-----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, Fr3rRw9eaO9v1lzqlLULNLAvHl0rVggy8w1hCuXJ0uPfzG3iLJgUGd8/kViZLGAE 71s4ah40PsADi2bSODm8TA== 0000950152-05-002974.txt : 20050406 0000950152-05-002974.hdr.sgml : 20050406 20050406164441 ACCESSION NUMBER: 0000950152-05-002974 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050406 DATE AS OF CHANGE: 20050406 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-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-03252 FILM NUMBER: 05737355 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-K/A 1 l13170ae10vkza.txt LEXINGTON PRECISION CORPORATION 10-K/AMENDMENT NO. 1 ================================================================================ FORM 10-K/A (AMENDMENT NO. 1) SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 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.) 40 EAST 52ND STREET, NEW YORK, NY 10022 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 319-4657 --------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $0.25 PAR VALUE (TITLE OF CLASS) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in rule 12b-2 of the Act). [ ] The aggregate market value of the registrant's Common Stock, $0.25 par value per share, held by non-affiliates of the registrant, as of March 18, 2005, was approximately $996,000. The number of shares of common stock outstanding as of March 18, 2005, was 4,931,767. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's proxy statement to be issued in connection with its 2005 Annual Meeting of Stockholders (the "Proxy Statement") are incorporated by reference into Part III. Only those portions of the Proxy Statement which are specifically incorporated by reference are deemed filed as part of this report on Form 10-K. ================================================================================ EXPLANATORY NOTE Lexington Precision Corporation is filing this Amendment No. 1 on Form 10-K/A to our Annual Report on Form 10-K for the year ended December 31, 2004, filed with the Securities and Exchange Commission on March 31, 2005, to correct clerical errors contained in the table included in Note 15, "Quarterly Financial Data (unaudited)," to our consolidated financial statements in Part II, Item 8, of the Form 10-K. Except for the modification of Note 15, this Form 10-K/A does not modify or update other disclosures in the Form 10-K, including the nature and character of those disclosures, to reflect events occurring after the filing date of the Form 10-K. The entirety of Part II, Item 8, as amended, is included in this Form 10-K/A, as are new Exhibits 31.1, 31.2, 31.3, 32.1, 32.2 and 32.3, dated as of the date of the filing of this Form 10-K/A. - 1 - ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA TABLE OF CONTENTS
Page ---- Report of Ernst & Young LLP, Independent Registered Public Accounting Firm............... 3 Consolidated Statements of Operations for the Years Ended December 31, 2004, 2003, and 2002..................................................... 4 Consolidated Balance Sheets at December 31, 2004 and 2003................................ 5 Consolidated Statements of Stockholders' Deficit for the Years Ended December 31, 2004, 2003, and 2002...................................... 7 Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003, and 2002...................................................... 8 Notes to Consolidated Financial Statements............................................... 9
- 2 - REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders Lexington Precision Corporation and Subsidiaries We have audited the accompanying consolidated balance sheets of Lexington Precision Corporation and subsidiaries at December 31, 2004 and 2003, and the related consolidated statements of operations, stockholders' deficit, and cash flows for each of the three years in the period ended December 31, 2004. Our audits also included the financial statement schedule contained in Part IV, Item 15 (a) 2, of the Company's report on Form 10-K. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Lexington Precision Corporation and its subsidiaries at December 31, 2004 and 2003, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed in Note 5 to the consolidated financial statements, effective July 1, 2003, the Company changed its method of accounting for its $8 Cumulative Convertible Preferred Stock, Series B, in accordance with the adoption of Statement of Financial Accounting Standards No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." /s/ Ernst & Young LLP Cleveland, Ohio March 29, 2005 - 3 - LEXINGTON PRECISION CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31 ---------------------------------------- 2004 2003 2002 ---------- ---------- ---------- Net sales $ 110,353 $ 113,231 $ 112,363 Cost of sales 98,304 99,773 97,571 ---------- ---------- ---------- Gross profit 12,049 13,458 14,792 Selling and administrative expenses 7,383 7,904 7,981 Impairment of goodwill - 47 - Plant closure costs - - 609 ---------- ---------- ---------- Income from operations 4,666 5,507 6,202 Other income (expense): Gain on repurchase of debt 8,598 - - Gain on sale of securities - - 248 Interest expense (8,662) (6,980) (7,158) ---------- ---------- ---------- Income (loss) from continuing operations before income tax 4,602 (1,473) (708) Income tax provision (benefit) (196) 76 (538) ---------- ---------- ---------- Income (loss) from continuing operations 4,798 (1,549) (170) Loss from discontinued operations (3,208) (4,653) (1,397) ---------- ---------- ---------- Income (loss) before cumulative effect of a change in accounting principle 1,590 (6,202) (1,567) Cumulative effect of a change in accounting principle - (247) - ---------- ---------- ---------- Net income (loss) $ 1,590 $ (6,449) $ (1,567) ========== ========== ========== Basic and diluted income (loss) per share of common stock: Continuing operations $ 0.97 $ (0.35) $ (0.03) Discontinued operations (0.65) (0.96) (0.29) Cumulative effect of a change in accounting principle - (0.05) - ---------- ---------- ---------- Net income (loss) $ 0.32 $ (1.36) $ (0.32) ========== ========== ==========
See notes to consolidated financial statements - 4 - LEXINGTON PRECISION CORPORATION CONSOLIDATED BALANCE SHEETS (THOUSANDS OF DOLLARS)
DECEMBER 31 ----------------------------- 2004 2003 ---------- ---------- ASSETS: Current assets: Cash $ 17 $ 178 Accounts receivable, net of allowances of $537,000 and $545,000, respectively 15,322 15,883 Inventories, net of allowances of $845,000 and $931,000, respectively 8,791 7,633 Prepaid expenses and other current assets 1,665 2,093 Deferred income taxes 1,090 1,360 Assets of discontinued operations 2,022 2,954 ---------- ---------- Total current assets 28,907 30,101 ---------- ---------- Plant and equipment: Land 2,074 2,074 Buildings 19,450 19,301 Equipment 107,961 103,457 ---------- ---------- 129,485 124,832 Accumulated depreciation 93,428 86,638 ---------- ---------- Plant and equipment, net 36,057 38,194 ---------- ---------- Goodwill, net 7,623 7,623 ---------- ---------- Assets of discontinued operations 2,754 4,438 ---------- ---------- Other assets, net 3,036 3,331 ---------- ---------- $ 78,377 $ 83,687 ========== ==========
See notes to consolidated financial statements (continued on next page) - 5 - LEXINGTON PRECISION CORPORATION CONSOLIDATED BALANCE SHEETS (CONTINUED) (THOUSANDS OF DOLLARS)
DECEMBER 31 ----------------------------- 2004 2003 ---------- ---------- LIABILITIES AND STOCKHOLDERS' DEFICIT: Current liabilities: Accounts payable $ 9,753 $ 9,522 Accrued expenses, excluding interest 4,839 5,993 Accrued interest expense 975 314 Deferred gain on repurchase of debt - 3,252 Short-term debt 14,667 12,246 Current portion of long-term debt 4,749 5,585 Liabilities of discontinued operations 794 775 ---------- ---------- Total current liabilities 35,777 37,687 ---------- ---------- Long-term debt, excluding current portion 58,949 63,681 ---------- ---------- Deferred income taxes 1,090 1,360 ---------- ---------- Other long-term liabilities 436 451 ---------- ---------- Stockholders' deficit: Common stock, $0.25 par value, 10,000,000 shares authorized, 4,931,767 shares issued at December 31, 2004, and December 31, 2003 1,233 1,233 Additional paid-in-capital 13,169 13,169 Accumulated deficit (32,277) (33,894) ---------- ---------- Total stockholders' deficit (17,875) (19,492) ---------- ---------- $ 78,377 $ 83,687 ========== ==========
See notes to consolidated financial statements - 6 - LEXINGTON PRECISION CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (THOUSANDS OF DOLLARS)
ADDITIONAL TOTAL COMMON PAID-IN- ACCUMULATED STOCKHOLDERS' STOCK CAPITAL DEFICIT DEFICIT --------- ---------- ------------ ------------- Balance at January 1, 2001 $ 1,207 $ 12,960 $ (23,703) $ (9,536) Net loss - - (2,151) (2,151) Amortization of restricted stock grants - - 28 28 --------- ---------- --------- ----------- Balance at December 31, 2001 1,207 12,960 (25,826) (11,659) Net loss - - (1,567) (1,567) Amortization of restricted stock grants - - 27 27 --------- ---------- --------- ----------- Balance at December 31, 2002 1,207 12,960 (27,366) $ (13,199) Net loss - - (6,449) (6,449) Amortization of restricted stock grants - - 27 27 Conversion of interest payable on junior subordinated notes into 103,731 shares of common stock 26 209 - 235 Dividends on preferred stock - - (106) (106) --------- ---------- --------- ----------- Balance at December 31, 2003 1,233 13,169 (33,894) (19,492) Net income 1,590 1,590 Amortization of restricted stock grants 27 27 --------- ---------- --------- ----------- Balance at December 31, 2004 $ 1,233 $ 13,169 $ (32,277) $ (17,875) ========= ========== ========= ===========
See notes to consolidated financial statements - 7 - LEXINGTON PRECISION CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (THOUSANDS OF DOLLARS)
