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FORM 10-K
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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-3252
LEXINGTON PRECISION CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 22-1830121
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
767 THIRD AVENUE, NEW YORK, NY 10017
(ADDRESS OF PRINCIPAL EXECUTIVE 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. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant at March 21, 2000, was approximately $1,961,000.
The number of shares outstanding of the registrant's common stock at March 21,
2000, was 4,828,036.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement to be issued in connection with its
2000 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.
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LEXINGTON PRECISION CORPORATION
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business ............................................................................. 1
Item 2. Properties ........................................................................... 5
Item 3. Legal Proceedings .................................................................... 5
Item 4. Submission of Matters to a Vote of Security Holders .................................. 5
PART II
Item 5. Market for Our Common Stock and Other Stockholder Matters ............................ 6
Item 6. Selected Financial Data .............................................................. 7
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ................................................................ 8
Item 7A. Quantitative and Qualitative Disclosures about Market Risk ........................... 20
Item 8. Financial Statements and Supplementary Data .......................................... 23
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ................................................................. 51
PART III
Item 10. Directors and Executive Officers of the Registrant ................................... 52
Item 11. Executive Compensation ............................................................... 52
Item 12. Security Ownership of Certain Beneficial Owners and Management ....................... 52
Item 13. Certain Relationships and Related Transactions ....................................... 52
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ..................... 53
3
PART I
ITEM 1. BUSINESS
We were incorporated in Delaware 1966. Substantially all of our
business is conducted in the continental United States. Through our two
operating segments, the Rubber Group and the Metals Group, we manufacture
engineered rubber and metal components.
In 1999, net sales of the Rubber Group totaled $102,964,000, or 73.5%
of our consolidated net sales. The Rubber Group manufactures connector seals
used in automotive wiring systems and insulators used in automotive ignition
wire sets. We believe that we are the leading manufacturer of these types of
components in North America. The Rubber Group also manufactures molded rubber
components used in a variety of medical devices, such as drug delivery systems
and syringes.
In 1999, net sales of the Metals Group totaled $37,084,000, or 26.5% of
our consolidated net sales. The Metals Group manufactures aluminum die castings
and machines components from aluminum, brass, and steel bars. The Metals Group's
sales to automotive suppliers have increased significantly over the past several
years and now represent more than two-thirds of the total net sales of the
Metals Group.
FINANCIAL INFORMATION ABOUT OUR OPERATING SEGMENTS
Financial information about our operating segments, including revenues,
income from operations, assets, depreciation and amortization, capital
expenditures, and certain other data is set forth in Part II, Item 7, and in
Note 10 to our consolidated financial statements in Part II, Item 8.
PRINCIPAL END USES FOR OUR PRODUCTS
The following table summarizes our net sales during 1999, 1998, and
1997 by the type of product in which our components were utilized (dollar
amounts in thousands):
YEARS ENDED DECEMBER 31
--------------------------------------------------------------------
1999 1998 1997
------------------- ------------------- --------------------
Automobiles and light trucks $ 119,588 85.4% $ 103,052 81.3% $ 88,961 75.0%
Medical devices 8,039 5.7 8,245 6.5 7,623 6.4
Industrial equipment 6,281 4.5 7,005 5.5 9,860 8.3
Other 6,140 4.4 8,415 6.7 12,187 10.3
---------- ------- ---------- ------- ---------- -------
$ 140,048 100.0% $ 126,717 100.0% $ 118,631 100.0%
========== ======= ========== ======= ========== =======
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The following table summarizes net sales of the Rubber Group and the
Metals Group during 1999, 1998, and 1997 by the type of product in which each
Group's components were utilized (dollar amounts in thousands):
YEARS ENDED DECEMBER 31
-------------------------------------------------------------------
1999 1998 1997
--------------------- ------------------ --------------------
Rubber Group:
Automobiles and light trucks $ 94,677 92.0% $ 84,098 90.8% $ 72,929 89.8%
Medical devices 8,037 7.8 8,245 8.9 7,620 9.4
Other 250 0.2 267 0.3 661 0.8
----------- ------- --------- ------- --------- --------
$ 102,964 100.0% $ 92,610 100.0% $ 81,210 100.0%
=========== ======= ========= ======= ========= ========
Metals Group:
Automobiles and light trucks $ 24,911 67.2% $ 18,954 55.6% $ 16,032 42.8%
Industrial equipment 6,281 16.9 7,005 20.5 9,789 26.2
Recreational equipment and
home appliances 3,102 8.4 3,704 10.9 4,038 10.8
Computers and office equipment 1,921 5.2 3,109 9.1 5,636 15.1
Other 869 2.3 1,335 3.9 1,926 5.1
----------- ------- --------- ------- --------- --------
$ 37,084 100.0% $ 34,107 100.0% $ 37,421 100.0%
=========== ======= ========= ======= ========= ========
MAJOR CUSTOMERS
Our largest customer is Delphi Automotive Systems Corporation. During
1999, 1998, and 1997, net sales to Delphi totaled $31,319,000, $26,233,000, and
$26,447,000, which represented 22.4%, 20.7%, and 22.3%, respectively, of our net
sales and 30.4%, 28.3%, and 32.6%, respectively, of the Rubber Group's net
sales. During 1998, net sales to Prestolite Wire Corporation totaled
$14,431,000, or 11.4% of our net sales and 15.6% of the Rubber Group's net
sales. No other customer accounted for more than 10% of our net sales during
1999, 1998, or 1997. Loss of a significant amount of business from Delphi or any
of our other large customers could have a material adverse effect on our
operations if that business were not substantially replaced by additional
business from existing or new customers.
During 1999, 1998, and 1997, substantially all of the components that
we sold to Delphi were subject to multi-year agreements that expire between 2002
and 2004. Those agreements include the following terms and conditions:
- we will sell and Delphi will purchase approximately 100% of
Delphi's requirements for the components,
- we will warrant that the components will remain competitive in
terms of technology, design, and quality,
- the selling prices of the components will be adjusted to
reflect increases or decreases in material costs, and
- the selling prices of the components will be reduced by
agreed-upon percentages in each of the years covered by the
agreements.
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As a result of our performance as a supplier of rubber components to
Delphi, we received the "Supplier of the Year" award for 1995, 1996, and 1997
from General Motors Corporation, which was then the parent of Delphi. In each of
those years, fewer than 200 of the more than 30,000 suppliers to General Motors
received the "Supplier of the Year" award.
MARKETING AND SALES
Our marketing and sales effort is carried out by management personnel
and account managers. We have an office in Detroit, which serves automotive
industry customers in that area, and a wholly-owned German subsidiary, Lexington
Precision GmbH, which currently markets the Rubber Group's products in Europe.
RAW MATERIALS
Our principal raw materials are silicone and organic rubber compounds
and aluminum, steel, and brass. Each of our principal raw materials has been
readily available at competitive prices from several major manufacturers and we
anticipate that those materials will continue to be readily available at
competitive prices for the foreseeable future.
PATENTS AND TRADEMARKS
We do not currently hold any patents, trademarks, or licenses that we
consider to be material to the success or operation of our business.
SEASONAL VARIATIONS
Our business generally is not subject to significant seasonal
variation.
BACKLOG
Sales of our products are made pursuant to a variety of purchasing
arrangements and practices. Customers regularly revise release schedules to
correspond to their own production requirements. We believe that the aggregate
value of scheduled releases outstanding on our books at any time cannot be
considered firm backlog because those releases may be revised at any time. We
also believe that increases or decreases in the aggregate value of scheduled
releases are not necessarily indicative of any trend in our net sales.
COMPETITION
We compete for business primarily on the basis of quality, service,
engineering capability, and price. The Rubber Group and the Metals Group
encounter substantial competition from a large number of manufacturing
companies. Competitors range from small and medium-sized specialized firms to
large diversified companies, many of which have resources substantially greater
than ours. Additionally, some of our customers have internal manufacturing
operations that compete with us.
RESEARCH AND DEVELOPMENT
Our research and development activities are part of our efforts to
reduce the cost of our components while improving their quality. Cost reductions
are primarily generated through more efficient manufacturing processes and lower
material costs. We also work with many of our customers to reduce
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the size and weight of their components, to make their components easier to
manufacture, and to improve the performance of their components in their final
application. During 1999, 1998, and 1997, research and development expenses
totaled approximately $878,000, $450,000, and $240,000, respectively.
PRODUCT LIABILITY RISKS
We are subject to potential product liability risks inherent in the
manufacture and sale of components. Although there are no claims against us that
we believe will have a material adverse effect upon our business, financial
position, or results of operations, we cannot assure you that any existing or
future claims will not have a material adverse effect on us. Although we
maintain insurance coverage for product liability, we cannot assure you that, in
the event of a claim, the insurance coverage would automatically apply or that,
in the event of an award arising out of a claim, the amount of the insurance
coverage would be sufficient to satisfy the award.
