lapse of time, or both, would constitute an Event of Default, exists or has occurred and is continuing after giving effect to the provisions of this -6- Amendment. All of the representations and warranties set forth in the Loan Agreement and the other Financing Agreements, are true and correct in all respects on and as of the date hereof as if made on the date hereof, except to the extent any such representation or warranty is made as of a specified date, in which case such representation or warranty shall have been true and correct as of such date. Section 4. Conditions Precedent. The amendments set forth in Sections 1 and 2 of this Amendment shall be effective upon the satisfaction of each of the following conditions precedent in a manner satisfactory to Agent, which shall be evidenced by the execution and delivery of this Amendment by Agent; provided, that, the amendments to the definition of the term "Interest Rate" set forth in Section 1.2(a) hereof shall be effective as of August 1, 2004: 4.1. no Event of Default shall exist or have occurred and be continuing and no event shall have occurred or condition be existing and continuing which, with notice or passage of time or both, would constitute an Event of Default; 4.2. Agent shall have received an original of this Amendment, duly authorized, executed and delivered by Borrowers; 4.3. Agent shall have received a fully-executed copy of Amendment No. 2 to the Working Capital Loan Agreement pursuant to which the Working Capital Agent, the Working Capital Lenders and the Borrowers shall have amended Sections 9.17, 9.18 and 9.19 of the Working Capital Loan Agreement, the form and substance of which shall be reasonably satisfactory to Agent; 4.4. the Working Capital Agent and the Working Capital Lenders shall have consented to this Amendment and the amendments to the Loan Agreement set forth herein; and 4.5. all legal matters incident to this Amendment shall be satisfactory to the Agent and its counsel. Section 5. Events of Default. 5.1. No Waiver of Any Events of Default. Agent has not waived and is not by this Amendment waiving, and has no present intention of waiving, any Events of Default, which may have occurred prior to the date hereof, or may be continuing on the date hereof or any Event of Default which may occur after the date hereof. Agent reserves the right, in its discretion, to exercise any or all of its rights and remedies arising under the Financing Agreements or otherwise, as a result of any Events of Default which may have occurred prior to the date hereof, or are continuing on the date hereof, or any Event of Default which may occur after the date hereof. 5.2. Additional Events of Default. The parties hereto acknowledge, confirm and agree that the failure of Borrowers to comply with the covenants, conditions and agreements contained herein, shall in each case constitute an Event of Default under the Financing Agreements. -7- Section 6. Provisions of General Application. 6.1. Effect of this Amendment. Except as modified pursuant hereto, no other changes or modifications to the Financing Agreements are intended or implied and in all other respects the Financing Agreements are hereby specifically ratified, restated and confirmed by all parties hereto as of the effective date hereof. To the extent of conflict between the terms of this Amendment and the other Financing Agreements, the terms of this Amendment shall control. The Loan Agreement and this Amendment shall be read and construed as one agreement. 6.2. Governing Law. The rights and obligations hereunder of each of the parties hereto shall be governed by and interpreted and determined in accordance with the internal laws of the State of New York but excluding any principles of conflicts of law or other rule of law that would cause the application of the law of any jurisdiction other than the laws of the State of New York. 6.3. Binding Effect. This Amendment shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns. 6.4. Counterparts. This Amendment may be executed in any number of counterparts, but all of such counterparts shall together constitute but one and the same agreement. In making proof of this Amendment, it shall not be necessary to produce or account for more than one counterpart hereof signed by each of the parties hereto. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] -8- IN WITNESS WHEREOF, Agent, Lenders and Borrowers have caused this Amendment to be duly executed as of the day and year first above written. AGENT and LENDERS BORROWERS - ----------------- --------- ABLECO FINANCE LLC, as Agent and LEXINGTON PRECISION CORPORATION Lender (on behalf of itself and its affiliate assigns) By: Daniel E. Wolf By: Michael A. Lubin -------------------------- ----------------------- Title: Senior Vice President Title: Chairman of the Board -------------------------- ----------------------- LEXINGTON RUBBER GROUP, INC. By: Michael A. Lubin ----------------------- Title: Chairman of the Board ----------------------- -9- EX-31.1 4 l08652aexv31w1.txt EXHIBIT 31.1 Exhibit 31.1 CERTIFICATION ------------- I, Michael A. Lubin, certify that: 1. I have reviewed this Form 10-Q of Lexington Precision Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2004 /s/ Michael A. Lubin - -------------------------------------------- Michael A. Lubin Chairman of the Board EX-31.2 5 l08652aexv31w2.txt EXHIBIT 31.2 Exhibit 31.2 CERTIFICATION ------------- I, Warren Delano, certify that: 1. I have reviewed this Form 10-Q of Lexington Precision Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2004 /s/ Warren Delano - ------------------------- Warren Delano President EX-31.3 6 l08652aexv31w3.txt EXHIBIT 31.3 Exhibit 31.3 CERTIFICATION ------------- I, Dennis J. Welhouse, certify that: 1. I have reviewed this Form 10-Q of Lexington Precision Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2004 /s/ Dennis J. Welhouse - -------------------------------------------- Dennis J. Welhouse Senior VP and CFO EX-32.1 7 l08652aexv32w1.txt EXHIBIT 32.1 Exhibit 32.1 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes - Oxley Act of 2002 In connection with the Quarterly Report of Lexington Precision Corporation, a Delaware corporation (the "Company"), on Form 10-Q for the period ended June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, the Chairman of the Board and Co-Principal Executive Officer, hereby certifies pursuant to 18 U.S.C. ss.1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the undersigned's knowledge: (1) the Report of the Company filed today pursuant to Section 13(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), fully complies with the requirements of Section 13(a) of the Exchange Act; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Michael A. Lubin -------------------------------------- Michael A. Lubin Chairman of the Board (Co-Principal Executive Officer) August 13, 2004 A signed original of this written statement required by Section 906 has been provided to the registrant and will be retained by the registrant and furnished to the Securities and Exchange Commission or its staff upon request. This certification accompanies the Company's Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Exchange Act. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference. EX-32.2 8 l08652aexv32w2.txt EXHIBIT 32.2 Exhibit 32.2 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes - Oxley Act of 2002 In connection with the Quarterly Report of Lexington Precision Corporation, a Delaware corporation (the "Company"), on Form 10-Q for the period ended June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, the President and Co-Principal Executive Officer, hereby certifies pursuant to 18 U.S.C. ss.1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that to his knowledge: (1) the Report of the Company filed today pursuant to Section 13(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), fully complies with the requirements of Section 13(a) of the Exchange Act; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Warren Delano ---------------------------------- Warren Delano President (Co-Principal Executive Officer) August 13, 2004 A signed original of this written statement required by Section 906 has been provided to the registrant and will be retained by the registrant and furnished to the Securities and Exchange Commission or its staff upon request. This certification accompanies the Company's Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Exchange Act. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference. EX-32.3 9 l08652aexv32w3.txt EXHIBIT 32.3 Exhibit 32.3 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes - Oxley Act of 2002 In connection with the Quarterly Report of Lexington Precision Corporation, a Delaware corporation (the "Company"), on Form 10-Q for the period ended June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, the Chief Financial Officer, hereby certifies pursuant to 18 U.S.C. ss.1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that to his knowledge: (1) the Report of the Company filed today pursuant to Section 13(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), fully complies with the requirements of Section 13(a) of the Exchange Act; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Dennis J. Welhouse ---------------------------------------------------- Dennis J. Welhouse Senior Vice President and Chief Financial Officer (Principal Financial Officer) August 13, 2004 A signed original of this written statement required by Section 906 has been provided to the registrant and will be retained by the registrant and furnished to the Securities and Exchange Commission or its staff upon request. This certification accompanies the Company's Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Exchange Act. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference. -----END PRIVACY-ENHANCED MESSAGE-----