YEARS ENDED DECEMBER 31 ------------------------------------ 2004 2003 2002 ---------- ---------- ---------- OPERATING ACTIVITIES: Income (loss) from continuing operations $ 4,798 $ (1,549) $ (170) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 8,140 8,573 9,649 Amortization included in operating expense 304 382 598 Amortization included in interest 1,098 610 440 Impairment of goodwill - 47 - Gain on repurchase of debt (8,598) - - Gain on sales of marketable securities - - (248) Current year interest expense converted to debt - 3,953 - Changes in operating assets and liabilities that provided (used) cash: Accounts receivable, net 561 (376) 1,112 Inventories, net (1,158) 301 (136) Prepaid expenses and other assets 310 850 (360) Accounts payable 1,920 413 (1,050) Accrued expenses, excluding interest (1,154) 67 620 Accrued interest expense 827 164 4,137 Other long term liabilities 104 (33) 158 Other (84) 68 16 ---------- ---------- ---------- Net cash provided by continuing operations 7,068 13,470 14,766 Net cash provided (used) by discontinued operations (135) (2,351) 1,465 ---------- ---------- ---------- Net cash provided by operating activities 6,933 11,119 16,231 ---------- ---------- ---------- INVESTING ACTIVITIES: Purchases of plant and equipment (5,715) (4,966) (3,401) Proceeds from sales of marketable securities - - 1,522 Decrease (increase) in equipment deposits 27 (61) 345 Proceeds from sales of equipment 271 23 21 Expenditures for tooling owned by customers (650) (148) (368) Other (18) 374 328 ---------- ---------- ---------- Net cash used by continuing operations (6,085) (4,778) (1,553) Net cash used by discontinued operations (440) (75) (1,551) ---------- ---------- ---------- Net cash used by Investing activities (6,525) (4,853) (3,104) ---------- ---------- ---------- FINANCING ACTIVITIES: Net increase (decrease), in borrowings under revolving line of credit 2,421 (3,347) (750) Proceeds from issuance of debt 7,000 25,000 - Repayment of long-term debt (6,364) (21,548) (10,194) Repurchase of debt (2,892) (5,550) - Payment of deferred financing expenses (745) (2,279) - Other - (106) (619) ---------- ---------- ---------- Net cash used by financing activities (580) (7,830) (11,563) ---------- ---------- ---------- Net increase (decrease) in cash (172) (1,564) 1,564 Cash at beginning of year 189 1,753 189 ---------- ---------- ---------- Cash at end of year $ 17 $ 189 $ 1,753 ========== ========== ==========
See notes to consolidated financial statements - 8 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Lexington Precision Corporation and its subsidiaries (the "Company"). All significant intercompany accounts and transactions have been eliminated. During 2004, the Company committed to a plan to sell the assets and business, or to close its die casting division. The results of operations and assets and liabilities of the die casting division are classified as discontinued operations in the Company's consolidated financial statements. Unless otherwise indicated all disclosures and amounts relate solely to continuing operations. Certain reclassifications have been made to the financial statements for prior years in order to conform to the current year's presentation. USE OF ESTIMATES The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of contingent liabilities in the consolidated financial statements. Actual results could differ from those estimates. INVENTORIES Inventories are valued at the lower of cost (first-in, first-out method) or market. Inventory levels by principal classification are set forth below (dollar amounts in thousands):
DECEMBER 31 --------------------- 2004 2003 ------ ------ Finished goods $ 4,142 $ 3,475 Work in process 2,372 1,570 Raw materials 2,277 2,588 ------- ------- $ 8,791 $ 7,633 ======= =======
PLANT AND EQUIPMENT Plant and equipment are carried at cost less accumulated depreciation. Depreciation is calculated principally on the straight-line method over the estimated useful lives of the various assets (15 to 32 years for buildings and 3 to 8 years for equipment). When an asset is retired or otherwise disposed of, the related cost and accumulated depreciation are eliminated. Maintenance and repair expenses are charged as incurred, while major improvements that increase the useful life of plant and equipment are capitalized. Maintenance and repair expenses were $5,552,000, $5,733,000, and $5,961,000 for 2004, 2003, and 2002, respectively. - 9 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS VALUATION OF LONG-LIVED ASSETS The Company evaluates long-lived assets, such as plant and equipment and other long-term amortizable assets, for impairment when events or changes in circumstances indicate that the carrying value of the assets may not be fully recoverable. When performing this evaluation, the Company compares the undiscounted, projected cash flow of an asset or group of assets to the carrying value of such asset or asset group. If such cash flow is less than the carrying value of the asset or asset group, an impairment loss is recognized equal to the excess, if any, of the carrying value of the asset or asset group over the appraised value of the asset or asset group, net of estimated disposal costs. Although the Company believes that its projections of future cash flows are reasonable, changes in assumptions regarding future unit volumes, pricing, operating efficiencies, material, labor, and overhead costs, and other factors could significantly affect the Company's cash flow projections. During the fourth quarter of 2003, the Company tested the long-lived assets of its die casting division for impairment and, as a result thereof, recorded an impairment charge of $2,427,000 to reduce the carrying value of the long-lived assets of the division to their estimated fair value at that time. During 2004, the Company committed to a plan to discontinue the operations of the die casting division and recognized pre-tax impairment charges of $1,595,000 to reduce the value of the division's assets to estimated fair value, which approximates the projected proceeds to be realized on the disposition of the assets, net of selling costs. For additional information, see Note 14, "Discontinued Operations." GOODWILL Goodwill represents the excess of the purchase price of acquired businesses over the fair value of the identifiable assets acquired, net of the fair value of liabilities assumed. Tests for impairment of goodwill are performed, using a fair value approach, during the fourth quarter of each year, and at other times when there is a change in circumstances or an adverse event that would indicate impairment. To assess the value of goodwill, an estimate of future cash flows and other factors are considered in order to determine fair value. During 2003, the Company performed its annual impairment test and determined that the goodwill associated with the Metals Group was impaired; as a result, the Company recorded a provision of $208,000 to write off all of the unamortized goodwill of the Metals Group, of which $161,000 has been classified as discontinued operations. At December 31, 2004 and 2003, there was $7,623,000 of unamortized goodwill recorded as an asset in the Company's consolidated balance sheet, all of which related to the Rubber Group. DEFERRED FINANCING EXPENSES Deferred financing expenses are amortized over the lives of the related debt instruments. RESEARCH AND DEVELOPMENT EXPENSES Research and development expenses are expensed as incurred. These costs totaled $991,000, $1,168,000, and $924,000 during 2004, 2003, and 2002, respectively. NET INCOME OR LOSS PER COMMON SHARE Basic net income or loss per common share is computed using the weighted-average number of common shares outstanding. Diluted net income or loss per share is calculated after giving effect to all potential common shares that were dilutive, using the treasury stock method. Potential common shares are - 10 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS securities (convertible preferred stock and warrants to purchase common stock) that do not have a current right to participate in earnings but could in the future by virtue of their terms. REVENUE RECOGNITION All of the Company's revenues result from the sale of rubber and metal components. The Company recognizes revenue from the sale of components when title and risk of loss pass to the customer according to shipping schedules and terms of sale mutually agreed to by the Company and its customers. Shipping and handling costs are typically paid by the customer. If paid by the Company, shipping and handling costs are included in cost of sales. RECENTLY ISSUED ACCOUNTING STANDARDS Listed below are recently issued accounting standards and a discussion of how they have affected the Company's consolidated financial statements: STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 106-2, "ACCOUNTING AND DISCLOSURE REQUIREMENTS RELATED TO THE MEDICARE PRESCRIPTION DRUG, IMPROVEMENT AND MODERNIZATION ACT OF 2003" The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the "Act") became law on December 8, 2003. The Act provides for prescription drug benefits under Medicare Part D and contains a subsidy, effective January 1, 2006, under current law, for plan sponsors who provide actuarially equivalent prescription drug benefits to retirees on and after January 1, 2006. Statement of Financial Accounting Standards No. 106-2, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003" ("FAS 106-2"), provides accounting guidance and disclosure for the subsidy, if applicable. Although the Company currently believes that this legislation may eventually reduce the prescription drug portion of its retiree medical cost, it has not yet made any such determination. The adoption of FAS 106-2 during 2004 did not have any effect on the Company's results of operations or financial position and it is not expected to have any significant effect in 2005. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 151, "INVENTORY COSTS - AN AMENDMENT OF ARB NO. 43, CHAPTER 4" In November 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 151, "Inventory costs, an Amendment of ARB No. 43, Chapter 4" ("FAS 151"), which is effective for fiscal years beginning on January 1, 2006. Early adoption of FAS 151 is not anticipated. FAS 151 amends ARB No. 43, Chapter 4, to clarify that abnormal amounts of idle facility expense, freight, handling costs, and waste materials (spoilage) should be recognized as current-period charges. FAS 151 also requires that the allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The Company has not yet determined the potential impact of adopting FAS 151 on January 1, 2006, if any, on its results of operations or financial position. - 11 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123 (REVISED 2004), "SHARE BASED PAYMENT" In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (revised 2004), "Share Based Payment" ("FAS 123 Revised"). FAS 123 Revised is a revision to Financial Accounting Standards Board Statement No. 123, "Accounting for Stock-Based Compensation," and supercedes Accounting Principles Board Opinion No. 25. "Accounting for Stock Issued to Employees," and effectively eliminates the intrinsic value method of accounting for stock options that was available in FAS 123 as originally issued. FAS 123 Revised requires entities to recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards. This statement is effective at the beginning of the third quarter of 2005 and applies to all awards granted after the effective date. The Company does not anticipate that the adoption of FAS 123 Revised will have any a material impact on its results of operations or financial position. STATEMENT OF FINANCIAL POSITION NO. 109-1, "APPLICATION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 109, `ACCOUNTING FOR INCOME TAXES,' TO THE TAX DEDUCTION ON QUALIFIED PRODUCTION ACTIVITIES PROVIDED BY THE AMERICAN JOBS CREATION ACT OF 2004" On December 21, 2004, the Financial Accounting Standards Board issued Statement of Financial Position No. 109-1, "Application of Statement of Financial Accounting Standards No. 109, `Accounting for Income Taxes,' to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004" ("SOP 109-1"). The American Jobs Creation Act provides for a specified tax credit on qualified production activities beginning in 2005. SOP 109-1 clarifies that the specified tax credit should be accounted for as a special tax deduction in accordance with Statement of Financial Accounting Standard No.109, "Accounting for Income Taxes." The Company currently believes that SOP 109-1 will not have any impact on its results of operations or financial position. NOTE 2 -- PREPAID EXPENSES AND OTHER CURRENT ASSETS At December 31, 2004 and 2003, other current assets included $306,000 and $715,000, respectively, of tooling manufactured or purchased by the Company pursuant to purchase orders issued by its customers. Upon customer approval of the components produced by such tooling, which normally takes less than 90 days, the customer is obligated to pay for the tooling in accordance with previously agreed-upon terms. NOTE 3 -- OTHER NONCURRENT ASSETS The Company has paid a portion of the cost of certain tooling that was purchased by customers and is being used by the Company to produce components under long-term supply arrangements. The payments have been recorded as a noncurrent asset and are being amortized on a straight-line basis over three years or, if shorter, the period during which the tooling is expected to produce components. At December 31, 2004 and 2003, other noncurrent assets included $746,000 and $728,000, respectively, representing the unamortized portion of such capitalized payments. During 2004, 2003, and 2002, the Company amortized $274,000, $354,000, and $570,000, respectively, of such capitalized payments. - 12 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 -- ACCRUED EXPENSES, EXCLUDING INTEREST EXPENSE Accrued expenses, excluding interest expense, at December 31, 2004 and 2003, are summarized below (dollar amounts in thousands):
DECEMBER 31 ---------------------- 2004 2003 -------- ------- Employee fringe benefits $ 2,762 $ 3,768 Salaries and wages 1,065 931 Taxes 195 445 Other 817 849 -------- ------- $ 4,839 $ 5,993 ======== =======
NOTE 5 -- DEBT Debt at December 31, 2004 and 2003, is set forth below (dollar amounts in thousands):
DECEMBER 31 ------------------------ 2004 2003 --------- --------- Short-term debt: Revolving line of credit $ 14,509 $ 12,088 12 3/4% Senior Subordinated Notes 158 158 --------- --------- Subtotal 14,667 12,246 Current portion of long-term debt 4,749 5,585 --------- --------- Total short-term debt 19,416 17,831 --------- --------- Long-term debt: Equipment term loans 10,200 13,500 Real estate term loan 10,350 11,500 12% Senior Subordinated Notes 34,177 42,441 13% Junior Subordinated Note 347 347 Increasing Rate Note 7,000 - Unsecured, amortizing term notes 669 104 Capital lease obligations 275 573 Series B Preferred Stock 623 594 Other 57 207 --------- --------- Subtotal 63,698 69,266 Less current portion (4,749) (5,585) --------- --------- Total long-term debt 58,949 63,681 --------- --------- Total Debt $ 78,365 $ 81,512 ========= =========
REVOLVING LINE OF CREDIT At December 31, 2004, the Company had outstanding loans of $14,509,000, outstanding letters of credit of $2,093,000, and net unused availability of $1,224,000 under the revolving line of credit. The - 13 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, less outstanding letters of credit and any reserves established by the lender. All loans and reimbursement obligations with respect to letters of credit under the revolving line of credit are secured by first priority liens on substantially all of the Company's assets other than real estate. At December 31, 2004, the Company's availability under the revolving line of credit was reduced by $1,350,000 of reserves established by the lender. In connection with amendments to certain of the Company's loan agreements on January 27, 2005, $600,000 of these reserves were released. The release of the balance of the reserves is at the discretion of the lender, and the Company cannot predict at this time whether any of the remaining reserves will be released. At December 31, 2004, 2003, and 2002, the weighted-average interest rates on borrowings under the revolving line of credit were 6 1/4%, 5%, and 5 1/4%, respectively. EQUIPMENT TERM LOANS The equipment term loans were originally payable in monthly installments of $300,000 each, with interest at either the prime rate plus 1 1/2% or LIBOR plus 3 3/4%, at the Company's option. On January 27, 2005, the Company and the lender amended the terms of the agreement governing the equipment term loans. The amendment permitted the Company to borrowing an additional $1,500,000 under its equipment loan agreement, which increased the equipment term loans to $11,400,000, eliminated the principal payment due February 1, 2005, reduced the scheduled monthly principal payments to $200,000 commencing March 1, 2005, eliminated the option of a Eurodollar rate for the equipment term loans, and increased the interest rate to the prime rate plus 4 3/4%. At December 31, 2004, the interest rate on the equipment term loans was 6 3/4%. The unpaid balance of the equipment term loans is payable on June 30, 2006, if the revolving line of credit is not extended. The equipment term loans are secured by first priority liens on substantially all of the Company's assets other than real estate. REAL ESTATE TERM LOAN The real estate term loan is payable in monthly installments of $96,000 each from January 1, 2004, through June 1, 2006, with the unpaid balance due on June 30, 2006. The Company has the option to extend the loans to June 30, 2007, on the same terms, provided that the revolving line of credit is also extended from June 30, 2006, to June 30, 2007. The real estate term loan bears interest at the prime rate plus 5%, subject to a minimum of 9 1/4%, and requires the Company to pay a fee of $216,000 on each anniversary of the closing date. The real estate term loan is secured by first mortgages on substantially all of the Company's real estate and by second priority liens on substantially all of the Company's other assets. The real estate term loan contains a provision that permits the lender to accelerate the loan if there is a material adverse change in the Company's financial condition, business, or operating performance. At December 31, 2004, the interest rate on the real estate term loan was 10 1/4%. - 14 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS INCREASING RATE NOTE On September 3, 2004, the Company issued a $7,000,000 note with an increasing rate of interest. The Increasing Rate Note is an unsecured obligation of the Company that is senior in right of payment to the 12% Senior Subordinated Notes, the 12 3/4% Senior Subordinated Notes, and the 13% Junior Subordinated Notes. The Increasing Rate Note matures on June 30, 2007. Interest is due monthly and is currently being paid at the rate of 13.8% per annum (the "Cash Rate"). In lieu of paying the Cash Rate, the Company has the option to pay interest at the rate of 12% in cash and an additional 3.6% in additional Increasing Rate Notes (the "PIK Rate"). The Cash Rate will increase by up to 0.6 percentage points on each of September 1, 2005 and 2006, and the PIK Rate will increase by up to 1.2 percentage points on each of September 1, 2005 and 2006. The exact amount of each increase will depend upon the principal amount of the Increasing Rate Note then outstanding. 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 12 3/4% Senior Subordinated Notes then outstanding were exchanged for units consisting of 12% Senior Subordinated Notes and warrants to purchase common stock. The remaining $158,000 of 12 3/4% Senior Subordinated Notes that did not participate in the exchange remained outstanding at December 31, 2004. 