ENVIRONMENTAL COMPLIANCE
Our operations are subject to numerous laws and regulations controlling
the discharge of materials into the environment or otherwise relating to the
protection of the environment. Although we make expenditures relating to the
protection of the environment, compliance with environmental laws and
regulations has not had a significant impact on our capital spending
requirements, earnings, or competitive position. We cannot assure you that
changes in environmental laws and regulations, or in the interpretation or
enforcement of those laws and regulations, will not require material
expenditures in the future.
EMPLOYEES
We believe that our employee relations are generally good. The
following table shows the number of our employees at December 31, 1999, 1998,
and 1997.
DECEMBER 31
-----------
1999 1998 1997
---- ---- ----
Rubber Group (1) 886 816 755
Metals Group 374 463 477
Corporate Office 7 5 4
-------- -------- --------
1,267 1,284 1,236
======== ======== ========
(1) Includes 68, 62, and 56 hourly workers at one plant location that
were subject to a collective bargaining agreement in 1999, 1998, and
1997, respectively.
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ITEM 2. PROPERTIES
The following table shows the location and square footage of our
manufacturing facilities at December 31, 1999:
SQUARE
LOCATION FEET
--------------------------------- -----------
Rubber Group:
Jasper, Georgia 101,000
LaGrange, Georgia 77,000(1)
North Canton, Ohio 41,000(1)
Vienna, Ohio 60,000(1)
Rock Hill, South Carolina 60,000(1)
-----------
339,000
-----------
Metals Group:
Casa Grande, Arizona 64,000(1)
Lakewood, New York 91,000(1) (2)
Rochester, New York 60,000
-----------
215,000
-----------
554,000
===========
(1) Encumbered by a mortgage.
(2) Leased from an industrial development authority pursuant to a lease
that expires in 2006 and provides us with an option to purchase the
facility for nominal consideration.
All of our plants are general manufacturing facilities suitable for our
operations. We believe that the facilities are adequate to meet our current
operating needs.
We occupy, in the aggregate, 6,000 square feet of office space for
corporate executive and administrative purposes. We lease an office in
Cleveland, Ohio, and reimburse an affiliate for a portion of the cost of leasing
an office in New York City.
ITEM 3. LEGAL PROCEEDINGS
We are subject to various claims and legal proceedings covering a wide
range of matters that arise in the ordinary course of our business activities.
It is our policy to record accruals for claims and legal proceedings when we
consider a loss to be probable and we can reasonably estimate the amount of that
loss. The various actions to which we are or may be a party in the future are at
various stages of completion. Although we cannot assure you as to the outcome of
existing or potential litigation, based upon the information currently available
to us, we currently believe that the outcome of any of those actions would not
have a material adverse effect upon our financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We did not submit any matters to a vote of security holders during the
fourth quarter of 1999.
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PART II
ITEM 5. MARKET FOR OUR COMMON STOCK AND OTHER STOCKHOLDER MATTERS
Our common stock is traded in the over-the-counter market. At March 21,
2000, there were approximately 960 holders of record of our common stock.
Trading in shares of our common stock is limited. During 1999 and 1998, trading
data for our stock was available on the OTC Bulletin Board operated by the
National Association of Securities Dealers, Inc. (NASD). The following table
sets forth prices at which transactions in our common stock were reported on the
OTC Bulletin Board:
YEARS ENDED DECEMBER 31
-----------------------------------------------
1999 1998
--------------------- ----------------------
HIGH LOW HIGH LOW
--------- -------- ---------- ---------
First quarter $1.81 $1.19 $3.00 $2.00
Second quarter $1.81 $1.13 $2.00 $1.38
Third quarter $1.75 $1.19 $1.69 $1.28
Fourth quarter $1.38 $1.19 $1.75 $1.31
We are not able to determine whether retail markups, markdowns, or
commissions were included in the above prices. We believe that twelve brokerage
firms currently make a market in our common stock, although both bid and asked
quotations may at times be limited.
We have not paid dividends on our common stock since 1979 and we have
no current plans to reinstate the payment of dividends. In addition, we are
currently restricted from paying cash dividends on our common stock because
payment defaults exist on our 12-3/4% senior subordinated notes and because we
did not make the dividend payment due on March 15, 2000, on our series B
preferred stock.
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data for
each of the years in the five-year period ended December 31, 1999 (dollar
amounts in thousands, except per share amounts). The financial data has been
derived from our consolidated financial statements, which have been audited by
Ernst & Young LLP, independent certified public accountants. This information is
not necessarily indicative of the results of future operations and should be
read in conjunction with, and is qualified by, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in Part II, Item 7,
and our consolidated financial statements in Part II, Item 8.
YEARS ENDED DECEMBER 31
-------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
SUMMARY OF OPERATIONS:
Net sales $ 140,048 $ 126,717 $ 118,631 $ 114,872 $ 104,298
========== ========== ========== ========== ==========
Income from operations $ 10,286 $ 7,198 $ 7,784 $ 8,565 $ 9,657
Interest expense 9,632 9,772 9,065 8,542 7,585
Other income - - 425 - 641
Provision for income taxes 133 132 672 40 425
Extraordinary gain on repurchase of
debt, net of applicable income taxes 1,542 - - - -
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 2,063 $ (2,706) $ (1,528) $ (17) $ 2,288
========== ========== ========== ========== ==========
Net income (loss) per diluted common
share $ 0.46 $ (0.65) $ (0.38) $ (0.02) $ 0.49
========== ========== ========== ========== ==========
OTHER DATA:
Depreciation and amortization included
in operating expense $ 12,728 $ 11,451 $ 9,838 $ 8,267 $ 6,169
Net cash provided by operating
activities $ 5,624 $ 8,013 $ 7,529 $ 8,193 $ 7,897
Earnings before interest, taxes,
depreciation, and amortization $ 23,014 $ 18,649 $ 17,622 $ 16,832 $ 15,826
Capital expenditures $ 10,328 $ 14,877 $ 15,790 $ 15,708 $ 17,902
DECEMBER 31
-------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
FINANCIAL POSITION:
Current assets $ 37,503 $ 32,198 $ 31,828 $ 30,845 $ 24,478
Current liabilities 116,460 40,228 36,003 35,167 29,253
---------- ---------- ---------- ---------- ----------
Net working capital deficit $ (78,957) $ (8,030) $ (4,175) $ (4,322) $ (4,775)
========== ========== ========== ========== ==========
Total assets $ 111,327 $ 108,325 $ 104,124 $ 97,030 $ 81,876
Long-term debt, excluding current
portion $ 116 $ 74,953 $ 72,622 $ 65,148 $ 56,033
Series B preferred stock, at
par value $ 330 $ 375 $ 420 $ 465 $ 510
Total stockholders' deficit $ (7,463) $ (9,451) $ (6,667) $ (5,057) $ (4,976)
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Some of our statements in this section are "forward-looking
statements," as that term is defined in the Private Securities Litigation Reform
Act of 1995. Forward-looking statements usually can be identified by our use of
words like "believes," "expects," "may," "will," "should," "anticipates,"
"estimates," "projects," or the negative thereof. They may be used when we
discuss strategy, which typically involves risk and uncertainty, and they
generally are based upon projections and estimates rather than historical facts
and events.
Forward-looking statements are subject to a number of risks and
uncertainties that could cause our actual results or performance to be
materially different from the future results or performance expressed in or
implied by those statements. Some of those risks and uncertainties are:
- increases and decreases in business awarded to us by our
customers,
- unanticipated price reductions for our products as a result of
competition,
- unanticipated operating results and cash flows,
- increases or decreases in capital expenditures,
- changes in economic conditions,
- strength or weakness in the North American automotive market,
- changes in the competitive environment,
- changes in interest rates,
- the possibility of product liability claims,
- labor interruptions at our facilities or at our customers'
facilities, and
- our inability to obtain additional borrowings or to refinance
our existing indebtedness.
Because we have substantial borrowings for a company our size and
because those borrowings require us to make substantial interest and principal
payments, any negative event may have a greater adverse effect upon us than it
would have on a company of the same size that has less debt.
Our results of operations for any particular period are not necessarily
indicative of the results to be expected for any one or more succeeding periods.
Consequently, the use of forward-looking statements should not be regarded as a
representation that any of the projections or estimates expressed in or implied
by those forward-looking statements will be realized, and actual results may
vary materially. We cannot assure you that any of the forward-looking statements
contained herein will prove to be accurate.
All forward-looking statements are expressly qualified by the
discussion above.