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. On October 1, 2004, the Company purchased $8,264,000 principal amount of its 12% Senior Subordinated Notes plus interest accrued thereon for $2,892,000. See Note 13, "Gain on the Repurchase of Debt." 13% JUNIOR SUBORDINATED NOTE The 13% Junior Subordinated Note matures on November 1, 2009, and is an unsecured obligation of the Company that is subordinated in right of payment to all existing and future secured and senior, unsecured debt of the Company, the 12 3/4% Senior Subordinated Notes, and the 12% Senior Subordinated Notes. UNSECURED, AMORTIZING TERM NOTES The unsecured, amortizing term notes mature in 2005, and bear interest at rates varying from 6% to 8%. At December 31, 2004, the weighted average interest rate on the notes was 7.8%. CAPITAL LEASE OBLIGATIONS Capital lease obligations relate to the purchase of equipment used in the Company's manufacturing operations. During 2004, the Company entered into capital leases totaling $144,000. At December 31, 2004, the Company's consolidated balance sheet included equipment held under capital - 15 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS leases with a cost of $1,146,000 and related accumulated depreciation of $252,000. The future minimum lease payments under the terms of the various capital leases are set forth below under the heading "Scheduled Maturities of Long-Term Debt." Amortization of assets recorded as capital leases is included in depreciation expense. SERIES B PREFERRED STOCK At December 31, 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 $623,000. Each share of Series B Preferred Stock is (1) entitled to one vote, (2) redeemable for $200 plus accumulated and unpaid dividends, (3) convertible into 14.8148 shares of common stock (subject to adjustment), and (4) entitled, upon voluntary or involuntary liquidation and after payment of the debts and other liabilities of the Company, to a liquidation preference of $200 plus accumulated and unpaid dividends. 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 $450,000 on November 30, 2000, 2001, 2002, 2003, and 2004. During 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 began to classify the Series B Preferred Stock as debt in the consolidated financial statements and recognized a pre-tax charge of $247,000 to increase the carrying value of the Series B Preferred Stock to its fair value. Subsequent to adoption, increases in the fair value of the Series B Preferred Stock and payments of quarterly dividends have been recorded by monthly charges to interest expense. NON-CASH INVESTING AND FINANCING ACTIVITIES The Company purchased equipment under capitalized lease obligations in the amount of $144,000, $720,000, and $365,000, during 2004, 2003, and 2002, respectively, and obtained seller financing for the purchase of equipment in the aggregate amount of $198,000 in 2004 and $247,000 in 2002. RESTRICTIVE COVENANTS The agreements governing the revolving line of credit, the equipment term loans, 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 level of fixed charge coverage, minimum levels of net worth and EBITDA, and a maximum ratio of debt to EBITDA. The Company also has covenants that limit its unfinanced capital expenditures to $6,250,000 per annum and limit the amount of additional secured financing that it can incur for the purchase of plant and equipment to $2,500,000 per annum. Although there can be no assurance, the Company currently believes that this provision will not limit its planned capital expenditures during 2005. 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, and the payment of cash dividends. - 16 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS From time to time, the Company's secured lenders have agreed to waive, amend, or eliminate certain of the financial covenants contained in its 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 secured lenders amended fixed charge coverage ratios and annual limitations on unfinanced capital expenditures; - Effective May 31, 2004, one of the Company's secured lenders waived compliance with a minimum net worth covenant; - Effective June 30, 2004, the Company's two secured lenders amended financial covenants, related to minimum net worth, minimum fixed charge coverage, minimum EBITDA, and maximum debt to EBITDA; and - Effective January 27, 2005, the Company's two secured lenders further amended financial covenants, related to minimum consolidated EBITDA, minimum Rubber Group EBITDA, fixed charge coverage ratios, and maximum secured debt to EBITDA. 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. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company believes that, at December 31, 2004, the fair values of the loans outstanding under the revolving line of credit, the equipment term loans, and the real estate term loan approximated the principal amounts of such loans. On October 1, 2004, the Company repurchased a total of $8,264,000 principal amount of its 12% Senior Subordinated Notes plus interest accrued thereon at an aggregate cost of $2,892,000. The Company is unaware of any other trading activity in the 12% Senior Subordinated Notes or the 12 3/4% Senior Subordinated Notes since January 1, 2001. The Company believes that it has no basis to express an opinion as to the fair market value of 12% Senior Subordinated Notes, 12 3/4% Senior Subordinated Notes, the 13% Junior Subordinated Note, the Increasing Rate Note, or the Series B Preferred Stock. FINANCIAL LEVERAGE AND LIQUIDITY The Company operates with substantial financial leverage and limited liquidity. Aggregate indebtedness as of December 31, 2004, totaled $78,365,000. During 2005, interest and scheduled principal payments are projected to be approximately $8,189,000 and $4,277,000, respectively. CASH INTEREST PAID Cash interest paid during 2004, 2003, and 2002 totaled $7,144,000, $2,122,000, and $2,644,000, respectively. - 17 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SCHEDULED MATURITIES OF LONG-TERM DEBT Scheduled maturities of long-term debt and capital lease obligations for the years ending December 31 are listed below (dollar amounts in thousands):
CAPITAL LONG-TERM LEASE DEBT OBLIGATIONS TOTAL --------- ----------- ---------- 2005 $ 4,565 $ 184 $ 4,749 2006 17,236 86 17,322 2007 7,074 4 7,078 2008 25 - 25 2009 34,524 - 34,524 --------- ----------- ---------- $ 63,424 $ 274 $ 63,698 ========= =========== ==========
NOTE 6 -- COMMON STOCK, WARRANTS, AND OTHER EQUITY SECURITIES COMMON STOCK, $.25 PAR VALUE At December 31, 2004, 2003, and 2002, there were 4,931,767, 4,931,767 and 4,828,036 shares of the Company's common stock outstanding, respectively, and 48,889 shares were reserved for issuance on the conversion of the Series B Preferred Stock. In connection with the completion of the Company's debt refinancing on December 18, 2003, the Company exchanged 103,731 shares of its common stock for the $235,000 of interest that was accrued and unpaid on its then outstanding junior subordinated notes. WARRANTS At December 31, 2004 and 2003, there were outstanding 345,237 and 427,877 warrants, respectively, each of which entitles the holder to purchase one share of the Company's common stock at $3.50 per share from August 1, 2005, through August 1, 2009. The Company issued 424,410 of the warrants in connection with the exchange of its 12 3/4% Senior Subordinated Notes due February 1, 2000, for units consisting of warrants and 12% Senior Subordinated Notes due August 1, 2009, and 3,467 of the warrants in connection with the exchange of its 14% Junior Subordinated Notes for units consisting of warrants and new 13% Junior Subordinated Notes due November 1, 2009. On October 1, 2004, the Company repurchased units comprising $8,264,000 principal amount of its 12% Senior Subordinated Notes and 82,640 warrants, which were subsequently retired. The warrants will trade only as part of a unit with the 12% Senior Subordinated Notes or the 13% Junior Subordinated Notes, as the case may be, until August 1, 2005, at which time the warrants can be separated from the notes. Because the exercise price of the warrants substantially exceeded the market price of the Company's common stock at the date of issuance, the Company concluded that the warrants had negligible value. OTHER AUTHORIZED PREFERRED STOCK The Company's restated certificate of incorporation provides that the Company is authorized to issue 2,500 shares of 6% Cumulative Convertible Preferred Stock, Series A, par value $100 per share. No shares of this preferred stock have been issued. - 18 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company's restated certificate of incorporation also provides that the Company is authorized to issue 2,500,000 shares of other preferred stock having a par value of $1 per share. No shares of this preferred stock have been issued. NOTE 7 -- EMPLOYEE BENEFIT PLANS RETIREMENT AND SAVINGS PLAN The Company maintains a retirement and savings plan pursuant to Section 401 of the Internal Revenue Code (a "401(k) plan"). All employees of the Company are entitled to participate in the 401(k) plan after meeting the eligibility requirements. Effective January 1, 2003, employees may generally contribute up to 60% of their annual compensation but not more than prescribed dollar amounts established by the United States Secretary of the Treasury. Employee contributions, up to a maximum of 6% of an employee's compensation, are matched 50% by the Company. During 2004, 2003, and 2002, matching contributions made by the Company totaled $507,000, $504,000, and $520,000, respectively. Company contributions to the 401(k) plan vest at a rate of 20% per year commencing after the participant's second year of service until the participant becomes fully vested after six years of service. INCENTIVE COMPENSATION PLAN The Company has an incentive compensation plan that provides for the payment of annual cash bonus awards to certain officers and key employees of the Company if specified targets are met. The Compensation Committee of the Company's Board of Directors, which consists of two directors who are not employees of the Company, oversees the administration of the incentive compensation plan and approves the cash bonus awards. Bonus awards for eligible divisional employees are typically based upon the attainment of predetermined targets for earnings before interest, taxes, depreciation, and amortization ("EBITDA") at each division. Bonus awards for corporate officers are typically based upon the attainment of predetermined consolidated EBITDA targets. The consolidated financial statements include provisions for bonuses totaling $641,000, $569,000, and $623,000 for 2004, 2003, and 2002, respectively. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The Company maintains programs to fund certain costs related to a prescription drug card program for a closed group of retirees of one of its former divisions and to fund limited medical costs for certain retirees of one of its divisions. At December 31, 2004, the Company's accumulated postretirement benefit obligation totaled $322,000. Prior to January 1, 2004, the Company amortized its transition obligation over the remaining life expectancy of the participants, which equated to an annual rate of $23,000. Effective January 1, 2004, the Company revised the life expectancy of the participants in the prescription drug program and, as a result, the Company began to amortize its unamortized transition obligation at the rate of $20,000 per year during 2004. The Company measures its post-retirement benefit obligation on January 1 of each year. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the "Act") became law on December 8, 2003. The Act provides for a prescription drug benefit under Medicare Part D and contains a federal subsidy, effective January 1, 2006, to plan sponsors who provide actuarially equivalent prescription drug benefit to retirees. The Company has not yet determined if the prescription drug benefit it provides to a closed group of retirees is actuarially equivalent to the benefits provided for in the Act. As a result, the possible effects of the Act are not reflected in the obligations or net annual - 19 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS postretirement benefit cost set forth below. During 2004 and 2003, the Company paid $14,000 and $15,000, respectively, for retiree prescription drug benefits. A reconciliation of the changes in the Company's post-retirement obligations at December 31, 2004 and 2003, is set forth below (dollar amounts in thousands):
DECEMBER 31 ---------------- 2004 2003 ------ ------ Accumulated postretirement benefit obligation at beginning of year $ 332 $ 411 Interest cost 19 26 Benefits paid (36) (43) Actuarial loss (gain) 7 (62) ------ ------ Accumulated postretirement benefit obligation at end of year 322 332 Plan assets at fair market value - - ------ ------ Unfunded accumulated postretirement benefit obligation at end of year 322 332 Unrecognized transition obligation (79) (99) Unrecognized net gain 52 64 ------ ------ Accrued benefit cost $ 295 $ 297 ====== ======
Net annual postretirement benefit costs for 2004, 2003, and 2002, are summarized below (dollar amounts in thousands):
YEARS ENDED DECEMBER 31 -------------------------- 2004 2003 2002 ------ ------ ------ Interest cost $ 19 $ 26 $ 28 Net amortization and deferral 15 22 54 ------ ------ ------ Net annual postretirement benefit cost $ 34 $ 48 $ 82 ====== ====== ======
The weighted-average annual rate of increase in the per capita cost of covered benefits for the prescription drug card program is assumed to be 10% in 2005 and is projected to decrease gradually thereafter until it reaches 5% in 2012. Changing the assumed rate of increase in the prescription drug cost by one percentage point in each year would not have a significant effect on the accumulated postretirement benefit obligation. The Company's program to fund certain insurance premiums for retirees of one of its divisions has a defined dollar benefit and is therefore unaffected by increases in health care costs. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation at December 31, 2004 and 2003, was 6% and 6 1/4%, respectively. NOTE 8 -- INCOME TAXES Income taxes are accounted for in accordance with Financial Accounting Standards Board Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The Company - 20 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS files a consolidated federal income tax return with its wholly-owned subsidiary. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The components of the provisions for income taxes related to continuing operations in 2004, 2003, and 2002, are set forth below (dollar amounts in thousands):
YEARS ENDED DECEMBER 31 ------------------------------- 2004 2003 2002 ------- ------- ------- Current: Federal $ (328) $ - $ (643) State 132 76 105 ------- ------- ------- (196) 76 (538) Deferred: Federal - - - ------- ------- ------- Income tax provision (benefit) $ (196) $ 76 $ (538) ======= ======= =======
The federal income tax benefit recorded during 2004, consisted of an adjustment of previously recorded federal income tax liabilities. The federal income tax benefit recorded during 2002 resulted from a refund of alternative minimum taxes totaling $643,000 that were paid in earlier periods. Excluding the receipt of refunds of prior years' income taxes, income taxes paid during 2004, 2003, and 2002 totaled $84,000, $103,000, and $80,000, respectively. The difference between the Company's income tax provision (benefit) for income (loss) from operations in 2004, 2003, and 2002 and the income taxes that would have been payable at the federal statutory rate for income (loss) from operations is reconciled as follows (dollar amounts in thousands):
YEARS ENDED DECEMBER 31 ----------------------------------- 2004 2003 2002 --------- --------- --------- Federal statutory income tax provision $ 1,564 $ (501) $ (241) Change in valuation allowance (1,542) 718 (409) Adjustment of tax liabilities (328) Nondeductible goodwill - 16 - State income taxes, net of federal benefit 87 50 78 Other 23 (207) 34 --------- --------- --------- Income tax provision (benefit) $ (196) $ 76 $ (538) ========= ========= =========
- 21 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table sets forth the Company's deferred tax assets and deferred tax liabilities at December 31, 2004 and 2003 (dollar amounts in thousands):
DECEMBER 31 --------------------- 2004 2003 -------- --------- Deferred tax assets: Net operating losses and tax credit carryforwards: Federal net operating losses $ 5,566 $ 6,714 State net operating losses 1,852 1,942 Federal alternative minimum taxes 864 864 Investment tax credit 100 100 Other tax credit 81 81 -------- --------- Total tax carryforwards 8,463 9,701 Deductible temporary differences: Impairment of long-lived assets 693 693 Accounts receivable and inventory reserves 470 520 Tax inventory over book 193 159 Compensation accruals 542 318 Other accruals 398 381 Other 129 118 -------- --------- Total deferred tax assets 10,888 11,890 Valuation allowance (8,121) (8,925) -------- --------- Net deferred tax assets 2,767 2,965 Deferred tax liabilities: Tax over book depreciation 2,767 2,965 -------- --------- Net deferred taxes $ - $ - ======== =========
During 2004, the Company's valuation allowance decreased by $804,000, primarily due to the net income reported by the Company for calendar 2004. At December 31, 2004, the Company had net operating loss carryforwards for federal income tax purposes of $16,370,000, which expire in the years 2005 through 2022, alternative minimum tax net operating loss carryforwards of $7,838,000, which can be used to reduce future taxable income for purposes of calculating alternative minimum taxable income, if any, without any time limitation, and alternative minimum tax credit carryforwards of $864,000, which can be used to offset future payments of regular federal income taxes, if any, without any time limitation. - 22 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The expiration of the Company's federal net operating loss carryforwards by year of expiration is set forth in the table below (dollar amounts in thousands): 2005 $ 319 2006 3,473 2007 1,246 2008 - 2009 - Thereafter 11,332 ---------- Total federal net operating loss carryforwards $ 16,370 ==========
NOTE 9 -- SEGMENTS DESCRIPTION OF SEGMENTS AND PRODUCTS The Company has two operating segments, the Rubber Group and the Metals Group. The Rubber Group produces seals used in automotive wiring systems, insulators for automotive ignition wire sets, and components for medical devices. The Metals Group machines components from aluminum, brass, and steel bars for sale primarily to automotive suppliers. During 2004, the Company committed to a plan to discontinue the operations of its die casting division, which is one of two operating units that comprise the Metals Group segment. In the following table, information related to the die casting division has been excluded. The Rubber Group and the Metals Group conduct substantially all of their business in the continental United States. At December 31, 2004, approximately 34.9% of the Company's employees were subject to collective bargaining agreements that expire in 2007 and 2008. MEASUREMENT OF SEGMENT PROFIT OR LOSS The Company evaluates its performance based upon several measures, including income from operations, EBITDA, and asset utilization. The accounting policies of the Company's operating segments are the same as those described in Note 1, "Summary of Significant Accounting Policies," except that debt, deferred financing expenses, interest expense, and income tax expense are recorded at the Corporate Office. Also, Corporate Office expenses that are not considered direct expenses of the Rubber Group or the Metals Group are not allocated to those segments. FACTORS MANAGEMENT USED TO IDENTIFY REPORTABLE SEGMENTS Although all of the Company's production facilities are similar manufacturing operations, selling to similar customers, the Company presents financial data for the Rubber Group and the Metals Group because of the significant difference in financial performance between those businesses. INDUSTRY CONCENTRATION; RELIANCE ON LARGE CUSTOMERS AND CREDIT RISK During 2004, 2003, and 2002, net sales from continuing operations to customers in the automotive