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RESULTS OF OPERATIONS -- COMPARISON OF 1999, 1998, AND 1997
The following table sets forth our consolidated operating results for
1999, 1998, and 1997 (dollar amounts in thousands):
YEARS ENDED DECEMBER 31
------------------------------------------------------------------
1999 1998 1997
------------------- ------------------ -------------------
Net sales $ 140,048 100.0% $ 126,717 100.0% $ 118,631 100.0%
Cost of sales 117,609 84.0 108,513 85.6 99,422 83.8
----------- ------- ---------- ------- ----------- -------
Gross profit 22,439 16.0 18,204 14.4 19,209 16.2
Selling and administrative expenses 12,153 8.7 11,006 8.7 11,425 9.6
----------- ------- ---------- ------- ----------- -------
Income from operations 10,286 7.3 7,198 5.7 7,784 6.6
Add back: depreciation and
amortization (1) 12,728 9.1 11,451 9.0 9,838 8.3
----------- ------- ---------- ------- ----------- -------
Earnings before interest, taxes,
depreciation, and amortization (2) $ 23,014 16.4% $ 18,649 14.7% $ 17,622 14.9%
=========== ======= ========== ======= =========== =======
Net cash provided by operating
activities (3) $ 5,624 4.0% $ 8,013 6.3% $ 7,529 6.3%
=========== ======= ========== ======= =========== =======
(1) Excludes amortization of deferred financing expenses, which totaled
$234,000, $198,000, and $171,000, in 1999, 1998, and 1997, respectively, and
which is included in interest expense in the consolidated financial statements.
(2) Earnings before interest, taxes, depreciation, and amortization, which is
commonly referred to as EBITDA, is not a measure of performance under accounting
principles generally accepted in the United States and should not be used as a
substitute for income from operations, net income, net cash provided by
operating activities, or other operating or cash flow statement data prepared in
accordance with generally accepted accounting principles. We have presented data
related to EBITDA because we believe that EBITDA is used by investors as
supplemental information to evaluate the operating performance of a business,
including its ability to incur and to service debt. In addition, our definition
of EBITDA may not be the same as the definition of EBITDA used by other
companies.
(3) The calculation of net cash provided by operating activities is detailed
in the consolidated statement of cash flows that is part of our consolidated
financial statements in Part II, Item 8.
The discussion that follows sets forth our analysis of the operating
results of the Rubber Group, the Metals Group, and the corporate office.
RUBBER GROUP
The Rubber Group manufactures silicone and organic rubber components.
During 1999, 1998, and 1997, automotive industry customers of the Rubber Group
represented 92.0%, 90.8%, and 89.8%, respectively, of the Rubber Group's net
sales. Any material reduction in the level of activity in the
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automotive industry may have a material adverse effect on the results of
operations of the Rubber Group and on our company as a whole.
The three largest customers of the Rubber Group accounted for 50.9%,
50.1%, and 53.0% of the Rubber Group's net sales during 1999, 1998, and 1997,
respectively. Loss of a significant amount of business from any of the Rubber
Group's large customers could have a material adverse effect upon the Rubber
Group and on our company as a whole if such business were not substantially
replaced by additional business from existing or new customers.
The following table sets forth the operating results of the Rubber
Group for 1999, 1998, and 1997 (dollar amounts in thousands):
YEARS ENDED DECEMBER 31
---------------------------------------------------------------
1999 1998 1997
------------------- ----------------- -----------------
Net sales $ 102,964 100.0% $ 92,610 100.0% $ 81,210 100.0%
Cost of sales 82,405 80.0 73,209 79.0 64,696 79.7
----------- ------- -------- ------- -------- -------
Gross profit 20,559 20.0 19,401 21.0 16,514 20.3
Selling and administrative expenses 6,235 6.1 6,100 6.6 5,055 6.2
----------- ------- -------- ------- -------- -------
Income from operations 14,324 13.9 13,301 14.4 11,459 14.1
Add back: depreciation and amortization 8,096 7.9 7,476 8.0 6,676 8.2
----------- ------- -------- ------- -------- -------
Earnings before interest, taxes,
depreciation, and amortization $ 22,420 21.8% $ 20,777 22.4% $ 18,135 22.3%
=========== ======= ======== ======= ======== =======
During 1999, net sales of the Rubber Group increased by $10,354,000, or
11.2%, compared to 1998. This increase was primarily due to increased unit sales
of connector seals for automotive wiring systems and, to a lesser extent,
increased unit sales of insulators for automotive ignition wire sets and
components for medical devices, offset, in part, by reduced sales of tooling and
by price reductions on certain automotive components.
During 1999, income from operations totaled $14,324,000, an increase of
$1,023,000, or 7.7%, compared to 1998. The Rubber Group's operating results for
1999 and 1998 included credits to cost of sales of $219,000 and $622,000,
respectively, resulting from special rebates from the State of Ohio Bureau of
Workers' Compensation, which represented the Company's share of excess funds
distributed by the Bureau. If the special rebates were excluded from the Rubber
Group's operating results for 1999 and 1998, income from operations would have
increased by $1,426,000 or 11.2%, and cost of sales as a percentage of net sales
would have been 80.2% during 1999 compared to 79.7% during 1998.
Selling and administrative expenses as a percentage of net sales
decreased during 1999 compared to 1998, primarily because those expenses are
partially fixed in nature.
EBITDA increased to $22,420,000, or 21.8% of net sales, in 1999 from
$20,777,000, or 22.4% of net sales, in 1998. Excluding the special rebates from
the Rubber Group's EBITDA for 1999 and 1998,
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EBITDA was $22,201,000, or 21.6% of net sales, in 1999, compared to $20,155,000,
or 21.8% of net sales, in 1998.
During 1998, net sales of the Rubber Group increased by $11,400,000, or
14.0%, compared to 1997. This increase was primarily due to increased unit sales
of insulators for automotive ignition wire sets and, to a lesser extent,
increased unit sales of connector seals for automotive wiring systems and
components for medical devices, offset, in part, by price reductions on certain
automotive components.
During 1998, income from operations totaled $13,301,000, an increase of
$1,842,000, or 16.1%, compared to 1997. Cost of sales as a percentage of net
sales decreased during 1998, primarily due to a credit of $622,000 resulting
from a special rebate from the State of Ohio Bureau of Workers' Compensation,
which represented the Company's share of a distribution of excess funds
accumulated by the Bureau.
Selling and administrative expenses as a percentage of net sales
increased during 1998 compared to 1997, primarily because of the hiring of
additional personnel, the opening, in September 1997, of a sales office in
Germany, and costs associated with the installation of new computer systems.
EBITDA increased to $20,777,000, or 22.4% of net sales, in 1998 from
$18,135,000, or 22.3% of net sales, in 1997. Excluding the special rebate from
the Rubber Group's EBITDA for 1998, EBITDA was $20,155,000, or 21.8% of net
sales.
METALS GROUP
The Metals Group manufactures aluminum die castings and machines
components from aluminum, brass, and steel bars. During 1999, 1998, and 1997,
net sales to automotive industry customers represented 67.2%, 55.6%, and 42.8%,
respectively, of the Metals Group's net sales. Any material reduction in the
level of activity in the automotive industry may have a material adverse effect
on the results of operations of the Metals Group and on our company taken as a
whole.
The three largest customers of the Metals Group accounted for 50.0%,
35.3%, and 23.5% of the Metals Group's net sales during 1999, 1998, and 1997,
respectively. Loss of a significant amount of business from any of the Metals
Group's large customers could have a material adverse effect upon the Metals
Group and on our company taken as a whole if that business were not
substantially replaced by additional business from existing or new customers.
Since 1997, we have been implementing a strategy designed to improve
the profitability and growth potential of the Metals Group by eliminating the
production of a large number of diverse, low-volume components and by building
productive capacity to manufacture higher-volume components for customers in
target markets. The repositioning has entailed a shift to a new customer base
and has required that the Metals Group's manufacturing facilities be structured
and equipped to run high-volume parts efficiently and accurately. The
repositioning has caused the Metals Group to experience underabsorption of fixed
overhead expenses resulting from the cut-back in low-volume business.
Additionally, the Metals Group has incurred expenses for the implementation of
improved quality systems, expenses related to moving equipment and upgrading
buildings, costs related to establishing relationships with major new customers,
and costs resulting from inefficiencies experienced during the rollout of new
components. These factors and the fact that new high-volume business is limited
at this stage of the transition adversely affected the results of operations of
the Metals Group during 1999, 1998, and 1997.
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In 1999, we closed a 21,000 square foot diecasting facility in
Manchester, New York. During 1999 and 1998, the Manchester facility had net
sales of $935,000 and $2,258,000, respectively, and losses from operations of
$186,000 and $237,000, respectively. In addition, we incurred $553,000 of
closure costs in 1999 related to the Manchester facility, of which $507,000 was
charged to cost of sales and $46,000 was charged to selling and administrative
expenses. At December 31, 1999, the Manchester facility had net assets of
$43,000.
The following table sets forth the operating results of the Metals
Group for 1999, 1998, and 1997 (dollar amounts in thousands):
YEARS ENDED DECEMBER 31
----------------------------------------------------------------
1999 1998 1997
----------------- ------------------ ------------------
Net sales $ 37,084 100.0% $ 34,107 100.0% $ 37,421 100.0%
Cost of sales 35,204 94.9 35,304 103.5 34,726 92.8
-------- ------- --------- -------- --------- --------
Gross profit (loss) 1,880 5.1 (1,197) (3.5) 2,695 7.2
Selling and administrative expenses 3,472 9.4 2,877 8.4 4,275 11.4
-------- ------- --------- -------- --------- --------
Loss from operations (1,592) (4.3) (4,074) (11.9) (1,580) (4.2)
Add back: depreciation and amortization 4,585 12.4 3,957 11.6 3,141 8.4
-------- ------- --------- -------- --------- --------
Earnings before interest, taxes,
depreciation, and amortization $ 2,993 8.1% $ (117) (0.3)% $ 1,561 4.2%
======== ======= ========= ======== ========= ========
During 1999, net sales of the Metals Group increased by $2,977,000, or
8.7%, compared to 1998. This increase resulted primarily from increased unit
sales of automotive components and increased tooling sales, offset, in part, by
the effects of the shutdown of the Manchester facility and of the reduction in
low-volume business.
During 1999, the Metals Group incurred a loss from operations of
$1,592,000, compared to a loss from operations of $4,074,000 during 1998. If the
$553,000 of closure costs related to the Manchester facility were excluded from
the Metals Group's operating results, the Metals Group would have incurred a
loss from operations of $1,039,000 during 1999. If the $507,000 of closure
expenses charged to cost of sales during 1999 were excluded from the Metals
Group's operating results, cost of sales as a percentage of net sales would have
decreased from 103.5% during 1998 to 93.6% during 1999, primarily due to:
- increased absorption of fixed manufacturing overhead, which
resulted from higher sales levels, and
- a reduction in direct labor costs as a percentage of net
sales, which resulted from improved operating efficiencies and
increased utilization of skilled equipment operators who had
been retained during prior periods of lower sales volume.
Selling and administrative expenses as a percentage of net sales
increased during 1999, primarily because of costs related to the installation of
new computer systems during 1999 and because selling and
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administrative expenses for 1998 were reduced by $170,000, due to the settlement
of certain litigation for less than had been previously reserved.
EBITDA increased to $2,993,000, or 8.1% of net sales, in 1999 from
negative $117,000, or negative 0.3% of net sales, in 1998. Excluding the
$553,000 of closure expenses related to the Manchester facility, EBITDA for 1999
was $3,546,000, or 9.6% of net sales.
During 1998, net sales of the Metals Group decreased by $3,314,000, or
8.9%, compared to 1997. This reduction resulted primarily from general weakness
in sales and reductions caused by our planned elimination of certain customers
who generated low-volume production.
During 1998, the Metals Group incurred a loss from operations of
$4,074,000, compared to a loss from operations of $1,580,000 during 1997. Cost
of sales as a percentage of net sales increased during 1998, primarily due to
underabsorption of fixed overhead caused by low sales levels. Despite the lower
sales, manufacturing overhead expenses increased by $1,400,000 during 1998
compared to 1997, primarily because of:
- increased depreciation and amortization,
- increased indirect labor costs resulting from the hiring of
additional technical and supervisory personnel, and
- a charge of $368,000 to write down certain equipment held for
sale to net realizable value.
To a lesser extent, material and direct labor costs as a percentage of
net sales also increased during 1998 compared to 1997, primarily because of:
- changes in product mix,
- lower production efficiencies resulting from the start-up of
new products, and
- costs related to the retention of experienced equipment
operators during a period of low sales.
Selling and administrative expenses decreased during 1998, primarily
because of reduced personnel costs, the elimination of commissions previously
paid to sales representatives who were terminated during the last quarter of
1996 and the first quarter of 1997, and the settlement of certain litigation for
less than had been previously reserved.
EBITDA decreased to negative $117,000, or negative 0.3% of net sales,
in 1998 from positive $1,561,000, or 4.2% of net sales, in 1997.
CORPORATE OFFICE
Expenses of the corporate office, which are not included in the
operating results for the Rubber Group or the Metals Group, represent
administrative expenses incurred primarily at our New York and Cleveland
offices. Expenses of the corporate office are consolidated with the selling and
administrative expenses of the Rubber Group and the Metals Group in our
consolidated financial statements.
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The following table sets forth the operating results of the corporate
office for 1999, 1998, and 1997 (dollar amounts in thousands):
YEARS ENDED DECEMBER 31
------------------------------------
1999 1998 1997
---- ---- ----
Loss from operations $ (2,446) $ (2,029) $ (2,095)
Add back: depreciation and
amortization (1) 47 18 21
-------- -------- --------
Earnings before interest, taxes,
depreciation, and amortization $ (2,399) $ (2,011) $ (2,074)
======== ======== ========
(1) Excludes amortization of deferred financing expenses, which
totaled $234,000, $198,000, and $171,000, in 1999, 1998, and
1997, respectively, and which is included in interest expense
in the consolidated financial statements.
The increase in expenses of the corporate office in 1999 resulted
primarily from the accrual of management incentive compensation. No management
incentive compensation was accrued for corporate office personnel in 1998 or
1997.
INTEREST EXPENSE
During 1999, 1998, and 1997, interest expense totaled $9,632,000,
$9,772,000, and $9,065,000, respectively. During 1999, 1998, and 1997, interest
expense included amortization of deferred financing expenses of $234,000,
$198,000, and $171,000, respectively. The increase in interest expense in 1998
was caused primarily by an increase in average borrowings outstanding.
OTHER INCOME
Other income in 1997 represented a payment of $425,000 related to the
settlement of certain litigation.
EXTRAORDINARY GAIN
During 1999, we recorded an extraordinary gain, net of estimated income
tax expense, of $1,542,000 on the repurchase of $4,308,000 principal amount of
our 12-3/4% senior subordinated notes.
PROVISION FOR INCOME TAXES
During 1999, the provision for income taxes was $526,000 of which
$133,000 related to our income from operations and $393,000 related to the
extraordinary gain on the repurchase of debt. The provision for income taxes for
1999 consisted primarily of federal alternative minimum taxes. During 1998, the
provision for income taxes consisted primarily of state income taxes. During
1997, the provision for income taxes consisted primarily of:
- federal alternative minimum taxes, and
- the reversal of a tax credit that had been recorded in 1996
based on the then-projected utilization of federal net
operating loss carryforwards in 1997.
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For additional information concerning income taxes and related matters,
see Note 9 to the consolidated financial statements in Part II, Item 8.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
During 1999, our operating activities provided $5,624,000 of cash.
Accounts receivable increased by $6,261,000 during 1999. This increase
was caused primarily by the following:
- an increase in net sales,
- an increase in the average payment terms granted to our large
customers, and
- an unusual year-end build-up in accounts receivable that was
significantly reduced during January 2000.
Accounts payable decreased by $2,694,000 from 1998 to 1999. This
decrease was primarily the result of a reduction in average days outstanding and
a $1,088,000 reduction in payables related to the purchase of plant, equipment,
and customer-owned tooling.
INVESTING ACTIVITIES
During 1999, our investing activities used $10,924,000 of cash,
primarily for capital expenditures. The following table sets forth capital
expenditures for the Rubber Group, the Metals Group, and the corporate office
during 1999, 1998, and 1997 (dollar amounts in thousands):
YEARS ENDED DECEMBER 31
------------------------------------
1999 1998 1997 TOTAL
---- ---- ---- -----
Rubber Group:
Equipment $ 7,201 $ 8,277 $ 6,632 $ 22,110
Land and buildings 307 105 203 615
--------- -------- --------- ---------
7,508 8,382 6,835 22,725
--------- -------- --------- ---------
Metals Group:
Equipment 2,542 6,184 5,542 14,268
Land and buildings 169 238 3,393 3,800
--------- -------- --------- ---------
2,711 6,422 8,935 18,068
--------- -------- --------- ---------
Corporate office:
Equipment 109 73 20 202
Land and buildings - - - -
--------- -------- --------- ---------
109 73 20 202
--------- -------- --------- ---------
Total company:
Equipment 9,852 14,534 12,194 36,580
Land and buildings 476 343 3,596 4,415
--------- -------- --------- ---------
$ 10,328 $ 14,877 $ 15,790 $ 40,995
========= ======== ========= =========
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18
We presently project that capital expenditures will total approximately
$23,000,000 in 2000, including $18,500,000 for equipment and $4,500,000 for land
and buildings. Capital expenditures for the Rubber Group and the Metals Group
are projected to total $16,400,000 and $6,600,000, respectively, during 2000. We
project that approximately $3,300,000 will be expended to rebuild or replace
existing equipment, and approximately $19,700,000 will be expended to effect
cost reductions and expand productive capacity.