industry totaled $97,902,000, $97,146,000, and $96,458,000, respectively, which represented 88.7%, 85.8%, and 85.9%, respectively, of the Company's net sales. At December 31, 2004 and 2003, - 23 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS accounts receivable from automotive industry customers totaled $15,248,000 and $15,166,000, respectively. The Company operates primarily in the domestic automotive market, which has been characterized by intense price competition and increasing customer requirements for quality and service. These factors, among others, may have a sudden and an adverse affect on the operating results and financial condition of the Company's customers, and, in turn, the collectibility of the Company's accounts receivable from those customers. The Company attempts to mitigate this risk of loss through ongoing evaluations of automotive market conditions, examinations of customer financial statements, and discussions with customer management as deemed necessary. Provisions for credit losses are based upon historical experience and such ongoing evaluations of the financial condition of the Company's customers. The Company generally does not require collateral from its customers to support the extension of trade credit. At December 31, 2004 and 2003, the Company had reserves for credit losses of $537,000 and $545,000, respectively. At December 31, 2004 and 2003, accounts receivable from automotive industry customers of discontinued operations totaled $1,227,000 and $1,552,000, respectively. During 2004, 2003, and 2002, the Company's net sales to Delphi Corporation, totaled $23,413,000, $24,591,000, and $25,181,000. Substantially all of the Company's net sales to Delphi during the three years ended December 31, 2004, were made by the Rubber Group. Sales to Delphi in 2004, 2003, and 2002, represented 21.2%, 21.7%, and 22.4%, respectively, of the Company's net sales and 23.5%, 23.4%, and 25.1%, respectively, of the Rubber Group's net sales. At December 31, 2004, 2003, and 2002, accounts receivable due from Delphi represented 23.8%, 23.3%, and 26.8% of the Company's total trade receivable balances. During 2004 and 2003, net sales to General Cable Corporation totaled $11,636,000 and $11,802,000 or 10.5% and 10.4%, respectively, of the Company's net sales, and 11.7% and 11.4%, respectively, of the Rubber Group's net sales. No other customer accounted for more than 10% of the Company's net sales during 2004, 2003, or 2002. In 2004, the three largest customers of the Rubber Group, including Delphi, accounted for 44.6% of the Rubber Group's net sales and, at December 31, 2004, 43.2% of the Company's total trade receivable balances. In 2004, the three largest customers of the continuing operations of the Metals Group accounted for 61.3% of the Metals Group's net sales and, at December 31, 2004, 9.3% of the Company's total trade receivable balances. Loss of a significant amount of business from Delphi, General Cable, or any of the Company's other large customers would have a material adverse effect on the Company if such business were not substantially replaced by additional business from existing or new customers. In addition, the Company's results of operations could be materially adversely affected if Delphi, General Cable, or any of the Company's other large customers experience financial difficulties that cause them to delay or fail to make payments for goods sold to them. Net sales to Delphi of connector seals for automotive wiring harnesses totaled $19,802,000, $20,227,000, and $21,147,000 during 2004, 2003, and 2002, respectively. Since July 2001, substantially all of the connector seals that the Company has sold to Delphi were sold pursuant to a supply agreement that was scheduled to expire on December 31, 2004. During 2004, Delphi advised the Company that it planned to insource during 2005, approximately 36 high-volume connector seals that were then being produced by the Company's Lexington Connector Seals division, and asked the Company to provide a proposal to continue to manufacture the remaining connector seals then being supplied to Delphi by the connector seals division. On November 22, 2004, Delphi and the connector seals division entered into an agreement pursuant to which Delphi agreed to purchase from the division 100% of its requirements through December 31, 2009, for all connector seals not scheduled to be insourced and 100% of its requirements through various dates in 2005 for the connector seals scheduled to be insourced. The Company estimates that if the 36 connector seals had been - 24 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS in-sourced by Delphi on January 1, 2004, its net sales and income from operations for 2004 would have been reduced by approximately $8,624,000 and $840,000, respectively. Pursuant to the agreement, the connector seals division will receive price increases effective January 1, 2005 on the remaining parts supplied to Delphi, which are expected to offset a significant portion of the profit lost due to the in-sourcing. The Company is currently restructuring the operations of the connector seals division to reduce expenses and further mitigate the impact of the reduced volume. The restructuring of the connector seals division will include, among other things, the closing of one of its existing manufacturing facilities. CORPORATE OFFICE The net loss from operations at the Corporate Office consists primarily of general administrative expenses that are not a result of any activity carried on by either the Rubber Group or the Metals Group. Corporate Office expenses include the compensation and benefits of the Company's executive officers and corporate staff, rent on the office space occupied by these individuals, general corporate legal fees, including fees related to financings, and certain insurance expenses. Assets of the Corporate Office are primarily cash, certain prepaid expenses and other miscellaneous current assets, deferred tax assets, and deferred financing expenses. - 25 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEGMENT FINANCIAL DATA Information relating to the Company's operating segments and the Corporate Office for 2004, 2003, and 2002 is summarized below (dollar amounts in thousands):
YEARS ENDED DECEMBER 31 --------------------------------------- 2004 2003 2002 --------- ---------- ---------- NET SALES: Rubber Group $ 99,565 $ 103,243 $ 98,880 Metals Group 10,788 9,988 13,483 --------- ---------- ---------- Total net sales $ 110,353 $ 113,231 $ 112,363 ========= ========== ========== INCOME (LOSS) FROM OPERATIONS (1): Rubber Group $ 9,865 $ 10,026 $ 10,765 Metals Group (2,788) (1,840) (2,099) --------- ---------- ---------- Subtotal 7,077 8,166 8,666 Corporate Office (2,411) (2,679) (2,464) --------- ---------- ---------- Total income from operations $ 4,666 $ 5,507 $ 6,202 ========= ========== ========== DEPRECIATION AND AMORTIZATION (2): Rubber Group $ 6,929 $ 7,121 $ 7,786 Metals Group 1,476 1,796 2,408 --------- ---------- ---------- Subtotal 8,405 8,919 10,194 Corporate Office 39 38 53 --------- ---------- ---------- Total depreciation and amortization $ 8,444 $ 8,955 $ 10,247 ========= ========== ========== CAPITAL EXPENDITURES (3): Rubber Group $ 5,277 $ 4,873 $ 3,690 Metals Group 773 799 319 --------- ---------- ---------- Subtotal 6,050 5,672 4,009 Corporate Office 7 14 4 --------- ---------- ---------- Total capital expenditures $ 6,057 $ 5,686 $ 4,013 ========= ========== ========== ASSETS: Rubber Group $ 60,377 $ 61,953 $ 64,439 Metals Group 9,872 10,231 11,702 --------- ---------- ---------- Subtotal 70,249 72,184 76,141 Corporate Office 3,352 4,111 5,252 Discontinued operations 4,776 7,392 10,752 --------- ---------- ---------- Total assets $ 78,377 $ 83,687 $ 92,145 ========= ========== ==========
(1) During 2003, the loss from operations at the Metals Group includes a provision of $47,000 to write off goodwill. During 2002, the loss from operations at the Metals Group includes costs of $609,000 incurred to close the Metals Group's metal machining facility in Arizona, and $1,290,000 of other losses related to the Arizona facility. (2) Excludes amortization of deferred financing expenses, which totaled $1,098,000, $610,000, and $440,000, during 2004, 2003, and 2002, respectively, and which is included in interest expense in the consolidated financial statements. (3) Capital expenditures for 2004, included $144,000 of equipment purchased under capitalized lease obligations and $198,000 of equipment acquired with seller-provided financing. Capital expenditures for 2003 included $720,000 of equipment purchased under capital lease obligations. Capital expenditures for 2002 included $365,000 of equipment purchased under capitalized lease obligations and $247,000 of equipment acquired with seller-provided financing. - 26 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10 -- NET INCOME (LOSS) PER COMMON SHARE The calculations of basic and diluted net income (loss) per common share for 2004, 2003, and 2002, are set forth below (in thousands, except per share amounts). The assumed conversion of the Series B Preferred Stock and the assumed exercise of outstanding warrants to purchase the Company's common stock, which were issued on December 18, 2003, were not dilutive. As a result, the weighted average number of outstanding common shares used in the calculation of net income (loss) per common share set forth below does not reflect the assumed conversion of the Series B Preferred Stock or the assumed exercise of the warrants. During 2003, the Company's loss per share calculation reflected dividends on the Series B Preferred Stock totaling $106,000. If the Company had paid dividends on the Series B Preferred Stock during 2002, the Company's net loss per share would have been increased by one cent per share. Dividends and redemptions accruing on the Series B preferred stock subsequent to the adoption of FAS 150 by the Company on July 1, 2003, are classified as interest expense in the Company's consolidated statements of operations.