At December 31, 1999, we had outstanding commitments to purchase plant
and equipment of $5,673,000, of which $4,427,000 is expected to be expended in
2000 and $1,246,000 is expected to be expended in 2001.
FINANCING ACTIVITIES
During 1999, our financing activities provided $5,205,000 of cash.
During 1999, we obtained new term loans in the aggregate amount of
$15,567,000, which refinanced $4,908,000 of existing term loans and $10,659,000
of loans outstanding under our revolving line of credit. Also, during 1999, we
repurchased $4,308,000 principal amount of our 12-3/4% senior subordinated notes
for $2,373,000; the purchases were financed through borrowings under our
revolving line of credit.
Borrowings under our revolving line of credit, which are classified as
short-term debt, increased by $8,473,000 during 1999, in part because we
utilized the revolving line of credit to fund certain capital expenditures that
were not refinanced by borrowings under our equipment lines of credit or through
other long-term financing.
LIQUIDITY
We finance our operations with cash from operating activities and a
variety of financing arrangements, including term loans and loans under our
revolving line of credit. Our ability to borrow under our revolving line of
credit, which expires on April 1, 2002, is subject to covenant compliance and
certain availability formulas based on the levels of our accounts receivable and
inventories. We have two equipment lines of credit that we use to finance,
through five-year or seven-year term loans, all or a portion of the purchase
price of certain equipment. At December 31, 1999, the amounts that we could
borrow under our equipment lines of credit were negligible. Effective October 1,
1999, the rates of interest charged on loans outstanding under the revolving
line of credit and on certain term loans with variable rates of interest were
reduced by one-quarter of a percentage point, to either the London Interbank
Offered Rate (LIBOR) plus 2-1/2% or the prime rate.
We have substantial borrowings for a company our size. Because those
borrowings require us to make substantial interest and principal payments, any
negative event may have a greater adverse effect upon us than if we had less
debt. As a result of increased borrowings during 1999, our aggregate
indebtedness, excluding accounts payable, increased by $3,640,000 to
$98,185,000. During 2000, interest and scheduled principal payments, excluding
the principal payments due on the $37,629,000 of indebtedness scheduled to
mature during the first half of 2000, are projected to be approximately
$9,800,000 and $8,800,000, respectively.
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We had a net working capital deficit of $78,957,000 at December 31,
1999, compared to a net working capital deficit of $8,030,000 at December 31,
1998. The increase in the working capital deficit occurred primarily because:
- our 12% term note, 10-1/2% senior note, 12-3/4% senior
subordinated notes, and 14% junior subordinated notes, which
had an aggregate principal balance of $37,629,000, were
scheduled to mature during the first half of 2000 and were
classified at December 31, 1999, as current liabilities in our
consolidated financial statements, and
- the long-term portions of our secured, amortizing term loans
were classified as current liabilities because the holders
will be entitled to accelerate the maturities of their loans
on or after May 1, 2000, unless we are able to refinance,
renegotiate, or extend our maturing indebtedness prior to that
date or unless we are able to obtain extensions of waivers
previously granted by those holders.
At March 29, 2000, availability under our revolving line of credit
totaled $2,306,000 before outstanding checks of $1,754,000 were deducted.
Substantially all of our assets are pledged as collateral for certain
of our indebtedness. Certain of our financing arrangements contain covenants
with respect to the maintenance of minimum levels of working capital, net worth,
and cash flow coverage and other covenants that place certain restrictions on
our business and operations, including covenants relating to the incurrence or
assumption of additional debt, the level of past-due trade accounts payable, the
sale of all or substantially all of our assets, the purchase of plant and
equipment, the purchase of common stock, the redemption of preferred stock, and
the payment of cash dividends. In addition, substantially all of our financing
agreements include cross-default provisions.
We currently believe, although we can give you no assurance, that our
cash flow from operations, borrowings available to us under existing financing
arrangements, and additional borrowings that we believe we will be able to
obtain should be adequate to meet our projected working capital and debt service
requirements (excluding amounts needed to refinance the $37,629,000 of
indebtedness scheduled to mature during the first half of 2000, which is
discussed in more detail below) and to fund projected capital expenditures
through December 31, 2000. We estimate that, in addition to our cash flow from
operations and borrowings under our revolving line of credit, we will require
approximately $12,000,000 of new borrowings during 2000 to meet our working
capital and debt service requirements (excluding amounts needed to refinance the
$37,629,000 of indebtedness scheduled to mature during the first half of 2000)
and to fund projected capital expenditures.
If cash flows from operations or availability under existing and new
financing agreements fall below expectations, we may be forced to delay
anticipated capital expenditures, reduce operating expenses, extend accounts
payable balances beyond terms that we believe are customary in the industries in
which we operate, and/or consider other alternatives designed to improve our
liquidity. Certain of these actions could have a material adverse effect on our
results of operations and financial position. In addition, if we are unable to
refinance, renegotiate, or extend the indebtedness that has matured or is
scheduled to mature during the first half of 2000, we may be forced to seek
relief from our creditors under the Federal bankruptcy code. Any proceedings
under the Federal bankruptcy code could have a material adverse effect on our
results of operations and financial position.
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INDEBTEDNESS MATURING DURING THE FIRST AND SECOND QUARTERS OF 2000
During the first half of 2000, $37,629,000 of our indebtedness was
scheduled to mature. This indebtedness was comprised of the following:
- our 12-3/4% senior subordinated notes due February 1, 2000, in
the outstanding principal amount of $27,412,000,
- our 10-1/2% senior note due February 1, 2000, in the
outstanding principal amount of $7,500,000,
- our 12% secured term note due April 30, 2000, in the
outstanding principal amount of $1,370,000,
- our 14% junior subordinated convertible notes due May 1, 2000,
in the outstanding principal amount of $1,000,000, and
- our 14% junior subordinated non-convertible notes due May 1,
2000, in the outstanding principal amount of $347,000.
During the fourth quarter of 1999, we engaged in discussions with
substantially all of the holders of our 12-3/4% senior subordinated notes
regarding an extension of the maturity date of those notes. In connection with
those discussions, we obtained agreements from the holders of our junior
subordinated notes, to convert the 14% junior subordinated convertible notes
into 440,000 shares of our common stock, in accordance with the terms of those
notes, and to extend the maturity date of the 14% junior subordinated
non-convertible notes to May 1, 2003, subject, in each case, to a satisfactory
refinancing or renegotiation of the balance of our maturing indebtedness.
During the fourth quarter, we also commenced discussions with one of
our secured lenders regarding additional financing that would be utilized to
repay our 12% secured term note and all or a portion of our 10-1/2% senior note.
On December 28, 1999, we commenced a consent solicitation seeking
consents of the holders of our 12-3/4% senior subordinated notes to an extension
of the maturity date of the 12-3/4% senior subordinated notes to February 1,
2003. If the consent solicitation is completed, we will pay a 1% fee to
consenting holders and increase the interest rate payable on the 12-3/4% senior
subordinated notes to the rates set forth in the following table:
PERIOD INTEREST RATE
February 1, 2000 - January 31, 2001 13-1/2%
February 1, 2001 - July 31, 2001 15-1/2%
August 1, 2001 - January 31, 2002 16%
February 1, 2002 - July 31, 2002 17%
August 1, 2002 - January 31, 2003 18%
Because we did not receive the necessary consents by February 1, 2000,
the 12-3/4% senior subordinated notes matured and remain unpaid and we did not
make the scheduled payment of interest, in the amount of $1,748,000, that was
due on February 1, 2000. We have extended the consent solicitation through April
3, 2000, and we plan to amend the consent solicitation to seek waivers of the
events of default that occurred as a result of our failure to make the payments
of principal and interest.
In anticipation of the default in respect of our 12-3/4% senior
subordinated notes, we obtained the following agreements, effective as of
January 31, 2000, from the holders of substantially all of our other
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indebtedness, which have enabled us to continue to operate our business without
interruption, notwithstanding the default:
- Our secured lenders waived their cross-default provisions with
respect to the default relating to the 12-3/4% senior
subordinated notes through May 1, 2000 and two of our secured
lenders amended a cash flow covenant to eliminate a default
that occurred because all of our secured, amortizing term
loans had been classified as a current liability in our
December 31, 1999, financial statements.
- The holder of our 12% secured term note, in the outstanding
principal amount of $1,370,000, extended the maturity date of
that note from January 31, 2000, to April 30, 2000; that note
has no cross-default provision with respect to the default
relating to the 12-3/4% senior subordinated notes.
- The holder of our 10-1/2% senior note, in the outstanding
principal amount of $7,500,000, extended the maturity date of
that note from February 1, 2000, to May 1, 2000, and waived
its cross-default provisions with respect to the default
relating to the 12-3/4% senior subordinated notes.
- The holders of our 14% junior subordinated notes, in the
outstanding principal amount of $1,347,000, agreed to defer
the interest payments on those notes that were due February 1,
2000, to May 1, 2000, and waived their cross-default
provisions with respect to the default relating to the 12-3/4%
senior subordinated notes. In addition, on February 1, 2000,
those holders converted the $1,000,000 principal amount of 14%
junior subordinated convertible notes into 440,000 shares of
our common stock in accordance with the terms of those notes.
Since January 31, 2000, we have made all scheduled payments of interest
and principal on all of our indebtedness, other than the 12-3/4% senior
subordinated notes, and our secured lenders have continued to make loans to us
under our revolving credit facility in the ordinary course. In addition, we have
had further discussions with the four largest holders of our 12-3/4 senior
subordinated notes, in an effort to obtain the necessary consents to the
extension of the maturity of those notes, and we have had discussions with one
of our secured lenders regarding additional financing to repay our 12% secured
term note and all or a portion of our 10-1/2% senior note.
To date, we have been unable to obtain the necessary consents to the
extension of our 12-3/4% senior subordinated notes, nor have we obtained a
commitment from the secured lender to provide the additional financing
requested. If we are unable to restructure or refinance all of our matured or
maturing indebtedness, we may be forced to seek relief from our creditors under
the Federal bankruptcy code. Any proceeding under the Federal bankruptcy code
could have a material adverse effect on our results of operations and financial
position.
INFLATION
We generally pass through fluctuations in raw material costs to our
customers; however, many of our customers will not accept price increases from
us to compensate for increases in labor and overhead expenses that result from
inflation. To offset inflationary increases in costs that we cannot pass through
to our customers and to maintain or improve our operating margins, we attempt to
improve our production efficiencies and manufacturing processes.
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ENVIRONMENTAL MATTERS
We have been named from time to time as one of numerous potentially
responsible parties or third-party defendants under applicable environmental
laws for restoration costs at waste-disposal sites, and as a defendant or
potential defendant in various other environmental law matters. It is our policy
to record accruals for matters of these types when we deem a loss to be probable
and we can reasonably estimate the amount of that loss. The various actions to
which we are or may in the future be a party are at various stages of
completion; although we can give you no assurance as to the outcome of existing
or potential environmental litigation, based upon the information currently
available to us, we believe that the outcome thereof will not have a material
adverse effect upon our financial position. You will find information concerning
certain other commitments and contingencies affecting us in Note 13 to the
consolidated financial statements in Part II, Item 8.
RECENTLY ISSUED ACCOUNTING STANDARDS
ACCOUNTING FOR PRE-PRODUCTION COSTS RELATED TO LONG-TERM SUPPLY
ARRANGEMENTS
In September 1999, the Emerging Issues Task Force of the Financial
Accounting Standards Board issued Abstract Number 99-5, "Accounting for
Pre-Production Costs Related to Long-Term Supply Arrangements" (Abstract 99-5),
which is effective for design and development costs incurred after December 31,
2000. Abstract 99-5 requires that, in the absence of a contractual guarantee of
reimbursement, design and development costs incurred with respect to products to
be sold under long-term supply arrangements are to be expensed as incurred.
Costs incurred to design and develop molds, dies, and other tools that are owned
by the customer and are to be used by the supplier to manufacture products for
sale under long-term supply arrangements are to be capitalized as long as the
supplier is performing under the supply arrangement. We believe that the
adoption of Abstract 99-5 during the first quarter of 2000 will not affect our
results of operations or financial position.
YEAR 2000 COMPLIANCE
Prior to January 1, 2000, there was a great deal of concern regarding the
ability of computers to differentiate 21st century dates from 20th century dates
due to the two-digit date fields used by many systems. Reports to date are that
computer systems are functioning normally; however, computer experts have warned
that there may still be residual consequenses of the change in centuries. As of
March 29, 2000, we have experienced no difficulties in connection with the year
2000 problem.
Although we did not have a specific system in place for tracking costs
related to our year 2000 compliance plan, we believe that the costs we incurred
for year 2000 issues were approximately $600,000.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not invest in or trade market risk sensitive instruments. We also do
not have any foreign operations or any significant amount of foreign sales and,
therefore, we believe that our exposure to foreign currency exchange rate risk
is minimal.
At December 31, 1999, we had $53,911,000 of outstanding floating-rate debt
at interest rates equal to either LIBOR plus 2-1/2% or the prime rate. Currently
we do not purchase derivative financial instruments to hedge or reduce our
interest rate risk. As a result, changes in either LIBOR or the prime rate
affect the rates at which we borrow funds under these agreements.
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At December 31, 1999, we had outstanding $44,274,000 of fixed rate
long-term debt with a weighted-average interest rate of 11.81%, of which
$37,629,000 was scheduled to mature during the first half of 2000. If we are
able to refinance or extend the maturing debt, it may be at interest rates that
are significantly higher than the weighted-average interest rate on the maturing
debt. In connection with our solicitation of consents to extend the maturity
date of our $27,412,000 of outstanding 12-3/4% senior subordinated notes from
February 1, 2000, to February 1, 2003, we have offered to increase the interest
rates thereon to the rates set forth in the following table:
PERIOD INTEREST RATE
------ -------------
February 1, 2000 - January 31, 2001 13-1/2%
February 1, 2001 - July 31, 2001 15-1/2%
August 1, 2001 - January 31, 2002 16%
February 1, 2002 - July 31, 2002 17%
August 1, 2002 - January 31, 2003 18%
If the consent solicitation is successful and all of the senior
subordinated notes remain outstanding during 2000, 2001, and 2002, we will pay
$188,000, $765,000, and $1,256,000 more interest during those respective periods
than if the interest rate were to remain at 12-3/4%. We recommend that you also
read "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity" in Part II, Item 7, and Note 5 to the consolidated
financial statements in Part II, Item 8.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TABLE OF CONTENTS
Page
Report of Independent Auditors.............................. 24
Consolidated Statement of Operations for the Years Ended
December 31, 1999, 1998, and 1997......................... 25
Consolidated Balance Sheet at December 31, 1999 and 1998.... 26
Consolidated Statement of Stockholders' Deficit for
the Years Ended December 31, 1999, 1998, and 1997......... 28
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1999, 1998, and 1997......................... 29
Notes to Consolidated Financial Statements.................. 30
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REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Lexington Precision Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheet of
Lexington Precision Corporation and its subsidiaries at December 31, 1999 and
1998, and the related consolidated statements of operations, stockholders'
deficit, and cash flows for each of the three years in the period ended December
31, 1999. Our audits also included the financial statement schedule contained in
Part IV, Item 14, 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 auditing standards generally
accepted in the 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. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as 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, 1999 and
1998, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States. 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.
The accompanying consolidated financial statements have been prepared
assuming that Lexington Precision Corporation will continue as a going concern.
As more fully described in Notes 1, 5, and 17, the Company has approximately
$98,000,000 of short-term debt, including $27,412,000 principal amount of
12-3/4% senior subordinated notes that matured on February 1, 2000, and which
have not been paid. Substantial doubt exists about the Company's ability to
refinance, extend, amend, or exchange such obligations. As a result, there is
substantial doubt about the Company's ability to continue as a going concern.
The consolidated financial statements do not include any adjustments to the
amounts or classifications of assets or liabilities to reflect this uncertainty.
ERNST & YOUNG LLP
Cleveland, Ohio
March 29, 2000
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LEXINGTON PRECISION CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31
-----------------------------------------
1999 1998 1997
---- ---- ----
Net sales $140,048 $ 126,717 $ 118,631
Cost of sales 117,609 108,513 99,422
------- ------- -------
Gross profit 22,439 18,204 19,209
Selling and administrative expenses 12,153 11,006 11,425
------- ------- -------
Income from operations 10,286 7,198 7,784
Interest expense 9,632 9,772 9,065
Other income -- -- 425
------- ------- -------
Income (loss) before income taxes and
Extraordinary item 654 (2,574) (856)
Income tax provision 133 132 672
------- ------- -------
Income (loss) before extraordinary item 521 (2,706) (1,528)
Extraordinary gain on repurchase of debt,
net of applicable income taxes 1,542 -- --
------- ------- -------
Net income (loss) $ 2,063 $ (2,706) $ (1,528)
======= ======= =======
Basic and diluted net income (loss) per common share:
Income (loss) before extraordinary item $ 0.10 $ (0.65) $ (0.38)
Extraordinary gain on repurchase of
debt, net of applicable income taxes 0.36 -- --
------- ------- -------
Net income (loss) $ 0.46 $ (0.65) $ (0.38)
======= ======= =======
See notes to consolidated financial statements.