YEARS ENDED DECEMBER 31 ------------------------------- 2004 2003 2002 -------- -------- -------- Numerator for basic and diluted earnings per share: Income (loss) from continuing operations before deducting preferred stock dividends $ 4,798 $ (1,549) $ (170) Less: preferred stock dividends - 106 - -------- -------- -------- Income (loss) from continuing operations after deducting preferred stock dividends 4,798 (1,655) (170) Loss from discontinued operations (3,208) (4,653) (1,397) Cumulative effect of a change in accounting principle - (247) - -------- -------- -------- Net income (loss) applicable to common stockholders $ 1,590 $ (6,555) $ (1,567) ======== ======== ======== Denominator - weighted average shares outstanding 4,932 4,832 4,828 ======== ======== ======== Basic and diluted income (loss) per share of common stock: Continuing operations $ 0.97 $ (0.35) $ (0.03) Discontinued operations (0.65) (0.96) (0.29) Cumulative effect of a change in accounting principle - (0.05) - -------- -------- -------- Net income (loss) $ 0.32 $ (1.36) $ (0.32) ======== ======== ========
- 27 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11 -- COMMITMENTS AND CONTINGENCIES PURCHASE COMMITMENTS At December 31, 2004, the Company had outstanding commitments to purchase equipment of $341,000. LEASES The Company is lessee under various operating leases relating to storage and office space, temporary office units, and equipment. Total rent expense under operating leases from continuing operations aggregated $440,000, $395,000, and $419,000 for 2004, 2003, and 2002, respectively. At December 31, 2004, future minimum lease commitments under noncancelable operating leases from continuing operations totaled $226,000, $109,000, and $54,000 for 2005, 2006, and 2007, respectively. Commitments subsequent to 2007 are not significant. LEGAL ACTIONS The Company is subject to various claims and legal proceedings covering a wide range of matters that arise in the ordinary course of its business activities. It is the Company's policy to record accruals for such matters when a loss is deemed probable and the amount of such loss can be reasonably estimated. The various actions to which the Company is or may in the future be a party are at various stages of completion. Although there can be no assurance as to the outcome of existing or potential litigation, the Company believes, based upon the information currently available to it, that the outcome of such actions will not have a material adverse effect upon its financial position. OTHER The Company maintains insurance coverage for certain aspects of its business and operations. Based on the Company's evaluation of the various risks to which it may be exposed, the Company has elected to retain a portion of the potential losses that it could experience in the future through the use of various deductibles, limits, and retentions. These forms of self-insurance subject the Company to possible future liability for which it is partially or completely uninsured. Although there can be no assurance that it will be successful in its efforts, the Company attempts to limit future liability through, among other things, the ongoing training and education of its employees, the implementation of safety programs, the ongoing testing and evaluation of the safety and suitability of its workplace environments, the development of sound business practices, and the exercise of care and judgment in the negotiation of contracts. NOTE 12 -- RELATED PARTIES The Chairman of the Board and the President of the Company, Michael A. Lubin and Warren Delano, are the Company's two largest stockholders, with beneficial ownership of 32.7% and 28.3%, respectively, of the Company's common stock. They are also the holders of the 13% Junior Subordinated Note, and, together with affiliates and associates, the holders of $2,831,000 principal amount of 12% Senior Subordinated Notes. In December 2003, Messrs. Delano and Lubin converted accrued interest of $235,000 on the Company's junior subordinated notes into 103,731 shares of common stock. - 28 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In 2004, Messrs. Delano and Lubin, through an investment banking firm of which they are the only partners, were paid $700,000 to provide management and investment banking services. Additionally, Messrs. Delano and Lubin may receive incentive compensation tied to the Company's operating performance and other compensation for specific transactions completed by the Company with the assistance of Messrs. Lubin and Delano. The Company also has agreed to reimburse their firm for certain out-of-pocket expenses. During each of 2003 and 2002, the Company paid the Messrs. Lubin and Delano fees of $500,000. During 2004, 2003, and 2002, the Company reimbursed their firm for expenses of $163,000, $200,000, and $196,000, respectively. For more information on the compensation of Messrs. Delano and Lubin, refer to the Company's proxy statement to be issued in connection with its Annual Meeting of Stockholders and to be filed during April, 2005. NOTE 13 -- GAIN ON THE REPURCHASE OF DEBT During 2004, the Company recognized $8,598,000 of aggregate gains on the repurchase of its debt. REPURCHASE OF 10 1/2% SENIOR, UNSECURED NOTE During the second quarter of 2004, the Company recognized a pre-tax gain of $3,252,000 on the repurchase of its $7,500,000 10 1/2% senior, unsecured note and all accrued interest thereon. Although the Company repurchased the senior, unsecured note on December 18, 2003, the gain on the repurchase of the senior, unsecured note was deferred and recorded, at December 31, 2003, 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 recognized the pre-tax gain during the three-month period ended June 30, 2004. REPURCHASE OF 12% SENIOR SUBORDINATED NOTES On October 1, 2004, the Company repurchased a total of $8,264,000 principal amount of its 12% Senior Subordinated Notes plus interest accrued thereon at an aggregate cost of $2,892,000. After the write-off of deferred financing expenses of $192,000, the Company realized a pre-tax gain on the repurchase of $5,346,000. The purchased 12% Senior Subordinated Notes have been cancelled and retired. - 29 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 -- DISCONTINUED OPERATIONS During 2002 and 2003, the Company's die casting division, which was one of two operating units that comprised the Company's Metals Group segment, experienced negative gross profit margins. At December 31, 2003, the Company reassessed the division's business and reduced its overall expectations for the division's future financial performance. As a result, the Company reviewed the long-lived assets of the die casting division for impairment as of December 31, 2003, under the provisions of Statement of Financial Accounting Standards No.144, "Accounting for Impairment or Disposal of Long-Lived Assets" ("FAS 144"). The Company determined that the undiscounted, projected cash flow of the division was less than the carrying value of the long-lived assets being tested. As a result, the Company concluded that the long-lived assets of this division, which had a carrying value of $7,131,000, were impaired and the Company wrote them down to their estimated fair value of $4,704,000, recording a non-cash, pre-tax impairment charge of $2,427,000 at December 31, 2003. Fair value was based primarily on independent appraisals of the long-lived assets. In September 2004, as a result of continued poor operating performance and reduced expectations for the division's future financial performance, the Company committed to a plan to discontinue the operations of the die casting division. In the fourth quarter of 2004, the Company initiated a program to sell the assets or business of the die casting division. If a sale of the entire business does not occur during the first half of 2005, the Company plans to close the operations of the die casting division during the second quarter of 2005, after fulfilling certain agreed-upon customer purchase orders. Accordingly, pursuant to FAS 144, the carrying value of the assets of the die casting division have been adjusted to the Company's estimate of the fair value of such assets, which approximates the projected proceeds to be realized on the disposition of the assets, net of estimated selling costs. As a result, the Company recognized a pretax impairment charge of $1,595,000 during 2004. In accordance with Financial Accounting Standards Board Emerging Issue Task force Abstract No. 87-24, "Allocation of Interest to Discontinued Operations" ("EITF 87-24"), the Company has allocated interest to the discontinued operations based on the debt that would be required to be repaid using management's estimate of the proceeds to be realized on the anticipated sale of the die casting assets. No allocation was made to the die casting division for any other interest or for any corporate office expenses. Interest expense allocated to the die casting division totaled $241,000, $69,000, and $62,000 for 2004, 2003, and 2002, respectively. - 30 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes certain operating data of the die casting division for 2004, 2003, and 2002 (dollar amounts in thousands):
YEARS ENDED DECEMBER 31 ------------------------------ 2004 2003 2002 -------- -------- -------- Net sales $ 9,096 $ 8,385 $ 12,489 ======== ======== ======== Loss from operations before asset impairment charge $ (1,372) $ (1,996) $ (1,335) Impairment of long-lived assets (1,595) (2,427) - Impairment of goodwill - (161) - -------- -------- -------- Loss from operations of discontinued operations (2,967) (4,584) (1,335) Allocated interest expense 241 69 62 -------- -------- -------- Loss before income tax (3,208) (4,653) (1,397) Income tax - - - -------- -------- -------- Loss from discontinued operations (3,208) (4,653) (1,397) Add back: depreciation and amortization 666 1,324 1,618 interest expense 241 69 62 -------- -------- -------- EBITDA from discontinued operations $ (2,301) $ (3,260) $ 283 ======== ======== ========
The following table sets forth the assets and liabilities of the die casting division in our consolidated balance sheets at December 31, 2004 and 2003 (dollar amounts in thousands):
DECEMBER 31 -------------------- 2004 2003 -------- -------- ASSETS: Current assets: Cash $ - $ 11 Accounts receivable, net 1,056 1,394 Inventories, net 695 894 Prepaid expenses and other current assets 240 388 Other assets, net 31 267 -------- -------- Current assets 2,022 2,954 Plant and equipment, net (1) 2,754 4,438 -------- -------- Assets of discontinued operations $ 4,776 $ 7,392 ======== ======== LIABILITIES (2): Current liabilities: Accounts payable $ 615 $ 516 Accrued expenses 179 166 Other liabilities - 93 -------- -------- Liabilities of discontinued operations $ 794 $ 775 ======== ========
- 31 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Under the terms of our secured loan agreements, we are required to use proceeds from the sale of property, plant and equipment to pay down the indebtedness collateralized by such property, plant, and equipment. (2) Liabilities do not include debt for money borrowed by us that is secured by assets of the division. NOTE 15 -- QUARTERLY FINANCIAL DATA (UNAUDITED) Quarterly unaudited financial data for the eight fiscal quarters ended December 31, 2004, is set forth below (dollar amounts in thousands, except per share amounts).
QUARTERS ENDED 2004 --------------------------------------------- MAR. 31 JUNE 30 SEPT. 30 DEC. 31 -------- -------- -------- -------- Net sales $ 30,607 $ 29,474 $ 25,880 $ 24,392 ======== ======== ======== ======== Gross profit $ 4,146 $ 3,093 $ 2,817 $ 1,993 ======== ======== ======== ======== Income (loss) from continuing operations $ 103 $ 2,139 $ (1,194) $ 3,750 Loss from discontinued operations (259) (857) (1,525) (567) -------- -------- -------- -------- Net income (loss) $ (156) $ 1,282 $ (2,719) $ 3,183 ======== ======== ======== ======== Basic and diluted income (loss) per share of common stock: Continuing operations $ 0.02 $ 0.42 $ (0.25) $ 0.76 Discontinued operations (0.05) (0.16) (0.30) (0.11) -------- -------- -------- -------- Net income (loss) $ (0.03) $ 0.26 $ (0.55) $ 0.65 ======== ======== ======== ========
QUARTERS ENDED 2003 --------------------------------------------- MAR. 31 JUNE 30 SEPT. 30 DEC. 31 -------- -------- -------- -------- Net sales $ 29,949 $ 28,925 $ 26,551 $ 27,806 ======== ======== ======== ======== Gross profit $ 3,853 $ 3,700 $ 2,334 $ 3,571 ======== ======== ======== ======== Income (loss) from continuing operations $ 158 $ (65) $ (1,262) $ (380) Loss from discontinued operations (327) (609) (454) (3,263) Cumulative effect of a change in accounting principle - - (247) - -------- -------- -------- -------- Net income (loss) $ (169) $ (674) $ (1,963) $ (3,643) ======== ======== ======== ======== Basic and diluted income (loss) per share of common stock Continuing operations $ 0.02 $ (0.02) $ (0.26) $ (0.10) Discontinued operations (0.06) (0.12) (0.10) (0.67) Cumulative effect of a change in accounting principle - - (0.05) - -------- -------- -------- -------- Net income (loss) $ (0.04) $ (0.14) $ (0.41) $ (0.77) ======== ======== ======== ========
Results of the discontinued operations for the third and fourth quarters of 2004, included non-cash, pre-tax impairment charges of $928,000 and $667,000, respectively, to reduce the carrying value of the assets of the discontinued die casting division to management's estimate of the current fair value of such assets, which approximates the projected proceeds to be realized on the disposition of the assets, net of selling costs. - 32 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Results of the discontinued operations for the fourth quarter of 2003, included a non-cash, pre-tax impairment charge of $161,000 to write off its unamortized goodwill and a non-cash, pre-tax charge of $2,427,000 to write down to fair value the long-lived assets of the discontinued die casting division. - 33 - SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LEXINGTON PRECISION CORPORATION (Registrant) April 5, 2005 By: /s/ Dennis J. Welhouse ------------------------------------------ Dennis J. Welhouse, Senior Vice President, Chief Financial Officer, and Secretary - 34 - EX-31.1 2 l13170aexv31w1.txt EX-31.1 Exhibit 31-1 CERTIFICATION I, Michael A. Lubin, certify that: 1. I have reviewed the annual report on Form 10-K, as amended by this Form 10-K/A, 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 the 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: April 5, 2005 /s/ Michael A. Lubin ---------------------- Michael A. Lubin Chairman of the Board EX-31.2 3 l13170aexv31w2.txt EX-31.2 Exhibit 31-2 CERTIFICATION I, Warren Delano, certify that: 1. I have reviewed the annual report on Form 10-K, as amended by this Form 10-K/A, 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 the 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: April 5, 2005 /s/ Warren Delano ----------------------- Warren Delano President and Director (Co-Principal Executive Officer) EX-31.3 4 l13170aexv31w3.txt EX-31.3 Exhibit 31-3 CERTIFICATION I, Dennis J. Welhouse, certify that: 1. I have reviewed the annual report on Form 10-K, as amended by this Form 10-K/A, 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 the 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: April 5, 2005 /s/ Dennis J. Welhouse -------------------------- Dennis J. Welhouse, Senior Vice President, Chief Financial Officer, and Secretary (Principal Financial Officer) EX-32.1 5 l13170aexv32w1.txt EX-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 Annual Report of Lexington Precision Corporation, a Delaware corporation (the "Company"), on Form 10-K, as amended by Form 10-K/A, for the year ended December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, the Chairman of the Board, hereby certifies pursuant to 18 U.S.C. Section 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) April 5, 2005 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 Annual Report on Form 10-K 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 6 l13170aexv32w2.txt EX-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 Annual Report of Lexington Precision Corporation, a Delaware corporation (the "Company"), on Form 10-K, as amended by Form 10-K/A, for the year ended December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, the President, hereby certifies pursuant to 18 U.S.C. Section 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/ Warren Delano -------------------------------- Warren Delano President (Co-Principal Executive Officer) April 5, 2005 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 Annual Report on Form 10-K 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 7 l13170aexv32w3.txt EX-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 Annual Report of Lexington Precision Corporation, a Delaware corporation (the "Company"), on Form 10-K, as amended by Form 10-K/A, for the year ended December 31, 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. Section 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/ Dennis J. Welhouse ----------------------------------- Dennis J. Welhouse Senior Vice President and Chief Financial Officer (Principal Financial Officer) April 5, 2005 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 Annual Report on Form 10-K 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-----