-25-
28
LEXINGTON PRECISION CORPORATION
CONSOLIDATED BALANCE SHEET
(THOUSANDS OF DOLLARS)
DECEMBER 31
-----------------------
1999 1998
-------- --------
ASSETS:
Current assets:
Cash $ 8 $ 103
Accounts receivable 24,098 17,837
Inventories 9,492 10,170
Prepaid expenses and other current assets 2,229 2,063
Deferred income taxes 1,676 2,025
------- -------
Total current assets 37,503 32,198
------- -------
Plant and equipment:
Land 1,570 1,549
Buildings 23,566 23,753
Equipment 96,694 90,306
------- -------
121,830 115,608
Accumulated depreciation 60,041 52,871
------- -------
Plant and equipment, net 61,789 62,737
------- -------
Excess of cost over net assets of businesses acquired, net 8,462 8,778
------- -------
Other assets, net 3,573 4,612
------- -------
$111,327 $108,325
======== ========
See notes to consolidated financial statements. (continued on next page)
-26-
29
LEXINGTON PRECISION CORPORATION
CONSOLIDATED BALANCE SHEET (CONTINUED)
(THOUSANDS OF DOLLARS)
DECEMBER 31
---------------------------
1999 1998
---- ----
LIABILITIES AND STOCKHOLDERS' DEFICIT:
Current liabilities:
Accounts payable $ 8,597 $ 11,291
Accrued expenses 9,794 9,345
Short-term debt 98,057 12,995
Current portion of long-term debt 12 6,597
------- -------
Total current liabilities 116,460 40,228
------- -------
Long-term debt, excluding current portion 116 74,953
------- -------
Deferred income taxes and other long-term liabilities 1,884 2,220
------- -------
Series B preferred stock, $100 par value, at
redemption value 660 750
Excess of redemption value over par value (330) (375)
------- -------
Series B preferred stock at par value 330 375
------- -------
Stockholders' deficit:
Common stock, $0.25 par value, 10,000,000 shares
authorized, 4,348,951 shares issued 1,087 1,087
Additional paid-in-capital 12,160 12,235
Accumulated deficit (20,493) (22,556)
Cost of common stock in treasury, 85,915 shares (217) (217)
------- -------
Total stockholders' deficit (7,463) (9,451)
------- -------
$ 111,327 $ 108,325
======= =======
See notes to consolidated financial statements.
-27-
30
LEXINGTON PRECISION CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(THOUSANDS OF DOLLARS)
ADDITIONAL TOTAL
COMMON PAID-IN- ACCUMULATED TREASURY STOCKHOLDERS'
STOCK CAPITAL DEFICIT STOCK DEFICIT
----- --------- ----------- -------- ------------
Balance at December 31, 1996 $1,087 $ 12,395 $(18,322) $(217) $(5,057)
======= ======= ======= ======= =======
Net loss -- -- (1,528) -- (1,528)
Preferred stock dividends
and redemptions -- (82) -- -- (82)
------- ------- ------- ------- -------
Balance at December 31, 1997 $1,087 $ 12,313 $(19,850) $(217) $(6,667)
======= ======= ======= ======= =======
Net loss -- -- (2,706) -- (2,706)
Preferred stock dividends
and redemptions -- (78) -- -- (78)
------- ------- ------- ------- -------
Balance at December 31, 1998 $1,087 $ 12,235 $(22,556) $(217) $(9,451)
======= ======= ======= ======= =======
Net income -- -- 2,063 -- 2,063
Preferred stock dividends
and redemptions -- (75) -- -- (75)
------- ------- ------- ------- -------
Balance at December 31, 1999 $1,087 $ 12,160 $(20,493) $(217) $(7,463)
======= ======= ======= ======= =======
See notes to consolidated financial statements.
-28-
31
LEXINGTON PRECISION CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(THOUSANDS OF DOLLARS)
YEARS ENDED DECEMBER 31
----------------------------------------
1999 1998 1997
---- ---- ----
OPERATING ACTIVITIES:
Net income (loss) $ 2,063 $ (2,706) $ (1,528)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Extraordinary gain on repurchase of debt (1,935) -- --
Depreciation 10,971 10,001 8,558
Amortization included in operating expense 1,757 1,450 1,280
Amortization included in interest expense 234 198 171
Deferred income taxes -- -- 585
Changes in operating assets and liabilities that
provided (used) cash:
Accounts receivable (6,261) (258) (759)
Inventories 678 (1,139) (132)
Prepaid expenses and other assets (99) 747 462
Accounts payable (2,694) (1,337) (1,706)
Accrued expenses 449 850 213
Other 461 207 385
------- ------- -------
Net cash provided by operating activities 5,624 8,013 7,529
------- ------- -------
INVESTING ACTIVITIES:
Purchases of plant and equipment (10,328) (14,877) (15,790)
Decrease (increase) in equipment deposits (231) 261 (147)
Proceeds from sales of equipment 162 913 142
Expenditures for tooling owned by customers (697) (1,901) (791)
Other 170 570 (140)
------- ------- -------
Net cash used by investing activities (10,924) (15,034) (16,726)
------- ------- -------
FINANCING ACTIVITIES:
Net increase in short-term debt 8,473 4,155 1,514
Proceeds from issuance of long-term debt 15,567 8,891 43,492
Repayment of long-term debt (16,092) (6,003) (35,206)
Repurchase of debt (2,373) -- --
Other (370) (127) (582)
------- ------- -------
Net cash provided by financing activities 5,205 6,916 9,218
------- ------- -------
Net increase (decrease) in cash (95) (105) 21
Cash at beginning of year 103 208 187
------- ------- -------
Cash at end of year $ 8 $ 103 $ 208
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 9,618 $ 9,567 $ 8,684
Income taxes paid $ 96 $ 136 $ 689
See notes to consolidated financial statements.
-29-
32
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. All significant
intercompany accounts and transactions have been eliminated.
USE OF ESTIMATES
The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent liabilities at
the date of the consolidated financial statements, and the reported amounts of
revenues and expenses during the reporting period. 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
----------------
1999 1998
---- ----
Finished goods $3,565 $ 4,272
Work in process 2,503 2,834
Raw materials and purchased parts 3,424 3,064
------ -------
$9,492 $10,170
====== =======
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 property is retired or otherwise
disposed of, the related cost and accumulated depreciation are eliminated.
Maintenance and repair expenses are charged against income as incurred, while
major improvements that increase the useful life of plant and equipment are
capitalized. Maintenance and repair expenses were $6,099,000, $5,169,000, and
$3,766,000 for 1999, 1998, and 1997, respectively.
EXCESS OF COST OVER NET ASSETS OF BUSINESSES ACQUIRED
The excess of cost over net assets of businesses acquired
(goodwill) is amortized on the straight-line method, principally over 40 years.
At December 31, 1999 and 1998, accumulated amortization of goodwill was
$3,527,000 and $3,211,000, respectively. During each of 1999, 1998, and 1997,
amortization of goodwill totaled $316,000. The Company assesses the
recoverability of goodwill and other long-lived assets, when events or changes
in circumstances indicate that the carrying amount may be impaired, by
evaluating whether the anticipated undiscounted future cash flows of the related
-30-
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
business will be sufficient to recover the carrying amount over the remaining
useful life of the asset. If the future undiscounted cash flows are not adequate
to recover the carrying value of an asset over its remaining life, the carrying
amount of that asset is adjusted to its fair value.
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 recorded as expenses in the year
incurred. These costs totaled $878,000, $450,000, and $240,000 during 1999,
1998, and 1997, 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
securities (such as convertible debt securities and convertible preferred stock)
that do not have a current right to participate in earnings but could do so in
the future by virtue of their option or conversion rights. For purposes of the
net income or loss per common share calculations, net income or loss has been
reduced by preferred stock dividends and the amount by which payments made to
redeem shares of preferred stock exceeded the par value of such shares.
REVENUE RECOGNITION
Substantially all of the Company's revenues result from the sale of
rubber and metal components. The Company recognizes revenue from the sale of
components upon shipment and passage of title to customers according to shipping
schedules and terms of sale mutually agreed to by the Company and its customers.
STOCK BASED EMPLOYEE COMPENSATION PLAN
The Company has a restricted stock award plan that permits it to award
restricted shares of its common stock to officers and key employees. Shares
awarded under the plan are accounted for in accordance with the provisions of
"Accounting Principles Board Opinion Number 25, Accounting for Stock Issued to
Employees" (APB 25). Compensation expense equal to the market value of the
shares on the date of grant is charged to earnings over the vesting period of
the shares, while the unamortized value of the restricted shares is recorded as
a reduction of stockholders' equity.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued
"Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities" (FAS 133), which is effective for all fiscal
periods beginning after June 15, 2000. The statement provides standards for the
recognition and measurement of derivative and hedging activities. The adoption
of FAS 133 during the first quarter of 2001 is not expected to affect the
Company's results of operations or financial position.
-31-
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ACCOUNTING FOR PRE-PRODUCTION COSTS RELATED TO LONG-TERM SUPPLY
ARRANGEMENTS
In September 1999, the Emerging Issues Task Force of the Financial
Accounting Standards Board issued Abstract Number 99-5, "Accounting for
Pre-Production Costs Related to Long-Term Supply Arrangements" (Abstract 99-5),
which is effective for design and development costs incurred after December 31,
2000. Abstract 99-5 requires that, in the absence of a contractual guarantee of
reimbursement, design and development costs incurred with respect to products to
be sold under long-term supply arrangements are to be expensed as incurred.
Costs incurred to design and develop molds, dies, and other tools that are owned
by the customer and are to be used by the supplier to manufacture products for
sale under long-term supply arrangements are to be capitalized as long as the
supplier is performing under the supply arrangement. The adoption of Abstract
99-5 during the first quarter of 2000 will not affect the Company's results of
operations or financial position.
BASIS OF PRESENTATION
The Company's consolidated financial statements have been presented on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
On February 1, 2000, $27,412,000 principal amount of the Company's 12-3/4%
senior subordinated notes matured. On December 28, 1999, the Company had
commenced a consent solicitation seeking consents of the holders of the 12-3/4%
senior subordinated notes to extend the maturity date of the 12-3/4% senior
subordinated notes to February 1, 2003. At the date of issuance of the
consolidated financial statements, sufficient consents had not been received to
effect the extension. The Company is in default in respect of the 12-3/4% senior
subordinated notes because it did not make payments of principal of $27,412,000
and interest of $1,748,000 on the 12-3/4% senior subordinated notes that were
due on February 1, 2000. The consent solicitation has been extended and is
currently scheduled to expire on April 3, 2000.
Effective as of January 31, 2000, the holders of substantially all of the
Company's other indebtedness entered into agreements that have enabled the
Company to continue to operate its business without interruption,
notwithstanding the default.
- The Company's secured lenders waived their cross-default
provisions with respect to the default relating to the 12-3/4%
senior subordinated notes and two of the Company's secured
lenders amended a covenant to eliminate a default that
occurred because all of our secured, amortizing term loans had
been classified as a current liability in the consolidated
financial statements.
- The holder of the Company's 12% secured term note, in the
principal amount of $1,370,000, extended the maturity date of
that note from January 31, 2000, to April 30, 2000; that note
has no cross-default provision with respect to defaults
relating to the 12-3/4% senior subordinated notes.
- The holder of the Company's 10-1/2% senior note, in the
principal amount of $7,500,000, extended the maturity date of
that note from February 1, 2000, to May 1, 2000, and waived
its cross-default provision with respect to the default
relating to the 12-3/4% senior subordinated notes.
-32-
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- The holders of the Company's 14% junior subordinated notes, in
the principal amount of $1,347,000, agreed to defer the
interest payments on those notes that were due January 31,
2000, to April 30, 2000, and waived their cross-default
provisions with respect to the default relating to the 12-3/4%
senior subordinated notes. In addition, on February 1, 2000,
those holders converted the $1,000,000 principal amount of 14%
junior subordinated convertible notes into 440,000 shares of
the Company's common stock in accordance with the terms of
those notes.
Since January 31, 2000, the Company has made all scheduled payments of
interest and principal on all of its indebtedness, other than the 12-3/4% senior
subordinated notes, and the Company's secured lenders have continued to make
loans under the revolving credit facility in the ordinary course.
To date, the Company has been unable to obtain the necessary consents to
the extension of the Company's 12-3/4% senior subordinated notes, nor has the
Company obtained a commitment from the secured lender to provide the additional
financing requested. If the Company is unable to restructure or refinance all of
its matured or maturing indebtedness, the Company may be forced to seek relief
from its creditors under the Federal bankruptcy code. Any proceeding under the
Federal bankruptcy code could have a material adverse effect on the Company's
results of operations and financial position.
NOTE 2 -- PREPAID EXPENSES AND OTHER CURRENT ASSETS
At December 31, 1999 and 1998, other current assets included $1,477,000
and $1,414,000, respectively, of tooling manufactured or purchased by the
Company pursuant to purchase orders issued by customers of the Company. 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 for 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, 1999 and 1998, other noncurrent assets
included $1,299,000 and $2,043,000, respectively, representing the unamortized
portion of such capitalized payments. During 1999, 1998, and 1997, the Company
amortized $1,441,000, $1,134,000, and $964,000, respectively, of such
capitalized payments.
-33-
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 -- ACCRUED EXPENSES
Accrued expenses at December 31, 1999 and 1998, are summarized below
(dollar amounts in thousands):
DECEMBER 31
---------------
1999 1998
---- ----
Employee fringe benefits $3,132 $3,196
Salaries and wages 2,453 2,289
Interest 1,751 1,971
Taxes 1,485 989
Other 973 900
------ ------
$9,794 $9,345
====== ======
NOTE 5 -- DEBT
Debt at December 31, 1999 and 1998, is set forth below (dollar amounts
in thousands):
DECEMBER 31
---------------------
1999 1998
Short-term debt:
Revolving line of credit $21,468 $12,995
Secured, amortizing term loans 38,960 --
12% secured term note 1,370 --
10-1/2% senior note 7,500 --
12-3/4% senior subordinated notes 27,412 --
14% junior subordinated notes 1,347 --
------- -------
Subtotal 98,057 12,995
Plus current portion of long-term debt 12 6,597
------- -------
Total short-term debt 98,069 19,592
------- -------
Long-term debt:
Revolving line of credit -- 3,850(1)
Secured, amortizing term loans -- 35,608
12% secured term note -- 1,370
10-1/2% senior note -- 7,500
12-3/4% senior subordinated notes -- 31,720
14% junior subordinated notes -- 1,347
Other 128 155
------- -------
Subtotal 128 81,550
Less current portion 12 6,597
------- -------
Total long-term debt 116 74,953
------- -------
Total debt $98,185 $94,545
======= =======
(1) Refinanced under long-term agreements before the financial
statements for the period were issued.
-34-
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REVOLVING LINE OF CREDIT
Except for certain loans outstanding at December 31, 1998, in the
amount of $3,850,000 that were refinanced under long-term agreements before the
consolidated financial statements for December 31, 1998, were issued, the loans
outstanding under the revolving line of credit at December 31, 1999 and 1998,
have been classified as short-term debt because 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 approval of the Company. The loans are also
classified as short-term at December 31, 1999, because the Company has only
received a waiver through May 1, 2000, of the cross-default provisions of the
revolving line of credit with respect to the default relating to the 12-3/4%
senior subordinated notes.
At December 31, 1999, availability under the revolving line of credit
totaled $2,382,000, before outstanding checks of $1,169,000 were deducted. At
December 31, 1999, loans outstanding under the revolving line of credit accrued
interest at the London Interbank Offered Rate (LIBOR) plus 2-1/2% and the prime
rate. At December 31, 1999, 1998, and 1997, the weighted-average interest rates
on borrowings under the revolving line of credit were 8-1/2%, 8%, and 8.74%,
respectively.
The loans outstanding under the Company's revolving line of credit are
collateralized by substantially all of the assets of the Company, including
accounts receivable, inventories, equipment, certain real estate, and the stock
of Lexington Rubber Group, Inc., a subsidiary of the Company.
SECURED, AMORTIZING TERM LOANS
Secured, amortizing term loans outstanding at December 31, 1999 and
1998, are set forth below (dollar amounts in thousands):
DECEMBER 31
--------------------
1999 1998
---- ----
Term loans payable in equal monthly principal installments based on a
180-month amortization schedule, final maturities in 2001, 8.37% $2,688 $2,921
Term loans payable in equal monthly principal installments, final
maturities in 2002, LIBOR plus 2-3/4% (8.7% at December 31, 1999) 1,837 2,584
Term loan payable in equal monthly principal installments based on a
180-month amortization schedule, final maturity in 2002, 9.37% 1,298 1,404
Term loan payable in equal monthly principal installments based on a
180-month amortization schedule, final maturity in 2002, 9% 2,531 2,732
Term loans payable in equal monthly principal installments, final
maturity in 2002, prime rate and LIBOR plus 2-1/2% (8-1/2% at
December 31, 1999) 2,139(1) --
Term loan, interest only until March 1, 1998, then payable in equal
monthly principal installments, final maturity in 2003, prime rate at
December 31, 1999 and prime rate plus -1/4% at December 31, 1998
(8-1/2% at December 31, 1999) 590 770
(continued on next page)